Element Solutions Inc: Form 10-Q for the period ended Mar 31, 2026

This Management's Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and related notes included in this Quarterly Report, and the Consolidated Financial Statements, related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations section and other disclosures contained in our 2025 Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements as a result of several factors, including, but not limited to, those discussed in "Forward-Looking Statements” of this Quarterly Report, and in Part I, Item 1A, "Risk Factors" of our 2025 Annual Report.

Overview

Our Business

Element Solutions, incorporated in Delaware in January 2014, is a leading global specialty chemicals technology 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 multiple high-value industries, including semiconductor fabrication, high-performance computing, automotive systems, consumer electronics, power electronics, communications and data storage infrastructure, aerospace and defense, industrial surface finishing and offshore energy. Our product innovation and product extensions are expected to continue to drive sales growth in both new and existing markets while expanding margins through a consistent focus on increasing customer value propositions.

We believe the majority of our businesses hold strong positions in the high-growth markets we serve. Our extensive global teams of specially trained scientists and engineers develop our solutions, and our expert sales and service organizations ensure our customers' needs are met every day. Our customer-centric innovation means we develop technologies to meet the identified needs of our supply chains. We solve our customers' existing and emerging problems through technical service and innovation. We believe that our customers place significant value on the consistency and quality of our brands, on which we capitalize through significant market share, customer loyalty and supply chain access. In addition, operational risks and switching costs make it difficult for our customers to change suppliers which allows us to retain customers and maintain our market positions.

Our customers rely on our innovation to develop new products of their own, so our capabilities help them keep up in fast-paced, high-growth markets. To that end, we draw upon our broad and longstanding intellectual property portfolio and technical expertise, while working closely with both customers and OEMs on an ongoing basis, to develop proprietary solutions tailored to their manufacturing needs. We leverage these close relationships to win qualifications and specifications into their supply chains as well as to identify opportunities for new products; all of which provide potential additional revenue streams.

Our strategy is based on a balance of operational excellence and prudent capital allocation. Our operating teams focus on the strong execution of customer-led product development, superior technical sales support and continuous supply chain optimization. Our senior leadership aims to foster an environment of accountability and success for our operating teams while also evaluating and executing on high-return capital allocation opportunities that can drive compounding of long-term intrinsic value per share.

Our Operations

Our operations are organized into two segments: Electronics and Specialties, which are each described below:

Electronics – Our Electronics segment researches, formulates and sells specialty chemicals and material process technologies for all types of electronics hardware, from complex printed circuit board designs to advanced semiconductor packaging. In high-performance datacenters, mobile communications, computers, automobiles and aerospace equipment, its products are an integral part of the electronics manufacturing process and the functionality of end-products. The segment's "wet chemistries" for metallization, surface treatments and solderable finishes form the physical circuitry pathways and its "assembly materials," such as SMT, pastes, fluxes and adhesives, join those pathways together.

Electronics provides solutions through the following businesses:

Specialties – Our Specialties segment researches, formulates and sells specialty chemicals and material process technologies that enable or enhance the performance of high value products across diverse sectors from automotive to energy infrastructure to semiconductors and satellites. Its products include chemical systems that protect and decorate metal and plastic surfaces, chemistries used in water-based hydraulic control fluids for offshore energy production and rare or high-purity gases and advanced materials used in semiconductor fabrication, satellite systems, electrical transmission infrastructure and other end-markets.

Specialties provides solutions through the following businesses:

21

Recent Developments

Micromax Acquisition - On February 2, 2026, we completed the acquisition of Micromax, a global supplier of advanced electronics inks and pastes, for a purchase price of approximately $493 million, net of cash and subject to adjustments.

EFC Acquisition - On January 2, 2026, we completed the acquisition of EFC, a provider of high-purity specialty gases and other advanced materials, for a purchase price of approximately $367 million, net of cash and subject to adjustments, with a potential earn-out based on EFC's 2026 performance of up to $30.0 million cash or 1.16 million shares of the Company's common stock.

