Q4 2023 Element Solutions Inc Earnings Call
Operator: www.elementsolutions.com Good morning, ladies and gentlemen, and welcome to the Element Solutions Q4 and full year 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise.
Good morning, ladies and gentlemen, and welcome to the element solutions Q4, and full year 2023.
Speaker Change: Financial results conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone keypad.
Speaker Change: I'll now turn the call over to Byron Gokarn Senior director of strategy and Finance. Please go ahead.
Byron Gokarn: Good morning, and thank you for participating in our fourth quarter and full year 2023 earnings Conference call. Joining me are our executive Chairman Martin Franklin.
Byron Gokarn: <unk> been good glitch and our CFO Carey Dorman in accordance with regulation FD. We are webcasting. This conference call a replay will be made available in the investors section of the company's website.
Byron Gokarn: 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 that are subject to risks and uncertainties. Please refer to our earnings release supplemental slides and most recent SEC filings for a discussion of the material risk factors that could cause actual results to differ from our expectations.
Byron Gokarn: <unk>.
Byron Gokarn: 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 good quick.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. I will now turn the call over to Varun Gokarn, Senior Director of Strategy and Finance.
Ben Good: Thank you Bruce and good morning, everyone. Thank you for joining.
Ben Goodquick: Element solutions had a productive 2023, we improved our businesses across multiple vectors, while demonstrating our hallmark stability and a challenging backdrop for several key end markets and geographies.
Ben Goodquick: Positive price and mix impacts from emerging high value offerings, together with disciplined cost management preserve profitability adjust.
Ben Goodquick: Adjusted EBITDA margin was flat despite a high single digit decline in volumes and an even greater decline in our higher margin verticals.
Ben Goodquick: 2023 was arguably the biggest electronics market dislocation in the generation and ESI emerged improved.
Ben Goodquick: Gross margins are climbing back towards their historical levels, we took out costs, both permanently temporarily while improving our long term growth profile of our businesses.
Varun Gokarn: Good morning, and thank you for participating in our fourth quarter and full year 2023 earnings conference. Joining me are our Executive Chairman, Sir Martin Franklin, our CEO, Ben Gliklich, and our CFO, Carey Dorman. In accordance with Regulation FD, we are webcasting this conference call.
Ben Goodquick: Our organic net sales in our electronics segment declined last year, we exited 2023 with the circuitry and semiconductor businesses returning to organic growth in Q4.
Ben Goodquick: One of the hallmarks of our business has been steady cash flow across a variety of operating environments.
Ben Goodquick: This year I Wanna solutions generated record annual free cash flow of $282 million.
Ben Goodquick: Our consistent cash flow generation affords us significant flexibility to deploy capital whether that is through M&A debt reduction or returning cash to shareholders all of which we did opportunistically in 2023.
Ben Goodquick: The results from our M&A in 2023 continue to look promising two transactions last year via form include strengthening our high end electronics value proposition just as those markets are poised for a recovery and improve our ability to participate disproportionately and significant long term growth talents.
Ben Goodquick: They reaffirmed distribution rights, we reacquired, our driving deeper commercial engagement and unlocking sizable pipeline opportunities with the largest semiconductor manufacturers in the world.
Varun Gokarn: A replay will be made available in the investor 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 that 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... These materials can be found on the company's website in the investors section under news and, 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 financials. It is now my pleasure to introduce our CEO, Ben Gliklich. Thank you, Varun. Good morning, everyone.
Ben Goodquick: We completed the integration of customer service quality support and inventory management in the fourth quarter.
Ben Goodquick: And I'm going to refrain now well positioned for growth beyond our initial expectations.
Ben Goodquick: With traction on both leading and legacy.
Ben Goodquick: In January via farm sales increased significantly from the monthly run rates seen in the fourth quarter of 2023, and some of our back into Bryan and wafer level packaging products generated their highest sales month in over two years, the semi supply chain continues to ramp utilization levels together.
Ben Goodquick: Together these products enable the increasing complexity and chip design, which should drive the next leg of computing performance improvement for data Center, AI Iot devices and industrial automation.
Ben Goodquick: The customer response to Cooper and his active copper technology continues to be very enthusiastic we have.
Ben Goodquick: Many active applications and qualifications projects underway with large electronic components and semiconductor manufacturers.
Ben Goodquick: Knowledge is truly differentiated in terms of major customer pain points with ever shrinking feature sizes and growing thermal management requirements.
Ben Goodquick: We expect significant progress in 2024, and commercialization product qualification and building internal manufacturing capacity.
Ben Goodquick: In addition to value and hit the M&A activity, we made significant progress this past year on improving our gross margins and streamlining costs.
Ben Goodquick: Positive product mix sustained pricing actions and some raw material and logistics cost deflation within our supply chain resulted in over 200 basis points of gross margin expansion year over year, Despite unit volume across our business declining in the high single digits.
Ben Goodquick: We also maintained adjusted EBITDA margins of approximately 21% similar to the prior year.
Ben Goodquick: As we enter 2024, where markets are going the right direction. Our technology position has improved our team is focused and as Youll hear from Carey our balance sheet is strong.
Ben Goodquick: Light volumes and margins the companywide trend and outlook are positive.
Ben Goodquick: Gerry will take you through the financials in more detail Gary.
Gary: Thanks, Ben on Slide four you can see a summary of our fourth quarter results.
Gerry: Adjusted EBITDA grew 11% year on year and margins expanded 210 basis points.
Speaker Change: We benefited from a return to growth in our high end electronics verticals and easing raw material and logistics costs for most of our business lines.
Speaker Change: For ESI overall net sales declined 3% organically, primarily driven by a softer volume environment across most of Asia and in our industrial markets globally.
Speaker Change: Demand across electronics ecosystem continued to improve with organic growth declining 1% compared to high single digit year over year decline earlier in the year.
Speaker Change: Our circuitry business grew 2% organically in the fourth quarter and our semiconductor vertical grew 7%.
Benjamin Gliklich: Thank you for joining us. Element Solutions had a productive 2023. We improved our businesses across multiple vectors while demonstrating our hallmark stability in a challenging backdrop for several key end markets in geography. Positive price and mix impacts from emerging high-value offerings, together with disciplined cost management, preserved profitability. Suggested EBITDA margin was flat despite a high single-digit decline in volumes and an even greater decline in our higher margin vertical.
Speaker Change: This trend track shipment growth for global handsets in Q4, though we think some of that benefit accrued to us in Q3, given the production timeline. Nonetheless. This inflection is a positive development as we enter 2024.
Speaker Change: Our assembly business experienced volume weakness in circuit Board Assembly products that primarily serve industrial and automotive customers.
Speaker Change: Softness was regionally concentrated in Europe, and China at the end of the year.
Speaker Change: Despite the muted volume backdrop, improving mix and cost management drove 16% higher constant currency adjusted EBITDA for the electronics segment as a whole and margin improved by 230 basis points.
Speaker Change: Our <unk> segment declined 7% organically in the fourth quarter as industrial surface treatment volumes softened in Europe, industrial and Chinese automotive markets.
Speaker Change: Net sales in industrial solutions declined 9% organically in the quarter with volume declines in the mid single digits.
Speaker Change: A reduction in commodity based surcharges driven by lower input prices contribute to the rest of the organic sales decline.
Speaker Change: These commodity based price fluctuations did not meaningfully impact profit dollars and the surcharges in that business at low margins.
Speaker Change: Energy solutions grew 11% organically on the back of continued increase in offshore drilling activity and pricing actions, while the graphic solutions business declined 7% organically driven by the closure of a key customer in our small newsprint business, an ongoing slowdown in new designs in the consumer packaging market.
Benjamin Gliklich: 2023 was arguably the biggest electronics market disruption in a generation, and ESI emerged improved. Gross margins are climbing back towards their historical limits. We took out costs both permanently and temporarily while improving the long-term growth profile of our business. While organic net sales in our electronics segment declined last year, we exited 2023 with the circuitry and semiconductor businesses returning to organic growth in Q4. One of the hallmarks of our business has been steady cash flow across a variety of operating environments. This year, Element Solutions generated a record annual free cash flow of $282 million.
Speaker Change: Across the business material and logistics cost improved natural trend should carry into 2024.
Constant currency adjusted EBITDA in the <unk> segment was 3% with roughly 190 basis point improvement in margin versus the fourth quarter of 2022.
