Earnings call: Element Solutions reported a 20% year-over-year growth

Element Solutions Inc (ticker: NYSE:ESI) has announced robust financial results for the second quarter of 2024, highlighting significant earnings growth and expanded EBITDA margins. The company, specializing in chemical production, reported a 20% year-over-year growth, with its electronics segment experiencing more than 10% volume growth. Despite softer demand in Europe and lower revenues for metal price surcharges in the Industrial & Specialty segments, Element Solutions is optimistic about continuing its strong performance into the second half of the year. The company's representative, Benjamin Gliklich, provided insights into the future, including expected improvements in the electronics market and strategic expansions in manufacturing and research and development.

Key Takeaways

• Element Solutions reported a 20% year-over-year growth, with a 250 basis point expansion in adjusted EBITDA margins.
• The Electronics segment witnessed over 10% volume growth, particularly in Circuitry Solutions.
• Industrial & Specialty segments faced softer demand, particularly in Europe.
• The company forecasts strong performance in the second half of 2024, with a focus on scaling manufacturing capacity.
• Expectations for the demand in electronics to increase, driven by new markets like high-performance compute and electric vehicles.
• Plans to build a research and development center in India and double capacity in power electronics.
• Anticipated EBITDA for Q3 is estimated between $140-145 million, with the remainder expected in Q4.

Company Outlook

• Element Solutions anticipates achieving the higher end of their guidance range for 2024.
• The company predicts sequential stability or improvement in the coming months.
• Improvement in working capital percent of sales expected by year-end.
• Operating leverage on taxes and interest is anticipated, with no significant capital expenditure lumpiness.

Bearish Highlights

• Recovery of the industrial markets is not expected in the second half of the year.
• Circuit board assembly business impacted by a weaker industrial backdrop.

Bullish Highlights

• Strong demand for the circuitry business driven by emerging electronics applications.
• Diversification of the power electronics business portfolio, with expectations to outperform electric vehicle units.
• Long-term growth prospects in high-value electronics.

Misses

• Some supply constraints anticipated in the smartphone market.

Q&A Highlights

• AI technology demand is a bullish trend for the company, expected to drive volume and growth in the long term.
• The company's profitability per smartphone could improve with the introduction of AI-enabled devices.
• Investments in strategic capacity expansion and applications development initiatives are underway.

Element Solutions' positive quarterly report and optimistic outlook reflect the company's strategic focus on high-value verticals and emerging markets. With planned expansions in manufacturing and R&D, the company is positioning itself for sustained growth in the electronics sector. Despite challenges in the broader industrial market, Element Solutions remains confident in its long-term prospects and is poised to capitalize on the bullish trends in AI technology and high-end electronics.

InvestingPro Insights

Element Solutions Inc (ticker: ESI) has demonstrated a strong financial performance in the recent quarter, and the outlook for the company remains positive. InvestingPro data and tips provide additional context for investors considering the company's prospects:

• The company has a market capitalization of $6.35 billion USD, reflecting its substantial size within the chemical production industry.

• With a P/E ratio of 31.71, Element Solutions is trading at a high earnings multiple, suggesting that investors may expect continued growth and profitability.

• The firm's gross profit margin stands at a healthy 40.09%, indicating effective cost management and a strong position to maintain profitability.

According to InvestingPro Tips, Element Solutions is expected to see net income growth this year. Additionally, the company has been profitable over the last twelve months, providing a solid foundation for future growth. A total of 7 analysts have revised their earnings upwards for the upcoming period, signaling confidence in the company's financial trajectory.

Moreover, Element Solutions has delivered a strong return over the last three months, with a price total return of 13.22%, and over the last five years, it has shown resilience with a robust long-term return. These metrics are particularly relevant for investors looking for companies with a proven track record of performance and a positive outlook.

For more detailed analysis and additional InvestingPro Tips, visit https://www.investing.com/pro/ESI. There are more tips listed on InvestingPro that can provide further insights into Element Solutions' financial health and future prospects. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.

Full transcript - Platform Sp (ESI) Q2 2024:

Operator: Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Element Solutions Second Quarter 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I will now turn the conference over to Varun Gokhan, Senior Director of Strategy and Finance. You may begin.

Varun Gokarn: Good morning, and thank you for participating in our second quarter 2024 earnings conference call. Joining me today are our President and 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 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 Investors 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 Gliklich.

