Market Overview

Element Solutions Inc Announces 2019 First Quarter Financial Results

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  • Net sales from continuing operations of $460 million, a decline of
    7% on a reported basis or 3% on an organic basis
  • Reported net loss from continuing operations of $4 million,
    compared to a loss of $9 million in the same period last year
  • Adjusted EBITDA from continuing operations of $99 million, an
    increase of 1% over last year on a constant currency basis
  • Cash flows used in operating activities of $32 million, free cash
    flows on an adjusted basis of approximately $50 million
  • Reaffirming full year adjusted EPS guidance of $0.82 to $0.87 and
    adjusted EBITDA guidance of 5% to 8% growth on a constant currency
    basis

Element Solutions Inc (NYSE:ESI) ("Element Solutions" or the "Company"),
a global and diversified specialty chemicals company, today announced
its financial results from continuing operations for the three months
ended March 31, 2019.

Unless otherwise specified, the results presented in this press
release exclude discontinued operations which relate to the Company's

former Agricultural Solutions business, the sale of which closed on
January 31, 2019 for $4.2 billion in cash, subject to post-closing
adjustments.
For the three months ended March 31, 2019, the
Company's continuing operations include interest expense related to
senior notes and term loans outstanding prior to the sale of
Agricultural Solutions.

Executive Commentary

Chief Executive Officer Benjamin Gliklich said, "This was a
transformational quarter for Element Solutions in which we made strong
progress against many key objectives and repositioned the Company for
long-term success. The weakness in our end-markets from the second half
of 2018 persisted this quarter and our financial results reflect these
macroeconomic realities. However, the resilience of our variable cost
model, our diversification and our strong cash flow characteristics can
be seen in our results. While the top-line declined 3% organically, our
adjusted EBITDA increased 1% year-over-year on a constant currency
basis. We would have generated approximately $50 million of free cash
flow in the quarter on a standalone basis, assuming a closing of the
Arysta transaction and the implementation of our new capital structure
at the beginning of the year."

Gliklich continued, "With our leadership team in place and the activity
associated with the sale of Arysta behind us, we are focused on driving
organic results, cost containment and our corporate reorganizational
savings to deliver on our objectives. Our teams have experience
navigating challenging markets to deliver financial outperformance.
Though we do not expect a second quarter recovery, we do expect, as do
our customers, that end-markets will improve in the second half of 2019.
In that context, we are reaffirming our full year adjusted EPS and
constant currency adjusted EBITDA growth guidance."

First Quarter 2019 Highlights (compared with
first quarter 2018) for continuing operations
:

  • Net sales on a reported basis for the first quarter of 2019 were $460
    million, a decrease of 7% over the first quarter of 2018. Organic net
    sales, which exclude the impact of currency changes, certain
    pass-through metal prices and acquisitions decreased 3%.
    • Electronics: Net sales decreased 8% to $266 million. Organic net
      sales decreased 5%.
    • Industrial & Specialty: Net sales decreased 5% to $194 million.
      Organic net sales were relatively flat.
  • Reported net loss from continuing operations for the first quarter of
    2019 was $4 million, as compared to a net loss of $9 million for the
    first quarter of 2018.
  • Adjusted EBITDA for the first quarter of 2019 was $99 million, a
    decrease of 5%. On a constant currency basis, adjusted EBITDA
    increased 1%.
    • Electronics: Adjusted EBITDA was $56 million, a decrease of 6%. On
      a constant currency basis, adjusted EBITDA decreased 1%.
    • Industrial & Specialty: Adjusted EBITDA was $42 million, a
      decrease of 4%. On a constant currency basis, adjusted EBITDA
      increased 3%.
    • Adjusted EBITDA margin for the combined company increased by 30
      basis points to 21.4%. On a constant currency basis, adjusted
      EBITDA margin increased by 70 basis points.

2019 Guidance Reaffirmed

Element Solutions reaffirmed its prior 2019 financial guidance, with
adjusted earnings per share (EPS) expected to be between $0.82 and $0.87
and adjusted EBITDA growth expected to be between 5% and 8% on a
constant currency basis. The Company expects flat to 2% organic net
sales growth.