Speaker Change: Adjusted earnings per share grew 10% year on year.
Speaker Change: On slide five we summarize our full year financial results.
Speaker Change: Our top line declined 5% organically driven by broad based weak demand in Asia, and electronic markets generally, which while improved towards the end of the year remained quite slow.
Speaker Change: On a constant currency basis, adjusted EBITDA declined 6% year on year, but margins improved by 20 basis points. Despite the challenging mix headwinds from declining high end electronics in the first half.
Speaker Change: This improvement was largely driven by positive end market mix in the second half and progressively easing raw material and logistics pressures.
Speaker Change: Reported results reflect foreign exchange fluctuations, which drove a nearly $15 million year on year headwind to adjusted EBITDA.
Speaker Change: Excluding the impact of $351 million of pass through metal sales in our assembly solutions business, our adjusted EBITDA margin would have been 24% for the year.
Speaker Change: Next on slide six we share additional detail on full year organic results for each of our businesses.
Speaker Change: Our assembly solutions business, which is more significant exposure to industrial and automotive end markets than our electronics verticals relatively outperformed on the back of strength in high reliability alloys for automotive customers.
Speaker Change: This strength persisted most of the year. So we did experienced volume softness in these same markets towards the end of the year. This business declined 2% organically for the full year smartphone unit volume starting the year down 15% in the first quarter driving declines in our circuitry and semiconductor businesses.
Benjamin Gliklich: Our consistent cash flow generation affords us significant flexibility to deploy capital, whether that is through M&A, debt reduction, or returning cash to shareholders, all of which we did opportunistically in 2023. The results from our M&A activities in 2023 continue to look promising. Two transactions last year, VIAform and Kubrion, strengthen our high-end electronics value proposition just as those markets are poised for a recovery and improve our ability to participate disproportionately in significant long-term growth talent. The VIAform distribution rights we reacquired are driving deeper commercial engagement and unlocking sizable pipeline opportunities with the largest semiconductor manufacturers in the world. We completed the integration of customer service, quality support, and inventory management in the fourth quarter, and our front-end of the line offering is now well-positioned for growth beyond our initial expectations, with traction on both leading and legacy.
Speaker Change: Combined with slowing data center investment in an overbuilt downstream memory disk channel sales in our circuit translations vertical declined 14% organically in 2023.
Speaker Change: While the inventory correction in the PCB and memory end markets were impactful across our portfolio. This past year, our volumes perform meaningfully better than the decline seen by much of the PCB supplier base.
Speaker Change: Semiconductor solution sales performance reflect the reduction in fab utilization and ship production activity driven by excess channel inventory in 2023.
Speaker Change: Organic net sales declined 11% for the year with the bulk of the decline occurring in the first half.
Speaker Change: Fab utilization levels improved in the last three months of the year and our wafer level packaging business saw sequentially improving run rates in our major product categories.
Speaker Change: Large customer ordering in Asia, and particularly Taiwan accelerated in the fourth quarter.
Speaker Change: We also continued to be strong growth in our power electronics products that serve the electric vehicle market organic net sales in the industrial and specialty segment fell 2% year over year industrial solutions, which constitutes almost 80% of segment revenue declined 4% organically driven by declines in commodity price based surcharges and software opinion.
Construction and industrial end markets.
Speaker Change: Graphic solutions sales were down 1% organically in 2023.
Speaker Change: New business from a large customer win contributed to sales growth was offset by a reduction in sales from lower margin packaging customers and the newsprint customer closures.
Speaker Change: Ongoing initiatives and new leadership focused on returning this business to growth in 2024.
Speaker Change: Energy solutions top line grew 14% organically as both drilling and production related revenue increase from elevated sector activity and the impact of pricing actions taken earlier in the year.
Speaker Change: We expect this higher margin business to continue to grow in 2024.
Speaker Change: Moving to slide seven.
Speaker Change: We generated a record $282 million of free cash flow in the year of which $95 million in Q4, reflecting the release of approximately $15 million in working capital.
Speaker Change: This was driven by a sequential sales decline.
Speaker Change: Raw material deflation and ongoing efforts to reduce inventory.
Speaker Change: Our other uses of cash in the quarter, including cash taxes, Capex and interest came in better than our expectations.
Speaker Change: At midyear, we had expected capex in 2023, a $60 million predicated on several key investment projects in power electronics in Asia R&D labs.
Speaker Change: Several of these projects were delayed due to equipment availability, which drove lower capex deployment than our original forecast.
Speaker Change: Some of this spend will rollover into 2024, so we are forecasting between $50 million and $60 million in spend this year.
Benjamin Gliklich: In January, Viaform sales increased significantly from the monthly run rate seen in the fourth quarter of 2023. And some of our back-end-of-line wafer-level packaging products generated their highest sales month in over two years, as the semi-supply chain continues to ramp utilization. Together, these products enable increasing complexity in chip design, which should drive the next leg of computing performance improvement for data center, AI, IoT devices, and industrial automation. The customer response to Kuprion and its active copper technology continues to be very enthusiastic.
Speaker Change: We considered less than half of that amount to be maintenance capex. While the remainder is targeted towards power electronics growth research centers to better support customers in fast growing semiconductor assembly applications in emerging geographies and other growth investments in facilities systems and customer equipment.
Speaker Change: In 2024, we expect cash interest of approximately $65 million and cash taxes of roughly $85 million.
Speaker Change: Net leverage ended the year below our long term target ceiling of three five times in line with our prior expectations and we believe that ratio was on trend to decline below three times by the end of the year barring further capital deployment.
Speaker Change: We took steps to further de risk our balance sheet in late November.
Reduced our gross debt by over $100 million.
Speaker Change: Retired our term loan a that was used to finance that via bond transaction.
Speaker Change: And extended the maturity on our remaining term loans out to 2030.
Speaker Change: We have no significant maturities until 2028.
Speaker Change: Our new swaps and show that 80% of our capital structure remains fixed rate until 2028 and eliminates all floating rate risk in 2024.
Speaker Change: As a result, the new effective interest rate on our outstanding term loans was three 3% at year end.
Speaker Change: Our balance sheet remains strong and our further flexibility for value enhancing capital allocation.
Speaker Change: With that I will turn the call back to Ben to discuss our outlook.
Ben: Thank you Carrie.
Ben: We enter 2024 with solid grounding for optimism as we anticipated the inventory correction that has taken place in the semiconductor and PCB and markets over the past year now appears behind us and activity levels and orders are improving sequentially.
Benjamin Gliklich: We have many active applications and qualification projects underway with large electronic components and semiconductors. This technology is truly differentiated and solves major customer pain points with ever-shrinking feature sizes and growing thermal management requirements. We expect significant progress in 2024 on commercialization, product qualification, and building internal manufacturing. In addition to valuing the M&A activity, we made significant progress this past year on improving our gross margins and streamlining costs. Positive product mix, sustained pricing actions, and some raw material and logistics cost deflation within our supply chains resulted in over 200 basis points of gross margin expansion year over year, despite unit volume across our business declining in the high single-digits. We also maintained adjusted EBITDA margins of approximately 21%, similar to the prior year.
Ben: After two consecutive years of declines industry experts expect smartphone units to grow in 2024 with some third parties estimating mid single digit percentage improvements.
Ben: Our volumes in 2023 reflected destocking downstream in our supply chain, which in other words meant a weaker demand environment and what was captured in the already quite weak unit sales of smartphones.
Ben: Volume growth from that market, therefore, it could be greater than unit growth.
At the same time growing demand for advanced packaging and other enabling materials solutions driven by generative AI, both in the cloud and on device as a multiyear opportunity for many of our enabling technologies across advanced circuitry semiconductor and assembly solutions.
Ben: Overall trends are positive.
Ben: That said in 2024, despite solid growth industry volumes across our electronics market drivers such as smartphone PCB square meters and MSI are expected to remain below prior peaks.
Ben: Similarly on the industrial side the outlook for global industrial production is for modest improvement.
Ben: Global Auto production is forecasted to grow in the low single digit range in 2020 for a global unit production will remain meaningfully below its 2017 peak.
Ben: Electric vehicles Aaas in automotive semiconductor applications should grow faster than the overall market.
Ben: These are technology areas, where we have built meaningful exposure.
Ben: Strategy deployment efforts have positioned us nicely in our core businesses to benefit from these trends.
