• 2022 net sales of $2.55 billion, an increase of 6% on a reported basis or 5% on an organic basis from 2021
• 2022 GAAP diluted EPS of $0.75, compared to $0.82 in 2021
• 2022 adjusted EPS of $1.41, compared to $1.38 in 2021, an increase of 2%
• 2022 reported net income of $186 million, compared to $203 million in 2021
• 2022 adjusted EBITDA of $527 million, an increase of 8% from last year on a constant currency basis
• 2022 cash flows from operating activities of $296 million; 2022 free cash flows of $253 million
• Introduces 2023 full year financial guidance:
  • Adjusted EBITDA approximately flat on a constant currency basis
  • Adjusted EPS of $1.40 to $1.43
  • 2023 expected free cash flow of approximately $275 million

Element Solutions Inc (NYSE:ESI) (“Element Solutions” or the “Company”), a global and diversified specialty chemicals company, today announced its financial results for the three and twelve months ended December 31, 2022.

Executive Commentary

President and Chief Executive Officer Benjamin Gliklich commented, “Element Solutions delivered record revenue, adjusted EBITDA and adjusted earnings per share in 2022. We outperformed our core end markets and grew organically through a persistent focus on servicing customers, pro-active price actions and prudent cost management. Our people were resilient and long-term oriented in a year characterized by short-term disruptions from war to continued COVID lockdowns. Our results were impacted by a general economic softening, raw material inflation, foreign exchange volatility, and a steep decline in consumer electronics demand in the second half. Despite these headwinds, for the full year 2022, we delivered balanced organic growth of 5% in both our business segments. We grew adjusted EBITDA by 8% on a constant currency basis. The hallmark stability of our margin and cash flows was evident once again. While we moderated discretionary spend to preserve profits, we continued to invest in our businesses through bolt-on acquisitions and capital projects. We also returned approximately $230 million to shareholders through dividends and the repurchase of 8 million shares at prices below our view of the intrinsic value of our Company.”

Mr. Gliklich continued, “High-end electronics demand decelerated in the second half of 2022, coinciding with lockdowns and policy shifts that drove a significant slowdown in industrial activity in China. At the same time, after two years of weakness it appears automotive end markets are slowly normalizing and our supply chain channel is clearing. We expect these dynamics to continue in the first half of 2023 and have cautious optimism - but limited visibility - into a more robust recovery in electronics demand in the second half. As a result, we expect 2023 to be more weighted to the second half than a typical year. We expect first quarter adjusted EBITDA growth of 1% to 3% sequentially, reflecting a continuation of late 2022 trends. Despite a slower run rate entering the year, we expect adjusted EBITDA to be roughly flat on a constant currency basis for the full year. While we remain excited about the long-term growth trajectory of our business, we will not lose focus on nimbly navigating these uncertain short-term dynamics through disciplined cost management and process improvement. We continue to take actions designed to protect profits, generate free cash flow to reinvest behind our businesses and keep our company well positioned to capitalize on the compelling long term growth trends propelling our markets forward.”

Fourth Quarter 2022 Highlights (compared with fourth quarter 2021):

• Net sales on a reported basis for the fourth quarter of 2022 were $574 million, a decrease of 11% over the fourth quarter of 2021. Organic net sales increased 3%.
  • Electronics: Net sales decreased 18% to $338 million. Organic net sales remained approximately flat.
  • Industrial & Specialty: Net sales remained approximately flat at $236 million. Organic net sales increased 7%.
• Fourth quarter of 2022 earnings per share (EPS) performance:
  • GAAP diluted EPS was $0.05, as compared to $0.02 for the same period last year.
  • Adjusted EPS was $0.29, as compared to $0.32 for the same period last year.
• Reported net income for the fourth quarter of 2022 was $13 million, as compared to $6 million for the fourth quarter of 2021.
• Adjusted EBITDA for the fourth quarter of 2022 was $108 million, a decrease of 13%. On a constant currency basis, adjusted EBITDA decreased 2%.
  • Electronics: Adjusted EBITDA was $68 million, a decrease of 19%. On a constant currency basis, adjusted EBITDA decreased 11%.
  • Industrial & Specialty: Adjusted EBITDA was $40 million, a decrease of 1%. On a constant currency basis, adjusted EBITDA increased 16%.
  • Adjusted EBITDA margin decreased by 50 basis points to 18.8%. On a constant currency basis, adjusted EBITDA margin increased by 20 basis points.