Recent Developments

On February 8, 2019, as part of its previously-announced share
repurchase program, the Company repurchased 37 million shares of its
common stock for an aggregate purchase price of $434 million. These
repurchased shares, which were retired on that date, represented
approximately 13% of the Company's then outstanding common stock. The
remaining authorization under this share repurchase program totaled $316
million at March 31, 2019.

On March 12, 2019, Carey J. Dorman, previously Corporate Treasurer and
Vice President, Investor Relations, was appointed as the Company's Chief
Financial Officer. In this new role, Mr. Dorman is the principal
financial officer of Element Solutions.

On April 22, 2019, the Board elected Christopher T. Fraser and Scot R.
Benson to serve as directors of the Company. Christopher T. Fraser has
broad experience across the chemicals and materials sector. He served as
Chairman of the Board of KMG Chemicals Inc. from 2012 to 2018 and was a
director from 2008 to 2018. He also served as Chief Executive Officer
and President of KMG Chemicals Inc. from 2013 to 2018. He is currently a
director at Panhandle Oil and Gas Inc. Scot R. Benson, prior to being
promoted to the role of President and Chief Operating Officer of Element
Solutions in January 2019, served as President of the former Performance
Solutions segment of the Company from 2015 to January 2019 where he led
the integration of the former Alent plc businesses and the former OM
Group businesses with Element Solutions' predecessor company, MacDermid,
Incorporated.

Conference Call

Element Solutions will host a webcast/dial-in conference call to discuss
its 2019 first quarter financial results at 8:30 a.m. (Eastern Time) on
Wednesday, May 1, 2019. Participants on the call will include Martin E.
Franklin, Executive Chairman; Benjamin Gliklich, Chief Executive
Officer; Scot R. Benson, President and Chief Operating Officer; and
Carey J. Dorman, Chief Financial Officer.

To listen to the call by telephone, please dial 877-876-9176 (domestic)
or 785-424-1670 (international) and provide the Conference ID: ESIQ119.
The call will be simultaneously webcast at www.elementsolutionsinc.com.
A replay of the call will be available for three weeks shortly after
completion of the live call at www.elementsolutionsinc.com.

About Element Solutions

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

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

Forward-Looking Statements

This release is intended to qualify for the safe harbor from
liability established by the Private Securities Litigation Reform Act of
1995 as it contains "forward-looking statements" within the meaning of
the federal securities laws.
These statements will often contain
words such as "expect," "anticipate," "project," "will," "should,"
"believe," "intend," "plan," "estimate," "predict," "seek," "continue,"
"outlook," "may," "might," "should," "can have," "likely," "potential"
"target" or "goal" and variations of such words and similar expressions.

Examples of forward-looking statements include, but are not limited
to, statements, beliefs, projections and expectations regarding the
Company's 2019 constant currency adjusted EBITDA growth and adjusted EPS
guidance; expected organic net sales growth; free cash flow assuming a
closing of the Arysta transaction and the implementation of the
Company's new capital structure at the beginning of the year; driving
organic results; cost containment; corporate reorganizational savings;
delivering on objectives; macro conditions in 2019; and outlook for the
Company's markets and the demand for its products.
These
projections and statements are based on management's estimates,
assumptions or expectations with respect to future events and financial
performance, and are believed to be reasonable, though are inherently
uncertain and difficult to predict.
Actual results could differ
materially from those expressed or implied in the forward-looking
statements if one or more of the underlying estimates, assumptions or
expectations prove to be inaccurate or are unrealized.
Important
factors that could cause actual results to differ materially from those
suggested by the forward-looking statements include, but are not limited
to, the Company's ability to realize the anticipated benefits,
efficiencies and cost savings expected from the recent sale of its
Agricultural Solutions business; the success of the Company's leadership
transition and go-forward structure and strategy; the impact of
acquisitions, divestitures, restructurings, refinancings, and other
unusual items, including the Company's ability to raise and/or retire
new debt and/or equity and to integrate and obtain the anticipated
benefits, results and synergies from these items or other related
strategic initiatives.
Additional information concerning these
and other factors that could cause actual results to vary is, or will
be, included in the periodic and other reports filed by Element
Solutions with the Securities and Exchange Commission. Element Solutions
undertakes no obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise.

