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.

Kerry? Thanks, Ben. Good morning, everyone. On slide four, you can see a summary of our second quarter financial results. Organic sales declined 6% year over year, and constant currency adjusted EBITDA declined 14%. We saw sequential improvement in both revenue and adjusted EBITDA relative to the first quarter. Our expectations entering the quarter were impacted by the softer demand environment in China and deterioration in the broader consumer electronics market. Despite a 9% year-on-year decline in organic sales, we believe the electronics business continues to outperform key PCB and smartphone end markets. Our industrial and specialty business declined 2% organically. At soft industrial demand in Asia, offset double-digit growth in offshore energy. Our second quarter adjusted EBITDA of 116 million was 3% higher sequentially. In constant currency terms, adjusted EBITDA margin declined 60 basis points year over year. Electronic segment adjusted EBITDA margin was negatively impacted by volume declines in higher margin circuitry and semiconductor applications, partially offset by reduced pass-through metal prices. Industrial segment margins improved 100 basis points in constant currency, due to positive mix from energy solutions, as well as on ongoing synergy realization, pricing benefits, and modest input deflation. Adjusted EBITDA margins improved sequentially 30 basis points from the first quarter. Lower prices on pass-through metals, such as tin and silver, were a tailwind to margins relative to Q2 2022. Excluding the impact of $89 million of pass-through metal sales in our assembly solutions business, our adjusted EBITDA margin would have been 23% in the second quarter. On slide five, we share additional detail on organic net sales in our two segments. For our electronics segment, mobile phone and consumer electronics demand had the most material impacts in the quarter. Our automotive electronics business remained resilient, particularly for power electronics applications in electric vehicles. Assembly solutions grew 3% organically, driven by new business growth and traction with new, higher reliability alloys for use in automotive end markets. The assembly business is less driven by the smartphone market. Semiconductor solutions declined 16% organically, reflecting reduced utilization levels at semiconductor fabs. Circuitry solutions declined 23% organically, as persistent smartphone weakness continued from the end of last year. Customers across the mobile supply chains saw meaningfully lower production volumes, and the overall PCB market was as weak as we have seen in many years. Our second quarter performance is better than data we are seeing from several of the largest suppliers of printed circuit boards, who are reporting greater than 30% declines in Q2. Additionally, we are comparing against a period of particularly strong performance in cloud computing and data storage that benefited our memory disk products in the first half of 2022. We expect demand from both smartphone suppliers and memory disk customers to improve in the second half and into 2024. For the second quarter, organic net sales in industrial and specialty declined 2% year over year. Industrial solutions declined 3% organically as demanding global construction and industrial markets slowed from strong prior year levels. Our automotive business in the Americas and Europe was relatively stable sequentially. Our participation in local Chinese OEM supply chains lagged than in other regions, so we have not seen the full benefit of automotive recovery in China. We have a specific strategy associated with that supply chain and opportunities in their EV market. It is a large and largely untapped market opportunity that we intend to pursue actively. Energy Solutions remains a bright spot, with sales growing 11% organically in the quarter as production and drilling activity has rebounded and price actions continue to take effect. We expect continued growth for this business throughout the year, but at a lower rate than experience in the first half, given tougher comps. Slide six addresses cash flow in the balance sheet. We generated $67 million of free cash flow in the second quarter. We invested $16 million into working capital, which reflects a modest inventory build primarily related to a large new business win in Mexico and expectations for stronger demand in Q3. Net capex in the first half was $22 million, which is below the annual run rate we expect for this year. This number is expected to increase as certain growth projects and integration initiatives progress. but we now expect it's been less than the 70 million we previously forecast. Turning to the balance sheet, our net leverage ratio at the end of the quarter was 3.7 times when including the estimated full-year benefit at the Viaform product line. This sequential increase was driven by the Viaform transaction, which we primarily funded through the issuance of 150 million in term loan A. The new term loan is floating rate at SOFR plus 175. However, we have swapped it into 4.6% Eurofix through its January 2026 maturity. Our net leverage ratio is temporarily elevated above our targeted ceiling of 3.5 times, but we expect to be back below this level by year end. We believe this modest uptick is appropriate for a short period of time, given the unique capital allocation opportunities in the second quarter and the continued strong cash flow generation we have seen and should continue to see. As a reminder, the swap maturities on our term loan B are evenly split over the next three years, and our capital structure is 100% fixed until 2024, and more than 80% fixed until 2025. We have no debt maturities until 2026, and our liquidity position remains strong. And with that, I will turn it back to Ben. Thank you, Kerry.