Benjamin Gliklich: Thank you, Varun, and good morning, everyone. Thank you for joining. Element Solutions' had an exceptional second quarter. Our efforts over the past several years to reclaim value in our supply chain, and position ourselves as key enablers of emerging electronics technologies, are paying off with strong earnings growth. Our capabilities to serve fast-growing, high-performance computing applications, data center customers, and semiconductor fabricators drove volume growth in high-value verticals in what remains a soft consumer electronics and industrial environment. Similar to the first quarter, we saw robust incremental margins, driven by mix impacts and pricing stability amidst deflation in certain commodities. Our adjusted EBITDA margins expanded 250 basis points, and adjusted EBITDA grew by over 20% year-over-year on a constant currency basis, with both segments growing by double-digits. Electronic segment results were driven by more than 10% volume growth in our Circuitry Solutions business, primarily due to strong demand from HPC, AI, EV, and certain mobile markets. Our revenue in Circuitry Solutions grew over 20% organically, despite the mobile phone market remaining well below long-term average units. We also saw continued strength in advanced, and wafer-level packaging applications in our semiconductor business, to support increasing semi-fab utilization. This strength was moderated, by relatively soft demand for power electronics, and electronics assembly materials with certain EV customers. Continuing the first quarter trend, the Industrial & Specialty segments saw a combination of softer automotive demand in Europe, and the impact of lower revenue for metal price surcharges in the core industrial portfolio. Profitability in the segment still increased significantly from lower raw material costs, and ongoing strength in our Energy Solutions business, which grew net sales by almost double-digits at high incremental margins. Margin expansion in the first half was a key contributor, to strong earnings growth. For many of our businesses, these margins were achieved at volumes well below where they had been the past few years. So our margin strength underscores the success of our investment in higher value, higher margin applications, and our ability to take permanent cost actions that contribute to profitability. Moving into the second half, we should lap the benefits of lower raw materials and some of our supply chain actions, but margins should remain stronger year-over-year. Through long-term concentrated investment in new capabilities within our electronics portfolio, we've positioned ESI to capitalize on emerging sources of demand that propelled the business this quarter. That dynamic supports our confidence in the long-term growth algorithm of our electronics franchise. Our investments in dye and package-attached solutions, our new research center in the fast-growing India market, and our scale-up of high-volume manufacturing capacity for nano copper technologies are just a few examples of element solutions investing, to align itself as a critical development partner, for both OEMs and fabricators. Computing performance improvement increasingly requires unique material sets that, span the circuit board, the chip, and the variety of attachment technologies which connect them. And we are the only solutions provider with decades of technical expertise across the breadth of those applications in the electronics manufacturing supply chain. We have a differentiated ability to solve emerging customer pain points in high-growth areas. And our pipeline of commercial opportunities in wafer-level packaging and Circuitry Solutions reinforces that advantage and has accelerated as we build on improved customer intimacy from our successful ViaForm investment and customer excitement around our Kuprion active copper applications development. Over the next 12 to 18 months, we're focused on scaling our manufacturing capacity to meet the commercial opportunity that, has become apparent in these areas. At the same time, our balance sheet, is improving to the point where we can consider, additional inorganic capital deployment aligned with our strategy. It's an exciting time. Carey will now take you through our second quarter business results in more detail. Carey?

