Earnings Call: Q4 2020

Feb 25, 2021

Good morning, ladies and gentlemen, and welcome to the Element Solutions Q4 and Year End 2020 Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, you'll have the opportunity to ask questions during the question and answer session. Please note this call may be recorded. I will now turn the call over to Varun Gokharne, Senior Director of Strategy and Finance. Please go ahead. Good morning, and thank you for participating on our Q4 and full year 2020 earnings conference call. Joining me are Executive Chairman, Sir Martin Franklin CEO, Ben Glicklitsch and CFO, Cary Dorman. In accordance with Regulation FD or fair disclosure, we are webcasting this conference call. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Element Solutions is strictly prohibited. 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 expectations and predictions. These materials can be found on the company's website at www.elementsolutionsinc.com 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 Ben Glicklitsch, CEO of Element Solutions. Thank you, Varun, and good morning, everyone. Thank you for joining. We had an outstanding year in 2020, outstanding on an absolute basis and particularly on a relative basis in light of the macroeconomic backdrop. We grew net sales, adjusted EBITDA, adjusted earnings per share and free cash flow. The 4th quarter was the culmination and the capstone. It was a record quarter for net sales and adjusted EBITDA since we launched Element Solutions in early 2019. We grew the top line 10% organically year over year and adjusted EBITDA by 20%. This was entirely a testament to our outstanding team who lived our culture every day and showed intense dedication to our company, our customers and our colleagues. We're only as good as our people and this year proved our people are outstanding. The stark contrast between our performance this year and the tragic ongoing health and socioeconomic crisis is not lost on us. We feel deeply for those who are sick, suffering and mourning. This pandemic has touched all of us. And in that context, we are especially grateful for the resilience and persistence of our team who drove our success in 2020, while navigating the turbulence created by COVID and its ramifications. When we launched Element Solutions in February 2019, we espoused a strategy balancing operational excellence and prudent capital allocation. Running our high quality businesses better every year and deploying the strong cash flows they generate in long term value enhancing ways. On page 3, we consider 2020 against those objectives. In the face of a dramatic economic dislocation, we grew adjusted EPS by 9% and adjusted EBITDA by 2%. This 2020 earnings growth did not come at the expense of investing in our long term growth trajectory or in our people. We continued investing throughout the year, maintaining our prior year spending levels in both R and D and CapEx and notably delivering on our commitment to preserve our employee base despite the COVID-nineteen related shutdowns. We demonstrated the resilience of our variable cost operating model and stable cash flow profile, preserving margins throughout the year and generating robust cash flow every quarter. Free cash flow was approximately $250,000,000 up 5% like for like over 2019. And we deployed that cash flow prudently with a small bolt on acquisition that we believe creates a great long term growth opportunity for us, a high returning debt refinancing and accretive share repurchases. We demonstrated a commitment to balance capital allocation with the initiation of a $0.05 per share cash dividend in the 4th quarter as well as the repurchase of nearly $56,000,000 in shares throughout the course of the year at an average price below $10 per share. Even as we invested in growth and returned capital to shareholders, our balance sheet continued to improve. Our net leverage ratio fell to 2.9 times at year end. While 2020 is not a year we expect to remember fondly, it's a year we exited stronger than we entered and a year that we will be proud of. Our Q4 results are summarized on Slide 4. They exceeded our mid December expectations as business, particularly in electronics, remained strong through what is typically a slow period at year end. November was the best month since we launched Element Solutions until December, which was even better. Net sales of $537,000,000 in the quarter were also a record since launch. They represented growth of 10%, driven by strength in high end electronics and the continued recovery in industrially oriented businesses. We grew adjusted EBITDA by 20% in constant currency to a quarterly record of $126,000,000 Adjusted EBITDA margins in the quarter improved 100 basis points year over year, as we saw both mix benefits and continued operating efficiencies. Adjusted EPS in the quarter of $0.31 grew 41% versus the same period in 2019. Turning to our full year 2020 financial results on slide 5. We delivered growth in net sales, adjusted EBITDA and adjusted earnings per share in a year when several of our end markets saw marked declines. Organic net sales declined 3% for the full year as COVID-nineteen driven production slowdowns heavily impacted automotive and general industrial end markets in the second quarter before recovering in the second half of the year. Strong underlying demand for next generation smartphones, 5 gs telecommunications infrastructure and data center markets supported our high end electronics business throughout the year despite the macroeconomic weakness we saw in most other manufacturing markets. Including currency movements and the benefit from our acquisitions of DMP and Kester, net sales were up 1%. We