Our first half does not reflect the long-term earnings power of our business. We've seen the trough and are beginning to recover from it. The self-help steps we are taking around cost and ongoing investment in technology should drive incremental earnings acceleration through the recovery. The pace of that recovery is uncertain as we sit here today, but we have conviction it is underway. Our circuitry business is on track for 10% month-over-month growth in July, and our semiconductor orders appear to reflect the utilization increases we're hearing about at the FAPS. For the third quarter of 2023, we expected just to be the top of approximately $125 million. This sequential improvement assumes a pickup in our semiconductor business modest sequential gross margin improvement from raw material deflation and continued commercial execution we should also begin to see impact from ongoing cost actions we expect our electronics business to grow about 10 percent sequentially second half over first half this year this is only modestly lower than our expectation entering the year however we'll be growing off a lower baseline this translates to an updated full year 2023 adjusted EBITDA guidance range $490 to $500 million. Given some favorability on capex and cash taxes that partially offset the lower level of adjusted EBITDA, we expect to generate roughly $265 million of free cash flow for the full year. In 2023, even with the expected second half recovery in electronics, semiconductor production and units in high-end electronics will be far below their long-term averages, let alone more recent peaks. With emerging applications for computing power, expanding vehicle electrification programs, our continued commercial execution with large wins converting to revenue as new fabs come online, and the full-year benefit from our cost program, we're confident that Element Solutions is positioned for strong growth in 2024 and beyond. In that context and in closing, Despite a challenging quarter and first half, we remain enthusiastic about the future and have evidence that the growth we have come to expect from our businesses is returning. The potential for our business resides in the people in our business, and I'm grateful for their energy and effort this quarter and going forward. With that, operator, please open the lines for questions.

At this time, I would like to remind everyone in order to ask a question, a star than the number one on your telephone keypad we'll pause for just a moment to compile the q a roster your first question comes from the line of josh specter with ubs you can go ahead yeah hey guys thanks for taking my question um so just looking at the cadence hey good morning

So looking at the cadence into 3Q and 4Q, I mean, you talked about order books for circuitry up 10%. I think smartphone selling is looking about up 10%. Gross margin benefits, via form layers on. I guess with what you laid out there, you know, less than 10% sequential growth, what are some of the offsets in your mind that we should be considering? Or is it just the fact that the recovery has been more slow and there's some conservatism and pushing that further back?

Yeah, thanks for the question. Look, phasing in the second half of the year is difficult to call in most years. And so, you know, the guidance assumes a continuing ramp in the second half, both in the semiconductor market and in the circuitry market. Smartphone units will still be down in third quarter year over year. And it also has incremental cost actions that will contribute more in the fourth quarter than in the third quarter. have additional cost levers at our disposal should we need them that are not fully contemplated in the guidance and which we could potentially use in both quarters so you know as we think about the back half of the split could be more equal or it could be more fourth quarter weighted and and we took a more conservative position on q3 given that we're still early in the recovery um when you compare the third quarter of 23 guide to the third quarter of 22. It's important to note, and we called this out at the time, we took a $12 million bonus accrual reduction in Q3 of 2022. And if you adjust for that and look at currency, we're actually showing underlying growth in adjusted EBITDA year over year.

Okay. No, thanks for that. That's helpful. And just with VIA form, that acquisition, can you about quantify what you're layering in this year versus what flows into next year. And just, you know, you continue to talk about that as a way to deepen customer relationships. So just how is that going so far? And how do you think about what that could mean to the rest of ESI's semis or broader electronics portfolio?