Carey Dorman: Thanks, Ben, and good morning to everyone. Continuing on Slide 3, which provides an overview of our second quarter financial results, we delivered constant currency adjusted EBITDA growth of 21% off of 4% organic sales growth. Strong incremental margins reflect a substantial mixed benefit from standout growth in our high-margin circuitry businesses in Asia, as well as in energy solutions. Net sales in electronics grew 7% organically, led by growth in high-value advanced circuit board metallization chemistry, and memory disk growth for cloud storage markets. Net sales in our Industrial & Specialty segment declined 1% organically. We saw solid growth in offshore, and modest growth in North American printer demand and graphics. This growth, however, was more than offset by lower precious metal surcharges and softness in industrial surface treatment. The strengthening U.S. dollar negatively impacted total company net sales and adjusted EBITDA, by roughly 3% and 5%, respectively, on a year-over-year basis this quarter. Both segments expanded adjusted EBITDA margins over 200 basis points. Constant currency adjusted EBITDA grew 26% in electronics, driven by positive mix from circuitry and gross margin expansion in all verticals, primarily from input deflation and stable product pricing. In I&S, constant currency adjusted EBITDA grew 12%, with a similar vertical mix impact, as well as meaningful gross margin expansion in industrial, driven by product mix and lower input costs. Excluding the impact of $99 million of past through metal sales in assembly solutions, our adjusted EBITDA margin would have been 26% in the second quarter. Moving on to Slide 4, where we share additional detail on the drivers of organic net sales growth in our two segments. We continue to see improving sales dynamics in electronics driven by our targeted growth areas. This is a positive sign for our business, especially as the market recovery, is expected to broaden in the second half. Industrially oriented customers remain headwind to growth, particularly in industrial solutions and our assembly business in electronics. In assembly, soft automotive demand in Europe continued from the first quarter, but this was offset by improving consumer electronics in China. The vertical grew net sales organically by 2%, and year-over-year volumes were up. Circuitry Solution sales improved 22% organically. Growth was led by continued demand, for memory disk chemistry in cloud storage markets and strong volume growth in our core circuitry applications, for specific customers in Asian Mobile, as well as China EV and AI related applications. Our outsized growth in circuitry demonstrates the emergence of demand for our high value applications, outside of the traditional high end smartphone market that, has driven performance over the past several years. The smartphone market has not recovered meaningfully year-to-date. Third-party estimates for global smartphone unit growth of 7% in the quarter suggest only low single-digit growth from Western OEMs, with significant upside coming from domestic Chinese handsets. Our customers are expecting an improved second half, and while still early, new AI-enabled smartphone, tablets, and PCs have the potential to drive meaningful refresh cycles over the next several years. That lever is not considered in our outlook for the rest of 2024. Semiconductor solutions grew 2% organically. Significant increases in wafer-level packaging sales in Asia to both semi-fabs and OSATs were partially offset, by softer semiconductor assembly sales into power electronics for EV customers. We anticipate power electronics will see sequential improvement in Q3, by looking at both customer forecasts and the progress we have made broadening, our power electronics customer base. We saw improved utilization for major OSATs and I expect a multi-year continuation of demand growth in wafer-level packaging, driven by advanced packaging applications that support memory, server, and AI chip markets. Moving to Industrial & Specialty. In Industrial Solutions, the majority of the 3% sales decline was reductions in surcharges for commodity metals like palladium and nickel. While these metal price swings impact headline sales, the higher mix of value-add, time margin, recurring chemistry revenue drove margins up. Demand across Europe and from automotive customers globally was sluggish. Asia was a relative bright spot, with Chinese expert demand increasing both year-over-year and sequentially. We expect a negative mix of impact of commodity surcharges pricing to ease in the second half and new customer wins to drive additional sales volume. Energy Solutions remained a bright spot in the I&S portfolio, with organic sales growth of 9% in the quarter, driven by volume, and modest pricing actions. We expect the energy business, to continue to operate at similar levels of profitability for some time. Turning to Slide 5. We generated $52 million of free cash flow in the second quarter. $33 million was invested into working capital, primarily into accounts receivable, due to sequential revenue acceleration, particularly in Asia, and into inventory, also from sequential increase in demand, as well as from higher TIM prices, which is our single largest raw material. CapEx in the quarter was $15 million, as we progressed on strategic capacity expansion projects and applications development initiatives and select growth geographies. Our full year expectations for cash interest, cash taxes, and CapEx remain unchanged. Turning to the balance sheet. Our net leverage ratio at the end of the quarter was 3.2 times. Our capital structure includes no interest rate exposure for the remainder of the year, and we have no debt maturities until 2028. We expect net leverage at below three times by the end of the year, barring further capital deployment. And now, I will turn the call back to Benefit, to discuss our outlook for the second half.

Benjamin Gliklich: Thank you, Carey. We've had a strong first half, and expect that to continue as reflected in the increased guidance we introduced in June. While our markets are not uniformly improving, our conversations with customers and suppliers support a constructive view on more broad-based electronics demand improvement beginning in the second half. We do not see the industrial markets recovering in the second half, nor do we expect them to be weaker. Historically, the third quarter is seasonally the strongest, given the timing of product launches and pre-building activity in electronics. This is likely to be the case again. However, the exact cadence and magnitude of that uplift in the second half, will depend on the pace and level of improvement in mobile phone markets. The midpoint of our recently increased adjusted EBITDA guidance, translates to a healthy 15% constant currency growth. We would anticipate achieving the higher end of our range should mobile markets improve beyond current expectations, of low single-digit unit growth for the year. Our focus remains on execution. Commercially, we have a high-quality, high-probability pipeline of large, leading-edge electronics opportunities. Operationally, we're working to optimize our footprint by expanding manufacturing capacity for future growth areas, such as nano copper and power electronics, driving productivity in our legacy industrial manufacturing assets, and building research and applications development in high-leverage geographies. We've seen an inflection in our business in terms of the sources of demand in electronics, the adoption of our technology by new customers, and the quality of engagement we have with large OEMs and specifiers. Our outlook for 2024 exceeds where we began the year, and our go-forward expectations for market outperformance, have improved as well. To wrap up, I'd like to thank all of our stakeholders for their continued support of Element Solutions, and in particular, our exceptional and highly engaged people around the world, who are responsible for another strong quarter and our improved outlook. With that, operator, please open the line for questions.

