"Element Solutions" Q2 2026 Earnings Call - Record Results and Raised Guidance Driven by AI Infrastructure Demand and Cupreon Commercialization

Operator: Good morning, ladies and gentlemen, welcome to the Element Solutions Q2 2026 financial results conference call. After today’s prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now turn the call over to Varun Gokarn, Vice President of Strategy and Integration. Please go ahead.

Varun Gokarn, Vice President of Strategy and Integration, Element Solutions: Good morning, thank you for participating in our second quarter 2026 earnings conference call. Joining me today are our CEO, Ben Gliklich, and CFO, Carey Dorman. In accordance with Regulation FD, we are webcasting this conference call. A replay will be made available in the Investors section of the company’s website. Before we begin, I want to remind everyone that our announced merger with Solstice Advanced Materials remains subject to shareholder and regulatory approvals and customary closing conditions. As such, we will be limiting our comments on the proposed transaction to what has already been made available in public filings and will not be taking questions about the transaction. During today’s call, we will make certain forward-looking statements that reflect our current views about the company’s future performance and financial results. These statements are based on assumptions and expectations of future events, which are subject to risks and uncertainties.

Please refer to the earnings release, supplemental slides, and most recent SEC filings on our website for a discussion of material risk factors that could cause actual results to differ from our expectations and predictions. Today’s materials also include financial information that has not been prepared in accordance with US GAAP. Please refer to the earnings release and supplemental slides for definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures. It is now my pleasure to introduce our CEO, Ben Gliklich.

Ben Gliklich, CEO, Element Solutions: Thank you, Varun. Good morning, everybody. Thank you for joining. Before we review this record quarter, I’d like to reiterate our rationale for the announced agreement to merge with Solstice Advanced Materials. This proposed transaction unites our complementary competencies to better meet customer demands for scaled, broad strategic supply partners, while also increasing avenues to prudently invest our cash flows for growth and unlocking compelling synergies. Together, we stand to build an even stronger electronics portfolio across chip and PCB fabrication, packaging, and assembly, while accelerating investment in the commercialization of new advanced materials and other growth priorities. We will have a broader, highly differentiated value proposition in thermal management and front-end copper interconnect formation. The combined company will be a market leader in profit growth and cash flow generation with multiple high-growth businesses.

The over $180 million in cost synergy potential is real and actionable with clear additional upside over time. Integration planning has begun, and we’re assembling a joint team of leaders from both of our businesses to ensure the organizations are integrated thoughtfully, and we fully capture the strategic and financial promise of the combination. Carey will lead the effort on our side, equipped with deep knowledge of our businesses and processes, as well as experience successfully leading many similar exercises over his tenure at Element. Our North Star at Element Solutions has always been shareholder value creation, and we’ve had a robust dialogue with our investors since this announcement and will continue to listen intently to their feedback. We work for our shareholders and value their input on important decisions such as this.

As today’s results show, our organic path has tremendous momentum, and combining our business with Solstice should provide an incremental lever to deliver greater value than we otherwise would have. The stock’s reaction to the announcement has been disappointing, and both ESI and Solstice recognize the need to show from a cultural as well as operational perspective that we can execute against this significant opportunity. The first test of that execution will be integration. Together with other leaders from ESI and our board, I’ll be very focused on working to ensure this integration is planned and executed to our standards for excellence and delivery. Turning to our second quarter results, Element Solutions posted a record quarter as organic growth accelerated in our electronics portfolio and the specialties business continued to deliver bottom-line growth despite a mixed backdrop.

Our results were enhanced by strong contributions from our recent acquisitions, which are performing very well. These results demonstrate the ongoing success of our strategy to penetrate the highest value, fastest-growing subsegments in our addressable markets and are a testament to years of work by our teams, collaborating across labs, manufacturing sites, applications facilities, and alongside our customers at their locations. We’re growing with our customers, increasingly as a partner, working together to address their most pressing technical challenges. There are significant opportunities for our teams to improve value and use manufacturing processes, particularly as pockets of the electronic supply chain have become constrained relative to accelerating demand. In the second quarter, we delivered double-digit organic sales growth for the third quarter in a row and margin expansion when excluding the impact of pass-through metals.