Yeah, so there are two questions in there. The first is the current year impacted via form. Given timing and inventory builds, we're expecting a call it four million dollar impact in 2023 um and unfortunately a lot of that's been uh eroded by fx headwinds incremental fx headwinds over the over the second quarter so it's about net to the 2023 year um with regard to the longer term opportunities here the customer reception to to this uh development has been very very positive and We've gone from a more modest player in some of the front end of line customers to a very important one. And our engagement with those customers has rapidly accelerated. The roadmap exchanges we've had have increased and the seniority of the people at the customer level involved in those roadmaps has increased. Combine that with Couprion and our engagement at the leading edge has really accelerated and the perception of our company has radically improved. And as we said on the call, it's a leading indicator for longer-term growth and wallet share.

Okay. Thanks, Ben.

Your next question comes from the line of Kieran DeBruyn with Mizuho Securities. Your line is open.

Hey, good morning. I'm just wondering if you can dial in a little bit more into the industrial segment. I know that China's particularly been weak on the construction side, but automotive seems to have been trending, I think, ahead of expectations during the first half of the year. So any color that you can give us in terms of what you're seeing globally from an automotive perspective and from an industrial and constructive perspective and how you're thinking about that in the back half of the year would be helpful.

Yeah, thanks for the question. So, you know, the industrial business, the largest exposure is automotive, followed by construction. The construction market has softened in Europe and remains quite soft in China. And the automotive recovery hasn't been equal on a regional basis. The Chinese market has seen more of an increase, and that increase is coming from local Chinese OEMs where we're underpenetrated, right? We've always been more heavily weighted towards Western OEMs, both in China and in the West. And so taken together, we saw a modest organic decline in IS in the second quarter that's been offset by pricing actions and synergy realization. So from a profit perspective, that business has actually had modest growth in the second quarter. And we're not anticipating a dramatic change in those dynamics in the second half. We expect the second half to be comparable to the first half. with some incremental margin improvement from raw material deflation, logistics deflation, and so forth.

Great. Thank you. And then maybe just a quick follow-up. You mentioned additional potential cost levers that aren't currently in the guidance that you could pull in the back after the year. Can you just dial in a little bit more into what those might be and how we should think about that impact if you were to have to pull those levers? Thank you.

Sure. So one of the hallmarks of the businesses are their variable operating expense models. And the buckets are things like T&E and marketing and then incentive compensation. And when the company is not growing, all of those levers are at play. And so we have plans around cost containment. some of which are temporary around travel and so forth. And then there's a modest cost program, which will be permanent cost savings that will accelerate earnings growth into 2024. Think about the order of magnitude combining those two things is around $20 million in the back half. Great. Thank you.

Our next question comes from the line of John Roberts of Credit Suisse. Your line is opened.

Thank you. I just have one. Are your backlogs improving equally across assembly, circuitry, and semiconductors? Normally, we think of semiconductors being upstream of the other businesses. I don't know whether the backlog there is increasing first or talk about any unevenness you might be seeing between the different parts of the supply chain.

Yeah. So, our semi-business, you know, we talked about it earlier. being down 16% organically year over year in the second quarter. If you take out the precious metal impact there, it was down about 9%, which is outperformance relative to the circuitry business, which was down below the impact of smartphone units driven by some of the inventory bill, particularly in local Chinese smartphones. So the room for recovery, you could say, is greater in the circuitry business. The semi-business is recovering earlier, as one would expect. But the circuitry business, as we said, in July, that business looks to be up 10% over June. So there isn't a huge lag. A bright spot across the whole portfolio is the assembly business, which has been really resilient from a high-end electronics perspective, given its penetration in vehicle electrification. Some of the innovation we've had around high-reliability alloys which are gaining share from more legacy technologies, particularly automotive applications. That's a business that's been stable, and we expect it to grow nicely in the back half.

Thank you.

Your next question comes from the line of Babesh Ladaya with BMO Capital Markets. Your line is open.

Hi, good morning. Thanks for taking my question. Maybe one to pre-owned acquisition. You noted you were working towards getting product qualifications in place around the nanocarbon technology. Clearly in early innings today, can you comment on the timeline it would take for earnings to show up in this platform? And is this thermal management, these technologies, something that you can use in your existing offerings in the semis or circuitry solutions?