Add-on Term Loans & Revolver Upsize - On February 2, 2026, we completed the syndication of $450 million of Add-on Term Loans and a 5-year $500 million senior secured revolving credit facility, which replaced our then existing $375 million revolving facility, upsizing the facility by $125 million and extending its maturity to 2031. The proceeds of the Add-on Term Loans were used to fund a portion of the purchase price of the Micromax Acquisition.

Recent Accounting Pronouncements

Our recent accounting pronouncements have not changed materially from the summary disclosed in Note 3, Recent Accounting Pronouncements, to the Consolidated Financial Statements included in our 2025 Annual Report.

Non-GAAP Financial Measures

To supplement our financial results presented in accordance with GAAP in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section, we present certain non-GAAP financial measures, such as operating results on a constant currency and organic basis, Adjusted EBITDA and Adjusted EBITDA margin. 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 our business. We believe these non-GAAP financial measures, which are each further described below, provide investors with an additional perspective on trends and underlying operating results on a period-to-period comparable basis. We also believe that investors find this information helpful in understanding the ongoing performance of our operations separate from items that may have a disproportionate positive or negative impact on our financial results in any particular period or are considered to be associated with our 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 we report 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 our 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 Quarterly Report and not to rely on any single financial measure to evaluate our business.

Constant Currency

We disclose certain financial measures 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 our international locations into U.S. dollars. 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 our results of operations, consistent with how we internally evaluate our financial results.

The impact of foreign currency translation is calculated by converting our current-period local currency financial results into U.S. dollars using the prior period's exchange rates and comparing these adjusted amounts to our 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.

For a reconciliation of GAAP net sales growth to organic net sales growth, see "Net Sales" within the "Results of Operations" section below.

Adjusted EBITDA and Adjusted EBITDA Margin

We define Adjusted EBITDA as EBITDA, excluding the impact of additional items included in GAAP earnings which we believe are not representative or indicative of our ongoing business or are considered to be associated with our capital structure. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net sales excluding the value of certain pass-through metals in the Electronics segment. Adjusted EBITDA margin excludes the impact of certain pass-through metals in the Electronics segment as we believe the fluctuations in these metal prices do not reflect underlying operating results. Management believes Adjusted EBITDA and Adjusted EBITDA margin provide investors with a more complete understanding of the long-term profitability trends of our business and facilitates comparisons of our profitability to prior and future periods.

For a reconciliation of "Net income" to Adjusted EBITDA and more information about the adjustments made, see Note 12, Segment Information, to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report.

Results of Operations

Three months ended March 31, 2026 compared to three months ended March 31, 2025

(dollars in millions)

(nm) Calculation not meaningful.

Net Sales

Net sales in the first quarter of 2026 increased 41% on a reported basis and 10% on an organic basis. Electronics' consolidated results were positively impacted by $101 million of pass-through metals pricing and $64.8 million of acquisitions and Specialties' consolidated results were negatively impacted by $5.6 million of divestitures net of acquisitions.

The following table reconciles GAAP net sales growth to organic net sales growth:

(dollars in millions)

NOTE: Totals may not sum due to rounding.

Electronics' net sales in the first quarter of 2026 increased 61% on a reported basis and 15% on an organic basis. Net sales from pass-through metals were $256 million and $101 million for the three months ended March 31, 2026 and 2025, respectively.

• Assembly Solutions: net sales increased 68% on a reported basis and 12% on an organic basis. Pass-through metals pricing had a positive impact of 52% on reported net sales. Foreign exchange had a positive impact of 4% on reported net sales. The increase in organic net sales was primarily due to demand for engineered preform materials in datacenter applications and strength in pastes for premium smartphones in Asia.
• Circuitry Solutions: net sales increased 21% on a reported basis and 17% on an organic basis. Foreign exchange had a positive impact of 4% on reported net sales. The increase in organic net sales was primarily due to continued AI and data center investment driving demand for metallization solutions.
• Micromax: The Company completed the Micromax Acquisition on February 2, 2026. See Note 2, Acquisitions, to the unaudited Condensed Consolidated Financial Statements for further information.
• Semiconductor Solutions: net sales increased 22% on a reported basis and 18% on an organic basis. Foreign exchange had a positive impact of 3% on reported net sales. The increase in organic net sales was primarily due to increased demand in Asia for plating solutions for advanced packaging and inflation on precious metals content within these products, as well as growth in power electronics.