grew adjusted EBITDA 2% on a constant currency basis and expanded adjusted EBITDA margins modestly versus the prior year. Full year adjusted earnings per share grew 9% as our work on the capital structure and share repurchases compounded our full year earnings performance. These results in this backdrop shine a light on the quality of our business and our team. Cary will now take you through our full year financials in a bit more detail. Carey? Thanks, Ben. Good morning, everyone. On Slide 6, we share additional detail on net sales drivers in our 2 segments. Full year organic growth in Electronics was 2%, driven by strong growth in semiconductor and circuitry and a sharp recovery in assembly beginning in Q3, but firming up in Q4. We believe our electronics business significantly outgrew the rent markets this year. Semi, which demonstrated double digit organic net sales growth in each quarter of 2020, continued to benefit from growth in the advanced packaging market and general mobile phone and data infrastructure chip demand. Circuitry saw similar trends driven by 5 gs applications, which with particularly strong growth in Q4, up 13% sequentially over Q3 as timing of high end mobile launches were pushed to later in the year. While 5% growth is slightly above our long term expectations for the business, we do believe 2021 should see relatively similar market trends, which will continue to support these growth rates. In Assembly, the strong recovery into Q4 did not make up for the automotive electronics driven weakness we saw in Q2 and early Q3, particularly in Asia. However, the sequential trends in both high end mobile launches and increasing auto production supported double digit year over year growth in Q4. Our power electronics business for the EV market is growing very nicely as well and contributing to our outperformance. The relative net sales growth of the 3 electronics businesses helped support a 40 basis point increase in adjusted EBITDA margins in the segment, along with COVID related cost management activity that occurred primarily in the second and third quarter. For the full year, organic net sales in industrial and Specialty declined 10% as a result of the weak macroeconomic backdrop. The Industrial business declined 11% as production slowdowns first hit Asia in mid Q1 and persisted in the West through early Q3 when global production returned, albeit at muted levels. About half of our industrial sales serve the auto market, which is estimated to have declined in the mid teens globally in 2020. The recovery in the back half was strong and we believe it should continue into 2021. Our graphics business had a strong start to the year driven by both customer wins and COVID driven demand. However, restrictions on consumers throughout the rest of the year dampened consumer packaging demand and impacted the launch of new products and marketing campaigns, which typically drive new sales for the business. Similarly, low energy prices and macroeconomic uncertainty led to reduced energy production rates and limited CapEx investments, which drove declines in our AppShore Solutions net sales. Given the longer cycle in this business, we do expect some additional sales pressure into early 2021. Constant currency adjusted EBITDA segment. Slide 7 highlights our cash flow and balance sheet activities in 2020 and expectations for 2021. We generated $249,000,000 of free cash flow in 2020, a 5% increase over the 2019 figure after adjusting out the impact of our prior capital structure. Cash interest was $52,000,000 in the year, a $19,000,000 reduction year over year against 2019, reflecting the positive impact of our senior note refinancing. Cash taxes were $67,000,000 a $5,000,000 reduction versus 2019, which reflects the successes of numerous tax efficiency activities around the globe. As Ben mentioned, despite COVID-nineteen demand impacts, we continued our planned CapEx in the year, spending $27,000,000 on a net basis across the business. Working capital was an investment of approximately $30,000,000 driven almost entirely by the sharp net sales growth we saw in Q4. Working capital released earlier in the year as net sales declined in the midst of COVID shutdowns. However, in our business, working capital is determined by near term sales performance, which has been strong. While we expect strong sales growth next year, we believe we can keep our working capital investment more modest than our top line growth rate would imply, given the current levels in the business. In 2021, we expect to generate approximately $275,000,000 of free cash flow. While earnings are increasing, we expect cash tax dollars to go down by over 10% to approximately $60,000,000 This significant improvement is a consequence of changes to our tax profile to reflect the new structured Element Solutions and beneficial changes to the tax code. To reflect this change in cash tax expectations, we will be reducing the tax rate we use in our adjusted EPS calculation for 2021 down to 20%. Our net leverage ratio exiting 2020 was 2.9 times and we are proud of showing a flat or declining leverage ratio throughout the volatile 2020 environment. This reduction from mid-3s to high-2s throughout the year is particularly impressive in light of the fact that we deployed more than $100,000,000 in buybacks, acquisitions, dividends and refinancing related expenses. As we look to 2021, we expect to continue to deploy capital opportunistically while preserving a conservative balance sheet. With that, I'll turn it back to Ben. Thank you, Carrie. On slide 8, we introduce our full year 2021 financial guidance. The strength we saw in our end markets in the Q4 has carried into the Q1. Our markets