esi-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

FORM 10-Q

_______________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-36272

Element Solutions Inc

(Exact name of Registrant as specified in its charter)

Delaware

37-1744899

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

500 East Broward Boulevard,

Suite 1860

33394

Fort Lauderdale,

Florida

(Zip Code)

(Address of principal executive offices)

Registrant’s telephone number, including area code: (561) 207-9600

_______________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ESI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of common stock outstanding at April 21, 2022: 247,714,192

TABLE OF CONTENTS


		Page

	Glossary of Defined Terms	i
	Forward-Looking Statements	ii
	Non-GAAP Financial Measures	ii

Part I.	Financial Information

Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations
	Three Months Ended March 31, 2022 and 2021	1
	Condensed Consolidated Statements of Comprehensive Income
	Three Months Ended March 31, 2022 and 2021	2
	Condensed Consolidated Balance Sheets
	March 31, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Cash Flows
	Three Months Ended March 31, 2022 and 2021	4
	Condensed Consolidated Statements of Changes in Stockholders' Equity
	Three Months Ended March 31, 2022 and 2021	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	26

Part II.	Other Information

Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28

Signatures		29

GLOSSARY OF DEFINED TERMS


Terms						Definitions
Element Solutions; We; Us; Our; the Company						Element Solutions Inc, a Delaware corporation, and, where the context requires, its subsidiaries or operating businesses.
Add-on Term Loans						Incremental term loans entered into on September 1, 2021, under the Credit Agreement, in an aggregate principal amount of $400 million through a corresponding increase in the Company's existing senior secured term loans B. All references to "term loans" in this Quarterly Report include the Add-on Term Loans.



Coventya						Coventya Holding SAS and its subsidiaries.
Coventya Acquisition						Acquisition of Coventya on September 1, 2021.
Credit Agreement						Credit Agreement, dated as of January 31, 2019, as amended from time to time, among, inter alia, Element Solutions and MacDermid, as borrowers, certain subsidiaries of Element Solutions and the lenders from time to time parties thereto.
EBITDA						Earnings before interest, taxes, depreciation and amortization.
Exchange Act						Securities Exchange Act of 1934, as amended.
GAAP						U.S. Generally Accepted Accounting Principles.
HKW						H.K. Wentworth Limited and its subsidiaries.
HKW Acquisition						Acquisition of HKW on May 5, 2021.
HSO						HSO Herbert Schmidt GmbH & Co. KG, Dipl.-Ing. W. Schmidt GmbH and HSO Hong Kong Holding Limited and its subsidiary.
HSO Acquisition						Acquisition of HSO on January 26, 2022.
MacDermid						MacDermid, Incorporated, a Connecticut corporation and subsidiary of Element Solutions.

Quarterly Report						This quarterly report on Form 10-Q for the three months ended March 31, 2022.
RSUs						Restricted stock units issued by Element Solutions from time to time under its Amended and Restated 2013 Incentive Compensation Plan.
SEC						Securities and Exchange Commission.
2021 Annual Report						Element Solutions' annual report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 23, 2022.
3.875% USD Notes due 2028						Element Solutions' $800 million aggregate principal amount of 3.875% senior notes due 2028, denominated in U.S. dollars, issued on August 18, 2020.

Forward-Looking Statements

This Quarterly Report contains forward-looking statements that can be identified by words such as "expect," "anticipate," "project," "will," "should," "believe," "intend," "plan," "assume," "estimate," "predict," "seek," "continue," "outlook," "may," "might," "aim," "can have," "likely," "potential," "target," "hope," "goal" or "priority" and variations of such words and similar expressions. Many of the forward-looking statements include, but are not limited to, statements, beliefs, projections and expectations regarding the expected benefits of the Coventya Acquisition; the continuing economic impact of the coronavirus (COVID-19) and its variants on the global economy, our business, financial results, customers, suppliers, vendors and/or stock price, including the impact of related governmental responses; the efficacy of vaccines and treatments targeting COVID-19 and its variants; capital requirements and need for and availability of financing; probability of achievement of the performance target related to certain performance-based RSUs; the impact of new accounting standards and accounting changes; share repurchases; our dividend policy and dividend declarations; our hedging activities; timing and outcome of environmental and legal matters; tax planning strategies and assessments; the impact of tax law changes; impairments, including those on goodwill and other intangible assets; price volatility and cost environment; our liquidity, cash flows and capital allocation; funding sources; capital expenditures; debt and debt leverage ratio; pension plan contributions; off-balance sheet arrangements and contractual obligations; general views about future operating results; expected returns to stockholders; risk management programs; future prospects; and other events or developments that we expect or anticipate will occur in the future.

Although we believe these forward-looking statements are based upon reasonable assumptions regarding our business and expectations about future events, financial performance and trends, there can be no assurance that our actual results will not differ materially from any results expressed or implied in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Part I, Item 1A, Risk Factors, of our 2021 Annual Report. Certain of these risks may be amplified by the invasion of Ukraine by Russia, the sanctions (including their duration) and other measures being imposed in response to this conflict, as well as any escalation or expansion of economic disruption or the conflict’s current scope. In addition, as we operate in a very competitive and rapidly changing environment, new risks may emerge from time to time. Any forward-looking statement included in this Quarterly Report is based only on information currently available and speaks only as of the date on which it is made. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Please consult any further disclosures on related subjects in our SEC filings.