Specialties' net sales in the first quarter of 2026 increased 4% on a reported basis and 1% on an organic basis.

• Industrial Solutions: net sales increased 6% on a reported basis and were relatively flat on an organic basis. Foreign exchange had a positive impact of 6% on reported net sales. Flat organic sales were the result of automotive customer softness in the Americas offset by the impact of higher metal surcharges.
• EFC: The Company completed the EFC Acquisition on January 2, 2026. See Note 2, Acquisitions, to the unaudited Condensed Consolidated Financial Statements for further information.
• Energy Solutions: net sales increased 21% on a reported basis and 15% on an organic basis. Foreign exchange had a positive impact of 6% on reported net sales. The increase in organic net sales was primarily due to pricing actions and an increase in production volumes from competitive wins.

Gross Profit

(dollars in millions)

Electronics' gross profit in the first quarter of 2026 increased by 42% on a reported basis and 39% on a constant currency basis. The Micromax Acquisition had a positive impact of 8% on constant currency gross profit which includes $13.6 million of gross profit less an inventory step-up from purchase accounting of $1.4 million. The constant currency increase in gross profit dollars was primarily driven by broad-based organic volume growth across the Electronics businesses. Gross profit margins excluding net sales from pass-through metals improved 550 bps when compared to the first quarter of 2025. The increase in gross margin excluding the impact of pass-through metals was primarily due to positive mix from higher value product sales within the portfolio, including the Micromax products.

Specialties' gross profit in the first quarter of 2026 increased by 5% on a reported basis and remained relatively flat on a constant currency basis. The EFC Acquisition had a positive impact of 7% on constant currency gross profit which includes $7.9 million of gross profit less an inventory step-up from purchase accounting of $2.0 million. The MGS Transaction had a negative impact of $8.8 million, or 10%, on constant currency gross profit. Underlying gross margin improvement was primarily driven by growth in the higher margin Energy Solutions business.

Operating Expenses

(dollars in millions)

Operating expenses in the first quarter of 2026 increased 22% on a reported basis and 19% on a constant currency basis. The constant currency increase was primarily driven by $10.3 million of operating expenses related to businesses acquired in the first quarter of 2026 ($5.5 million from the Micromax Acquisition and $4.8 million from the EFC Acquisition), $10.3 million of higher non-recurring acquisition costs, higher incentive compensation costs due to increased expectations for strong full year financial results and a $5.9 million increase in the fair value of the contingent consideration associated with the EFC Acquisition in the first quarter of 2026; partially offset by $4.5 million of lower operating expenses due to the sale of MacDermid Graphics Solutions in the first quarter of 2025.

Other (Expense) Income

(dollars in millions)

Interest expense, net

For the three months ended March 31, 2026 and 2025, interest expense, net increased $7.2 million primarily due to a higher effective interest rate on a higher outstanding term loan principal balance and lower interest income when compared to the prior year period as well as interest expense borrowings under the Company's revolving credit facility in the first quarter of 2026.

Foreign exchange losses

For the three months ended March 31, 2026 and 2025, the fluctuations in foreign exchange losses were primarily driven by the remeasurement of intercompany loans.