remain healthy and our teams are executing well. Our guidance is for full year adjusted EBITDA growth of approximately 7% and adjusted earnings per share between $1.10 $1.15 representing 15% to 20% growth year over year. We expect net sales growth in both segments to be above their long term average rates, buoyed by the cyclical recovery in auto and industrial end markets and ongoing strength in high end electronics. In particular, we expect to benefit from increasing content opportunities driven by the wider adoption of 5 gs, increased production of electric vehicles and the broader electrification of the automobile industry. Overall, we expect adjusted EBITDA margins to be roughly flat as strong net sales growth should be offset by both a return to normal operating expense environment and gross margin mix modestly reversing the trend we saw in 2020. When excluding travel expenses, q4 2020 was a relatively normal quarter from an operating expense standpoint. However, on a full year basis, we are lapping temporary cost actions taken in 2020, including salary reductions, government subsidies and significantly reduced travel, most of which we do not expect in 2021. Given current exchange rates, we anticipate FX will be an approximately 2% tailwind for full year net sales and adjusted EBITDA. 2021 growth should be weighted to the first half of the year, given the timing and magnitude of the operating disruptions in 2020. For the Q1 of 2021, we expect adjusted EBITDA growth in a range of 8% to 10% over the same period in 2020. We've demonstrated in our 1st 2 years at Element Solutions that our business is able to generate strong cash flow in all markets and we expect this year will be no exception. As Carey mentioned, we expect to generate $275,000,000 of free cash flow, a record for ESI, representing 10% growth over 2020. The cash we generate should create flexibility to allow for some combination of additional prudent tuck in acquisitions, opportunistic share repurchases and potentially increased cash dividends. Earnings growth together with free cash flow generation should create meaningful additional capacity for capital deployment under our leverage target. We remain a growth oriented company and we continue to evaluate bolt on acquisitions of companies that we believe would be better as a part of ESI, bring us talent and new capabilities, represent good value and have the potential to accelerate our growth rate. Finally on slide 9, I'd like to highlight some recent developments regarding ESG, a topic that has long been a source of commercial and internal success for Element and has become an increasingly important topic in our stakeholder engagement. First, we published our inaugural ESG report yesterday afternoon. I'm proud of this report and more importantly what it showcases. The intersection between sustainability and profitability is well established in our business and this report highlights our efforts to improve environmental outcomes for our customers and support sustainability objectives across the supply chain. Our contributions to sustainable outcomes only increased in 2020 with the launch of McDermott and Viosolutions, a modest sized business, but one with great ambitions. This business has had better early traction than we expected to support our customers with innovative wastewater treatment and metal recycling solutions that power the circular economy. As a company, we're committed to making a positive lasting impact in the communities where we operate. We believe deeply that our business is only as healthy as the ecosystems around us. We took a big step forward in this commitment in 2020 by establishing the ESI Foundation, a Florida based not for profit, which will serve as the company's charitable giving entity. As a 501(3) organization with initial funding of $5,000,000 from our company, the foundation intends to provide grants to qualified charitable organizations in the communities where our employees live and work. The foundation intends to focus on causes important to the environmental and social well-being of these communities. To wrap up, I'd like to thank all of our stakeholders for their continued support of Element Solutions. Through a challenging year, we've built a track record of delivering on our commitments in the short term and building for the long term. We're poised to do so again in 2021. This is a testament to the talent and dedication of our people around the world. We are especially thankful this year for their continued effort. With that, operator, please open the line for questions. We'll take a question from Bob Koort of Goldman Sachs. Your line is open. Thanks very much. Good morning. Good morning. I was wondering if you could talk a bit about the challenges in the semiconductor industry going on right now, both for your electronics business and then for the auto exposure you have as well. What are you seeing? What are you hearing on the ground? And what's the prospects for alleviation of those shortage challenges? Yes. So you're referring to the chip shortages that have been slowing down production of automotive of automobiles in the West. And the headwind associated with that is some pockets of reduced automotive units in the near term and we're seeing that. Not seeing a huge impact from that. It's pretty spotty, but we are seeing that in the industrial business. But I'd really point to 2 silver linings associated with this and what we think are long term positives. The first is the demand for those automotive units is there. And so in the fullness of time, those cars will be made and our content will be on those cars. And so we won't lose that revenue opportunity. It may just move a little