Ben: Looking internally in 2024, we plan to rebuild approximately $15 million and variable costs and incur some additional opex expansion in an environment of higher demand and customer activity.
Most of these are expenses for which we retain flexibility and which should be considered market context dependent.
Ben: Enrollment solution to the short cycle business with exciting long term growth prospects.
Ben: First quarter of the year can often be difficult to forecast given the lumpy customer ordering patterns around lunar new year.
Ben: The context of industrial activity exiting 2023, we expect a slower start in the industrial and specialty segment with organic growth flat to slightly negative.
Ben: This should improve as we move through the year buoyed by new business ramping in industrial surface treatment.
Ben: Electronics, we expect mid single digit organic growth as customer activity improved sequentially and we lap a very slow first quarter of 2023.
Ben: Consequently, we expect Q1, adjusted EBITDA of between $120 million to $125 million, representing 14% constant currency growth year over year.
For the full year, we're guiding to constant currency adjusted EBITDA growth of 8% to 12% or approximately $510 million to $530 million a level that would represent an FX adjusted peak for element solutions, despite market as being below their prior peaks.
Ben: Excluding FX and variable comp rebuild this guidance range represents 12% to 16% growth on a like for like basis.
Benjamin Gliklich: As we enter 2024, our markets are going in the right direction, our technology position has improved, our team is focused, and as you'll hear from Carey, our balance sheet is strong. Like volumes and margins, the company-wide trend and outlook are positive. Carey will take you through the financials in more detail. Thanks.
The land within our full year guidance range will depend primarily on the magnitude of the back half improvement in electronics market.
Ben: There are multiple positive indicators, but it is too early to tell the slope of the recovery in the second half.
Ben: We expect 2020 for free cash flow in the range of $280 million to $300 million and adjusted EPS of between $1 32, and $1 40.
Ben: We are emerging from one of the deepest demand shocks in our industry's history and we do so having seize the opportunities that dislocation offers.
Ben: The next few years bring exciting opportunities to grow with our customers with fully leveraging our existing leading technologies and our new offerings across a host of advanced electronics applications.
Ben: We have the team technology and playbook to win and deep fast growing profit pools, such as IC substrate power electronics sustainable Chemistries for industrial surface treatment Circuit Board mineralization and advanced packaging, our investment in new capabilities and applications and more streamlined and efficient organization should deliver above market growth and operating leverage.
Carey J. Dorman: On slide four, you can see a summary of our fourth quarter results. Adjusted EBITDA grew 11% year-on-year, and margins expanded 210 basis points. We've benefited from a return to growth in our high-end electronics verticals and reduced raw material and logistics costs for most of our business life. For ESI overall, net sales declined 3% organically, primarily driven by a softer volume environment across most of Asia and in our industrial markets globally.
Ben: At the same time, we have a business that is capable of generating significant cash flow year. After year that can be flexibly deployed to compound shareholder value.
Ben: Our performance this past year is simply a product of the effort of our people and this will be the case in every year to come.
Ben: Im intensely grateful to our talented and dedicated people around the world responsible for another solid year and eagerly looking forward to a better one in 2024.
Speaker Change: Operator, please open the line for questions.
Speaker Change: Thank you if you have a question. Please press star one if you have queued up and want to withdraw your question simply press Star one again.
Speaker Change: Your first question comes from the line of Josh Spector with UBS. Your line is open.
Speaker Change: <unk>.
Josh Spector: Yes, hi, good morning, guys.
Josh Spector: Good morning.
Josh Spector: Good morning, you talked about this a little bit from a market perspective, but I was wondering if you could give a little bit more color kind of as you look at 2024, what are your assumptions from here through the year. So relative to what you talked about in first quarter to hit your guidance you need markets to improve how much and what do you see ESI.
Carey J. Dorman: Demand across the electronics ecosystem continued to improve, with organic growth declining 1% compared to high single-digit year-over-year declines earlier in the year. Our circuitry business grew 2% organically in the fourth quarter, and our semiconductor vertical grew 7%. This trend tracks shipment growth for global handsets in Q4, though we think some of that benefit accrues less in Q3, given the production timeline. Nonetheless, this inflection is a positive development as we enter 2024. Our assembly business experienced volume weakness and circuit board assembly products that primarily served industrial and automotive customers. His softness was regionally concentrated in Europe and China at the end of the year.
Josh Spector: High performing relative to those markets in terms of outperforming this year. Thanks.
Josh Spector: Sure.
Josh Spector: So.
Josh Spector: The first half of 2024 assumes.
Josh Spector: The slight sequential improvement from Q1 to Q2, and then at the low end of our guidance range, it's sort of normal seasonality and uptick in Q3.
Josh Spector: Slight down tick in Q4 and at the high end of the guidance range, it's sort of a more significant ramp in the electronics business in the back half.
Josh Spector: Our industrial and specialty business.
Josh Spector: From a end market perspective is only up modestly.
Josh Spector: More growth coming from customer wins and margin expansion, which we've seen carriers, which we see carrying over from the back half of the year.
Josh Spector: There is a case to be made or the electronics industry really ramped significantly in that case there is upside.
Josh Spector: Two our guidance what we've seen in the first quarter to date has been quite positive from an electronics perspective that market has accelerated to some extent sequentially.
Josh Spector: But it's too early to call the back half, hence our guidance.
Speaker Change: Yeah. Thanks could you maybe talk a little bit more than about what you're seeing quarter to date within electronics I don't know if you have any further visibility to what you have normally and you alluded to maybe.
Speaker Change: <unk> growing more than your volume has grown more than units on inventory rebuild are you seeing any of that play out today or is it still too uncertain.
Carey J. Dorman: Despite the muted volume backdrop, improving mix and cost management drove 16% higher constant currency adjusted EBITDA for the electronic segment as a whole, and margins improved by 230 basis points. Our INF segment declined 7% organically in the fourth quarter, as industrial surface treatment volumes softened in Europe and China. Net sales in industrial solutions declined 9% organically in the quarter, with volume declines in the mid-single digit.
Yes, that's an opportunity that's not really factored into our guidance, which is <unk>.
Speaker Change: Thinking about unit levels last year being better than demand for things like circuitry materials because of the inventory clearance and so there is an opportunity and so far as we're lapping that for incremental volume growth over the unit growth.
Speaker Change: It's really early.
Speaker Change: Our judgment on that right, we're sitting here in the middle of February.
Speaker Change: We have the lunar new year impact in Asia, which really does swing things a bit in the beginning of the year, it's totally falling in February and so sometimes you see a build in advance of lunar new year.
Speaker Change: What I would say is that January was a very strong months.
Speaker Change: And we will have a better sense for the first quarter. Once we're out of February we feel confident in the guide.
Speaker Change: For the first quarter.
Speaker Change: There might be some room for outperformance based on our February falls.
Speaker Change: Got it okay. Thanks Pat.
Diverse Lasagna: Your next question comes from the line of diverse Lasagna with BMO capital markets. Your line is open.
Diverse Lasagna: Hi, Good morning, good morning, Ken.
Diverse Lasagna: Four.
Diverse Lasagna: Yes.
Diverse Lasagna: It's frankly for a growth year for your industrial and specialty segment. I mean, do you expect organic sales and on EBITDA to be higher year over year.
Carey J. Dorman: A reduction in commodity-based surcharges, driven by lower input prices, contributed to the rest of the organic sales decline. However, these commodity-based price fluctuations do not meaningfully impact profit dollars as the surcharges in this business are at low margins. Energy solutions grew 11% organically on the back of a continued increase in offshore drilling activity and pricing action, while the graphics solutions business declined 7% organically, driven by the closure of a key customer in our small newsprint business and an ongoing slowdown in new designs in the consumer packaging market. Across the business, material and logistics costs improved. This natural trend should carry into 2020. Constant currency adjusted EBITDA on the INS segment grew 3% with a roughly 190 basis point improvement in margin versus the fourth quarter of 2020. Adjusted earnings per share grew by 10% year-on. On slide five, we summarize our four-year financial results. Our top line declined 5% organically, driven by broad-based weak demand in Asia and electronic markets generally, which, while improved toward the end of the year, remained quite strong.
Diverse Lasagna: And I guess, what does the guide assume product segment.
Ken: Yes, so the IMS business should grow.
Ken: The top line and EBITDA in 2024 more modestly in the electronics business, but we do expect it to grow the end markets are.