Our profitable growth is happening alongside increasing investment in people, technology, and plans to support the future. Sales in our Electronics segment grew 20% organically as activity accelerated across our supply chain in support of the ongoing AI infrastructure build-out. Technical requirements in data center hardware and other high-performance electronics continue to increase, and our business provides critical enabling solutions across thermal management, power density, and advanced packaging applications, to name a few. We’re seeing volume growth in the highest value categories across our end markets, from leading-edge semi and high-end circuit board fabs to device assemblers, and a strong pull for innovation to enable greater levels of device performance and manufacturing yield or throughput. This dynamic drove double-digit organic net sales growth in each of our electronics verticals.

As we discussed at our May Investor Day, we’re making investments to meet the increasing demands of our customers, adding additional manufacturing capacity for several high-growth product lines, and increasing our laboratory footprint and innovation resources to remain on the leading edge. One of our largest focus areas has been Cupreon, where we’re working to commercialize a differentiated new technology to solve several emerging customer pain points around thermal management, power delivery, and plating copper on challenging substrates. Our development partners working with this material are incredibly enthusiastic, which is evident in a growing commercial pipeline. We’re actively sampling products from our first plant to qualify it through our customers, and we have high conviction in the opportunity in this market and urgency to establish incumbency with this technology.

Over the past quarter, we’ve made plans to increase throughput at our initial plant and increase the scope of our second site, which will be located nearby in California. Taken together, our capacity outlook for year-end 2027 is higher than it was entering the quarter. Beyond investments in organic growth, we continue to demonstrate the returns of prudent capital allocation into attractive adjacencies that bring value to our customers. The integrations of Micromax and EFC are going well. Both businesses are performing ahead of our plans for this year and contributed meaningful adjusted EBITDA growth in the quarter. It was both operational excellence and prudent capital allocation that led to the 27% increase in adjusted EPS we delivered in the second quarter. Carey will now take you through our second quarter business results in more detail. Carey, please.

Carey Dorman, CFO, Element Solutions: Thanks, Ben. Good morning, everyone. On slide three, you can see a summary of our second quarter financial results. We delivered record quarterly revenue, adjusted EBITDA, and adjusted EPS. Organic net sales grew 15%, and constant currency adjusted EBITDA increased 33% year-over-year. Electronics organic net sales growth of 20% was broad-based. Each of the segment’s verticals grew organically by double digits, led by our semiconductor business, which was 31% in the quarter. Adjusted EBITDA margins, excluding pass-through metals, improved 120 basis points year-over-year to 27.8% this quarter, which was in line with the first quarter, despite significant sequential non-metal raw material inflation. The year-on-year improvement was primarily driven by product mix, with organic growth in higher-value product lines and partially offset by inflation in our specialty segment, as well as continued OpEx investment to support growth initiatives and fund above-target incentive compensation.

Building on that last point, if we exclude the above-target component of incentive compensation accruals in the quarter, driven by our outperformance relative to plan, OpEx in the second quarter would have been more than $10 million lower, and adjusted EBITDA margins would have been nearly 30%, which has been a long-term target for us. On slide four, we share additional detail on the drivers of organic net sales growth in our two segments. In electronics, 20% organic growth was driven by sustained investment in AI infrastructure and other high-performance computing applications. Demand remained particularly strong across semiconductor packaging, advanced PCB chemistries, and engineered assembly materials supporting data centers and power electronics. This was more than offset by strength in AI-related applications and continued customer investment in next-generation technologies.

Semiconductor Solutions organic net sales grew 31%, with improved order patterns for power electronics products and growing momentum in thermal interface materials for high power consumption applications, such as AI GPUs and CPUs. We also saw strong and growing demand for advanced packaging solutions from OSATs in Asia. Revenue growth for the products within this business was magnified in the quarter by the substantial year-over-year increase in precious metal prices that are inputs to many of these solutions. The Assembly Solutions business grew 18% organically, supported by broad demand for higher reliability solder paste in Asia, and further enhanced by growth in engineered preform materials used in data center applications. The Indian market continues to show robust growth for assembly as electronics manufacturing supply chain diversification continues. Circuitry Solutions net sales improved 15% organically, benefiting from continued demand for metallization solutions tied to AI infrastructure and high-performance compute.

We are supporting customers as they add capacity and are seeing traction with technologies that are critical to increasingly complex PCB architectures. Finally, this business is also benefiting from continued growth in Southeast Asia, where we have a strong and expanding presence. Micromax is not included in our organic net sales growth calculation but contributed approximately $130 million to reported sales in the quarter, roughly two-thirds of which is related to metals. The business continues to perform well ahead of plan and is growing revenue and adjusted EBITDA significantly on an ex metals basis. We are very pleased with these results and the progress of the integration. Turning to our Specialty segment, Industrial Solutions grew 3% organically in the quarter due to a modest return to growth in European industrial markets early in the quarter From global surcharges and price increases tied to rising raw material inflation.