While progress has been made to contain the COVID-19 pandemic, it remains a global challenge. The ultimate extent of the impact of COVID-19 and/or its variants on our business or our future results of operations, financial condition and/or expected cash flows remains unknown as COVID-19 and its variants continue to spread. The long-term impact of the pandemic will depend on numerous and evolving factors that are highly uncertain, vary by market and cannot be quantified at this time, such as the scope, severity and duration of the pandemic.

Non-GAAP Financial Measures

This Quarterly Report contains non-GAAP financial measures, such as Adjusted EBITDA and operating results on a constant currency and organic basis. Non-GAAP financial measures should not be considered in isolation from, a substitute for, or superior to, performance measures calculated in accordance with GAAP. For additional information on these non-GAAP financial measures, including definitions, limitations and reconciliations to their most comparable applicable GAAP measures, see "Non-GAAP Financial Measures" in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in Part I, Item 2, and Note 12, Segment Information, to the unaudited Condensed Consolidated Financial Statements, both included in this Quarterly Report.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(dollars in millions, except per share amounts)


	Three Months Ended March 31,
	2022		2021
Net sales	$	680.2	$	550.1
Cost of sales	417.2		309.1
Gross profit	263.0		241.0
Operating expenses:
Selling, technical, general and administrative	153.4		129.6
Research and development	14.1		11.5
Total operating expenses	167.5		141.1
Operating profit	95.5		99.9
Other (expense) income:
Interest expense, net	(14.1)		(12.9)
Foreign exchange (loss) gain	(0.7)		28.0
Other expense, net	(4.3)		(1.6)
Total other (expense) income	(19.1)		13.5
Income before income taxes and non-controlling interests	76.4		113.4
Income tax expense	(20.0)		(31.1)


Net income	56.4		82.3
Net income attributable to non-controlling interests	(0.3)		—
Net income attributable to common stockholders	$	56.1	$	82.3

Earnings per share
Basic	$	0.23	$	0.33



Diluted	$	0.23	$	0.33



Weighted average common shares outstanding
Basic	247.3		247.2
Diluted	249.2		248.6

See accompanying notes to the Condensed Consolidated Financial Statements

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(dollars in millions)


	Three Months Ended March 31,
	2022		2021
Net income	$	56.4	$	82.3

Other comprehensive income (loss)
Foreign currency translation:
Other comprehensive loss before reclassifications, net of tax (benefit) expense of $(2.1) and $5.9 for the three months ended March 31, 2022 and 2021, respectively	(13.9)		(52.7)

Total foreign currency translation adjustments	(13.9)		(52.7)




Derivative financial instruments:
Other comprehensive income before reclassifications, net of tax expense of $8.8 and $1.8 for the three months ended March 31, 2022 and 2021, respectively	22.5		3.0
Reclassifications, net of tax expense of $0.0 for the three months ended March 31, 2022 and 2021, respectively	4.8		4.4
Total unrealized gain arising on qualified hedging derivatives	27.3		7.4
Other comprehensive income (loss)	13.4		(45.3)
Comprehensive income	69.8		37.0
Comprehensive loss attributable to non-controlling interests	1.4		—
Comprehensive income attributable to common stockholders	$	71.2	$	37.0

See accompanying notes to the Condensed Consolidated Financial Statements

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(dollars in millions)


	March 31,		December 31,
	2022		2021
Assets
Cash & cash equivalents	$	218.8	$	330.1
Accounts receivable, net of allowance for doubtful accounts of $13.9 and $12.2 at March 31, 2022 and December 31, 2021, respectively	540.8		492.2
Inventories	323.4		274.4
Prepaid expenses	32.7		29.4
Other current assets	101.2		88.4

Total current assets	1,216.9		1,214.5
Property, plant and equipment, net	275.0		278.1
Goodwill	2,518.6		2,526.3
Intangible assets, net	929.7		956.7
Deferred income tax assets	71.9		81.5
Other assets	116.7		81.3

Total assets	$	5,128.8	$	5,138.4
Liabilities and stockholders' equity
Accounts payable	$	179.5	$	138.4
Current installments of long-term debt	13.7		12.7
Accrued expenses and other current liabilities	206.5		264.1

Total current liabilities	399.7		415.2
Debt	1,892.1		1,894.2
Pension and post-retirement benefits	34.0		36.1
Deferred income tax liabilities	137.9		140.0
Other liabilities	151.6		152.1

Total liabilities	2,615.3		2,637.6
Commitments and contingencies (Note 9)
Stockholders' equity

Common stock: 400.0 shares authorized (2022: 264.9 shares issued; 2021: 261.9 shares issued)	2.6		2.6
Additional paid-in capital	4,172.3		4,166.6
Treasury stock (2022: 17.1 shares; 2021: 15.2 shares)	(201.8)		(159.2)
Accumulated deficit	(1,295.9)		(1,331.9)
Accumulated other comprehensive loss	(182.3)		(197.4)
Total stockholders' equity	2,494.9		2,480.7
Non-controlling interests	18.6		20.1
Total equity	2,513.5		2,500.8
Total liabilities and stockholders' equity	$	5,128.8	$	5,138.4

See accompanying notes to the Condensed Consolidated Financial Statements

ELEMENT SOLUTIONS INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(dollars in millions)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	56.4	$	82.3


Reconciliations of net income to net cash flows (used in) provided by operating activities:
Depreciation and amortization	41.6		39.1
Deferred income taxes	2.5		5.2
Foreign exchange gain	(0.1)		(28.9)
Incentive stock compensation	5.2		4.3
Other, net	4.3		(2.3)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(49.6)		(26.3)
Inventories	(47.5)		(44.6)
Accounts payable	41.2		30.4
Accrued expenses	(

SEC Form 10-Q filed by Element Solutions Inc.