bit. And the bigger positive is what's driving this chip shortage, which is the proliferation of electronics in many, many markets and huge demand for chips and electronics. And that's good for our business, right? The strength we saw in the Q4 is that you can draw a line from the strength we saw in our electronics business in the 4th quarter to what was happening in the chip market and with these cars. And that's a long term trend that is bullish for our business and we're seeing day to day right now in our operations. Thanks for that. If I could follow-up on your margin guidance. I think you talked about your revenue growth being fairly robust, but no material margin improvement. I understand some of the cost outs of the COVID peak in 2020 return. But why isn't there a little bit more fixed cost or unit cost leverage rather to that strong revenue growth this year? Or maybe talk about the cadence of returning those costs? Is it higher growth in the first half margin wise? And then you'd deteriorate as some of the costs come back? Or why don't we see a little bit more ambitious expression of EBITDA growth? Yes. Appreciate that question, Bob. Let's talk about the headwinds and tailwinds from a growth and margin standpoint. For starters, our guidance of 7% EBITDA growth, I think the base case is that it's a 7% top line and it's a flat margin year over year. If the top line isn't there for whatever reason, if there's softness in the back half of the year, we have other ways to get to that 7%. And if the momentum that we're seeing in the first half of the year carries through into the second half of the year, we should be able to do better than that 7% on EBITDA. So most of our EBITDA growth in our base case comes in the first half of the year. The headwinds the tailwind to margin is, as you pointed to, greater volumes and operating leverage. The headwinds are, as you also pointed to, OpEx normalization. There's $20 some 1,000,000 of OpEx that we were able to take out of the business last year, and we expect some of that a good portion of that to come back, things like government subsidies and salary cuts that we took. And we would expect some normalization of travel as we get towards the back half of the year. The other two things we would point to are, we've seen a bit of raw material inflation coming into this year. We were able to pass most of that through to customers, but not sure we'll be able to get every dollar of that. And similarly, there's just a lot of logistics disruptions and freight cost increases that we've been seeing. And so we've got we're taking that into account when we give that margin guidance. It's unclear if that will resolve itself over the balance of the year or will persist. But again, our guidance is a number that we can get to multiple ways. And if the strength we're seeing carrying into the first half persists into the second half, we should be able to do better. We'll take our next question from Josh Spector of UBS. Yes. Hey, guys. Thanks for taking my question and congrats on solid 2020 and end to the year here. I think a lot of the focus over this past year has been on the volume dynamics within Electronics and Industrial. I guess now we're at the point where volumes are strong here. Last quarter, you expect that to persist in the Q1. What are pricing dynamics like? Is anything different where you guys can take advantage of some of this tightness and perhaps that pricing being a bigger part of the organic story over the next couple of years? Thanks for that question, Josh. It's a good one. Where we've been taking price and our position to continue to take price is really where raw material inflation has impacted us. So we have pass through dynamics in our assembly business and some of the metals that aren't on a direct pass through basis, we're surcharging for. We don't have a plan to be aggressive from a pricing perspective. We're in nice markets, and we've got nice market positions in those markets. But it's not the type of market where you can take annual price hikes without any fallout from that by and large. And so we aren't counting on significant pricing here. And from a go forward perspective, there may be some opportunities associated with that, But we're not counting on that. It's really a volume story from here. Okay, thanks. And just a quick one on the free cash flow side, pretty impressive step down in the tax rate year over year both on cash and book basis. Is that sustainable? Is that something we should be considering on a forward basis? Can that get better? Or does it step back up longer term? Yes. So I'll turn this to Carrie in one second. But I would say that the team has done a really good job working on structural changes from a tax perspective. As Carrie mentioned, we're reducing the tax rate that we're using in our adjusted EPS calculation from $0.26 to $0.21 this year, dollars 21 or $0.20 which you should interpret as a permanent change for the time being. And I do believe there's some upside. Cary, you want to talk a little bit more about that? Yes. I think you hit the big points. We do believe this 20% rate is sustainable. On back of the Launch Development Solutions, the tax team spent a good chunk of time sort of reallocating profits to better align with the assets and risks in the business. And along with some favorable changes from due to tax reform, we're in a position that we're much more pleased with than we were historically. So I think there's a little bit of upside still from this rate, but this range of cash tax rate should be sustainable for the next couple of years at least. Okay. Thanks. And we'll take our next question from Chris Kapsch of Loop Capital Markets. Your