Other expense, net

For the three months ended March 31, 2026, other expense, net included $5.2 million of net losses associated with metals derivative contracts ($26.9 million of realized losses and $21.7 million of unrealized gains) and $0.6 million of charges due to highly inflationary accounting for our operations in Turkey. For the three months ended March 31, 2025, other expense, net included $11.1 million of net losses associated with metals derivative contracts ($0.3 million of realized and $10.8 million of unrealized losses), $1.8 million of debt extinguishment costs related to the partial prepayment of our term loans B-3 and $1.2 million of charges due to highly inflationary accounting for our operations in Turkey.

The metal derivative contracts primarily relate to inventory associated with pass-through metals pricing in our Assembly Solutions business and are intended to mitigate the impact on "Gross profit" associated with fixed price agreements with our customers or commodity price movement after inventory is purchased. See Note 7, Financial Instruments, to the unaudited Condensed Consolidated Financial Statements for further discussion of these derivative instruments.

Gain on divestitures

In the first quarter of 2025, we completed the sale of our flexographic printing plate business, MacDermid Graphics Solutions, resulting in a gain of $72.1 million.

Income Tax

For the three months ended March 31, 2026, the Company recognized income tax expense of $26.7 million as compared to $17.8 million in the same period for 2025. Income tax expense for the three months ended March 31, 2026, includes a continued U.S. benefit related to claiming foreign tax credits, a recurring benefit from a U.S. tax deduction related to foreign-derived deduction eligible income (commonly referred to as FDDEI) partially offset with foreign tax credit valuation allowances of $6.4 million and net Controlled Foreign Corporation tested income (commonly referred to as NCTI) including the impact of changes to the level and mix of earnings. The foreign tax credit valuation allowance was required after taking into account the impacts on projected future taxable income from the EFC and Micromax Acquisitions, including significant tax-basis amortization of acquired intangible property and increased interest expense from the Add-on Term Loans.

Income tax expense for the three months ended March 31, 2025, included a continued U.S. benefit related to claiming foreign tax credits and a benefit from a U.S. tax deduction related to foreign-derived intangible income (commonly referred to as FDII), partially offset by a $7.7 million multi-year tax settlement and the impact of changes to the level and mix of earnings.

On February 28, 2025, we completed the MGS Transaction and realized a gain on sale of $72.1 million as of March 31, 2025. This transaction resulted in a nominal tax impact which reduced the effective tax rate primarily due to the realization of a deferred tax asset and an offsetting release of a valuation allowance.

See Note 10, Income Taxes, to the unaudited Condensed Consolidated Financial Statements for further information.

Segment Adjusted EBITDA Performance

(dollars in millions)

For the three months ended March 31, 2026, Electronics' Adjusted EBITDA increased 34% on a reported basis and 29% on a constant currency basis. The Micromax Acquisition had a positive impact of $10.2 million, or 11%, on constant currency Adjusted EBITDA. The remaining constant currency increase was primarily driven by the broad-based increase in sales across all businesses.

Specialties' Adjusted EBITDA increased 9% on a reported basis and 3% on a constant currency basis. The EFC Acquisition had a positive impact of $3.7 million, or 9%, on constant currency Adjusted EBITDA. The MGS Transaction had a negative impact of $5.3 million, or 13%, on constant currency Adjusted EBITDA. The remaining constant currency increase was primarily driven by growth from the Energy Solutions business.

Liquidity and Capital Resources

Our primary sources of liquidity during the three months ended March 31, 2026 were the proceeds from the Add-on Term Loans and our revolving credit facility and available cash generated from operations. Our primary uses of cash and cash equivalents were to fund the Micromax Acquisition, the EFC Acquisition and operations, including working capital and capital expenditures and pay cash dividends. Our first significant debt principal payment of approximately $800 million is related to the maturity of our 3.875% USD Notes due 2028. In the first quarter of 2026, we paid a cash dividend of 8 cents per share. We currently expect to continue to pay a cash dividend on a quarterly basis; however, the actual declaration of any cash dividends as well as their amounts and timing, will be subject to the final determination of our Board of Directors based on factors including our future earnings and cash flow generation.