ELEMENT SOLUTIONS INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended March 31,
(amounts in millions, except per share amounts) 2019   2018
Net sales $ 459.8 $ 492.5
Cost of sales 261.5   281.4  
Gross profit 198.3 211.1
Operating expenses:
Selling, technical, general and administrative 142.4 140.8
Research and development 10.8   11.4  
Total operating expenses 153.2   152.2  
Operating profit 45.1 58.9
Other expense:
Interest expense, net (38.1 ) (77.2 )
Foreign exchange gain 27.1 7.5
Other (expense) income, net (48.0 ) 11.8  
Total other expense (59.0 ) (57.9 )
(Loss) income before income taxes and non-controlling interests (13.9 ) 1.0
Income tax benefit (expense) 10.4   (9.9 )
Net loss from continuing operations (3.5 ) (8.9 )
Income from discontinued operations, net of tax 27.4   46.9  
Net income 23.9 38.0
Net income attributable to the non-controlling interests (0.7 ) (0.7 )
Net income attributable to common stockholders $ 23.2   $ 37.3  
 

(Loss) earnings per share

Basic from continuing operations $ (0.02 ) $ (0.04 )
Basic from discontinued operations 0.11   0.17  
Basic attributable to common stockholders $ 0.09   $ 0.13  
 
Diluted from continuing operations $ (0.02 ) $ (0.04 )
Diluted from discontinued operations 0.11   0.17  
Diluted attributable to common stockholders $ 0.09   $ 0.13  
 

Weighted average common shares outstanding

Basic 268.2 287.9
Diluted 268.2 287.9
 
ELEMENT SOLUTIONS INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
   
March 31, December 31,
(amounts in millions) 2019 2018
Assets
Cash and cash equivalents $ 230.4 $ 233.6

Accounts receivable, net of allowance for doubtful accounts of
$6.9 and $7.7 at March 31, 2019 and

December 31, 2018, respectively

380.3 382.4
Inventories 202.4 188.1
Prepaid expenses 19.9 14.3
Other current assets 53.6 42.5
Current assets of discontinued operations 115.1   1,621.3  
Total current assets 1,001.7 2,482.2
Property, plant and equipment, net 263.0 266.9
Goodwill 2,191.4 2,182.6
Intangible assets, net 999.9 1,024.5
Other assets 109.5 32.9
Non-current assets of discontinued operations 6.7   3,412.4  
Total assets $ 4,572.2   $ 9,401.5  
Liabilities and stockholders' equity
Accounts payable $ 110.0 $ 100.9
Current installments of long-term debt and revolving credit
facilities
128.0 25.3
Accrued expenses and other current liabilities 138.0 189.5
Current liabilities of discontinued operations 80.1   826.8  
Total current liabilities 456.1 1,142.5
Debt 1,516.5 5,350.7
Pension and post-retirement benefits 48.6 49.5
Deferred income taxes 128.5 133.0
Other liabilities 167.3 128.5
Non-current liabilities of discontinued operations   416.2  
Total liabilities 2,317.0   7,220.4  
Stockholders' Equity
Preferred stock - Series A
Common stock: 400.0 shares authorized (2019: 258.0 shares issued;
2018: 289.3 shares issued)
2.6 2.9
Additional paid-in capital 4,105.1 4,062.1
Treasury stock (2019: 0.5 shares; 2018: 0.3 shares) (5.4 ) (3.5 )
Accumulated deficit (1,605.5 ) (1,195.4 )
Accumulated other comprehensive loss (240.1 ) (756.9 )
Total stockholders' equity 2,256.7 2,109.2
Non-controlling interests (1.5 ) 71.9  

Total equity

2,255.2   2,181.1  
Total liabilities and stockholders' equity $ 4,572.2   $ 9,401.5  
 