This business has been restructuring its go-to-market and supply chain strategy over the last year. We are happy to see the strong execution beginning to play out. Our Offshore Energy Solutions business grew 1% organically, slower than Q1, driven by timing impacts and some disruption from the war in Iran. Finally, EFC Gases & Advanced Materials contributed $16 million of revenue in the second quarter. Demand for electronics, satellites, and electrical infrastructure applications remains strong, though this business is lumpier than our others. Commercial activity is very healthy, and we expect EFC to have a substantially larger second half sequentially, and we have good visibility into that. The EFC team is executing at a high level, growing wallet share with existing semiconductor and space customers, and winning new qualifications in both. Slide five addresses cash flow and the balance sheet.

Adjusted free cash flow for the quarter was $74 million, a strong increase sequentially and year-over-year. With metal prices relatively stable, we have seen the benefit of the higher earnings growth we are experiencing this year. We did continue to invest in working capital, albeit more modestly, as we continue to see increased volume demand across the business. The cadence of our cash generation is typically more second-half weighted, and we expect this year to follow a similar pattern assuming metal prices stay at current levels. On the capital expenditure side, we invested $28 million this quarter, bringing year-to-date investment to over $50 million. As we have discussed, we are accelerating investment in certain high-value product areas such as Cupreon and thermal interface materials for hyperscale customers, while at the same time moving aggressively on existing plant consolidation projects and our Industrial Solutions supply chain.

We now expect CapEx for the year to be roughly $100 million, which is on the higher end of the guidance range we provided last quarter, though it’s still less than 3% of sales. These are high-returning projects with attractive paybacks that support long-term growth. Turning to the balance sheet, our net leverage ratio at the end of the quarter was 2.9 times on a pro forma basis, including Micromax and EFC. Given earnings strength and expected cash flow, we anticipate reducing leverage to roughly 2.5 times by the end of the year. With that, I will turn the call back to Ben.

Ben Gliklich, CEO, Element Solutions: Thank you, Carey. Our company is strong and well-positioned in attractive growth markets. In each of our businesses, we’ve identified opportunities and built strategies to deliver substantial profit growth through investment in people and capabilities over a multi-year timeframe. We pride ourselves on customer centricity. On this front, we’re seeing the fruits of persistent investments in technical service capabilities, technology roadmap exchanges, and a focus on customer pain points where we can improve product performance or customer productivity. Organic acceleration in the first half, in particular, the sources of that growth, give us confidence in a strong year and momentum into 2027. Underlying demand in the high-end electronics market remains. The positions we’ve established in the fastest-growing, highest-value niches of these markets should serve us well.

As a result, we are raising our adjusted EBITDA guidance to a range of $690 million-$710 million for the full year. This range reflects the trends we saw in the first half, combined with ongoing execution of our strategic roadmaps in each of our businesses while taking into account the one-time benefits of metal hedge gains realized in the first half of 2026, having recorded the associated costs in the second half of 2025. We expect third quarter adjusted EBITDA to be approximately $180 million, with demand conditions sequentially similar to the first half, taking into consideration some risk from raw material and logistics inflations that we may not recapture immediately through improved pricing and sourcing actions. We now expect 2026 adjusted EPS growth of approximately 20% on a full-year basis.

Element Solutions is executing very well. The proposed Solstice transaction is recognition of what we’ve done, what we’re doing today, and what we’re capable of doing in the future. From a foundation of remarkable predecessor companies like MacDermid, Enthone, Alpha, Micromax, EFC, Coventya, Kester, H.K. Wentworth, OM Group, Polytechnic, and Kuprion, we’ve built something bigger and greater than any of them could be individually. We don’t forget the histories of those businesses, which are far longer than our own. Also that those businesses were built on the shoulders of others that came before them. We’re immensely proud of this chapter, it is not the first, nor clearly will it be the last for our businesses.

For now, let me conclude once again by thanking all of our stakeholders for their continued support of Element Solutions, and in particular, our people who are entirely responsible for all of our success in the past and our potential in the future. With that, operator, please open the line for questions, and as a reminder, we will not be taking questions on the recently announced proposed merger with Solstice. Thank you.

Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Josh Spector with UBS. Your line is open. Please go ahead.

Josh Spector, Analyst, UBS: Yeah. Hey, good morning, guys, and congrats on a solid quarter here. I wanted to just ask around really your expectations here for the second half and the phasing that’s baked into your guidance. You don’t have the typical 3Q uplift, but that’s more smartphone driven. What’s your assumption there? Just within the rest of it, that’s obviously having a big uplift around the data center side, do you think there’s further acceleration that pulls more into it, or are you assuming that you’re stable from here? Thanks.

Ben Gliklich, CEO, Element Solutions: Sure thing, Josh. Thanks for the question and feedback. The way to explain sequential performance here is threefold. Continuation of the strong demand that we’ve seen through the second quarter, across the electronics complex. We are not expecting the typical seasonal ramp in the smartphone market, just given what’s been a very weak consumer electronics backdrop. We’ve outperformed that year-to-date, but we’re not counting on a substantial ramp. We’re factoring a headwind from raw material and logistics inflation driven by the conflict in Iran, and we’re factoring in a modest softening in Micromax, which has been the biggest source of outperformance on a year-to-date basis, and that gets you to a roughly flat sequential performance.

For Q4, we’re basically just thinking that normal seasonality and fewer operating days, given the holiday, so things drop off a little bit from Q3 to Q4, and that’s how we get to our full year guide.

Josh Spector, Analyst, UBS: Okay, thanks. That’s helpful. I just wanted to ask at a high level, generally, just you’re continuing to execute well on a standalone basis. You’re investing more in Cupreon. I guess outside of the cost savings that you see from the combination with Solstice, what does ESI, as a standalone shareholder, not get in ESI standalone that you see them getting in the combined basis? Are there big sales opportunities you think you miss out on? Is there something that’s missing in terms of the Cupreon build-out? Just any help expanding on that a little bit, please?

Ben Gliklich, CEO, Element Solutions: Yeah, look, we really don’t want to take questions relating to the merger announcement with Solstice. We’ve made plenty of public disclosure and also comments in the prepared remarks. I’ll limit my comments to what we just said in the prepared remarks, which is that this broader electronic portfolio advantages our collective shareholders in terms of the breadth of what we can offer to our customers and our customers’ customers at an increasingly pivotal time for innovation in the supply chain.

Josh Spector, Analyst, UBS: Okay. Thanks, Ben.

Operator: Your next question comes from the line of Bhavish Lodhia from BMO Capital Markets. Your line is open. Please go ahead.

Bhavish Lodhia, Analyst, BMO Capital Markets: Hi, good morning, Ben.

Ben Gliklich, CEO, Element Solutions: Morning

Bhavish Lodhia, Analyst, BMO Capital Markets: just on ESI. In the past, we have discussed that splitting your company into electronics and non-electronics was possible, but there was too much effort, too much brain damage, there are too many shared assets. Is that the same view today? Would you have an updated number for what the dis-synergies could look like if you were to split the company today?

Ben Gliklich, CEO, Element Solutions: Look, as we’ve always been clear, that we’ve got a great portfolio at Element of high-quality businesses. They’re market leading businesses with durable moats, customer intimacy, and tremendous cash flows. We’ve also been clear that we’re not emotional about any of our businesses. If someone is willing to offer value, in excess of what we believe fair value for our business, plus the, we’ll call it brain damage and separation costs associated with carving out businesses would be, that we’re open-minded about those types of transactions. We think our portfolio is very well-positioned for long-term growth across all of its end markets and vectors and aren’t currently contemplating any such transaction. It’s sort of a moot point as we sit here today.

Bhavish Lodhia, Analyst, BMO Capital Markets: Got it. As you think about the Electronics earnings from here, obviously metals pricing has created a bit of volatility in the sales side of things. How would you say a deflationary metal pricing environment plays out for the next one year, say?

Ben Gliklich, CEO, Element Solutions: Yeah. Obviously we’ve seen the impact of higher metal prices on the top line. We try to adjust for that as best as we can with our ex metals, both margins and organic growth numbers. There is a bit of metal in assorted parts of the portfolio, whether that’s nickel in our Industrial Solutions business or some precious metals in our wafer level packaging businesses. For the most part, we don’t realize margins on metals. When metal prices go up, that gives us a little bit of an opportunity to take price in some of our businesses, Micromax being one of them. Deflationary metals pricing should not have a material impact on profit dollars.