line is open. Yes, good morning. Thanks. So in your Electronics business, it seems and you referenced that you're outperforming the end markets. I guess, what you'd expect given the increasing content per item for advanced platforms, I guess, in both auto and smartphone applications anyway. But it also seems like you're outperforming relevant peers that are addressing the same end markets. So I'm just curious if you agree if that's been the case and if there's any explanation you feel like you've gained share or if you've just caught on more commercial traction with the right customers, the right platforms? Any color there would be helpful. Yes. So thanks for that question, Chris. The smartphone market in 2020 from a unit standpoint is forecast to be down mid single digits and our results in the high end electronics business and the circuitry business clearly far, far superior to that for 2020. Some of that performance in our circuitry business in 2020 with products that's going into 2021 units. And the forecast for units in 2021 is for pretty significant growth. And so we saw some of that benefit in the 4th quarter. And so I think that you can attribute some of our outperformance to that. Relative to competitors, it's a healthy market. I think I'm sure our competitors are also seeing nice growth. We've been investing in people, in technology on an ongoing basis, from integration or so forth for 5 years at this point. And so I think commercially our teams are performing very, very well and you're seeing that in the results. I can't speak to specific market share dynamics, but we feel very good about our performance, the products we're bringing to market and the service we're bringing to our customers. Okay. Thanks for that. And then I guess the follow-up would be on the margin question and the initial expectations of flat margins. And I guess there's some positives and some headwinds on the margin bridge, if you will. But I'm just curious if what you felt overall about mix for the full year, clearly with the industrial businesses recovering, especially against the sort of a COVID impact in the second quarter or first half, you would see some positive mix there, but that might imply therefore then some negative some adverse mix in the second half. I'm just wondering how you see that playing out. Do you see as mix as being a driver of potential upside if in fact that strength that you referenced in response to Bob's question is the demand strength persists through the second half? Yes, it's a good question, Chris. Mix in the first half is a modest negative. Because if you look at the two businesses that were most impacted by COVID, the industrial surface treatment business and the assembly business. Those are 2 more industrially oriented sizable businesses. And they're going to show the most growth, particularly in the Q2 and those are lower margin businesses relative to the average. And so we'll have a bit of a negative mix effect. If the strength we're seeing in circuitry persists into the second half, which is not baked in into our guidance, then we'll have a positive impact relative to the margin guidance we've given. That's helpful. Thank you very much. Thanks, Chris. Our next question is from Duffy Fischer of Barclays. Your line is open. Yes. Good morning, fellows. First question is just around inventory. So your inventory, your products and kind of where your customers' inventory, do you think any of the strength we've seen in the last quarter is people building inventory or do inventory still feel very low to you? Yes. Thanks for that question Duffy. The answer is a little different by business, but by and large we don't see this as inventory built. The sales that we had in Q4, as I talked about earlier in the circuitry business and the high end electronics business, those are going into units that are being produced and sold in 2021. And we all see how well the economy is performing in Asia in the West. And so we expect those units to be built and sold. So we don't see a big inventory issue in the auto side of the business as I mentioned earlier. The demand for units is there. And so we expect to recapture some of the sales into that market that we may be missing in pockets associated with the chip shortages that have led to production shutdowns. So we don't see a big inventory stock issue right now in the business at all. Okay. And then just second one, could you talk a little bit about the M and A environment in multiples for publicly traded companies have moved up a lot in the last year. Business is very strong across a lot of the businesses that you would like to acquire in. So maybe just go through what does that do to a seller's mindset? Does that push multiples too high for you? Does it incent people to want to sell what maybe they think is a top or at least a better business condition we've seen over the last couple of years. Just how does that look multiple and opportunity set wise for acquisitions this year? So, appreciate that question Duffy. Obviously, the M and A market is very active right now and we're in a great position to be on the offensive. We've reduced leverage. We're generating significant cash flow. And so we're out looking for acquisitions that fit our criteria. And one of our criteria is driven by value. And so we're going to be disciplined from a value standpoint. The types of things that we've looked at that we're looking at right now look like the things that we've done in the recent past. And so we do believe there are opportunities that will meet all of our criteria, that are modest tuck ins that make our business better, available at reasonable multiples. And the landscape in that regard is