Yeah. It's a great question. We're really, really excited about Couprion. It is industry-changing technology, and the reception we've had from existing customers and even new customers has been outstanding. The number of projects we're working on, qualifications around, is huge. North of 30 opportunities have been created just in the first couple of months here. They're all at the leading edge. And so it's long qualification timelines, but they're big revenue opportunities. The earn out attached to this business is capped at $100 million of revenue, right? So we pay a multiple of revenue. It translates if we hit it and the margins we expect to about four times EBITDA. And we've got at this point about five and a half years to get to $100 million of revenue. We fully expect to pay all of that earn out. which would make this an outstanding transaction because it would contribute tens of millions of dollars of EBITDA, all incremental growth. The other thing that's great about this is the applications for this material span all of our existing electronics verticals and into new verticals. So it's got applications in IC substrate metallization. It's got applications in die attach. It's got applications in package attach. We're working with customers in each of those areas, existing customers and new ones, as I said. It's got, the outlook is very bright.

Got it. Another question on your balance sheet. Your leverage went higher following the BFOM transaction. You're targeting reaching three and a half by year end. Assuming we are there, what comes next for you? Do you believe you have invested what you want during this drop cycle? Or is the philosophy to continue investing as long as the right assets come along? Just wanted to get a sense of your priorities once we reach our leverage targets.

Yeah, our priority at the moment is to get inside of that leverage ceiling. And that's where we're going to be. That's what you should expect in the back half of the year. And then we'll remain opportunistic going forward from there.

Fair enough. Thank you.

Thank you. Your next question comes from the line of Chris Capish with Loop Capital Markets. Your line is open.

Good morning. So one question was a follow-up to some of the conversation around these copper acquisitions. So it sounds like the engagement with the ecosystem has been vitalized. I'm curious if that engagement has – is it – more focused on solely next-generation technology nodes, or is also a play here for your materials, you know, with a more focused and direct approach commercially to display some alternative suppliers in legacy nodes where interconnects were definitively copper, or is it really across the board in terms of technology nodes?

Are you referring to Viaform or Couprion, Chris?

They're both copper. I guess I was thinking more VIAform, but I guess it's Couprion. I'm assuming it's more NextGen.

Well, it's relevant for both. Couprion could display some of the current technologies used for lower-end power electronics, where some of the lower-end EV users are using legacy assembly products, given that it's less expensive than an Argo Max and has better thermal management. capabilities and adhesion capabilities and, you know, legacy solder products. Viaform is an interesting situation where, you know, we do believe we have the opportunity to win existing business and displace existing vendors. That's upside to the plan. So there are really three avenues for growth. First is increasing utilization with existing customers. Second is wins at new nodes that are coming online, and third is displacing, you know, competitive material. And we've got a good shot, we believe, at all three of those, which translates to significant incremental earnings contribution from this acquisition.

Got it. That's helpful. And then just to follow up on – you called out sort of semiconductor fab utilization rates, recovering, exiting second quarter. Can you just confirm, my understanding is your deposition materials into chip makers is more relevant with logic foundry fabs. And if that's the case, could this be looked at as a harbinger for pronounced improvement in PCB activity at some point? Just any color on that, on how you see that playing out. Thanks. Sure.

Yes, our semiconductor materials skew towards logic applications. And as folks in our supply chain like to say, chips don't float. So the more chips that are being made, the more PCBs need to be made for the electronics hardware they're going into. And so yes, we do believe it's a leading indicator for the circuit board industry, and that's contemplated in our guide and evident in our July numbers.

Right. Okay. And then finally, is there any visibility in and around any sort of, you know, inventory build or destocking activity for your materials feeding into this ecosystem? Or is that not really, I don't know if you have visibility, but I'm just curious if the overall, you know, demand weaknesses could be tied to that at all. Thank you.

Sure. And so our materials are not stocked at the customer level. some finished goods from our customers have been docked at the customer level. And, you know, we've been digesting that. We saw that in the third quarter last year in our industrial business. And, you know, over the past two quarters, sell-in has been less than sell-through of smartphones. And so, finished goods, right, smartphone inventories were elevated, and they're starting to be digested. And that's why, you know, if you look at the large PCB fabs, for example, In Asia, they were reporting numbers down 30%, 40% in the second quarter because of that inventory dynamic. We believe that inventory dynamic is largely, is very much improved as we enter the third quarter. Thank you.