Ken: Not going to be as strong as the electronics business.
Ken: We do have some customer wins ramping and margins should continue to should be stronger I would say, particularly in the first half as we lap a period of higher input costs and higher logistics.
Speaker Change: Got it and then moving to free cash flow ahead of expectations leverage going under three you mentioned by the end of this year.
Speaker Change: Historically, that's where you have reinvested reinvested in the business. So I guess, how do you think about the M&A market is currently and how do you think about buybacks restarting to sue.
Speaker Change: Yes, so yes.
Speaker Change: Cash flow was quite strong in 2023.
Speaker Change: And there is room for that to grow in 2024 based on our guide without incremental capital allocation will be inside of three by the end of the year and historically, we've been opportunistic and that should continue to be the case, we will have capacity for.
Speaker Change: Reasonable capital allocation over the course of 2024, and we'll see what the market served up to us we.
Speaker Change: We feel like we also have the bandwidth.
Speaker Change: For integration.
Speaker Change: Now that we've integrated <unk>, we've integrated the via foreign transaction.
Speaker Change: And <unk> is up and running we will see what opportunities avail themselves.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Duffy Fischer with Goldman Sachs. Your line is open.
Duffy Fischer: Yes, good morning, guys.
Duffy Fischer: Can we dig a little deeper into the variable cost what exactly is that what are we going to receive from pushing that and then is that permanent and that if we achieve what we want this year does that continue or is that something that is kind of a one year bump and then we'll get to harvest that going forward.
Duffy Fischer: Sure.
Duffy Fischer: So one of the hallmarks of the business as it is variable operating cost nature.
When demand is strong when end markets are soft we are able to.
Duffy Fischer: Manage cost in such a way that preserves profit, but doesn't damage. The long term growth trajectory of the business and that is incentive compensation by and large but also things like travel and marketing.
Duffy Fischer: So in 2023 incentive compensation was below target.
Duffy Fischer: To the tune of about $15 million that allows for us to preserve margins year over year.
Duffy Fischer: <unk>.
Duffy Fischer: Volumes being down in the high single digits as we begin 2024, our expectation is for Paul.
Carey J. Dorman: On a constant currency basis, adjusted EBITDA declined 6% year-on-year, but margins improved by 20 basis points despite the challenging mixed headwinds from declining high-end electronics in the first quarter. This improvement was largely driven by positive end market mix in the second half and progressively easing raw material and logistics. Reported results reflect foreign exchange fluctuations which drove a nearly 15 million year-on-year headwind to adjust it even higher.
Speaker Change: Hundred percent.
Our target and therefore rebuilding incentive compensation that is a onetime rebuild of course, if demand doesn't turn up that costs will stay out of the business. It's not something that you should count on every single year because in most years, we should be close to our target level.
Speaker Change: Note that excluding that and rebuilds as we model 2020 for the incremental margins in the business or north of 40%.
Speaker Change: Including that rebuild there in the <unk>.
Speaker Change: Fair enough and then when you look at your guide for this year.
Speaker Change: At the mid point, what's the assumption for raw material benefit to the margins.
Speaker Change: Somewhere around a point of gross profit margin expansion from input costs and mix.
Speaker Change: Terrific. Thank you guys.
Speaker Change: Thanks, guys.
Speaker Change: Your next question comes from the line of John Roberts with Mizuho. Your line is open.
Carey J. Dorman: Excluding the impact of $351 million of pass-through metal sales on our assembly solutions business, our adjusted EBITDA margin would have been 24% for the year. Next, on slide six, we share additional detail on full-year organic results for each of our businesses. Our assembly solutions business, which has more significant exposure to industrial and automotive end markets than our electronics verticals, relatively outperformed on backward strength and high reliability alloys for automotive. This strength persisted most of the year, so we did experience volume softness in these same markets toward the end of the year. This business declined 2% organically for the full year.
John Roberts: Thank you Rocco and wanted to take advantage of having served Martin on the call.
John Roberts: What do you think about the portfolio today are there are the non electronic businesses generating enough cash for them to add value to the portfolio.
John Roberts: Do you think about additional acquisition opportunities in electronics.
Martin Franklin: Well thanks for the question I think at the end of the day.
Martin Franklin: Right.
Speaker Change: Evidence and then let me trailers were builders, though so.
Speaker Change: I think our monitoring business is always there is another asset that couldnt be better.
Speaker Change: We are.
Speaker Change: In different years.
Speaker Change: Different parts of the business performed better than other years. So I think we have a very strong portfolio and we tend to invest and try to grow each part.
Speaker Change: In terms of M&A.
Speaker Change: We've been opportunistic acquisitions.
Speaker Change: Acquisitions that we've made.
Speaker Change: In longer term excellent.
Speaker Change: Sure.
Speaker Change: The potential and I think.
Foundation hole.
Speaker Change: Organic growth for the company in future years.
Speaker Change: It's in the late June one acquisition that I think the M&A environment.
It's become like the.
Speaker Change: Windows open again.
Carey J. Dorman: Smartphone unit volume started the year down 15% in the first quarter, driving declines in our circuitry and semiconductor business. Combined with slowing data center investment in an overbuilt downstream memory disk chain, our circuitry solutions vertical declined 14% organically in 2023. While the inventory correction in the PCB and memory disk end markets was impactful across our portfolio this past year, our volumes performed meaningfully better than the decline seen by much of the PCB supplier base. Semiconductor solution sales performance reflected a reduction in fab utilization and ship production activity driven by excess channel inventories in 2020. Organic net sales declined 11% for the year, with the bulk of the decline occurring in the first half.
Speaker Change: As you have some.
Speaker Change: Comments on the cash flows of the business are strong and we will have the capability to do things with the rates up.
Speaker Change: Opportunities avail themselves.
Speaker Change: Thank you and then Ben is the benefit of new electronics in autos still small enough that it gets offset when there's a slowdown in overall ice's vehicle production or how do we think about the balance between the exposure to the secular growth areas of autos versus the cyclical exposure.
Ben: Yes. So if you look at our assembly business in 2023 significantly outperformed our circuitry and semiconductor businesses announced largely driven by strength in automotive. So not only are we seeing uplift in content, but we're seeing innovation that our business is bringing to bear to that market and higher <unk>.
Ben: Liability alloys, thats driving share and outperformance even in the auto market.
Ben: Again, it depends on the magnitude of automotive production declined to answer that question accurately, but we are seeing.
Ben: Low single digit.
Ben: Uplift in content per unit each year.
Ben: Even greater as electric vehicle penetration increases and our performance in power electronics has been outstanding and that's a segment of the market and technology that has been growing really really nicely and we will continue to.
Ben: For several years to come.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Steve Byrne with Bank of America. Your line is open.
Stephen Byrne: Yes, Thanks, Ben Your guide sounds like it's primarily driven by macro factors.
Stephen Byrne: I'm, just curious whether that $5 10 to 530 million EBITA.
Carey J. Dorman: FAB utilization levels improved in the last three months of the year, and our wafer-level packaging business saw sequentially improving run rates in our major product categories. Large customer ordering in Asia, and particularly Taiwan, accelerated in the fourth quarter. We also continue to see strong growth in our power electronics products that serve the electric vehicle market. However, organic net sales in the industrial and specialty segment fell 2% year over year.
Stephen Byrne: Incorporates any expectations for.
Stephen Byrne: And Marcia restocking.
Stephen Byrne: Not just your customer, but your customers' customers.
Stephen Byrne: Any potential for share gains and cross selling or pricing power or any of those in your outlook and if not.
Stephen Byrne: What's the potential for it.
Marcia: Sure Thanks, Steve So.
Marcia: Over the past several years, the going in assumptions for market.
Marcia: Performance have been way off relative to the back half performance that.
Marcia: Was realized and so we have to draw a line based on industry forecasts and that's how we formulated our guidance.
Speaker Change: There is room for outperformance from an end market perspective, as we think about upsides and downsides.
Speaker Change: Our performance again.
Speaker Change: <unk> organic.
Speaker Change: On a like for like basis.
Carey J. Dorman: Industrial solutions, which constitutes almost 80% of segment revenue, declined 4% organically, driven by declines in commodity price-based surcharges and soft European construction and industrial end markets. Graphic Solutions sales were down 1% organically in 2023. New business from a large customer win contributed to sales growth but was offset by a reduction in sales from lower margin packaging customers and the newsprint customer closure. We have ongoing initiatives and new leadership focused on returning this business to growth in 2024. Energy Solutions' top line grew 14% organically as both drilling and production-related revenues increased from elevated sector activity and the impact of pricing actions taken earlier in the year. We expect this higher-margin business to continue to grow in 2020. Moving to slide seven.