Bhavish Lodhia, Analyst, BMO Capital Markets: Great. Thank you.

Operator: Your next question comes from the line of Michael Harrison with Seaport Research Partners. Your line is open. Please go ahead.

Michael Harrison, Analyst, Seaport Research Partners: Hi, good morning. Was hoping that you could give a little bit more detail on the Micromax business. It seems like the second quarter was again ahead of expectations, and you’re kind of indicating that maybe you don’t expect that strength to continue. Is that just some lumpiness inherent in the business? Maybe just give a little bit more detail on how you’re thinking about the outlook there.

Ben Gliklich, CEO, Element Solutions: Yeah, sure thing, Mike. Micromax has been performing exceptionally well out of the gates. That’s volume driven and to some extent, pricing driven. We have, I’d say, been opportunistic around pricing given the metals volatility, and that’s contributed to substantial earnings outperformance. We also started the year with a somewhat conservative assumption for what the business could be this year. The numbers you see in our disclosure around Micromax aren’t burdened by some of the, we’ll call it standalone costs, or integration related costs that we’ve had to add at the element level to support that business. Maybe it’s represented as modestly greater than its underlying contribution. Given it’s a relatively new business for us and we’re still getting more familiar with its earnings cadence, we thought it prudent to be somewhat conservative relative to the current run rate as we look to the back half.

Michael Harrison, Analyst, Seaport Research Partners: All right. Thanks for that. My second question is on the power electronics business. Just trying to understand how much of the strength that you’re seeing there is related to some improvement in underlying markets, and how much might be more related to you guys finding new applications, new customers, and those customers maybe starting to ramp some of those new applications.

Carey Dorman, CFO, Element Solutions: Yeah, Mike, this is Carey. I think the answer is both. In Q2 in particular, power electronics are the EV business, performed quite well, both with our legacy customers and the expanding customers particularly in Asia. That has been somewhat of a volatile set of end markets. We expect some of that volatility to continue, but really good strength there. We have been seeing expanding applications in data center power modules and other, let’s say, emerging applications tied to AI and high-performance compute. We expect those customer wins and those trends to continue. A nice mix of both. Yeah. There’s a lot of runway for the power electronics portfolio.

Michael Harrison, Analyst, Seaport Research Partners: Thank you very much.

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

Chris Parkinson, Analyst, Wolfe Research: Great. Good morning. Ben, I know it’s difficult to ascertain at times, just in terms of advanced packaging trends, where you specifically fit in, which crosses both assembly and some circuitry, can you just do your best to parse out kind of what’s driving those businesses, where you think you’re performing relative to the market, and where roughly you think you should be on a run rate basis? Thank you so much.

Ben Gliklich, CEO, Element Solutions: Yeah, sure thing, Chris. Our advanced packaging portfolio is performing quite well. We’ve seen substantial growth. As we’ve always said, advanced packaging is somewhat of a generic term. To say this specific product is an advanced packaging product, we sell one product that goes across multiple different substrates into different types of boards, so it’s hard to be very precise in that regard. I would say really strong traction, I would say share gain in the IC substrate, the package substrate portion of our circuitry business. Our high-end paste business and assembly is performing very well. Our wafer level packaging business is performing very well.

What’s most exciting around advanced packaging, that we’re really right now in the crucible of establishing processes of record for the transition from CoWoS to CoPoS and other emerging technologies that we expect to ramp, call it 18 months from now, and become very big markets for us. We feel confident that we’re going to win those pieces of business, and the advanced packaging business will accelerate as we move into 2027 and 2028.

Chris Parkinson, Analyst, Wolfe Research: Got it. Just switching over to semi, could you just give us what you’re willing to give on just breaking down the organic growth in semi between precious metals, volume price? It seems like you’re doing very well in the wafer plating chemistries, likely gaining share is my guess. Could you do your best to kind of break that down for us and how we should once again interpret that for the second half and into 2027? Thank you.

Ben Gliklich, CEO, Element Solutions: Chris, this is Carey. I’ll speak about the current performance and I think expectations for this year. Both the power electronics and the wafer plating businesses saw volume growth in the high teens. Both businesses benefited from additional pricing tied to precious metals, silver and gold primarily, respectively. If you think about the total 30+% organic growth we showed in the quarter, call it 60% to two-thirds of it would have been volume and the rest would’ve been price mix. I think we expect that volume trend to continue throughout the rest of the year.