Your next question comes from the line of John Tonwanting with CJF Securities. Your line is open to questions.

Hi, good morning. Thank you for taking my questions. I was wondering if I could dig a little bit more into your confidence on the sequential improvement you expect in Q4. And I guess, you know, you do have some, you know, the cost cutting in your pocket and then maybe some more accretion from the vehicle and business. But I was looking more at the demand side. Is that based more on the leading indicators that you're seeing on the semi-business, maybe firm orders in hand or direct forecasts from your customers? You know, just trying to get a better sense of demand as you head into Q4 and into 24 as well. Yeah.

So thanks for the question, John. It's a short cycle business, right? So our visibility to Q4 right now is limited. But, you know, we're comfortable with our second half. And in all years, it's hard to be concrete on what's going to fall in the third quarter and what's going to fall in the fourth quarter. And we've basically taken a more conservative approach to the third quarter with, you know, knowledge that the semi-ramp isn't going to be an elevator. It's going to be a slope. and that the cost actions we're going to be taking will impact the fourth quarter more than the third quarter. And that's basically the framework for the second half guide.

Okay, great. Thank you. And then just more specifically on the VIA form business, how quickly do you expect that to grow in the coming years? Do you have maybe some internal targets you can share? I know that there's probably a lot of opportunity out there with the new foundries that are going up. but maybe just to help me understand what Integris maybe wasn't doing that you can do to help you in sharing that business and maybe some of the product development and other marketing stuff that you can do.

Integris was a great partner for us for many years and really grew this business nicely over a 20-year period. The most immediate growth will come from increased fab utilization, The incremental opportunities are from new fabs coming online, which should happen in 2024 into 2025. And then our ability to display some competitive material, which, you know, is a nine to 12 month cycle. And so, you know, and then there's incremental innovation where, you know, we have been innovating around this product and should have new technology to bring to bear to the market. So in 2024, we should see the benefit of the increased fab utilization driving earnings contribution growth. and some of the new fabs coming online. And then, you know, beyond that, it should be from competitive wins and technology introduction.

Okay, great. And then we may have talked about this before, but, you know, I was wondering at a high level, could you just give us an update on the long-term EPS goals that you've put out there? What needs to happen for you to hit that, just given the environment we're in today and kind of what you're seeing within a couple years or so?

Yeah. Obviously, the earnings power in 2023 is behind the straight line trajectory from when we introduced that goal back in early 2022. But what we've seen from this business is that it can recover very rapidly. And from a capital allocation perspective, very interesting things can become available. So we're going to have opportunities to deploy substantial cash flow over the next three years. and participate in recovery from a cyclical trough that should contribute at attractive incremental margins and drive the bottom line. If we look back to 2020, we thought there was very little chance we were going to hit our goal sitting in the middle of the year. And we did so 18 months later. So we have not lost hope or confidence in our ability to deliver, even though the slope is a little steeper from where we stand today.

Great, thanks, Ben.

Your next question comes from the line of Steve Byrne with Bank of America. Your line has opened.

Hi, this is for Steve Byrne. I wanted to go back to your assembly business and just see if I could get a little more detail on your penetration and vehicle electrification. Sure.

We provide materials used in power electronics both for die attach and package attach for very high performance electric vehicles. And we've got a world class material for that application that improves reliability and performance, speaking to range, for those vehicles. Our penetration in that market actually still modest because legacy technologies are still being used. When you look at some of the emerging electric vehicle providers in China, they're not using this material. We just opened an applications development lab in Shanghai to much fanfare and have really strong engagements with most of the leading electric vehicle companies in China and around the world. And this acquisition of Couprion brings to bear another lower cost, slightly lower performance, but still much improved performance relative to legacy technology product to meet that growing need. So vehicle electrification will be a significant tailwind, and we're in the pole position to benefit disproportionately from that as units grow. And I'm just talking about the assembly business. I'm not even talking about our other businesses. But as units grow and as our technology is better understood and therefore deployed.