ELEMENT SOLUTIONS INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended March 31,
(amounts in millions) 2019   2018
Cash flows from operating activities:
Net income $ 23.9 $ 38.0
Net income from discontinued operations, net of tax 27.4   46.9  
Net loss from continuing operations (3.5 ) (8.9 )
Reconciliation of net loss from continuing operations to net cash
flows used in operating activities:
Depreciation and amortization 38.7 40.2
Deferred income taxes (2.0 ) (0.6 )
Foreign exchange gain (33.0 ) (8.6 )
Other, net 75.4 (4.5 )
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 2.8 (11.7 )
Inventory (14.3 ) (17.0 )
Accounts payable 9.5 4.9
Accrued expenses (67.3 ) (39.5 )
Prepaid expenses and other current assets (4.6 ) 6.1
Other assets and liabilities (33.7 ) (9.8 )
Net cash flows used in operating activities of continuing
operations
(32.0 ) (49.4 )
Cash flows from investing activities:
Capital expenditures (6.7 ) (4.8 )
Proceeds from the sale of equity investment 25.0
Proceeds from Arysta Sale (net of cash $148.7 million) 4,192.3
Other, net 8.5   (0.8 )
Net cash flows provided by investing activities of continuing
operations
4,194.1   19.4  
Cash flows from financing activities:
Debt proceeds, net of discount 749.1
Repayments of borrowings (4,601.0 ) (0.1 )
Change in lines of credit, net 95.3 52.0
Repurchase of common stock (433.6 )
Payment of financing fees (39.5 ) (0.6 )
Other, net (10.8 ) 0.2  
Net cash flows (used in) provided by financing activities of
continuing operations
(4,240.5 ) 51.5  
Cash flows from discontinued operations:
Net cash flows used in operating activities of discontinued
operations
(115.9 ) (111.7 )
Net cash flows used in investing activities of discontinued
operations
(5.0 ) (12.6 )
Net cash flows provided by financing activities of discontinued
operations
4.8   22.7  
Net cash flows used in discontinued operations (116.1 ) (101.6 )
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
9.4   14.1  
Net decrease in cash, cash equivalents and restricted cash (185.1 ) (66.0 )
Cash, cash equivalents and restricted cash at beginning of period 415.5   483.9  
Cash, cash equivalents and restricted cash at end of period $ 230.4   $ 417.9  
 
ELEMENT SOLUTIONS INC
ADDITIONAL FINANCIAL INFORMATION
(Unaudited)
 
I. UNAUDITED SEGMENT RESULTS - CONTINUING OPERATIONS
  Three Months Ended March 31,
($ dollar amounts in millions) 2019   2018   Reported  

Constant

Currency

  Organic
Net Sales
Electronics $ 265.9 $ 288.0 (8%) (4%) (5%)
Industrial & Specialty 193.9   204.5   (5%) 0% 0%
Total $ 459.8   $ 492.5   (7%) (2%) (3%)
 
Adjusted EBITDA
Electronics $ 56.4 $ 60.1 (6%) (1%)
Industrial & Specialty 42.2   44.0   (4%) 3%
Total $ 98.6   $ 104.1   (5%) 1%
 
      Three Months Ended March 31,   Constant Currency
2019   2018   Change 2019   Change
Adjusted EBITDA Margin
Electronics 21.2% 20.9% 30bps 21.5% 60bps
Industrial & Specialty 21.8% 21.5% 30bps 22.1% 60bps
Total 21.4% 21.1% 30bps 21.8% 70bps
 
II. UNAUDITED CAPITAL STRUCTURE
($ dollar amounts in millions)             Maturity     Coupon    

March 31,

2019

Instrument
Corporate Revolver 1/31/2024 LIBOR plus 2.25% $ 120.0
First Lien Credit Facility - USD Term Loans (1) 1/31/2026 LIBOR plus 2.25% 748.2
Other Secured Debt 1.0
Total First Lien Debt 869.2
Senior Notes due 2025 12/1/2025 5.875% 800.0
Other Unsecured Debt 0.2
Total Unsecured Debt 800.2
Total Debt 1,669.4
Cash Balance 230.4
Net Debt $ 1,439.0
Adjusted Shares Outstanding (2)

262.4

Market Capitalization

(3)

$

2,650.2

Total Capitalization $

4,089.2

 

(1) Element Solutions swapped its floating term loan to fixed
rate through January 2024. At March 31, 2019, approximately 93% of its
debt was fixed and 7% was floating.

(2) See "Non-GAAP Adjusted Common Shares at March 31, 2019
and 2018 (Unaudited)" following the Adjusted Earnings Per Share table
below.

(3) Based on the closing price of the shares of Element
Solutions of $10.10 at March 29, 2019, the last trading day of Q1 2019.