Speaker Change: Mid teens from an EBITDA growth perspective is quite a ways higher than market forecast and so there is a benefit from.
Speaker Change: The margin improvement that we've seen carrying over outperformance relative to end markets on the top line and mix, where new technologies that we're introducing into the business or gaining share. We've also held price.
Speaker Change: And the benefit of that.
Speaker Change: Execution is accruing.
Speaker Change: Two is accruing to our shareholders in the guidance.
Speaker Change: And with respect to this $15 million increase in comp.
Speaker Change: Do you have any productivity initiatives.
Speaker Change: Potentially offset it.
Speaker Change: Yes, so we have been investing in site consolidation and systems modernization, we have streamlined the organization from a leadership perspective over the past year and so there are.
Speaker Change: Savings built in to the plan that offset some of that.
Speaker Change: But not all and the incremental margins again.
Speaker Change: And the third is inclusive of that comparability in the 40%, which is above what we target in a normal year exclusive of it. So we feel as though there is good efficiency being driven through the business and operating leverage.
Speaker Change: Okay. Thank you.
Speaker Change: Yes.
Speaker Change: Your next question comes from the line of Jonathan <unk> with CJS Securities. Your line is open.
Jonathan: Hi, Good morning, Thanks for taking my questions I was wondering if you dive a little bit more into your power electronics and investments in the EV realm and is that is.
Jonathan: Is that oriented more towards any particular technology like silicon carbide or is it.
Jonathan: As a targeted more towards pure EV cannot be applied to hybrid.
Jonathan: Or do you have any exposure to any particular player partner just any more detail there would be helpful. Thank you.
Speaker Change: Sure So our power electronics business.
Speaker Change: <unk> really differentiated material used in the us.
Speaker Change: <unk> power semiconductors, and then power Inverters.
Speaker Change: Very very strong market position within certain Oems.
Carey J. Dorman: We generated a record $282 million of free cash flow in the year, of which $95 million was in Q4, reflecting a release of approximately $15 million in working capital. This was driven by a sequential sales decline, modest raw material deflation, and ongoing efforts to reduce inventory. Our other uses of cash in the quarter, including cash taxes, CapEx, and interest, came in better than our expectations. At mid-year, we had expected CapEx in 2023 of $60 million, predicated on several key investment projects in power electronics and Asia R&D labs. Several of these projects were delayed due to equipment availability, which showed lower CapEx deployment than our original forecast.
Speaker Change: That are pure evs.
Speaker Change: The opportunity there is for growth in those Oems and also penetration.
Speaker Change: Let's call them Oems that have longer cycle times.
Speaker Change: To develop new platforms.
Speaker Change: So we are not on every Oems electric vehicle platforms and there's no reason that this material shouldnt be on all of the high performing.
Speaker Change: Electric vehicles in the market, we've been investing in applications labs, not just in the west, but we opened one in Shanghai last year, and we've had great traction with the Chinese electric vehicle Oems.
Speaker Change: There is a lot of market opportunity for this both as EV units grow and as our penetration of EV Oems expense.
Speaker Change: It's an exciting technology for us.
Speaker Change: Got it. Thank you and then just a question for carrier where does the SG&A start the year.
Speaker Change: Blair the bonus accrual back in.
Carrier: So you take that $15 million.
Carrier: Over the full year, now youre talking three or $4 million quarter Theres not a lot of other things that happened in Q1 that should take makes a big difference from the Q4 run rate we did have a smaller week.
Carrier: And bonus and in some long term incentive associated with what we've landed a year. So.
Carrier: Call it $5 million sequential pick up from Q4, although the way to think about it than when we get to the second quarter, we do start to see our.
Carrier: Other piece of it.
Carrier: Yes.
Carrier: The inflation on costs, which relates to cost of living adjustments merit increases. So maybe it's a slight incremental step up Q1 to Q2, but I think that's the right ballpark.
Carey J. Dorman: Some of this spend will roll over into 2024, so we are forecasting between $50 million and $60 million in spend this year. We consider less than half of this amount to be maintenance capex, while the remainder is targeted towards power electronics growth, research centers to better support customers in fast-growing semiconductor assembly applications and emerging geographies, and other growth investments in facilities, systems, and customer equipment. In 2024, we expect cash interest of approximately $65 million and cash taxes of roughly $85 million. Net leverage ended the year below our long-term target ceiling of 3.5 times, in line with our prior expectations, and we believe that the ratio is on trend to decline below three times by the end of the year, barring further capital deployment.
Speaker Change: Got it. Thank you and finally, you had a large tax item in Q4 and I was just wondering what that means for you going forward.
Speaker Change: Effective in our reported tax bases and then cash taxes.
Speaker Change: Sure Yeah. So we did some really.
Speaker Change: Effective tax planning in 2023.
Speaker Change: We've been working on for a couple of years.
Speaker Change: And you see what you noted John is correct, we took a pretty nice.
Speaker Change: Credit.
Speaker Change: Quarter, we basically.
Added around $50 million of deferred tax assets to our balance sheet that will benefit us over the next five years or so as we estimate.
Speaker Change: We think that will keep our cash tax rate.
Speaker Change: In and around 28 picking up slightly from that over the next couple of years, but what that asset. We will do is will effectively allow us to keep not paying meaningful use tax for the next five years, where prior to that plan and we expect that to be paying U S tax in the next one to two years.
Speaker Change: Understood. Thank you.
Thanks, John Your next your next question comes from the line of Chris Capps with loop capital markets. Your line is open.
Chris Capps: Yes. Good morning. So in your formal remarks, you mentioned that I think it was in your assembly business that volumes outpaced the PCB market growth.
Chris Capps: I assume this is some indication of having gained share just wanted to get some more color is that accurate.
Chris Capps: Is the is the outperformance is it a function of you're over indexing to higher growth applications or is it actual share gains and sort of.
Carey J. Dorman: We took steps to further de-risk our balance sheet in late November. We reduced our gross debt by over $100 million, retired Term Loan A that was used to finance the VIA form transaction, and extended the maturity on the remaining term loans out to 2030. We have no significant materials until 2028. Our new swaps ensure that 80% of our capital structure remains fixed rate until 2028 and eliminates all floating rate risk in 2020. As a result, the new effective interest rate on our outstanding term loans was 3.3% at year-end.
Chris Capps: The existing our core business are a little bit of both.
Speaker Change: Sure. So the assembly business had.
Speaker Change: Much stronger 2023, then the circuit board and semiconductor businesses, driven by a greater concentration in the automotive market, which was healthier than the smartphone market and call it higher and consumer electronics markets.
Speaker Change: It's driven by innovation, which has been driving share both in terms of next generation pace.
Speaker Change: With higher performance attributes we've introduced some new alloys that are higher reliability then.
Speaker Change: What had previously been in the market, which has really interesting applications not just in automotive, but also in infrastructure markets.
Speaker Change: And then our power electronics business assets a portion of it sits within the assembly.
Speaker Change: And thats been very strong.
Speaker Change: There is innovation market share gains.
Benjamin Gliklich: Our balance sheet remains strong and affords us flexibility for value-enhancing capital allocation. And with that, I will turn the call back to Ben to discuss our outlook. Thank you, Carey.
Speaker Change: And market dynamics that are supporting that outperformance in the assembly business.
Speaker Change: That's helpful. I appreciate that and then.
Speaker Change: One on coupon I know you are.
Speaker Change: Press a lot of excitement for the technology.
Benjamin Gliklich: We enter 2024 with solid grounding for optimism. As we anticipated, the inventory correction that took place in the semiconductor and PCB end markets over the past year now appears behind us, and activity levels and orders are improving sequentially. After two consecutive years of declines, industry experts expect smartphone units to grow in 2024, with some third parties estimating mid-single-digit percentage improvements. Because our volumes in 2023 reflected destocking downstream in our supply chain, which in other words, meant a weaker demand environment than what was captured in the already quite weak unit sales of smartphones, volume growth from that market could therefore be greater than unit growth. At the same time, growing demand for advanced packaging and other enabling material solutions driven by generative AI, both in the cloud and on device, is a multi-year opportunity for many of our enabling technologies across advanced circuitry, semiconductor, and assembly solutions.