Operator: Thank you. [Operator Instructions] Your first question comes from the line of John Roberts with Mizuho. Please go ahead.

John Roberts: Thanks, and congrats on the strong results here. The range in the second half seems to depend on smartphones, but you're having really strong results in spite of minimal recovery in smartphones. So just how important are smartphones? And can you remind us about the second half outlook seasonality, compared to your normal seasonality before the pandemic?

Benjamin Gliklich: Thanks for the question, John. So historically, we point to smartphones as a strong indicator for our circuitry business. And what you saw in the second quarter, is that there are these new sources of demand emerging outside of the smartphone market that, are propelling the business, right. We're in an improving, but still not strong smartphone environment, and the circuitry business is up 22% in the quarter. Smartphones remain a big and important source of demand for the overall electronics ecosystem, and a strong recovery or stronger than expected recovery in the smartphone market is what we've sort of pinned the upper end of our guidance range on. But we still have a path to getting to the midpoint of guidance, without that stronger than expected recovery. With regard to the second part of your question around typical seasonality, the third quarter is historically our strongest quarter. The second half is usually somewhere around 5% to 10% stronger than the first half. We've got about a 5% uplift, because the smartphone market is not expected to be particularly robust based on call it market estimates, research estimates today. And so that's why we're sort of in that 5% range, and the 10% range is tied to a stronger smartphone market.

John Roberts: Great. Thank you.

Operator: Your next question comes from the line of Josh Spector with UBS. Please go ahead.

Joshua Spector: Yes, hi, good morning, guys. So I wanted to ask on the relative view on the strength of 2Q and the uncertainty, I guess, in forecasting 3Q right now. I mean, has anything been pulled forward in your view? Or is it more uncertainty around production plans, call it, in September that's making 3Q tougher to call?

Benjamin Gliklich: So we don't see 2Q as a pull forward, right? We keep talking about these new emerging sources of demand for the electronics business, which are frankly very exciting as the business is moving away from being as driven by smartphones, as it was over the past decade. Things like high performance compute, industrial automation, electronics and electric vehicles, are all driving pretty substantial demand, or drove substantial demand in the second quarter. We don't see that going away. With regard to uncertainty, the large OEMs don't know, how many smartphones don't know they are going to sell in the back half of the year, and that's what's going to drive volume. And there's quite a dispersion, I would say, between what some research analysts are forecasting in terms of units, and then some of the things you see in the press, which are more optimistic about smartphone units in the back half. And so that accounts for the range that we have, going into the second half. And also, some of the uncertainty around phasing, because production cycle ramps sometimes start earlier in Q3, and sometimes fall into Q4. But with regard to the back half, we feel pretty good about the range, and about getting to the higher end of that range should smartphone units be, higher than low single-digits from a growth standpoint in 2024.

Joshua Spector: Thanks, Ben. I guess just on the semi side, can you talk about the two parts of the business maybe a little bit more? What kind of growth are you seeing on front end and assembly? And frankly, the impact of I think the power management side of it was bigger than, we anticipated and somewhat surprising to hear you talk about that improving. So just curious how you see that trajectory, moving through the second half as well? Thanks.

Benjamin Gliklich: Yes, thanks for that question, Josh. It's a good point to clarify. So our semi business has two components. There's wafer-level packaging, which is on the front end, and then semi business assembly, which is back end. The wafer-level packaging business had a very strong second quarter. We're outstripping MSI growth, high single-digit growth from a revenue standpoint in that business. Tied to the ViaForm transaction, share gains there. There's a lot of momentum in our wafer-level packaging business. The semi assembly business was softer in the second quarter, and that's tied to our power electronics portfolio, where the electric vehicle market, particularly within certain customers, was pretty soft in the second quarter. We see that semi assembly part of the business accelerating in the third quarter. Very constructive from a long-term perspective, we've been winning power electronics business outside of the core OEMs, where we've been concentrated in the past. And so, our confidence in the growth opportunity for our power electronics business grew. The pipeline there is very strong, and we're converting it very effectively. And in general, the outlook for that semi assembly business is very, very strong over a multiple year period.

Joshua Spector: All right. Thanks, Ben.

Operator: Your next question comes from the line of Chris Parkinson with Wolfe Research. Please go ahead.