Full Year 2022 Highlights (compared with full year 2021):

• Net sales on a reported basis for the full year 2022 were $2.55 billion, an increase of 6% over the prior full year period. Organic net sales increased 5%.
  • Electronics: Net sales increased 1% to $1.60 billion. Organic net sales increased 5%.
  • Industrial & Specialty: Net sales increased 16% to $945 million. Organic net sales increased 5%.
• Full year 2022 EPS performance:
  • GAAP diluted EPS was $0.75, as compared to $0.82 for the same period last year.
  • Adjusted EPS was $1.41, as compared to $1.38 in 2021.
• Reported net income for the full year 2022 was $186 million, as compared to $203 million for 2021.
• Adjusted EBITDA for the full year 2022 was $527 million, or a $2 million increase as compared to 2021. On a constant currency basis, adjusted EBITDA increased 8%.
  • Electronics: Adjusted EBITDA was $362 million, a decrease of 3%. On a constant currency basis, adjusted EBITDA increased 3%.
  • Industrial & Specialty: Adjusted EBITDA was $165 million, an increase of 8%. On a constant currency basis, adjusted EBITDA increased 21%.
  • Adjusted EBITDA margin decreased by 120 basis points to 20.7%. On a constant currency basis, adjusted EBITDA margin decreased by 110 basis points.
• Net debt to adjusted EBITDA ratio of 3.1x on a trailing twelve month basis.

2023 Guidance

For the full year 2023, the Company expects adjusted EBITDA to be approximately flat compared to full year 2022 on a constant currency basis. The Company's guidance range of $510 million to $530 million implies between a 2% decline and 2% increase in adjusted EBITDA on a constant currency basis, based on mid-February exchange rates. For 2023, the Company expects adjusted EPS in the range of $1.40 to $1.43 and free cash flow of approximately $275 million. In addition, the Company expects first quarter 2023 adjusted EBITDA to grow 1% to 3% relative to the fourth quarter of 2022 and adjusted EBITDA for the full year 2023 to be weighted significantly towards the second half of the year.

Recent Developments

Stock Repurchase Program - During the year ended December 31, 2022, the Company repurchased 8.0 million shares of its common stock for approximately $151 million. The remaining authorization under its stock repurchase program was approximately $581 million at December 31, 2022.

Cash Dividends - On February 13, 2023, the Board of Directors of the Company declared a cash dividend of $0.08 per outstanding share of its common stock. The dividend is expected to be paid on March 15, 2023 to stockholders of record at the close of business on March 1, 2023. For the full year 2022, the Company paid cash dividends of $78.4 million.

Conference Call

Element Solutions will host a webcast/dial-in conference call to discuss its 2022 fourth quarter and full year financial results at 8:30 a.m. (Eastern Time) on Wednesday, February 22, 2023. Participants on the call will include President and Chief Executive Officer Benjamin Gliklich, Chief Financial Officer Carey J. Dorman, and Executive Chairman Sir Martin E. Franklin.

To listen to the call by telephone, please dial 888-510-2346 (domestic) or 646-960-0111 (international) and provide the Conference ID: 3799230. The call will be simultaneously webcast at www.elementsolutionsinc.com. A replay of the call will be available after completion of the live call at www.elementsolutionsinc.com.

About Element Solutions

Element Solutions Inc is a leading global specialty chemicals company whose businesses supply a broad range of solutions that enhance the performance of products people use every day. Developed in multi-step technological processes, these innovative solutions enable customers' manufacturing processes in several key industries, including consumer electronics, power electronics, semiconductor fabrication, communications and data storage infrastructure, automotive systems, industrial surface finishing, consumer packaging and offshore energy.

More information about the Company is available at www.elementsolutionsinc.com.