III. SELECTED FINANCIAL DATA - CONTINUING OPERATIONS
  Three Months Ended

March 31,

(amounts in millions) 2019   2018
Interest expense $ 39.3 $ 77.5
Interest paid $ 63.1 $ 84.4
Income tax (benefit) expense $ (10.4 ) $ 9.9
Income taxes paid $ 14.2 $ 18.2
Capital expenditures $ 6.7 $ 4.8
 

Non-GAAP Measures

To supplement the financial measures prepared in accordance with GAAP,
Element Solutions has provided in this release the following non-GAAP
financial measures: EBITDA, adjusted EBITDA, adjusted EBITDA margin,
adjusted EPS, free cash flow, guidance related to adjusted EPS and
constant currency adjusted EBITDA growth, organic net sales growth and
organic net sales growth expectations. The Company also evaluates and
presents its results of operations on a constant currency basis.

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

The Company only provides adjusted EBITDA guidance, adjusted EPS
guidance and organic net sales growth expectations on a non-GAAP basis
and does not provide reconciliations of such forward-looking non-GAAP
measures to GAAP due to the inherent difficulty in forecasting and
quantifying certain amounts that are necessary for such reconciliations,
including adjustments that could be made for restructurings,
refinancings, divestitures, integration-related expenses, share-based
compensation amounts, non-recurring, unusual or unanticipated charges,
expenses or gains, adjustments to inventory and other charges reflected
in its reconciliation of historic numbers, the amount of which, based on
historical experience, could be significant.

Constant Currency:

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

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

Organic Net Sales Growth:

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

The following table reconciles GAAP net sales growth to organic net
sales growth for the three months ended March 31, 2019:

  Three Months Ended March 31, 2019

Reported Net

Sales Growth

 

Impact of

Currency

 

Constant

Currency

 

Change in

Pass-Through

Metals

Pricing

  Acquisitions  

Organic Net

Sales Growth

Electronics (8)% 4% (4)% 0% (1)% (5)%
Industrial & Specialty (5)% 5% 0% —% —% 0%
Total (7)% 5% (2)% 0% (1)% (3)%
 

NOTE: Totals may not sum due to rounding.

For the three months ended March 31, 2019, Electronics' and the
Company's consolidated results were positively impacted by $2.6 million
of acquisitions and $1.0 million of pass-through metals pricing.

Adjusted Earnings Per Share:

Adjusted earnings per share (EPS) is defined as net income (loss) from
continuing operations attributable to common stockholders adjusted to
reflect adjustments consistent with the Company's definition of adjusted
EBITDA. Additionally, the Company eliminates the amortization associated
with intangibles assets and the step-up depreciation associated with
fixed assets, both recognized in purchase accounting for acquisitions.
Further, the Company adjusts its effective tax rate to 27% and 34% for
the three months ended March 31, 2019 and 2018, respectively, as
described in footnote (10) under the reconciliation table below. Lastly,
the 2019 adjusted EPS total is based on the Company's new capital
structure by assuming that the sale of Agricultural Solutions had closed
and the new credit agreement had been in place on January 1, 2019 which
the Company believes is more reflective of the go-forward capital
structure of the Company.

The resulting adjusted net income from continuing operations is then
divided by Element Solutions' outstanding number of shares of common
stock plus the number of shares that would be issued if all convertible
stock was converted to common stock, stock options were vested and
exercised and equity grants with targets that are considered probable of
achievement were vested at target and issued at each period presented.
Adjusted earnings per share is a key metric used by management to
measure operating performance and trends as management believes the
exclusion of certain expenses in calculating adjusted EPS facilitates
operating performance comparisons on a period-to-period basis.

The following table reconciles GAAP "Net income attributable to
common stockholders
" to "Adjusted net income from
continuing operations attributable to common stockholders
" and
presents the adjusted number of common shares used in calculating
adjusted earnings per share for each period presented below:

Three Months Ended March 31,
(amounts in millions, except per share amounts) 2019   2018
Net income attributable to common stockholders $ 23.2 $ 37.3
Net income from discontinued operations attributable to common
stockholders
27.3   47.5  
Net loss from continuing operations attributable to common
stockholders
(4.1 ) (10.2 )
Reversal of amortization expense (1) 28.4 28.5
Adjustment to reverse incremental depreciation expense from
acquisitions
(1) 2.1 2.9
Adjustment to interest expense (2) 20.1
Restructuring expense (3) 1.2 1.7
Integration costs (4) 1.4 1.0
Foreign exchange gain on foreign denominated external and internal
long-term debt
(5) (28.3 ) (7.7 )
Debt refinancing costs (6) 60.7
Gain on sale of equity investment (7) (11.3 )
Change in fair value of contingent consideration (8) 2.4 0.5
Other, net (9) (1.7 ) 1.5
Tax effect of pre-tax non-GAAP adjustments (10) (23.3 ) (5.8 )
Adjustment to estimated effective tax rate (10) (6.6 ) 9.5
Adjustment to reverse loss attributable to certain non-controlling
interests
(11) 0.5   1.2  
Adjusted net income from continuing operations attributable to
common stockholders
$ 52.8   $ 11.8  
 