Chris Parkinson: Great. Thank you so much. Ben, just an extension off of that question for the intermediate to long-term, you've made some decent investments and you've been kind of growing some capacity in specific, substrates within that semi business. Can you just offer some further insight in addition, to what you just said in terms of how these streets should be gauging that business, not just for the next six to nine months, but ultimately for the next two to three years based on your vision overall? Thank you.

Benjamin Gliklich: Yes. Thanks for the question, Chris. So we've been out with a couple of electronics deep dives, teaching the investor community about the capabilities in our semiconductor portfolio, in our broader electronics portfolio. And there are a few observations I'd make. First, the semiconductor portfolio we have is very differentiated in terms of what we can offer from a front-end perspective. Wafer-level packaging perspective, which gets to advanced packaging, and then semi assembly, which is advanced packaging and package attach. Those are areas of the electronics hardware market, where there's a lot of innovation. And our solutions are enabling our customers, and their customers' next-generation products. And the traction we have from the breadth of solutions and complementarity of our portfolio, with the supply chain is very, very strong. And it's creating significant opportunities, which we see in our pipeline and are very excited about. The broader electronics portfolio hangs together very, very well. And this comment I've been making about emerging sources of demand in our electronics business, is very compelling for us and gives us a lot of conviction in the long-term growth opportunities for the business, because our addressable market is expanding as these new sources of demand become large markets. These new sources of demand are AI, high-performance compute, data storage, even electronics in electric vehicles. And we see significant runway here, as demonstrated by the strength in the second quarter, in what was a generally soft industrial and electronics market. It gives us good visibility to record results in the coming years.

Chris Parkinson: And just the quick follow-up, I would say just on free cash flow. I understand, obviously, the working capital investment, but CapEx is flat, numbers moving in the right direction. Perhaps for the second half, can you just give us a little bit of color on the puts and takes for second half free cash flow conversion and just remind us, of how we should be thinking about this conversion, '25 onward, just given the evolving mix of your businesses? Thank you.

Carey Dorman: Sure, Chris. So, for the rest of 2024, to hit that first point, as you noted, we're holding the free cash flow range of $280 million to $300 million. And the real driver of that is the working capital investment that we're expecting, for the full year based on where our growth is coming from. The electronics business is where we're seeing most of our growth. That is heavily Asia focused. And the working capital intensity for the Asia business, is slightly higher than the average for the company. So, that's really the dynamic you're seeing for 2024. You actually look at the PSO and DII for the business, you're seeing sequential stability, if not some improvement. And then we expect to see a working capital percent of sales improvement, as we trend - to the end of the year. So, you should see some release by the end of the year. There'll still be an investment on a full year basis. When we think about '25 and beyond, I don't think much has changed on the overall dynamics of cash flow conversion. In growing years, it's slightly lower. And in, more average growth years, should be back to the range we've seen over - the last five.

Chris Parkinson: Very helpful.

Benjamin Gliklich: There is no lumpiness, no lumpiness we'd expect from a capital perspective. And we've been able to hold taxes and interest flat. And so, we'll get operating leverage on those lines.

Chris Parkinson: Understood. Thank you.

Operator: Your next question comes from the line of Bhavesh Lodaya from BMO Capital Markets. Please go ahead.

Bhavesh Lodaya: Hi, good morning, Ben. We saw a sort of divergence in organic growth in circuitry versus semis and assembly. Is that just timing or the impact of some, the new business wins that you spoke about? Maybe some examples on what they are?

Benjamin Gliklich: Sure, thanks. So, we've spoken already about what we saw in the semi business, where the wafer-level packaging business has been very strong in the semi-assembly business, tied to electric vehicles, offset that growth on the top line. In the circuit board assembly business, you've got a broader set of exposures and you're more industrially driven. So, automotive market and generally weaker industrial backdrop are responsible for the performance divergence. I would say, between circuitry and circuit board assembly in the second quarter. On the circuitry solution side, we saw strong demand driven by these emerging applications in electronics. So, you look at high-performance compute, talked about AI, we talked about EV, certain mobile markets. So, there was some strength in the local Chinese mobile market, there was strength in certain tablet applications in the second quarter. Volumes in that business were up north of 10%, and mix was also a driver there, as these new applications are high-value applications. So, the price point of our chemistry and our solutions are higher and that's driving, the balance of the organic growth that we saw. As we look forward to the second half, I think that that divergence between circuit board assembly, and circuitry should persist. Because we don't expect the industrial markets to get materially better, but we do see the semi-business accelerating in the second half. And so, you should expect a stronger semi set of results from the semi-business in 2H.

