Element Solutions Inc Q4 2025 earnings call

Good morning, and thank you for participating in our Q4 and full year 2025 earnings conference call. Joining me today are our CEO, Ben Gliklich, and our CFO, Carey Dorman. In accordance with Regulation FD, we are webcasting this conference call. A replay will be made available in the Investors 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 the Investors section of our website for a discussion of material risk factors that could cause actual results to differ from our expectations. Today's materials include financial information that has not been prepared in accordance with US 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 Gliklich.

Thank you, Varun, and good morning, everyone. Thank you for joining. Element Solutions had another record year in 2025. We executed our model, marrying operational excellence and prudent capital allocation to deliver record results while accelerating investment in future growth. The company is benefiting from its position as a solutions partner across the electronics manufacturing supply chain and also strengthening it. Our portfolio breadth, strategic positioning in high-value growth niches, and deep technical expertise have accelerated opportunities for our businesses. We see that in the results we are reporting today and the activity levels at our customers as we enter 2026. In the past year, demand from data center and high-performance computing markets drove 10% organic revenue growth in our electronics business, a trend that accelerated in the Q4.

Our electronic solutions and our people enable the increasing performance that our markets demand, as well as faster product iterations and significant advances in reliability and complexity. Customer engagement is as strong as ever, partially driven by our pipeline of new, exciting products. Overall, our company achieved record adjusted EBITDA and record adjusted EPS in 2025, despite continued industrial weakness and the divestiture of the graphics business in the Q1. Our focus on operational excellence means we strongly believe that each of our businesses can improve every year, regardless of the macro environment. We demonstrated that over the past 12 months in our newly renamed Specialty segment, where margins expanded 250 basis points, driven by higher value selling, supply chain initiatives, cost efficiencies, and portfolio optimization.

The businesses that comprise the Specialty segment focus on attractive niche markets with demanding customer qualification requirements and an emphasis on value-added technical service. This creates high-margin, recurring revenue streams, and we've demonstrated the ability to grow our profits in these businesses even when volumes are soft. We believe we can continue to drive profit growth through share gains and productivity improvements until industrial end markets inevitably recover. We enhanced our portfolio in 2025 through prudent capital allocation. In the Q3 of last year, we divested our slower-growth, relatively lower-value flexographic printing business and redeployed that capital into two value-enhancing transactions that expand our presence in attractive electronics-focused growth adjacencies. We announced the acquisitions of both MacDermid and ESI Gases and Advanced Materials in the Q4 and closed them both in early 2026.

We believe that within the ESI family, these businesses will have the opportunity to flourish and grow faster and more efficiently. MacDermid is a global leader in advanced electronics inks and pastes, as well as low-temperature ceramic materials essential for the most demanding electronics applications. The acquisition enhances our leadership position and technical bona fides in the electronic supply chain. MacDermid's innovation and go-to-market capabilities align with our customer-centric approach, enabling us to deliver next-generation materials for high-growth applications such as satellites, electric vehicles, and data centers. Our initial weeks together have reinforced our excitement for the product portfolio and the untapped commercial opportunities that can be unlocked in the years ahead as part of a larger electronics materials company. ESI provides high-purity specialty gases and advanced materials that are essential for certain high-value, high-cost of failure applications requiring stringent purity and performance standards.

The business is concentrated in fast-growing markets such as semiconductor fabrication, electrical infrastructure, and satellite propulsion. It has grown at a revenue CAGR in excess of 15% since 2009, with growth accelerating recently, primarily in semiconductor applications. ESI's focus on niche, high-value products and people centricity has yielded commercial momentum and a pipeline of customer qualifications that we anticipate will translate into robust earnings growth in the coming years. And their team is a great cultural fit with ours. The business is off to a very strong start in 2026. Taken together, we had an outstanding year, with demand improving sequentially throughout. That sets us up well for 2026. Carey will now take you through the Q4 and full year financials in more detail. Carey?

Thanks, Ben, and good morning. On slide four, you can see a summary of our Q4 results. Net sales increased 10% organically, led by high-end electronics growth, primarily from AI and data center investments.

Electronics segment organic growth was 13%, with all three business verticals growing in the double digits. The circuitry business has been a large beneficiary of AI-related investment, as our market-leading pulse plating chemistry is used to support fabrication of high layer count server boards. Assembly Solutions saw similar benefits from both consumer electronics and high-performance computing applications that drove 12% organic growth in the quarter. Finally, our Semiconductor Solutions business grew 13% organically, as advanced packaging applications drove demand for wafer-level plating chemistries and power electronic sales returned to growth on the back of new customer wins. Specialties organic growth was 4%, with modest volume improvement in core industrial and 9% year-over-year growth in energy solutions.

Adjusted EBITDA for the quarter was $136 million, up 8% year-over-year on a constant currency basis, when excluding the impact of divestitures. Higher pass-through metals in our assembly business created an overall margin headwind of roughly 1% in the Q4. Excluding net sales from these pass-through metals, adjusted EBITDA margin would have been 25.5%, representing a 40 basis point improvement year-on-year. The rapid increase in metal prices in the Q4, particularly silver and tin, also had a negative impact on adjusted EBITDA of $several million. This is simply a timing impact, and those earnings should be recaptured in 2026 as inventory sells through and metal prices stabilize. We would have seen stronger incremental margins without this impact. On slide five, we discuss full-year financial results.

Net sales for 2025 were $2.6 billion, growing 6% organically. Electronics net sales increased 10% organically, driven by strength in AI and data center markets, demand for advanced packaging metallization solutions, and growth with new EV customers. Specialties grew 1% organically as offshore hydraulic production fluid growth remained robust. In industrial surface treatment, strong automotive growth in Asia and new customer wins later in the year offset overall sluggish Western industrial markets. Adjusted EBITDA for the year was $548 million, which represents 7% constant currency growth when excluding the impact of the graphics divestiture. Excluding net sales from assembly pass-through metals, adjusted EBITDA margin would have been 26.5%, a 60 basis point increase year-over-year.