constructive. We're not going to be pushed to overpay for things because there's plenty of things that we can pay fair prices for in the markets right now. And Martin, do you want to talk any more about capital allocation broadly? Yes. I mean, I would say a few things. First of all, with the benefit of hindsight, I'm very glad that we had the posture that we had in the past, which was to aggressively buy back our shares where we thought they were considerably below value. I still think that our shares aren't fully priced or anything close, particularly when we look at our own outlook. But we've got 3 levers. We've got tuck in acquisitions, as Ben said. We've got the potential to buy back to buy back shares and also to increase our dividend. So I think we're going to look holistically at all 3. But I think there are opportunities frankly on all fronts during the course of even this year. Great. Thank you, guys. Thanks. Our next question is from Jon Tanwanteng of CJS Securities. Good morning, guys. Thank you for taking my questions and really nice quarter and guidance. Ben, your energy business is one of the higher margin businesses in the STACK. I know it's relatively small as a percentage of revenue. I was just wondering how much EBITDA impact did it have in 2020? And how much do you have coming back in your guidance in 2021 now that crude is $20 or more higher than it was for the whole year last year? Yes. Thanks for the question, John. The offshore business is a small business and it had a tough year last year, driven by volatility and a steep decline in energy prices. Typically, that business has a lag to energy prices. So the decline is a few quarters after or softness in that business is a few quarters after the decline in energy prices and similarly on the way back up. We're not forecasting significant growth from that business in 2021. If there is significant growth, there's upside associated with that. But it's tough for us to underwrite to that. The energy price has been volatile. And it takes not just a higher energy price, but a stable higher energy price for our customers to turn drilling activity and CapEx back on. So that's not a big contributor to growth in our outlook. Got it. Thank you. And you mentioned on the assembly and industrial businesses strengthening into Q2. I was wondering if you could provide some similar commentary on just the rest of the business electronics and automotive. Are you seeing continuation of demand as you speak with the clients about the 2nd quarter? Are there headwinds or slowdowns in your forecast? And on the top line, number 1 and number 2, are the headwinds on the bottom line increasing from where you're seeing things, whether it's input prices or logistics? Any of the above color on the above would be helpful. Sure, John. So the comment about negative margin mix and the strength in driven by strength in Industrial and Assembly was more of a year over year comment than a sequential comment, right? Because it was in Q2 of 2020 that we saw the biggest impact of from COVID, which was on those two businesses. But those two businesses, they recovered nicely in Q3. We had growth in Q4 and we would count on growth in Q1 of 2021. And so those end markets in general are very, very healthy and we expect them to continue as such in the Q2. And our outlook is for a continuation of the trends that we're seeing today into the Q2. But because we can't touch and feel given the visibility in our business that continuation into Q3 and Q4, we're just a little bit more cautious. That's not to say that it won't happen, but we can't underwrite and commit to this continued strength in the back half and that's why there's a bit of cautiousness. Understood. Thank you, guys. Our next question is from Neel Kumar of Morgan Stanley. Your line is open. Great. Thanks for taking my question. Based on your free cash flow and EBITDA guidance, it suggests free cash flow conversion around 60% in 2021. Is that a reasonable level of Thinkific going forward? And are there any other opportunities to improve free cash flow conversion even further? And then just also in terms of your EPS guidance, what does that assume in terms of share buybacks in 2021? Thanks for the question, Neil. So we've done a lot of work, good work on the balance sheet, on taxes. And those numbers, I wouldn't expect them to creep up interest and tax significantly as we grow earnings. And so I would expect our cash flow conversion to improve as earnings grow from here. And so I don't think that 60% is a ceiling by any means. With regard to our EPS guidance, at the high end there's a little bit of capital allocation. At the low end there's very little. And so it doesn't necessarily mean buybacks, but it means that we've deployed some capital in an accretive way. I don't know if there's anything more you'd add, Carey. No, I think that's right. I would just point out on the interest specifically that we have fixed rate on all of that debt. So through the end of 2024. So that certainly should not be going up. Okay, great. That's helpful. And then how are you thinking about the contribution of 5 gs to your longer term growth expectations for the electronics business? I think in the past you talked about electronics being primarily GDP plus markets. You think that has moved upwards over the next 2 years because of the acceleration of 5 gs? Yes, absolutely. So for starters, what 5 gs has multiple near term and longer term ramifications for our business. In the near term, it's significant infrastructure investment where we have meaningful content and an accelerated replacement cycle driving not just more smartphones, but more content in each of those phones for us, given