Forward-Looking Statements

This release is intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 as it contains "forward-looking statements" within the meaning of the federal securities laws. These statements will often contain 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," "priority," "guidance" or "confident" and variations of such words and similar expressions. Examples of forward-looking statements include, but are not limited to, statements, beliefs, projections and expectations regarding margin and cash flow stability; spend management; market and economic trends, including in electronics and automotive end markets; supply chain clearing; expectations with respect to continuing dynamics in the first half of 2023; recovery in the second half of 2023 with adjusted EBITDA to be more weighted towards this second half; long-term growth trajectory; navigating uncertain dynamics through cost management and process improvement; growth trends propelling markets forward and market positions to capitalize on these trends; actions to protect profits and generate free cash flow; reinvestments in the Company's businesses; first quarter 2023 guidance for adjusted EBITDA growth relative to the fourth quarter of 2022, and full year 2023 guidance for constant currency adjusted EBITDA and adjusted EBITDA growth, adjusted EPS and free cash flow. These projections and statements are based on management's estimates, assumptions or expectations with respect to future events and financial performance, and are believed to be reasonable, though are inherently uncertain and difficult to predict. Such projections and statements are based on the assessment of information available as of the current date, and the Company does not undertake any obligations to provide any further updates. Actual results could differ materially from those expressed or implied in the forward-looking statements if one or more of the underlying estimates, assumptions or expectations prove to be inaccurate or are unrealized. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the duration and scope of the COVID-19 pandemic; the efficacy, availability and/or public acceptance of vaccines and treatments targeting COVID-19 and/or its variants; governments', businesses', and individuals' actions in response to the pandemic; the general impact of the pandemic and the invasion of Ukraine by Russia on economic activity, including financial market instability and disruption of global supply chains, and on the Company's customers, employees, suppliers, vendors and other stakeholders; price volatility and cost environment; inflation and fluctuations in foreign exchange rates; business and management strategies; outstanding debt and debt leverage ratio; shares repurchases; debt and/or equity issuance or retirement; returns to stockholders; and the impact of acquisitions, divestitures, restructurings, refinancings, impairments and other unusual items, including the Company's ability to integrate and obtain the anticipated benefits, results and synergies from these items or other related strategic initiatives. Additional information concerning these and other factors that could cause actual results to vary is, or will be, included in the Company's periodic and other reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Measures

To supplement its financial measures prepared in accordance with GAAP, Element Solutions presents in this release the following non-GAAP financial measures: EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted EPS, adjusted common shares outstanding, free cash flow, net debt to adjusted EBITDA ratio, organic net sales growth, first quarter 2023 guidance for adjusted EBITDA growth relative to the fourth quarter of 2022, and full year 2023 guidance for constant currency adjusted EBITDA and adjusted EBITDA growth, adjusted EPS and free cash flow. The Company also evaluates and presents its results of operations on a constant currency basis.

Management internally reviews these non-GAAP measures to evaluate performance on a comparative period-to-period basis in terms of absolute performance, trends and expected future performance with respect to the Company’s business, and believes that these non-GAAP measures provide investors with an additional perspective on trends and underlying operating results on a period-to-period comparable basis. The Company also believes that investors find this information helpful in understanding the ongoing performance of its operations separate from items that may have a disproportionate positive or negative impact on its financial results in any particular period or are considered to be associated with its capital structure. These non-GAAP financial measures, however, have limitations as analytical tools, and should not be considered in isolation from, a substitute for, or superior to, the related financial information that Element Solutions reports in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements, and may not be completely comparable to similarly titled measures of other companies due to potential differences in calculation methods. In addition, these measures are subject to inherent limitations as they reflect the exercise of judgment by management about which items are excluded or included in determining these non-GAAP financial measures. Investors are encouraged to review the definitions and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures included in this press release, and not to rely on any single financial measure to evaluate the Company's businesses.

The Company only provides first quarter 2023 guidance for adjusted EBITDA growth, and full year 2023 guidance for constant currency adjusted EBITDA and adjusted EBITDA growth, adjusted EPS and free cash flow on a non-GAAP basis. Reconciliations of such forward-looking non-GAAP measures to GAAP are excluded in reliance upon the exception provided by Item 10(e)(1)(i)(B) of Regulation S-K due to the inherent difficulty in forecasting and quantifying, without unreasonable efforts, certain amounts that are necessary for such reconciliations, including adjustments that could be made for restructurings, refinancings, impairments, divestitures, integration and acquisition-related expenses, share-based compensation amounts, non-recurring, unusual or unanticipated charges, expenses or gains, adjustments to inventory and other charges reflected in its reconciliation of historic numbers, the amount of which, based on historical experience, could be significant.