Once again, this margin would have been higher if not for the earnings timing impact associated with the steep increase in metal prices during 2025, and particularly in Q4. Finally, we delivered record adjusted EPS for the year of $1.49, despite the graphics divestiture. Next, on slide six, we share additional details on full year organic growth by business. Our Assembly Solutions business has a relatively diversified set of end markets, with larger exposure to industrial, consumer electronics, and automotive applications than our other electronics verticals. In 2025, this business grew organically at 8%, with the outperformance driven by strong consumer electronics and automotive demand in Asia, particularly in the first half of the year, and increased demand for our engineered preformed materials used in high-performance computing applications.

Circuitry Solutions delivered robust organic growth of 10% for the year, supported by investments in high-performance computing and data center infrastructure. We have industry-leading metalization solutions for the fabrication of dense, high aspect ratio circuit boards that are uniquely suited for the extreme requirements of data centers. In addition, our solutions for data storage, EV electronics, and low Earth orbit satellites provided additional growth vectors. This year, we also focused on investments intended to meaningfully strengthen our presence in Southeast Asia, a region that should see continued momentum in the years ahead as the electronic supply chain seeks to diversify its manufacturing footprint. Semiconductor Solutions grew 13% organically year-over-year, reflecting strong demand from advanced packaging, metalization solutions and power electronics growth with new EV customers. This is the second consecutive year of mid-teens organic growth for this business.

Demand remains robust across all our product lines, and the opportunity pipeline continues to expand. Our customers are performing well with our technologies. For example, our top ViaForm copper damascene customers grew 20% on average for the year, and we expect this trend to continue in 2026. We've introduced multiple new product families that are gaining customer traction and see opportunities to grow in areas that intersect with printed circuit board metalization, such as IC substrates and large format panels. Turning to the specialty segment, organic growth of 1% reflects softness in industrial-oriented end markets. Energy solutions remained a bright spot, growing 7% organically as we saw continued production fluid revenue growth due to competitive wins and pricing activities. Our core industrial surface treatment business was flat organically for the year on the top line.

Underlying volume growth in Asia automotive end market was offset by lower European industrial activity. Net sales growth comparisons were impacted by a large customer equipment deal in the Q3 of last year, which is tied to a high-value, multi-year chemistry contract. Moving to cash flow and the balance sheet on slide seven. We generated $256 million of adjusted free cash flow in the year, with $83 million of cash generated in the Q4. Working capital investment in the Q4 was higher than we expected due to the rapid increase in tin and precious metal prices and the timing of our hedge settlements. Higher metal prices, even though they are passed through, tie up more capital, all else being equal. However, all else is not equal. Over the past several years, we have worked on optimizing our inventory on a volume basis.

Consequently, we've seen solid improvement in both inventory days and overall cash conversion. When the metal prices eventually normalize, we expect to see a benefit to cash flow. We invested $61 million in net CapEx in 2025, advancing key strategic projects such as Kuprion and new advanced packaging product manufacturing, as well as our global R&D and production footprint. These investments support high-value growth opportunities and technology leadership in our electronics segment. For 2026, we expect capital expenditures of approximately $75 million, affecting our continued commitment to innovation, capacity expansion where necessary, and new product introductions in fast-growing AI and data center markets primarily. This figure includes the expected capital requirements of our newly acquired businesses.

We ended 2025 with a strong balance sheet, including $627 million in cash and a net debt to Adjusted EBITDA ratio of 1.8 times. When we closed our two acquisitions earlier in Q1 this year, we paid approximately $870 million, which was funded in part by a new $450 million term loan add-on. Overall, our debt is currently 95% fixed, and our cost of debt remains roughly 4%. Today, pro forma leverage is slightly above three times, which we expect to approach 2.5x by year-end 2026, assuming no further capital allocation. Our liquidity and financial flexibility position us well to fund organic growth, strategic M&A, and capital return to shareholders as appropriate. With that, I will turn the call back to Ben to discuss our outlook. Ben?

Thank you, Carey. Looking ahead to 2026, we expect market conditions to largely resemble late 2025, with continued strength in high-performance computing and leading-edge electronics and slower industrial markets. There will be noise on the top line, driven by metals price volatility, which may also have a bearing on our Adjusted EBITDA seasonality and short-term cash flow. But in the fullness of time, these are only timing differences, with no impact on overall profit dollars. Our 2026 Adjusted EBITDA guidance range is $650 million-$670 million, inclusive of the expected contributions from the ESI and Micromax acquisitions, and assuming current FX rates and metal prices.

This range includes a modest year-over-year FX tailwind and an expected $5 million headwind as we lap the 2025 stub period contribution from our graphics business, together implying high single-digit organic adjusted EBITDA growth. This also translates to adjusted EPS growth in the mid- to high-teens. Our focus in 2026 will be similar to prior years, with the only adjustment relating to our recent acquisitions. The emphasis will be on operational excellence, integrating ESI and Micromax and scaling capacity for new products. We made product qualification milestone payments in the Q1 of this year for Kuprion and are in the final innings before ramping capacity at our first site in California. We have other compelling product launches underway in thermal materials, die attach, and circuit board fabrication. We also retain and will build capacity for further accretive capital deployment should attractive opportunities come available.

We have strong customer partnerships, a clear strategy, and a growing, high-performing team that is enthusiastic and incentivized to continue to execute on the momentum we have. We're a people-powered company, and I'm grateful for the extraordinary talent that is responsible for a great 2025 and focused on another record year in 2026. Operator, please open the line for questions.