Bhavesh Lodaya: Understood. And then you have sounded more, I would say, open about potential M&A or, organic investments. In the past, you've done all kinds of transactions, like existing businesses, like Coventya, ViaForm, or even something like Kuprion, which is more of a growth development timeline story. Can you tell us what your focus is going to be, as you go in the second half next year? Like what kind of businesses are you looking at?

Benjamin Gliklich: Sure. So, I think, Bhavesh, you rightly pointed out, what I would characterize as flexibility and an opportunistic approach, when it comes to M&A. And I would say that it's an opportunistic approach, when it comes to all of our capital allocation. We look at the opportunities available to us, and we deploy capital to the highest returning available channel. And we'll continue to pursue that strategy. We just have more capacity today, and we'll have increasing amounts of capacity as we roll forward, from a sizing perspective. Our M&A philosophy is pretty straightforward. We look for businesses, we want to invest behind our businesses into businesses that are of equal, or greater quality that we can make better, that are better inside of our company and available at attractive valuations. And we've been able to surface those types of opportunities, over the past several years. And I would expect, over the next couple of years, we'll have an opportunity to continue to do so.

Bhavesh Lodaya: Thank you.

Operator: Your next question comes from the line of Steve Byrne with Bank of America. Please go ahead. Steve, your line is open.

Steve Byrne: Sorry about that. I was on mute. Sorry about that. Ben, on that 7% organic sales growth in electronics, can you split out volume versus price on that? And more importantly, how would you compare your volume to like underlying demand growth or productivity - production rates? I recall in the past, you expected, a few hundred basis point of outperformance, versus some of your key end markets. Is that still the case, or do you think that that potentially is expanding?

Benjamin Gliklich: Yes, thanks for the question, Steve. So not all volume is created equal in our electronics businesses. We run the gamut from, mostly metal to very small, liter [ph] size containers of high value additives into the semiconductor fabricators. But I would say most of the growth in the second quarter was volume driven. There was also a positive mix impact. There - this wasn't a quarter where we were out actively taking price per se. But mix was a contributor to organic growth. And if you look at the backdrop in which we're operating, I do see, outperformance in excess of what we would have pointed to, particularly when you look at our circuitry business. Again, the smartphone market was up in the mid-single-digits and our circuitry volumes, were up in the double-digits. Our front end capability and wafer level packaging that was a high-single-digit to double-digit volume grower. And MSI wasn't up in that order by that order of magnitude. So, we are certainly outperforming our key benchmarks as we had committed to probably in excess of that baseline. But one quarter is a tough sort of period to make a judgment call around that.

Steve Byrne: Thank you for that. And I recall a couple of years back, I thought, computing, maybe it's a combination of, data storage and computing power was roughly 10% of your sales in electronics. Where is it now and where do you think this could go, particularly as computing moves more and more, driven by AI computing power?

Benjamin Gliklich: Yes, it's a good question. And again, it's hard to make an assessment on a single quarter. I think we could dust that out better after a full year. But clearly this quarter, these new sources of demand are contributing disproportionately to growth, and therefore growing from a mixed perspective, right. So, our data storage business grew really well. Our content in large server boards grew very nicely. Content in electric vehicles grew nicely, but was offset by a softer, broader automotive market. So, it clearly is going to be a significant growth vector, and will be a larger portion of mix. I'd say it's got several years of runway from disproportionate growth relative to the broader electronics market. But other markets like the smartphone market are still going to be big markets for us. And as they recover, they're going to contribute significantly to growth, because we're closer to the trough in that smartphone market, than we are to the long-term trend. So, the growth vectors here are from secular growth in the markets we just talked about and an ongoing recovery in the broader electronics ecosystem.

Steve Byrne: Thank you.

Operator: Your next question comes from the line of Jon Tanwanteng from CJS. Please go ahead.

Jon Tanwanteng: Hi. Good morning. Thanks for the questions. Can you expand on the mix and concentration of customers in the power electronics business, legacy versus new launches, and logos going forward and how you expect that to drive growth? And maybe after that, how does Kuprion factor into that mix in the next year or two?