Carey Dorman, CFO, Element Solutions: I made the comment a few minutes ago around the power electronics business specifically. Again, a growing part of that business is tied to data center applications, the majority of that business is still tied to power electronics for electric vehicles, which again, does have some volatility. We’re taking a little bit of a conservative view on that through the rest of the year. I think it’s too early to comment on 2027. Got it. Thank you very much.

Operator: Your next question comes from the line of Peter Osterland with Truist. Your line is open. Please go ahead.

Peter Osterland, Analyst, Truist: Hey, good morning. Thanks for taking the questions. Just wanted to start with an update on Kuprion. Could you size approximately the revenue you expect to see in 2027 from Kuprion? Just more broadly, as you ramp, will it all be truly incremental? Do you expect any cannibalization of existing sales?

Ben Gliklich, CEO, Element Solutions: Thanks for the question, Pete. Kuprion’s a good story. Over the course of the quarter, we identified ways to get more product, more capacity out of our initial plant in Fremont, which is now sampling and qualifying material with customers. We were able to expand our plan for our second Fremont site and made progress towards construction of the third site, which will be in Connecticut. The takeaway from all of that is our expectations for Kuprion or active copper capacity by year-end 2027 increased pretty materially over the course of the second quarter. From a commercialization perspective, we’re making really good progress, and we have customers pulling the product very aggressively, which should translate into material revenue in 2027 and profit contribution.

It’s dangerous to size these things because that second site in California may come online in the middle of the year or the latter part of the year, and that will have a pretty big impact on what revenue we can expect. The outlook for 2028, for instance, is very robust from a revenue and profit perspective given our capacity plans.

Peter Osterland, Analyst, Truist: Very helpful. Thanks. Also appreciate the color on Micromax. Wanted to follow up by asking about your other recent acquisition, particularly with EFC sales falling sequentially in the second quarter. How is the business performing? What drove the decline, and what do you expect in the second half?

Ben Gliklich, CEO, Element Solutions: The EFC business is a lumpier business than our other businesses, and it’s not a business that was operated on a quarter-to-quarter basis. Not that ours is, but with quarterly forecasts in its prior iteration. I would say that our confidence in the full year is, or rather our conviction in their ability to hit that $30 million for the full year of 2026 is higher today than it was a quarter ago, given the really strong commercial pull and customer engagements. Given it is a bit lumpier, it also has pretty good visibility into large new wins, and they are winning big pieces of business. The business is healthy. I wouldn’t read anything into the seasonality, if you will, or the phasing. We’re going to have a very big back half for EFC.

Carey Dorman, CFO, Element Solutions: The only thing I’d add to that is just given that seasonality and a little bit more lumpiness, the incrementals when the revenue does pick up are much higher than we would see for the rest of our business. We expect that to manifest in the second half as well.

Peter Osterland, Analyst, Truist: Great. Thanks a lot.

Operator: Your next question comes from the line of John Roberts with Mizuho. Your line is open. Please go ahead.

John Roberts, Analyst, Mizuho: Thank you. I appreciate it’s hard to define advanced, but would you give us kind of a wide range of what you would characterize as advanced for your core sales in electronics?

Ben Gliklich, CEO, Element Solutions: We’ve had a lot of questions in the past, John, around advanced packaging, right? We’ve quantified advanced packaging as several hundred million dollars of revenue. Advanced is an even more generic term than advanced packaging. What I would say is that by and large, what we’re selling is skewing towards higher end applications. You see that in our growth relative to industry growth, whether that’s printed circuit board volumes or semiconductor MSI, which would be the underlying market indicators for our end markets. We’ve been very substantially outpacing those markets for the past several years. You can’t say that every product we have goes into leading-edge applications, but the business skews disproportionately towards advanced technologies. I would say a very negligible percentage of our revenue that is going to really legacy analog type applications.

John Roberts, Analyst, Mizuho: Okay. I was going to corollary here. Would you characterize consumer and mainstream electronics organic as down modestly?

Ben Gliklich, CEO, Element Solutions: Yes. For the market or for our business, John? John, for the market or for our business? Because the market is down.

John Roberts, Analyst, Mizuho: For your business is what I was asking.

