Element Solutions Inc.

If you'd like to withdraw your question, please press star and number one button again. Thank you. I'd now like to hand over the call to Vernon Gokhan, Senior Director of Strategy and Finance. You may now begin, please.

Good morning, and thank you for participating in our first quarter 2024 earnings conference call. Joining me today are our President and CEO, Ben Glicklich, and CFO, Kerry Dorman. In accordance with Regulation FD, we are webcasting this conference call. A replay will be made available in the investor section of the company's website. 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, which 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 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 our CEO, Ben Glicklich.

Thank you, Varun, and good morning, everyone. Thank you for joining us. Element pollution's strong results the first quarter reflect solid execution in recovering electronics markets. It was a mixed overall macro environment in which our strength and increasing capabilities in fast-growing advanced packaging and data center markets offset a mediocre market for smartphones and softness in Western automotive and general industrial supply chains. Our improving value propositions and investments in leading-edge semiconductor technologies and the impact of legacy pricing actions amidst deflation in certain commodities drove substantial profit growth. Constant currency adjusted EBITDA grew 17% year-on-year on the back of over 250 basis points of margin expansion. Our growth this quarter reflects the benefit of portfolio diversification and suggests the potential for further improvement as the electronics market recovery broadens. Our focus on deep, growing profit pools should continue to generate market outperformance and strong incremental margins. The electronics business is recovering with a surge in semiconductor solutions, including advanced and wafer-level packaging applications. Our volumes in that vertical grew in the high teens year over year, outpacing the market and our circuitry solutions business. Our more industrially-oriented circuit board assembly business declined slightly. The industrial and specialty segment saw a combination of softer automotive demand in the U.S. and Europe and lower revenue from metal price surcharges as certain commodities have deflated. Profitability in the segment increased significantly on low raw material costs, ongoing strength in our offshore business, and an improvement in our graphics business. Our markets are roughly off to the start we expected, and margins are driving our outperformance. Gross margins returned solidly north of 40% this quarter, an internal benchmark for us, and should be stable at these levels, barring metal price impacts. While many of our supply chains are normalizing after a period of heightened volatility and shortages, logistics prices remained elevated relative to 2019 levels. Notably, our margins in the first quarter have been achieved at volumes well below where they had been the past few years. While our costs of goods are mostly variable, margins have improved despite volume deleveraging. This further underscores the success of our investment in higher value, higher margin applications. and our ability to offset cost increases. The benefit of cost actions taken last year contributed to bottom-line profitability as well. This has not come at the cost of growth capital. We continue to invest in strategic capabilities, semiconductor assembly or advanced packaging technologies, a research center in fast-growing India, and high-volume manufacturing capacity for our new CoopRAM products. Throughout what has been a prolonged downturn in our electronics end market, We've maintained, and in certain instances grown, sales and technical resources needed to support customers as the market evolves and new technologies take root. Our commercial and innovation teams remain focused on delivering high-value solutions to solve customer pain points and high-growth applications. Our late-stage electronic sales pipeline and wafer-level packaging and circuitry solutions grew meaningfully in the first This is in part due to the improved customer intimacy afforded by our highly successful VIAform transaction and investment we've made in improving our circuitry technical capabilities. We paid our first product milestone earn-out payment for Kublai on this quarter, and active copper opportunities are progressing rapidly. We're pleased with the outlook from our 2023 investments, but work remains on the operational steps necessary to maximize their long-term value. At the same time, our balance sheet is improving to the point where we can consider additional capital deployment aligned with our strategy. The year is off to a solid start, and the outlook is positive.