Speaker Change: Had some comments about the progress in commercializing with some <unk>.
Speaker Change: Leading chipmakers and just wondering if.
Speaker Change: As you have more visibility to that product.
Speaker Change: Future success.
Speaker Change: If you think the applicability of the technology is solely for the more more advanced.
Speaker Change: Complex architectures or as their benefits to the.
Speaker Change: The device also such that you could place displaced.
Speaker Change: Alternative copper solutions and legacy devices, just trying to get a sense for when you might want to take a stab at that and there and when that starts to move the needle.
Speaker Change: And your perception.
Speaker Change: Thank you, Chris so could brands really exciting.
Speaker Change: Our commercial traction is greater than we expected it would be and our progress towards commercialization is faster than we expected. It would be we expect there to be some revenue contribution in the back half of this year and EBITDA contribution in 2025, probably a bit earlier than we thought it would be when we embarked.
Speaker Change: Embarked on this journey the applications for Cooper.
Speaker Change: Dan our electronics business so.
Speaker Change: Originally we thought it would be primarily a die attach material, which is in semiconductor assembly and advanced packaging.
Speaker Change: We're finding that it can also be a circuit board materials used to Metallize next generation IC substrates.
Speaker Change: In fact, that's where more of our traction has been because the qualification cycles are shorter there than in the semiconductor market.
Speaker Change: So the breadth of applications is wider customer engagement is better.
Speaker Change: It's on track to be a pretty significant contributor in the medium term here.
Speaker Change: Okay.
Benjamin Gliklich: Overall, trends are positive. That said, in 2024, despite solid growth, industry volumes across our electronics market drivers, such as smartphone, PCB square meters, and MSI, are expected to remain below prior peaks. Similarly, on the industrial side, the outlook for global industrial production is for modest improvement. Global auto production is forecasted to grow in the low single-digit range in 2024, but global unit production will remain meaningfully below its 2017 peak.
Speaker Change: I appreciate the color. Thanks.
Speaker Change: Thank you.
Speaker Change: Once again, ladies and gentlemen, if you have a question it is star one.
Speaker Change: Next question comes from the line of David Silver with CL King Your line is open.
David Silver: Yes, hi, good morning.
David Silver: I'd like to ask maybe if you could comment on your outlook for your overall business in China, maybe from <unk>.
David Silver: A couple of two three year outlook, but over the last year or two there has definitely been some shifts in terms of trade restrictions and I guess.
David Silver: The positioning of some of your major customers re shoring onshoring et cetera.
But.
David Silver: I think it's your large it's still your largest country business in terms of revenues outside of the U S.
If you could maybe just discuss your thoughts on your opportunity set in that market.
David Silver: If you if there are some shifts in either your resourcing for that region or.
Benjamin Gliklich: Electric vehicles, ADAS, and automotive semiconductor applications should grow faster than the overall market. These are technology areas where we have built meaningful exposure. Our strategy deployment efforts have positioned us nicely in our core businesses to benefit from these trends. Looking internally, in 2024, we plan to rebuild approximately $15 million in variable costs and incur some additional OPEX expansion in an environment of higher demand and customer activity. Most of these are expenses for which we retain flexibility and which should be considered market context dependent.
David Silver: How you expect your business in that country to evolve. Thank you.
Speaker Change: Thanks, David.
Speaker Change: So the business in China.
Speaker Change: A tough year in 2023, it was down in the double digits from a percentage perspective.
Speaker Change: That was driven partially by the electronics market, where there is quite a bit of business in the set in the circuit board market in particular and also in the industrial market, where the industrial economy was soft.
Speaker Change: As we look to next year with the electronics market ramping we see growth in China in 2020 for the industrial business, we expect to be.
Speaker Change: I'd call it modestly better not a great deal better.
Speaker Change: The circuit board market is.
Speaker Change: Very strong in China and will remain so there arent trade restrictions on the circuit board market and we remain.
Speaker Change: A significant participant in that market.
Speaker Change: And we do see growth as we said, we see growth from the Chinese Oems in electric vehicles as I mentioned earlier, we opened an applications lab for power electronics, there and see a lot of opportunity associated with that and even in our industrial surface treatment business. We've been investing in that market. Our share there is lower than it is outside of China and <unk>.
Speaker Change: See a big opportunity for share gain and are getting traction supporting customers with equipment packages and other innovations, particularly with an environmental lens on them because of the D.
Benjamin Gliklich: Element Solutions is a short cycle business with exciting long-term growth processes. The first quarter of the year can often be difficult to forecast given the lumpy customer ordering patterns around the Lunar New Year. In the context of industrial activity exiting 2023, we expect a slower start in the industrial and specialty segment, with organic growth flat to slightly negative. This should improve as we move through the year, led by new business ramping and industrial surface treatment. In electronics, we expect mid-single-digit organic growth as customer activity improves sequentially, and we lap a very slow first quarter of 2023. Consequently, we expect Q1 adjusted EBITDA of between $120 and $125 million, representing 14% constant currency growth year-over-year.
Speaker Change: Scrutiny on environmental discharges in that market. So we do see it as a growth market for us coming off of a pretty soft year theirs.
Speaker Change: A compelling case for several years of growth from here even in a reasonably.
Speaker Change: Tepid industrial economy in China should that play out.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Stop there thank you very much.
Speaker Change: Thank you David.
Speaker Change: There are no further questions at this time I'll turn the call to Ben for closing remarks.
Ben: Thank you Sarah and thank you everybody for joining we look forward to seeing many of you in the days and weeks to come and have a great day.
Speaker Change: This concludes today's conference call. We thank you for joining you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Benjamin Gliklich: For the full year, we're guiding to constant currency-adjusted EBITDA growth of 8 to 12 percent, or approximately $510 to $530 million, a level that would represent an FX-adjusted peak for Element Solutions, despite markets being below their prior levels. Including FX and Variable Comp Rebuild, this guidance range represents 12-16% growth on a like-for-like basis. Where we land within our full year guidance range will depend primarily on the magnitude of the back half improvement in electronics. There are multiple positive indicators, but it is too early to tell the slope of the recovery in the second half. We expect 2024 free cash flow in the range of $280 to $300 million and adjusted EPS between $1.32 and $1.40.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Yeah.
Benjamin Gliklich: We're emerging from one of the deepest demand troughs in our industry's history, and we do so having seized the opportunities that dislocation offers. The next few years bring exciting opportunities to grow with our customers by fully leveraging our existing leading technologies and our new offerings across a host of advanced electronics applications. We have the team technology and playbook to win in deep, fast-growing profit pools, such as IC substrates, power electronics, sustainable chemistries for industrial surface treatment and circuit board metallization, and advanced packaging.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Benjamin Gliklich: Our investment in new capabilities and applications and a more streamlined and efficient organization should deliver above-market growth and operating leverage. At the same time, we have a business that is capable of generating significant cash flow year after year that can be flexibly deployed to compound shareholder value. Our performance this past year is simply a product of the effort of our people.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Yes.
Operator: And this will be the case every year to come. I'm intensely grateful to our talented and dedicated people around the world for another solid year and eagerly looking forward to a better one in 2021. Operator, please open the line. Thank you. If you have a question, please press star one. If you have queued up and want to withdraw your question, simply press star one again.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
[music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Josh Spector: Your first question comes from the line of Josh Spector with UPS. Your line is open. Yeah, hi. Good morning, guys. Good morning.
Benjamin Gliklich: You've talked about this a little bit from a market perspective, but I was wondering if you could give a little bit more color, kind of as you look at 2024. What are your assumptions from here through the year? So relative to what you talked about in the first quarter, to hit your guidance, you need markets to improve by how much, and how do you see ESI performing relative to those markets in terms of outperforming this year? Thanks. Sure. So.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Benjamin Gliklich: The first half of 2024 assumes, you know, slight sequential improvement from Q1 to Q2. And then at the low end of our guidance range, it's sort of normal seasonality, an uptick in Q3, and a slight downtick in Q4. And at the high end of the guidance range, it's sort of a more significant ramp-up in the electronics business in the back half. Our industrial and specialty business, from an end market perspective, is only up modestly, with more growth coming from customer wins and margin expansion, which we've seen, you know, carry over from the back half of the year. You know, there's a case to be made where the electronics industry, you know, really ramped up significantly. And in that case, there's upside to our guide.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Thanks.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Benjamin Gliklich: What we've seen in the first quarter to date has been quite positive from an electronics perspective; that market has accelerated to some extent sequentially. But it's too early to call the back half, hence our guide. Yeah, thanks. Can you maybe talk a little bit more then about what you've seen quarter to date within electronics? I don't know if you have any further visibility than what you normally have.