Ben Gliklich, CEO, Element Solutions: Oh, no. No. If you look at Q1, I don’t have the data for Q2, but in Q1, smartphone units were down overall, but our business was up mid-single digits, and I would expect something similar to that because there’s been a divergence, particularly in the smartphone market between local Chinese OEMs and Western non-Chinese OEMs, and our business skews towards those non-Chinese OEMs where the market’s been a bit more healthy.

John Roberts, Analyst, Mizuho: Then for overall for the company, could I ask, what are your largest raw materials that are non-metals? Actually, how much are they up as you talk about kind of inflation from the Middle East, et cetera?

Carey Dorman, CFO, Element Solutions: Yeah. John, there’s a broad swath of raw materials that are ex metal. If you think about the ones that have driven the pressure, it has been things that are derivatives of oil, so ethylene and propylene-based products. The biggest hit in the second quarter were in the industrial businesses and the offshore businesses, where those products are more prevalent. There’s not any one, but it’s things in that oil value chain.

Ben Gliklich, CEO, Element Solutions: Ex metal, we have no major concentrations within any specific raw materials or molecules.

John Roberts, Analyst, Mizuho: Great. Thank you.

Ben Gliklich, CEO, Element Solutions: Thanks, John.

Operator: Your next question comes from the line of John Tanwanteng with CJS Securities. Your line is open. Please go ahead.

John Tanwanteng, Analyst, CJS Securities: Hey, good morning. Thank you for taking my questions. Really nice quarter and outlook. I was wondering if you could talk a little bit more about the semiconductor business in general, just the impact of the growth on mix and margins. Do you expect that to continue significantly outpacing the circuitry and assembly business growth as we move into the future quarters?

Carey Dorman, CFO, Element Solutions: Yeah, it’s a good question. This is Carey. Given the metal components in the semiconductor businesses, the actual contribution margins there are not too different from the average for the electronics business. From a growth perspective, certainly semi has been outperforming volume-wise, we would expect that to continue to be our highest volume growth business through the rest of this cycle. In terms of a margin and margin mix, I don’t think we’re seeing a meaningful difference between that and the rest of the electronics business. You add anything to that?

Ben Gliklich, CEO, Element Solutions: Got it. That’s helpful. Then just from a raw materials and market share standpoint, have you been seeing excessive share gain, I guess, over what you would normally see, just given the impact on your competitors? Is that something that’s been more normal course? If you are seeing share gain, do you expect that to be sticky? Yeah, it’s a great question. In general, the broader electronics industry is short certain inputs. Capacity constrained as well. Those inputs tend not to be things in our value chain. We are not capacity constrained. I would say that by and large, our competition isn’t capacity constrained, though there are a few areas. We talk about Kuprion, for example.

What we’re doing in TIMs and other engineered materials where I would say we are capacity constrained, and we’re adding capacity as fast as we can to meet the surge in demand. I wouldn’t say that there is a shortage of what we make as a general term. We are taking share in certain technologies where we’ve been first to market, established positions of incumbency, or innovated ways to increase our customers’ throughput because they’re capacity constrained, right? If we can allow for them to increase their production, there’s a lot of value they can capture, and that justifies some switching, which is very uncommon in our industry. We have been taking share in several areas across our businesses on the basis of our technology, and that has led to some level of outperformance, and we would envision that to be sticky.

The switching costs are really high. The other area where we’ve seen some share opportunities has been given the spike in metal prices. Some of our local competitors haven’t been capitalized to float metal and handle the payment terms in the industry. We’ve seen customers turning to us, because competitors aren’t able to continue to operate. In those situations, we’re making sure the business isn’t transactional, because we’re not interested in that transactional type business. We’re interested in longer-term sticky business and making sure that the fact that we are a viable long-term supplier is recognized in the way we do business with our customers and by our customers. We have seen some share gains from that as well.

John Tanwanteng, Analyst, CJS Securities: Great. Thank you for that color.

Ben Gliklich, CEO, Element Solutions: Thanks, John.

Operator: Your next question comes from the line of Frank Mitsch with Fermium Research. Your line is open. Please go ahead.

Frank Mitsch, Analyst, Fermium Research: Thank you so much. Good morning, and nice second quarter results. You commented that the organic outlook improved through the second quarter. I was wondering if you might be able to provide any metrics around that in terms of the underlying industry or what you’re seeing specifically to make that comment that the organic outlook improved throughout the second quarter. Then, of course, the durability of that. Back in mid-May when you had your Investor Day, you offered us a midterm 7% organic growth outlook. Have things materially changed in that regard? Any color there would be very helpful.