For the full year 2026, we expect our capital expenditures to be approximately $75.0 million to $100 million. We believe that our cash and cash equivalents and cash generated from operations, supplemented by our availability under our lines of credit, including our revolving credit facility under the Credit Agreement, will be sufficient to meet our working capital needs, interest payments, capital expenditures, potential dividend payments and other business requirements for at least the next twelve months. However, working capital cycles and/or future repurchases of our common stock and/or acquisitions may require additional funding, which may include future debt and/or equity offerings. Our long-term liquidity may be influenced by our ability to borrow additional funds, manage interest rates, renegotiate existing debt and/or raise new equity or debt under terms that are favorable to us.

We may from time to time seek to repurchase our equity and/or to retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, applicable restrictions under our various financing arrangements and other factors.

During the three months ended March 31, 2026, approximately 76% of our net sales were generated from non-U.S. operations, and we expect a large portion of our net sales to continue to be generated outside of the U.S. As a result, our foreign subsidiaries will likely continue to generate a substantial portion of our cash. We manage our worldwide cash requirements with available funds generated by the many subsidiaries through which we conduct business. We expect to continue to have cost efficient access to those funds on a global basis. We may transfer cash from certain international subsidiaries to the U.S. and/or other international subsidiaries when we believe it is cost effective to do so. Of our $177 million of cash and cash equivalents at March 31, 2026, $145 million was held by our foreign subsidiaries.

The following is a summary of our cash flows (used in) provided by operating, investing, and financing activities during the periods indicated:

(dollars in millions)

Operating Activities

The decrease in net cash flows provided by operating activities of $92.6 million was primarily driven by higher investment in working capital from rising metals prices partially offset by higher cash operating profits (net income adjusted for non-cash items), including higher earnings as a result of the Micromax Acquisition and the EFC Acquisition, and lower incentive compensation due to timing of payments associated with 2025 performance.

Investing Activities

During the three months ended March 31, 2026, we paid $493 million in connection with the Micromax Acquisition and $367 million in connection with the EFC Acquisition. During the three months ended March 31, 2025, we received cash proceeds of $323 million upon the closing of the MGS Transaction.

Financing Activities

During the three months ended March 31, 2026, we received cash proceeds of $449 million from the Add-on Term Loans and $85.0 million in net borrowings from the revolving credit facility. In addition, we paid $20.2 million of cash dividends on shares of our common stock. During the three months ended March 31, 2025, we prepaid $200 million of our term loans B-3 and paid $19.8 million of cash dividends on shares of our common stock and $4.8 million for shares of our common stock withheld to satisfy the tax withholding requirements related to the vesting of RSUs included in "Other, net."

Financial Borrowings

Credit Facilities and Senior Notes

At March 31, 2026, we had $2.16 billion of indebtedness, net of unamortized discounts and debt issuance costs of $14.6 million, which was comprised of:

• $1.29 billion of term debt arrangements outstanding under our term loans;
• $800 million of 3.875% USD Notes due 2028; and
• $85.0 million outstanding under our revolving credit facility.

Availability under our revolving credit facility and various lines of credit and overdraft facilities totaled $436 million at March 31, 2026 (net of $7.0 million of stand-by letters of credit which reduce our borrowing capacity).

Covenants

At March 31, 2026, we were in compliance with the debt covenants contained in the Credit Agreement and the indenture governing our 3.875% USD Notes due 2028.

The quantitative and qualitative disclosures about market risk required by this item have not changed materially from those disclosed in our 2025 Annual Report. For a discussion of our exposure to market risk, refer to Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk, contained in our 2025 Annual Report.

(a) Evaluation of Disclosure Controls and Procedures

Based on management's evaluation (with the participation of our CEO and CFO), as of the end of the period covered by this Quarterly Report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes to Internal Control Over Financial Reporting

Based on management's evaluation (with the participation of our CEO and CFO), there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes in the risk factors from those set forth in Part I, Item 1A, Risk Factors of our 2025 Annual Report.