Speaker Change: Thank you.
[music].
Benjamin Gliklich: And you alluded to maybe units growing more than, or your volumes growing more than units on the inventory rebuild. Are you seeing any of that play out today, or is it still too uncertain? That's an opportunity that's not really factored into our guidance, which is thinking about unit levels last year being better than demand for things like circuitry materials because of inventory clearance. And so there is an opportunity, insofar as we're lapping that, for incremental volume growth over unit growth. It's really early to have a judgment on that.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Benjamin Gliklich: We're sitting here in the middle of February. We have the Lunar New Year impact in Asia, which really does swing things a bit at the beginning of the year. It's fully falling in February.
Benjamin Gliklich: And so sometimes you see a build in advance of the Lunar New Year. What I would say is that January was a very strong month, and we'll have a better sense for the first quarter once we're out of February. And there might be some room for outperformance based on how February falls.
Speaker Change: [music].
Bavesh Ladoia: Okay. Thanks, Ben. Your next question comes from the line of Bavesh Ladoia with BMO Capital Markets. Your line is open. Hi, good morning, good morning, Ben and Carey.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Benjamin Gliklich: Is 2024 a... Is 2024 a growth year for your industrial and specialty segment? I mean, do you expect organic sales and or EBITDA to be higher year over year? And, I guess, what does your guide assume for that segment?
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Benjamin Gliklich: Yeah, so the INS business should grow its top line and EBITDA in 2024, more modestly than the electronics business, but we do expect it to grow. The end markets are not going to be as strong as the electronics business. But we do have some customer wins ramping, and margins should continue to, should be stronger, I would say, particularly in the first half, as we lap a period of higher input costs and higher logistics.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Yes.
Benjamin Gliklich: And then moving to free cash flow, that was ahead of expectations. Leverage is going under three, you mentioned, by the end of this year. Historically, that's where you have reinvested in the business. So, I guess, how do you think about the M&A markets currently and how do you think about buybacks restarting this year? Yeah, so... Cashflow was quite strong in 2023, and there's room for that to grow in 2024 based on our guide. But without incremental capital allocation, we'll be inside of three by the end of the year. And historically, we've been opportunistic, and that should continue to be the case.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Duffy Fisher: We will have capacity for reasonable capital allocation over the course of 2024, and we'll see what the market serves up to us. We feel like we also have the bandwidth for integration. Now that we've integrated Coventia, we've integrated the Viaform transaction, and, you know, Cupriana is off and running, we'll see what opportunities avail themselves. Thank you. Your next question comes from the line of Duffy Fisher with Goldman Sachs. Your line is open.
Speaker Change: Okay.
Okay.
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Duffy Fisher: Yeah, good morning, guys. Can we dig a little deeper into the variable cost? You know, what exactly is that? What are we going to receive, you know, from pushing that in? And then is that permanent?
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Benjamin Gliklich: In that if we achieve what we want this year, does that continue? Or is that something that is, you know, kind of a one-year bump, and then we'll get a harvest that goes forward? Sure.
Speaker Change: [music].
Speaker Change: Okay.
Benjamin Gliklich: So one of the hallmarks of the business is its variable operating cost nature. When, you know, demand isn't strong, when end markets are soft, we're able to manage costs in such a way that preserves profit but doesn't damage the long-term growth trajectory of the business. And that is incentive compensation, by and large, but also things like travel and marketing. So in 2023, incentive compensation was below target and to the tune of about $15 million.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Benjamin Gliklich: That allowed us to preserve margins year over year, despite volumes being down in the high single digits. As we begin 2024, our expectation is for a full 100% of our target. And therefore, we're rebuilding incentive compensation. That is a one-time only rebuild.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Duffy Fisher: Of course, if demand doesn't turn up, that cost will stay out of the business. It's not something that you should count on every single year because, in most years, we should be close to our target level. I'd note that, excluding that rebuild, as we model 2024, the incremental margins in the business are north of 40%, including that rebuild there in the 30s. Fair enough.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yes.
Duffy Fisher: And then when you look at your guide for this year, at the midpoint, what's the assumption for raw material benefit to the margin? somewhere around a point of gross profit margin expansion from input costs and MIPS. Terrific. Thank you, guys. Thank you. Your next question comes from the line of John Roberts with Mizzouho.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
John Roberts: Your line is open. Thank you. I wanted to take advantage of having Sir Martin on the call.
Sir Martin Franklin: What do you think about the portfolio today? Are the non-electronic businesses generating enough cash for them to add value to the portfolio? And how do you think about additional acquisition opportunities in electronics? Um, well, thanks for the question. I think, at the end of the day, we like to keep the portfolio as it is. And then we're not really traders; we're builders.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Sir Martin Franklin: So, I think our mantra is, I think business is always about finding another asset that couldn't be better. But I think that we're, you know, in different years, different parts of the business perform better than other years. So I think we have a very strong portfolio, and we tend to invest and try to grow each part. In terms of M&A... We've been opportunistic.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Thanks.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Sir Martin Franklin: I mean, the acquisitions that we've made have been longer-term in nature in terms of their potential, and I think that they've set the foundation for stronger organic growth for the company in future years. It's been a long-term investment, and I think the M&A environment has become – it's like the window's open again. But as you heard from Ben and Carey's comments, the cash flows in business are strong, and we'll have the capability to do things if the right opportunities avail themselves. Thank you. And then, Ben, is the benefit of new electronics in autos still small enough that it gets offset when there's a slowdown in overall ICE vehicle production? Or how do we think about the balance between exposure to the secular growth areas of autos versus cyclical exposure?
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Sure.
[music].
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Benjamin Gliklich: Yeah, so if you look at our assembly business in 2023, it significantly outperformed our circuitry and semiconductor businesses, and that was largely driven by strength in the automotive business. So not only are we seeing an uplift in content, but we're seeing innovation that our business is bringing to bear on that market and high reliability alloys that's driving share and outperformance even in the auto markets. Again, it depends on the magnitude of the automotive production decline to answer that question accurately.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Benjamin Gliklich: But we are seeing, you know, a low single-digit uplift in content per unit each year. That's even greater as electric vehicle penetration increases. And our performance in power electronics has been outstanding. And that's a segment of the market and technology that has been growing really, really nicely and will continue to grow for several years to come. Thank you. Your next question comes from the line of Steve Byrne with Bank of America. Your line is open.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Yes.
Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Stephen Byrne: Yes, thanks. Ben, your guide sounds like it's primarily driven by macro factors. I'm just curious whether that 510 to 530 million EBITDA incorporates any expectations for end market restocking, not just your customer but your customers' customers, any potential for share gains, cross-selling, or pricing power, or any of those in your outlook, and if not, what's the potential for it? here.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Thanks.
Speaker Change: Yes.
Speaker Change: [music].
Benjamin Gliklich: Thanks, Steve. So, over the past several years, the going in assumptions for market performance have been way off relative to the back half performance that was realized. And so we have to draw a line based on industry forecasts, and that's how we've formulated our guide. There is room for outperformance from an end market perspective as we think about upsides and downsides. Our performance, again, organically on a like-for-like basis in the mid-teens from an EBITDA growth perspective is quite a ways higher than the market forecast. And so there is a benefit from margin improvement that we've seen carrying over to the top line and mix, where new technologies that we're introducing into the business are gaining share. We've also held the price, and the benefit of that execution is accruing to shareholders in the company.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yes.
Benjamin Gliklich: And with respect to this $15 million increase in comp, do you have any productivity initiatives that might potentially offset it? Yeah, so we have been investing in site consolidation and systems modernization. We have streamlined the organization from a leadership perspective over the past year. And so there are savings built into the plan that offset some of that, but not all.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Benjamin Gliklich: And the incremental margins, again, are in the 30s inclusive of that Compre Build and in the 40s, which is above what we target in a normal year exclusive of it. So we feel as though there is good efficiency being driven through the business and operations. Okay, thank you. Your next question comes from the line of Jonathan Tan-Wenting with CJS Securities. Your line is open. Hi, good morning.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Jonathan Tan-Wenting: Thanks for taking my questions. I was wondering if you could dive a little bit more into your power electronics investments in the EV realm, and is that oriented more towards any particular technology like silicon carbide, or is it targeted more towards pure EVs? Can it be applied to hybrids, or do you have any exposure to any particular player or partner?