Ben Gliklich, CEO, Element Solutions: Absolutely. Thanks for the question, Frank. With the organic outlook improved, meaning our outlook for the year, organic growth this year improved relative to the jumping-off point at the end of the first quarter. The reasons for that is we continued to see capacity expansions in the supply chain and pull from our customers. Their levels of activity continue to increase. We said something similar about a year ago where we said there was concern with their pull forward and we said, "This doesn’t feel like inventory in the channel." Our customers are adding capacity to meet what they expect to be demand, that capacity addition continues across the supply chain. In that context, our customers are making long-term investment decisions, we’re partnering with them to supply them with critical materials for their production processes.

We don’t see that abating in the near term. The medium-term targets or medium-term growth rates we articulated at our Investor Day, are exactly that. They’re medium term, I wouldn’t say they change over a 90-day period. I would say that underlying industry health is very strong right now, the outlook is as well.

Frank Mitsch, Analyst, Fermium Research: Terrific, very helpful. Carey, you called out higher incentive comp in the second quarter, a $10 million headwind. How do you think about incentive comp trending for the balance of the year?

Carey Dorman, CFO, Element Solutions: Good question. Thank you. The incentive comp accruals are based on our expectations for our full-year plan. We update those on a quarterly basis and true up the accruals. As of now, what we’re seeing in Q2 is sort of the level of expense we would expect to see in Q3 and Q4, unless our plan changes. As we’ve indicated here in our guide that we update provided is kind of consistent with where those accruals are. I would expect a similar level throughout the rest of the year.

Frank Mitsch, Analyst, Fermium Research: Terrific. Very helpful. Thank you.

Operator: Your next question comes from the line of Arun Viswanathan with RBC Capital Markets. Your line is open. Please go ahead.

Arun Viswanathan, Analyst, RBC Capital Markets: Morning. Sorry about that. I was on mute. Thanks for taking my question. Congrats on a very strong quarter here. I guess I just wanted to understand the strength in the semiconductor technology side. Maybe you could just elaborate a little bit on what drove that and how you see that kind of evolving as you potentially go through the next few quarters. Do you think you need to make any capacity additions there to meet growing demand? Thanks again.

Ben Gliklich, CEO, Element Solutions: Sure thing. The semi business was very strong in the second quarter, as we said earlier. About two-thirds of that is volume and a third of that is metal price inflation. We adjust for most of our metals that we pass through. In the semi business and also in the industrial business, for instance, we don’t make those adjustments. The volumetric strength is something we expect to continue. The metal prices we can’t predict. We are not capacity constrained by and large in the semi business. We wouldn’t have to make substantial investment to support ongoing growth there.

Arun Viswanathan, Analyst, RBC Capital Markets: Thanks for that. If I could just ask a follow-up. Do you comment on your outlook as far as utilization rates at some of your customers? Do you see those continuing to ramp up, and where are we in that cycle from your perspective, if you have any views there? Thanks.

Ben Gliklich, CEO, Element Solutions: Yeah. It’s a good question, right? We’ve got a very broad set of customers, from semi fabs to printed circuit board fabs to assemblers. Of course, on the specialty side of the business, it’s a whole different set of customers. What I would say is that across all of our electronics customers, we’re seeing capacity additions, right? We’re seeing the device assemblers and assembly shops building out more capacity. We’re seeing printed circuit boards building out capacity both in China and outside of China. We’re seeing huge investments in capacity in Taiwan and Korea, in those markets. Of course, semi fabs are expanding capacity at the leading edge. Capacity utilization varies by customer type and by what they’re building, right? Leading-edge semi versus legacy nodes.

Similarly, with printed circuit board fabs, there are a lot of different types of printed circuit board technologies. Those lines aren’t fungible per se. Certainly at the more advanced end, we’re seeing very high utilization rates, which is supporting substantial capacity additions at all of our major customers in the leading edge circuit board fabs, semi foundries, and device assemblers, EMS shops.

Arun Viswanathan, Analyst, RBC Capital Markets: Thanks.

Operator: There are no further questions at this time. I will now turn the call back to CEO Ben Gliklich for closing remarks.

Ben Gliklich, CEO, Element Solutions: Great. Thank you, Lynn. Thanks to everybody for joining. We’ll see you guys soon. Have a good day.

Operator: This concludes today’s call. Thank you for attending. You may now disconnect.