Thanks. And then in regards to your progress on the internal initiatives to accelerate growth and cut costs, do you have any updates there?

Yeah. So, you know, this is the appropriate activity in all times to manage cost. The variable cost nature of the business is something that is unchanged. And then there are some other ongoing actions to reduce OPEX and accelerate growth going into the 2024. Our view is if one of our businesses is impaired, we will reduce significant costs. But our view is that none of the businesses are impaired. And therefore, our cost actions are around the margins opportunistically. We feel strongly that we have to retain our very talented people all over the world to benefit from the recovery that's inevitable. And so the cost actions are targeted. You know, the permanent cost actions are targeted and the temporary ones are formulaic, frankly. The cost just falls out of the business when we're not growing.

Got it. Thank you.

Once again, if you would like to ask a question, press star, the number one on your telephone keypad. And please, a reminder to limit to only one question and one follow-up. Your next question comes from David Silberg with CL King. Your line is open.

Yeah, hi. Good morning. Thank you. So there's been a lot of discussion about the VIA form acquisition. And, you know, to me, it looks like like a very attractive strategic addition. A couple of questions, but firstly, I'm just wondering how replicable this might be across your portfolio. In other words, are there other distribution agreements or other relationships where maybe you could bring high value, maybe front end of the line products into your portfolio? full control as you did with via form and then maybe broad more broadly you know these last couple of transactions here kind of point to I guess the convergence you know between the chip the wafer and the circuit board maybe with advanced packaging as the intersection but how do you think your balance is right now in that regard versus where you'd like to be I don't know

know three to five years from now so thanks for those questions um so the the arrangement around viaform was was a unique legacy situation um where we had split responsibility if you will um and a predecessor company to element sold the distribution rights uh to that product line in 2003. so i don't see more opportunities like this because typically we go direct for um applications like this. That having been said, there have been opportunities where we've identified great technology that we believe we can leverage our leading commercial technical teams and supply chain to help commercialize. And so there may be more opportunities to engage with emerging technology companies and provide the value that our footprint and capabilities bring to them to create win-wins. That's something that we have been looking at. With regard to this next generation electronics convergence, it's a very powerful, very powerful trend in our end markets and one that we're benefiting from. And we sit really nicely between in that bullseye, right? Where we have capabilities in circuit board capabilities and semiconductor, both front end of line and packaging. and capabilities and assembly. And so when we bring the breadth of our product portfolio to bear, you know, at the largest OSATs and SEMIFABs and OEMs, electronics OEMs, they're stunned by our capabilities. And we're seeing it in the P&L already. If you look at the numbers in our semiconductor business, we've said for a long time that it will outgrow our other businesses, and it has been. And it's just emerging. It's a unique set of capabilities that we have at Element Solutions. that are increasingly appreciated by the supply chain, and the future is very bright in that regard.

Okay, thank you for that. I appreciate it. Just one more on the Couprion purchase or acquisition, but not your last analyst day, but I think two analyst days ago, you talked a little bit about how your company with its global footprint and leveraging your strong customer relationships, you know, you'd be an attractive partner for, you know, attractive but emerging technologies that, you know, could use your company's assets as kind of a gateway to commercialization and, you know, greater success together than apart. Is the Couprion transaction an example of that? In other words, have you been working with them for a while and kind of complementary skills at work here, and then it got to the point where it made sense to bring this technology in-house, or is this something where maybe they were shopping around to a number of buyers?

Yeah, Couprion is a case study in that, and it's a you know, Tuprion chose to work with us. They had alternatives and they chose to work with us because we were the only company, we are the only company that has a capability in, you know, the preponderance of their applications, right? So we've got capability in circuit board where their material can be used for IC substrate metallization. We've got capability in die attach and assembly materials, power electronics. The things that their potential customers were looking at were all things that their potential customers, for the most part, were buying from us already. And this was just a new capability for emerging needs. And so, you know, we were a perfect match. And it's a case study for that type of investment.

There are no further questions at this time. I'd like to turn a call back over to Ben Glicklich for closing remarks.

Thank you very much. Thank you to everybody for joining. We look forward to seeing many of you soon and hope you have a great day.

This concludes today's conference call. You may now disconnect.