Element Solutions Inc. 2026 Q3 Earnings Call

Good morning, and thank you for participating in our third quarter 2026 earnings conference call. Joining me today are our CEO, Ben Gliklich, and 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 earnings release, supplemental slides, and most recent SEC filings on our website for a discussion of material risk factors that could cause actual results to differ from our expectations and predictions. Today's materials also 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. Thanks for joining. Element Solutions delivered yet another record quarter as we continue to benefit from favorable positions in our end markets, strong execution against our commercial and operational initiatives, and the results of thoughtful, disciplined capital allocation. Before discussing the quarter's performance, let me recap our decision to mutually terminate the proposed transaction with Solstice at the end of August. Our North Star at Element Solutions has always been serving our customers and shareholder value creation. Following the announcement of this proposed transaction, we had constructive discussions with our investors and gained valuable insights into how they'd like us to pursue that North Star. Feedback is a gift, and we were fortunate to receive it. We work for our shareholders, and we value their input.

While we stand behind the strategic and financial merits of the Solstice transaction, it became clear that our shareholders valued the standalone trajectory that we articulated in our May investor day. They wanted our team to deliver on our plan. They discounted alternatives, which introduced complexity and execution risk. The feedback we received was a vote of confidence from our shareholders, confidence in management, appreciation for the unique culture we've deliberately developed, and enthusiasm for the portfolio of businesses we've built, attributes that together outweigh the benefits of enhanced scale or synergy capture. Going forward, we're doubling down on the culture of entrepreneurship, operational excellence, and prudent capital allocation that has brought us our historical success. We're committed to continue investing behind our businesses, both organically and through bolt-on M&A.

Our Electronics segment this year is on pace to deliver the same amount of adjusted EBITDA that our entire company generated last year. We are increasingly a critical enabler in the electronics ecosystem and becoming even more so as we introduce and acquire new capabilities. To keep up with the rapid pace in our markets, we must evolve, and we're working to accelerate our development cycle time, deepen our technical engagements with key customers, and capitalize on the many opportunities afforded by the breadth of our portfolio. Our confidence in an independent path forward is reinforced by yet another consecutive record quarter and corresponding significant increase in our full-year guidance announced today. Our third quarter results were outstanding. Organic growth remained robust in Electronics, and the Specialties business navigated challenges related to materials inflation and uneven demand dynamics.

Our results were again enhanced by strong contributions from recent acquisitions, which position us well in attractive new market adjacencies that are seeing robust growth. Activity accelerated across our supply chain in support of the ongoing AI infrastructure built out. Technical requirements in data center hardware and other high-performance electronics continue to increase, which has driven our offering of critical enabling solutions across thermal management, power density, and advanced packaging applications, to name a few. We're seeing volume growth in the highest value categories across our end markets, from leading-edge semi and high-end circuit board fabs to device assemblers, and a strong pull for innovation to enable greater levels of device performance and manufacturing yield. This dynamic has led to four straight quarters of double-digit organic sales growth and meaningful ex metal margin expansion in our Electronics business.

Our profitable growth has allowed us to increase investment in people, technology, and plants, which we expect will reinforce ESI's role in critical emerging applications. Our customers are investing heavily to build capacity ahead of surging demand. We, in turn, have built and continue to build additional manufacturing capacity for several high-growth product lines, including incremental production capability for engineered preform and critical thermal interface products, as well as local laboratory footprints for Electronics in India and Southeast Asia. Where investment in Southeast Asia was intended to de-risk geopolitical concerns two years ago, it's now become much needed additional capacity for our customers. Meanwhile, our business in China remains very strong, growing 30% in the quarter.

We've also made substantial investments and financial commitments to scale manufacturing of our Kuprion ActiveCopper products, focused on solving several emerging customer pain points around thermal management, power delivery, and plating copper on challenging substrates. Our development partners are exceptionally enthusiastic about this offering, and they're progressing towards high-volume manufacturing themselves. Progress evidenced by the two customer qualification milestones we achieved in the third quarter. These qualifications from two leading technology providers to the data center ecosystem support our strong conviction in the market opportunity for ActiveCopper and our ability to establish incumbency with this exciting technology. Beyond these investments in organic growth, we continue to reap the fruits of our inorganic strategy. The integrations of Micromax and EFC are going well, and both businesses contributed meaningful adjusted EBITDA growth in the quarter.

Our formula of operational excellence and prudent capital allocation drove a 22% increase in adjusted EPS this quarter. Beyond M&A, when we see compelling value in our own shares, we can act opportunistically, given our substantial existing share repurchase authorization. We did so this quarter, reflecting our confidence in the business from here. Carey will now take you through our third-quarter business results in more detail.

Carey? Thanks, Ben, and good morning, everyone.

On slide 3, you can see a summary of our third-quarter financial results. We delivered record quarterly revenue, adjusted EBITDA, and adjusted EPS. Organic net sales grew 13%, and constant currency adjusted EBITDA increased 29% year-over-year. Electronics organic net sales growth of 18% was once again broad-based. Each of the segment's verticals grew organically by double digits, led by our Semiconductor business, which grew 24% in the quarter. Adjusted EBITDA margins, excluding pass-through metals, improved 50 basis points year-over-year to 28.2% this quarter. The year-on-year improvement was primarily driven by product mix within the Electronic segment, where organic growth and higher-value product lines drove solid underlying incremental margins in the upper end of our 30%-40% target range, as well as strong performance from Micromax.

Softer margins in the Specialty segment were the result of an equipment failure that shut down a large offshore customer, impacting sales in the Energy Solutions business, as well as price cost timing in Industrial Solutions. We expect these dynamics to abate through year-end and into 2027. Both segments also saw margins impacted by higher allocations, primarily from above-target incentive compensation accruals. On slide 4, we have additional detail on organic net sales growth. In Electronics, demand remained particularly strong across semiconductor packaging, advanced PCB chemistries, engineered assembly materials supporting data centers, and power electronics. Reflecting the strength in our markets, industry forecasts for PCB volume growth in 2026 have increased over the course of the year from around 6% in December to over 10% today. This is an acceleration from 2025, and we continue to outperform the market.

Semiconductor Solutions organic net sales grew 24%, with improved order patterns for power electronics products and growing momentum in thermal interface materials for high power consumption applications such as AI GPUs and CPUs. Demand also continues to be strong for advanced packaging solutions from Asian OSATs participating in the market. Revenue growth in this business was magnified this quarter by the year-over-year increase in precious metals prices. Our Assembly Solutions business grew 16% organically. Demand was strong for high-reliability solder paste in Asia, which are benefiting from growth in AI power supply, and for preformed products for data center applications. Engineered preformed products such as TruHeight spacers that control thermal warpage on larger chip assemblies continued to gain traction in leading-edge applications, driving acceleration in our capacity expansion plans for next year.

Circuitry Solutions grew 16% organically, benefiting from continued demand for board metallization solutions tied to AI infrastructure and high-performance computing. We supported customers as they add capacity and are seeing traction with technologies that are critical to increasingly complex, high-layer count architectures. Micromax contributed nearly $140 million to reported sales in the quarter, roughly two-thirds of which is related to metals. The business continues to perform well ahead of plan and is growing revenue and adjusted EBITDA significantly. We remain very pleased with these results, as well as the response from customers and the progress of the integration. Now turning to our specialty segment, Industrial Solutions grew 3% organically in the quarter, due primarily to price increases tied to raw material cost inflation. Global volumes were roughly flat, with some modest pickup in automotive in both Asia and Europe, while other industrial end markets remained soft.