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Benjamin Gliklich: Just any more detail there would be... Sure. So our power electronics business provides really differentiated materials used in the assembly of power semiconductors and then power inverters, a very, very strong market position within certain OEMs that are, you know, pure EVs. The opportunity there is for growth in those OEMs and also penetration of, let's call them, OEMs that have longer cycle times to develop new platforms. And so, you know, we are not on every OEM's electric vehicle platform. And there's no reason that this material shouldn't be on all of the high-performance electric vehicles in the market.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Thank you.
[music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].
Benjamin Gliklich: We've been investing in applications labs, not just in the West, but we opened one in Shanghai last year, and we've had great traction with the Chinese electric vehicle OEMs. There's a lot of market opportunity for this, both as EV units grow and as our penetration of EV OEMs expands. It's an exciting technology for us.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: [music].
Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Jonathan Tan-Wenting: Thank you. And then just a question for Carey, where does the SG&A start the year as you, you know, layer the bonus accrual back? www.
Carey J. Dorman: ElementSolutions.com, So you take that $15 million over the full year, you're talking $3 or $4 million a quarter. There's not a lot of other things that happen in Q1 that should make a big difference from the Q4 run rate. We did have a small release in bonuses and some long-term incentives associated with where we landed a year ago. So, you know, call it a $5 million sequential pickup from Q4 is probably the right way to think about it. Then when we get to the second quarter, we do start to see the other piece of inflation on costs, which relates to cost of living adjustments and merit increases. So maybe it's a slight incremental step up from Q1 to Q2. But I think that's the right ballpark.
Speaker Change: Yes.
Speaker Change: Okay.
[music].
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yes.
Carey J. Dorman: And finally, you had a large tax item in Q4, and I was just wondering what that means for you going forward, the effective and the reported tax base. Sure.
Speaker Change: Yes.
Speaker Change: [music].
Yeah.
Speaker Change: Yes.
[music].
Carey J. Dorman: Yeah, so we did some really effective tax planning in 2023 that we've been working on for a couple of years. And you, well, you noted, John, is correct. We took a pretty nice credit this quarter.
Carey J. Dorman: We basically added around $50 million of deferred tax assets to our balance sheet that will benefit us over the next five years or so, as we estimate. We think that will keep our cash tax rate in the, you know, in and around 20, maybe picking up slightly from that over the next couple of years. But what that asset will do is will effectively allow us to keep not paying meaningful U.S. tax for the next five years, where prior to that planning, we expected to be paying U.S. tax in the next one to two years.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Carey J. Dorman: Thank you. Your next question comes from the line of Chris Kapsch with Loop Capital Markets. Your line is open.
Chris Kapsch: Yeah, good morning. In your formal remarks, you mentioned that I think it was in your assembly business that volumes outpace the PCB market's growth. I assume this is some indication of having gained share. Just wanted to get some more color.
Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Benjamin Gliklich: Is that accurate? Is the outperformance a function of your over-indexing to higher growth applications? Or is it actual share gains in the existing or core business, or a little bit of both? Sure. So the assembly business had a much stronger 2023 than the circuit board and semiconductor businesses. It's driven by a greater concentration in the automotive market, which was healthier than the smartphone market and higher-end consumer electronics markets.
Speaker Change: Yes.
Yes.
Speaker Change: [music].
Speaker Change: Thanks.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Benjamin Gliklich: It's driven by innovation, which has been driving share, both in terms of next generation pace with higher performance attributes. We've introduced some new alloys that are more reliable than, you know, what had previously been in the market, which have really interesting applications, not just in the automotive but also in infrastructure markets. And then, you know, our power electronics business sits, a portion of it sits within the assembly business, and that's been very strong. So there's innovation, market share gain, and end market dynamics that are supporting that outperformance in the assembly business. And then one on Kupriyan, I know you've expressed a lot of excitement for the technology, and you had some comments about the progress in commercializing it with some leading chip makers, and just wondering if, as you have more visibility into that product, you know, future success, if you think the applicability of the technology is solely for the more advanced and complex architectures, or are there benefits to the device also such that you could displace Just trying to get a sense for when you might want to take a stab at the end there and when this starts to move the needle in your perceptions.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Chris Kapsch: Thanks. Thank you, Chris. So Kuprion is really exciting.
Benjamin Gliklich: You know, our commercial traction is greater than we expected it would be, and our progress towards commercialization is faster than we expected it would be. You know, we expect there to be some revenue contribution in the back half of this year and a little bit of contribution in 2025, probably a bit earlier than we thought it would be when we sort of embarked on this journey. The applications for Kuprion span our electronics business. So, originally, we thought it would be, you know, primarily a die-attached material, which is, you know, semiconductor assembly and advanced packaging. But we're finding that it can also be a circuit board material used to metallize next-generation IC substrates.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Yes.
[music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Benjamin Gliklich: In fact, that's where more of our traction has been because the qualification cycles are shorter there than in the semiconductor market. So, the breadth of applications is wider, the customer engagement is better, and, you know, it's on track to be a pretty significant contributor in the medium term. We appreciate the color.
Speaker Change: Sure.
Speaker Change: [music].
Chris Kapsch: Thanks. Thank you. Once again, ladies and gentlemen, if you have a question, it is star number one. Your next question comes from the line of David Silver with CL King. Your line is open.
Speaker Change: Yeah.
David Silver: Yeah, hi, good morning. I'd like to ask maybe if you could comment on your outlook for your overall business in China, maybe for a couple of two, three years. But over the last year or two, there's definitely been some shifts in terms of trade restrictions, and I guess, www. ElectricUnicycles.com the positioning of some of your major customers, re-shoring, on-shoring, et cetera.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
David Silver: But, you know, I think it's still your largest country business in terms of revenues outside of the U.S. If you could maybe just discuss your thoughts on your opportunity set in that market and, you know, if there are some shifts in either your resourcing for that region or how you expect your business in that country to evolve. Thanks, David. So business in China had a tough year in 2023. It was down in the double digits from a percentage point of view.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Yes.
Speaker Change: [music].
Benjamin Gliklich: You know, that was driven partially by the electronics market, where there was quite a bit of business in the circuit board market, in particular, and also in the industrial market, where the industrial economy was soft. As we look to next year, with the electronics market ramping up, we see growth in China in 2024. The industrial business, we expect to be, you know, I'd call it modestly better, not a great deal better. The circuit board market is very strong in China and will remain so. There aren't any trade restrictions on the circuit board market.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Benjamin Gliklich: And we remain a significant participant in that market, and we do see growth, as we said. We see growth from Chinese OEMs in electric vehicles, as I mentioned earlier. We opened an applications lab for power electronics there, and we see a lot of opportunity associated with that. And even in our industrial surface treatment business, we've been investing in that market. Our share there is lower than it is outside of China, and we see a big opportunity for share gain and are getting traction, supporting customers with equipment packages and other innovations, particularly with an environmental lens on them, because of the scrutiny on environmental discharges in that market. So we do see it as a growth market for us, coming off of a pretty soft year. There's a compelling case for several years of growth from here, even in a reasonably tepid industrial economy in China, should that play out.
Speaker Change: Sure.
Speaker Change: Yes.
Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Okay.
Speaker Change: [music].
Speaker Change: Thanks.
Speaker Change: [music].
Yeah.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
David Silver: Okay, I'm going to stop there. Thank you very much. Thank you, David. There are no further questions at this time.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yeah.
Benjamin Gliklich: I'll turn the call to Ben for closing remarks. Thank you, Sarah, and thank you, everybody, for joining. We look forward to seeing many of you in the days and weeks to come. Have a great day. This concludes today's conference call. We thank you for joining. You may now disconnect your line. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? What's up, YouTube? It's your boy, Scott.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Scott: Thanks for watching. I hope you enjoyed this video. If you did, please give it a thumbs up and subscribe to my channel.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: [music].
Scott: I'll see you in the next video. Bye. Bye. Bye. Bye. Bye, www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com www.elementsolutions.com
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: [music].