Adjusted earnings per share from continuing operations (12) $ 0.20 $ 0.04
 
Adjusted common shares outstanding (12)

262.4

299.1

 

(1) The Company eliminates amortization expense associated
with intangible assets and incremental depreciation associated with the
step-up of fixed assets recognized in purchase accounting for
acquisitions. The Company believes these adjustments provide insight
with respect to the cash flows necessary to maintain and enhance its
product portfolio.

(2) The Company adjusts its 2019 interest expense to reflect
its new capital structure by assuming that the sale of Agricultural
Solutions had closed and the new credit agreement had been in place on
January 1, 2019 to better reflect the go-forward capital structure of
the Company.

(3) The Company adjusts for costs of restructuring its
operations, including those related to its acquired businesses. The
Company adjusts these costs because it believes they are not reflective
of ongoing operations.

(4) The Company adjusts for costs associated with integration
activity, including costs of obtaining related financing, legal and
accounting fees and transfer taxes. The Company adjusts these costs
because it believes they are not reflective of ongoing operations.

(5) The Company adjusts for foreign exchange gains and losses
on long-term intercompany and third-party debt because it expects the
period-to-period movement of these currencies to offset on a long-term
basis and, due to their long-term nature, are not fully realized. The
Company does not exclude foreign exchange gains and losses on short-term
intercompany and third-party payables and receivables.

(6) The Company adjusts for costs related to the redemption
of its 6.00% and 6.50% senior notes and the pay down its term loan debt
because it believes these costs are not reflective of ongoing operations.

(7) The Company adjusts for a gain on the sale of an equity
investment in 2018 because it believes it is not reflective of ongoing
operations.

(8) The Company adjusts for changes in the fair value of
contingent consideration related to the acquisition of MacDermid,
Incorporated (the "MacDermid Acquisition"). The Company adjusts these
costs because it believes they are not reflective of ongoing operations.

(9) The Company's 2019 adjustments include a $12.5 million
gain on derivative contracts which was primarily associated with the
refinancing of the Company's non-U.S. dollar denominated third-party
debt, offset in part by employee expenses associated with the sale of
Agricultural Solutions that do not qualify for discontinued operations,
non-recurring severance payments to senior management and certain
professional consulting fees. The Company's 2018 adjustments primarily
include professional consulting fees. The Company adjusts these costs
because it believes they are not reflective of ongoing operations.

(10) The Company adjusts its effective tax rate to 27% for
the three months ended March 31, 2019. This adjustment does not reflect
the Company's current or near-term tax structure, including limitations
on its ability to utilize net operating losses and foreign tax credits
in certain jurisdictions. The Company also applies an effective tax rate
of 27% to pre-tax non-GAAP adjustments. For the three ended March 31,
2018, the Company adjusted its effective tax rate to 34%. The Company
adjusts the effective tax rates because it believes it provides a
meaningful comparison of its performance between periods.

(11) On March 29, 2019, as a result of the merger of Platform
Delaware Holdings, Inc. ("PDH") with and into the Company, each
outstanding equity interest in PDH was converted into the right to
receive one share of the Company's common stock. For historical periods,
the Company adjusted for the income or loss attributable to
non-controlling interests created at the time of the MacDermid
acquisition because holders of such equity interest were expected to
convert their holdings into shares of the Company's common stock. The
Company also adjusted these non-controlling interests because it
believed they were not reflective of ongoing operations.

(12) The Company defines "Adjusted common shares"
as the outstanding shares of its common stock at March 31, 2019 or 2018,
plus the number of shares that would be issued if all convertible stock
was converted into common stock, stock options were vested and exercised
and awarded equity grants with targets that are considered probable of
achievement were vested at target and issued as of March 31, 2019 or
2018, as applicable. The Company adjusts the number of outstanding
shares of its common stock for this calculation to provide an
understanding of the Company's results of operations on a per share
basis. See table below for further information.