Benjamin Gliklich: Thanks for the question, John. Yes, it's an important point. So, our power electronics business was historically rather concentrated in a couple of OEMs. And we've done a lot of work to expand our penetration of the electric vehicle market, both into legacy Western OEMs that have longer product launch life cycles, and into some of the emerging Chinese electric vehicle OEMs. And that's been successful thus far, both in terms of current period revenue, but also, and more importantly, in terms of pipeline and opportunities. And so, we're diversifying that portfolio actively. We've had some great success, some very big wins. And that concentration is going to decline, as this technology gains traction in the broader global supply chains. I think we're a couple of years away from calling that a complete success, a complete victory, but we're certainly on track. And what that points to, is an ability to outperform electric vehicle units going forward. So, we're going to be growing that business, not just as EV units grow, but as the penetration of the EV supply chain expands. With regard to Kuprion's impact on that, the nearer term Kuprion, or active copper opportunities are not in power electronics. They're not in dye-attached applications. They're more in the circuitry side of the business, thermal management opportunities and metallization opportunities. Over time, Kuprion will likely be an alternative so that we can offer a broader set of capabilities into the electric vehicle market. But the more exciting and very substantial near to medium-term opportunities for active copper are actually on the circuitry side. And we've got great traction, made significant progress over the past 90 days, from a technical and commercialization perspective with active copper.

Jon Tanwanteng: Got it. Thanks for the clarification. And then, just to drill a little bit deeper in the smartphone prospects for the second half, it seems like you're expecting strong demand. But I think Apple (NASDAQ:AAPL) has said that they expect the supply constraint as well. I was wondering if you could square those two comments, knowing that your concentration among the higher-end smartphone suppliers is a little bit stronger?

Benjamin Gliklich: Yes, John it's a good question. And that dispersion between some comments from high-end smartphone OEMs with regard to what they're asking their supply chains, to produce for in the back half versus market research, which is talking to or suggesting low single-digit unit growth, that dispersion accounts for the range we have for the full year. The EBITDA range for the full year. It's not a huge surprise that there's some level of supply constraint. We talk about how a lot of electronics capacity is generic. And so, when you've got excess demand from an AI perspective right, at the leading edge, that's going to absorb capacity from smartphones, for example. In the near term, it's a supply constraint, perhaps. But in the long-term, it's a very bullish and exciting trend. Because you're going to see more capacity come online, which is going to drive more volume and growth for us. And we participate disproportionately in that higher-end electronics area. And so, it points to real growth at high value for the next several years.

Jon Tanwanteng: Great. Thank you. Your next question comes from the line of Duffy Fischer with Goldman Sachs. Please go ahead.

Duffy Fischer: Yes. Good morning, guys. If you would, the implied $276 million of midpoint EBITDA in the back half, what's the best guess how that gets split by quarter? And then, if we move towards the higher end of that range for the back half, is that more likely to be in Q3 or in Q4?

Benjamin Gliklich: Thanks for the question, Duffy. It's difficult to forecast the September-October split, which accounts for less precision, I would say, in our Q3 guide. But the way that consensus has it is about right. Consensus is somewhere around $140 million to $145 million for Q3, with the balance falling into the back - into Q4. And I think that if mobile phone units are really ramping, you'll see that in both the third quarter and the fourth quarter.

Duffy Fischer: Okay. And then, if you exclude the metal pass-through in some of the contractual pricing business, sequentially, what do you think price cost does into the back half of the year?

Benjamin Gliklich: Yes. So, I don't see us lapping, or the cost deflation that we saw from the first half starts to - the year-over-year impact of cost deflation starts to fall away in the back half. And so, price cost should be closer to neutral in the back half than it was in the first half. I think we had about $3 million to $4 million of ex metal raw material savings in Q2, and that number will be lower in Q3 and Q4.

Duffy Fischer: Great. Thank you, guys.

Benjamin Gliklich: Thanks Duffy.

Operator: Your next question comes from the line of Mike Leithead with Barclays. Please go ahead.

Michael Leithead: Great. Thanks. Good morning, guys. I wanted to ask on incremental margins in the quarter. It seems like in both electronics and industrial, you posted some pretty high numbers there even before adjusting for some of the metal pass-through. So, was that mixed? Was that the cost deflation you just mentioned? Can you just kind of help unpack what drove that this quarter?

Benjamin Gliklich: Sure thanks. It was mixed in cost deflation, as you rightly pointed out. So, it was more mixed than cost deflation. So, as I just said, about $4 million of cost deflation across the business on a year-over-year basis. And then we had a very favorable mix, right. So, in the Industrial & Specialty segment, both from a vertical perspective, right, the offshore business outperformed the other two, and that's at a higher margin. And also within the vertical, so, we were selling less of - certain commodity metals that we sell with a surcharge, and hence lower margins in the industrial solutions business, and that volume was replaced by proprietary higher margin chemistry. Within the electronics business, it's a similar story where we saw both outperformance from higher margin verticals like circuitry. And also mix within that circuitry business, skewing towards these high-value emerging vectors of growth like AI. And so, it's mostly a mixed story, but there was, of course, some cost deflation, and we've been able to hold price, as we said we would.