the technical requirements in a 5 gs phone versus a legacy technology phone. That's not a 1 year trend. That's a multi year trend. The investment in infrastructure is going to go 3, 5 plus years and the smartphone replacement cycle will be or the smartphone driven demand for our technology will match that. Once you get beyond that sort of medium term horizon, you're going to have faster connectivity, greater connectivity, greater bandwidth distributed. And that will allow for disseminated computing power in areas that are that will open markets heretoforeclosed. And so this chip shortage that we're seeing today is just the beginning. And you can hear from folks in the semiconductor industry, the massive ramps of investment to drive capacity, that's all in anticipation, not just of 5 gs infrastructure and smartphone, but what 5 gs technology will do for the industrial economy. And that's something that's going to drive our performance for many, many years. It's a long way of saying that we've got a medium term tailwind in our high end electronics business that's going to last quite a while. We'll move next to Matthew Deo of Bank of America. Thanks for taking my question. So what's next for the water water filtration business? Should we just expect things to grow organically or are there moves you need to make to increase scale or product offering? Yes. So we are making moves to increase scale and product offering organically. This is a business as we said in our prepared remarks that has gained traction faster than we expected it to and we expected it to gain traction quite fast. We've made investments to grow our manufacturing capability and our commercial capability outside of the U. S. And so we're currently manufacturing in equipment in Europe and about to be manufacturing equipment in Asia. We have commercial teams building in both of those regions. This is a business that was doing $20,000,000 $25,000,000 of sales last year. And our expectations are for it to become $100,000,000 business in 3 or 4 years. And we believe we can do that all organically. Our customers are very eager for our the customer service and technology that they know and have come to expect from us in other areas to address their water treatment concerns. And so it's a very exciting opportunity for us and we're executing well against it. Thank you. And I saw the ESG report that came out. I haven't had time to dig through it as much as I would like to. But part of it was talking about the circular economy and there's obviously a lot of value to the metals you use. I'm just kind of wondering what opportunities there are ahead for ESI in that regard? Yes. I appreciate that question. We published our inaugural ESG report yesterday. There's also a website that captures the tops of the waves from the report. It's something we're very, very proud of. And this intersection between sustainability and profitability is something that has been well trafficked by our businesses for many, many years, but not something that we've sort of brought together in one document and communicated externally sort of in one place as we did with this ESG report that we published. There is a huge opportunity for our company to continue to help our supply chains improve their environmental impacts. And it's an area where we have quite a bit of sales already and quite a bit of technology underway. And it's doing well by doing good. And if you go through the report, you can see the many, many products and services that our company offers across just about every one of our businesses that align with that theme and will be a growth driver going forward. It's something that is existential for our customers. And another example of our businesses providing great solutions to our customers. We have a follow-up from Josh Spector of UBS. Hey guys, thanks for taking the second one here. Just on electric vehicles, I mean you guys have been pretty clear in highlighting your content opportunity there. And in some cases, you highlight potentially double the amount of content. I was just wondering if you could give some context if there's any region or battery or build type that would give you that higher leverage exposure that perhaps we should pay more attention to as EVs continue to ramp more strongly here over the next few years? Yes. So without getting into thanks for that question. It's an incredible growth opportunity for our business. And without getting into specific customer names, I would say that at the high end in the EV market, we are providing the enabling materials for power electronics and power inverters. And that's a business that is growing incredibly fast. And because we are well established in that market, all of the new OEMs and tiers that are investigating how to participate in that market are talking with us and are working with our materials. And that's a market that's poised to explode for us. Can't say if it's a 2021, 2022 or 2023, 2024 thing, but it is a strong contributor to our above market growth. And so it will not just be more penetration of automotive of EVs that will drive growth. But it's the content as you rightly pointed out. We should see a nice tailwind as more of the fleet moves to EVs and we're a key enabler, a true enabling technology of electric vehicles. Okay. Thank you. And that concludes our question and answer session. I'd be happy to return the call to management for any concluding remarks. Thank you very much for your questions for participating in the call. We look forward to seeing you in the near term. Stay safe. This does conclude Element Solutions' full year 2020 earnings conference call. You may now disconnect your lines and everyone have a good day.