NON-GAAP ADJUSTED SHARES AT MARCH 31, 2019 AND 2018 (UNAUDITED)

The following table shows Element Solutions' adjusted common shares
outstanding at each period presented which consists of Element
Solutions' outstanding number of shares of common stock plus the number
of shares that would be issued if all convertible stock was converted
into common stock, stock options were vested and exercised and equity
grants with targets that are considered probable of achievement were
vested at target and issued at each period presented:

  Three Months Ended March 31,
(amounts in millions) 2019   2018
Basic outstanding common shares 257.4 288.1
Number of shares issuable upon conversion of PDH Common Stock* 4.2
Number of shares issuable upon conversion of Series A Preferred Stock 2.0 2.0
Number of shares issuable upon vesting and exercise of Stock Options 0.7 0.7
Number of shares issuable upon vesting of granted Equity Awards

2.3

 

4.1

Adjusted common shares outstanding

262.4

 

299.1

 

* At March 29, 2019, approximately 4.0 million shares of the Company's
common stock had not been issued pending receipt of letters of
transmittal from PDH common stockholders following the merger of PDH
with and into the Company requesting the conversion of the PDH common
stock into the Company's common stock. However, the Company has treated
such shares of common stock as outstanding at March 31, 2019 given that
the receipt of the letters of transmittal is considered perfunctory as
the Company is legally obligated to issue these shares in connection
with the merger, and that PDH ceased to exist as a legal entity on March
29, 2019.

EBITDA and Adjusted EBITDA:

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

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

      Three Months Ended March 31,
(amounts in millions) 2019   2018
Net income attributable to common stockholders $ 23.2 $ 37.3
Add (subtract):
Net income attributable to the non-controlling interests 0.7 0.7
Income from discontinued operations, net of tax (27.4 ) (46.9 )
Income tax (benefit) expense (10.4 ) 9.9
Interest expense, net 38.1 77.2
Depreciation expense 10.3 11.7
Amortization expense 28.4   28.5  
EBITDA 62.9 118.4
Adjustments to reconcile to Adjusted EBITDA:
Restructuring expense (3) 1.2 1.7
Integration costs (4) 1.4 1.0
Foreign exchange gain on foreign denominated external and internal
long-term debt
(5) (28.3 ) (7.7 )
Debt refinancing costs (6) 60.7
Change in fair value of contingent consideration (8) 2.4 0.5
Gain on sale of equity investment (7) (11.3 )
Other, net (9) (1.7 ) 1.5  
Adjusted EBITDA $ 98.6   $ 104.1  
 

NOTE: For the footnote descriptions, please refer to the footnotes
located under the "Adjusted Earnings Per Share" reconciliation table
above.

Free Cash Flow:

Free cash flow is defined as net cash flows from operating activities
less net capital expenditures. Net capital expenditures include capital
expenditures less proceeds from the disposal of property, plant and
equipment. Free cash flow on an adjusted basis adjusts for one-time cash
operating expenses related to the sale of the Agricultural Solutions
business and for the payment of a portion of the MacDermid contingent
consideration, and assumes that the Company's new capital structure was
in place on January 1 2019. Management believes that free cash flow,
which measures the Company's ability to generate cash from its business
operations, is an important financial measure for use in evaluating the
Company's financial performance. However, free cash flow should be
considered in addition to, rather than as a substitute for, net cash
provided by operating activities as a measure of the Company's liquidity.

The following table reconciles "Cash flows from operating
activities
" to "Free cash flows on an adjusted basis:"

(amounts in millions)  

Cash flows from operating activities

$ (32 )
Capital expenditures (7 )
Disposal of property plant and equipment  
Free cash flows (39 )
Adjustments to arrive at free cash flows on an adjusted basis:
Interest payments - prior capital structure (1) 57
Interest payments - new capital structure (1) (3 )
Other (2) 38  
Free cash flows on an adjusted basis ~ $50
 

(1) Adjustments for 2019 interest payments to reflect the
Company's new capital structure by assuming that the Arysta transaction
had closed and the new credit agreement had been in place on January 1,
2019.

(2) Adjustment for the MacDermid contingent consideration
payment and payment for employee expenses associated with the Arysta
transaction that do not qualify for discontinued operations.

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