Michael Leithead: Great. That's helpful. And then just a bigger picture question, there's a lot of headlines and stories around AI-enabled smartphones, and sort of what that can do to the phone refresh cycle, and I think you alluded to that in your prepared remarks. But if you think about the next gen of smartphones or other devices, would you expect your content, or profitability per smartphone to improve? I guess I'm trying to get at any mix or margin tailwinds besides just the unit volume story for Elements?

Benjamin Gliklich: Yes, I think you're seeing that in the second quarter where the new sources of demand are coming at higher value. And so, you're going to get higher margins from emerging applications, where we've got differentiated solutions, right. The more unique our value proposition to solve a customer pain point to higher the margins, and you should get units as well if there's a refresh cycle, as you're speculating there. So, you should see both volume growth, and mix improvement in that scenario.

Michael Leithead: Great. Thanks.

Benjamin Gliklich: Thank you, Mike.

Operator: Your next question comes from the line of David Silver with C.L. King and Associates. Please go ahead.

David Silver: Yes. Hi. Thank you. My question here would be focused on, I guess, discretionary CapEx spend, but for the first half of the year, Ben, I guess net income is up, but free cash flow is down. You cited - sorry CapEx is up and you cited some investment in working capital. I'm quoting from Slide 5, but you said the discretionary CapEx spend, or the higher CapEx spend reflects progress on several strategic capacity expansion and applications development initiatives. Could you just highlight what you're directing discretionary capital into at this time? What are the highest priority initiatives that you're allocating discretionary capital to? Thank you.

Benjamin Gliklich: Yes. I'm not sure discretionary is the term we use for it, but this is a business that doesn't require significant capital to support its margins and to grow. We're doubling capacity within one area where we were somewhat capacity constrained around power electronics, for example. To double capacity there, it's a $15 million investment ballpark, which has been running over the past 12 months or so. We're getting close to the conclusion there. We're building, we talked about this in our script a little bit, in our prepared remarks. We're building a research and development center in India, which is a very fast growth. We call it a high leverage geography across the electronic supply chain. Really we're investing, and these are not huge dollar projects, and there are only a few that we can manage at any given time. But we're investing in areas where our customers are going, or in capabilities that our customers are pulling from us. Less really capacity, because we have ample capacity by and large across our manufacturing footprint, more in capabilities to support customer innovation and build customer proximity.

David Silver: Okay. Great. And then, I'd like to just go to the first page of your press release, and I'm going to quote you by saying there's growing confidence for several years of record earnings ahead. And while I generally agree with that, I mean there's been a few surprises, I guess, in the overall end market development, transportation, consumer electronics has been soft, et cetera. But if you had to pick just a couple of factors, or a couple of drivers that give you that growing confidence for several years of record earnings, what would you call out? Would it be the wave of new capacity, or specific technologies at the company's specific level? What gives you that growing confidence? Thank you.

Benjamin Gliklich: Yes, so thanks for the question, David. On an earlier question, we talked about both cyclical recovery and secular growth, and as we sit here today, it's a subdued industrial market at best. The overall electronics market is closer to trough than sort of the long-term average. Yet ESI, based on its latest guidance, is on track for record EBITDA this year, right and that's before taking into consideration a $50-plus million FX headwind. So the strategic execution here, between both value recapture in our supply chain and positioning the business, to benefit from these pockets of new demand, has really put the company in a place where see - we have high conviction for long-term growth. And we always say that secular growth isn't linear and there are going to be air pockets along the way, but these emerging sources of demand are very powerful and growing very quickly. And so, we're just starting to see the benefit of that. And recovery in the broader electronics market, which we're also starting to see the beginning of, and a potential recovery in the industrial market, which we're not counting on in the back half. Those three things together give us the conviction, to say that the runway from here and the outlook is very positive. And so, we're not calling when the industrial market will get better. We're not calling the magnitude, or specific timing of the electronics market getting back to trend. But we're seeing in the P&L today, the strength of these emerging demand vectors. So between those three things, the outlook is great and it's an exciting time.

David Silver: Great. Thank you very much.

Benjamin Gliklich: Thanks, David.

Operator: And this concludes our question-and-answer session. And I will now turn the conference back over to Ben Gliklich for closing remarks.

Benjamin Gliklich: Thanks very much for joining this morning. And we look forward to seeing many of you in the coming days and weeks. Have a good day.

Operator: And this concludes today's conference call. Thank you for your participation. And you may now disconnect.

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