Constant Currency:

The Company discloses net sales and adjusted EBITDA on a constant currency basis by adjusting results to exclude the impact of changes due to the translation of foreign currencies of its international locations into U.S. dollar. Management believes this non-GAAP financial information facilitates period-to-period comparison in the analysis of trends in business performance, thereby providing valuable supplemental information regarding its results of operations, consistent with how the Company internally evaluates its financial results.

The impact of foreign currency translation is calculated by converting the Company's current-period local currency financial results into U.S. dollar using the prior period's exchange rates and comparing these adjusted amounts to its prior period reported results. The difference between actual growth rates and constant currency growth rates represents the estimated impact of foreign currency translation.

Organic Net Sales Growth:

Organic net sales growth is defined as net sales excluding the impact of foreign currency translation, changes due to the pass-through pricing of certain metals, and acquisitions and/or divestitures, as applicable. Management believes this non-GAAP financial measure provides investors with a more complete understanding of the underlying net sales trends by providing comparable net sales over differing periods on a consistent basis.

The following table reconciles GAAP net sales growth to organic net sales growth for the three and twelve months ended December 31, 2022:

NOTE: Totals may not sum due to rounding.

NOTE: Totals may not sum due to rounding.

For the three months ended December 31, 2022, Electronics' consolidated results were negatively impacted by $45.0 million of pass-through metals pricing and Industrial & Specialty's consolidated results were positively impacted by $5.4 million of acquisitions.

For the twelve months ended December 31, 2022, Electronics' consolidated results were positively impacted by $9.7 million of pass-through metals pricing and $13.5 million of acquisitions and Industrial & Specialty's consolidated results were positively impacted by $175.9 million of acquisitions.

Adjusted Earnings Per Share (EPS):

Adjusted EPS is a key metric used by management to measure operating performance and trends as management believes the exclusion of certain expenses in calculating adjusted EPS facilitates operating performance comparisons on a period-to-period basis. Adjusted EPS is defined as net income attributable to common stockholders adjusted to reflect adjustments consistent with the Company's definition of adjusted EBITDA. Additionally, the Company eliminates amortization expense associated with intangible assets, incremental depreciation associated with the step-up of fixed assets and incremental cost of sales associated with the step-up of inventories recognized in purchase accounting for acquisitions. Further, the Company adjusts its effective tax rate to 20% for the three and twelve months ended December 31, 2022 and 2021, respectively, as described in footnote (8) under the reconciliation table below.

The resulting adjusted net income is then divided by the Company's adjusted common shares outstanding. Adjusted common shares outstanding represent the shares outstanding as of the balance sheet date for the quarter-to-date period and an average of each quarter for the year-to-date period, plus shares issuable upon exercise or vesting of all outstanding equity awards (assuming a performance achievement target level for equity awards with targets considered probable).

The following table reconciles GAAP "Net income attributable to common stockholders" to "Adjusted net income attributable to common stockholders" and presents the number of adjusted common shares outstanding used in calculating adjusted EPS for each period presented below:

Adjusted Common Shares Outstanding at December 31, 2022 and 2021

The following table shows the Company's adjusted common shares outstanding at each period presented:

EBITDA and Adjusted EBITDA:

EBITDA represents earnings before interest, provision for income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA, excluding the impact of additional items included in GAAP earnings which the Company believes are not representative or indicative of its ongoing business, including unrealized gains/losses on metals derivative contracts, or are considered to be associated with its capital structure, as described in the footnotes located under the "Adjusted Earnings Per Share (EPS)" reconciliation table above. Adjusted EBITDA for each segment also includes an allocation of corporate costs, such as compensation expense and professional fees. Management believes adjusted EBITDA and adjusted EBITDA margin provide investors with a more complete understanding of the long-term profitability trends of Element Solutions' business and facilitate comparisons of its profitability to prior and future periods.

The following table reconciles GAAP "Net income attributable to common stockholders" to "Adjusted EBITDA" for each of the periods presented: