Good morning, ladies and gentlemen, and welcome to the Element Solutions 2019 First Quarter Financial Results Conference Call. This call is being recorded. At this time, all participants having placed in a listen-only mode and the floor will be open for your questions following the presentation.

[Operator Instructions] It is now my pleasure to turn the floor over to Yash Nehete, Senior Associate, Corporate Development and Investor Relations. Please go ahead..

Good morning and thank you for participating on our first quarter 2019 earnings conference call. Joining me this morning are Executive Chairman, Martin Franklin; CEO, Ben Gliklich; President and COO, Scot Benson; and CFO, Carey Dorman. Please note that 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 express 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 certain assumptions and expectations of future events that are subject to risks and uncertainties. Please refer to Item 1A of our most recent Form 10-K for a discussion of the most significant risk factors that could cause actual results to differ from our expectations and predictions.

Please note that in the earnings release and the supplemental slides issued and posted today, Element Solutions has provided financial information that has not been prepared in accordance with U.S. GAAP.

For definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures please refer to the release and slides, which can be found on the company's website at www.elementsolutionsinc.com, in the Investors section under News and Events.

It is now my pleasure to introduce Martin Franklin, Executive Chairman of Element Solutions for opening remarks.

Martin?.

Thank you, Yash, and good morning, everyone. Thank you for joining our call. My introductory remarks will be brief, but I felt it important to make a few comments about our team's accomplishments during the first quarter. We had a very productive quarter.

Our transformation is well underway, and Ben and his team are doing all the right things internally to lay the foundation for a bright future. Our new leadership team is bringing the fresh thinking and the energy we expected, and our people around the world are reacting enthusiastically to these changes.

Given the new Office to the Chairman structure, I have a much closer view of our commercial, functional and strategic activities. You will hear more specifics about the progress throughout the call, and I believe we are moving in the right direction. Where I've been most focused is people and culture, and we are really making strides there as well.

Our new leadership team has gelled nicely, and we are very pleased with the additions to our board announced last week. Chris Fraser, former Chairman and CEO of KMG Chemicals, is a deeply experienced chemical industry executive who brings a great background and ability to contribute to our Board. I'm delighted to welcome him to our ranks.

We're also very happy to add our President and COO, Scot Benson, to our Board. So after the close of the Arysta transaction, we've repurchased 37 million shares or approximately 13% of our shares then outstanding at the then market price.

We were happy to be able to buyback that many shares in a single transaction and believe that, that transaction will translate to material long-term value creation. This buyback brought our leverage up to our cap of 3.5x.

So between our cash flow generation and earnings growth over the balance of the year, we believe leverage should be at 3x or below, again, by the end of the year barring any further buybacks. We will continue to be buyers of our own stock at these valuation levels should that opportunity arise as our leverage ratio improves.

As you will hear, our end markets have been quite challenging. And our progress exceeds what the numbers show for the first half of this year. Our time horizon here is long, and we believe we are doing the right things foundationally to set this company up for long-term success and to maximize benefit from end-market recovery.

With that, I'd let Ben, Scot and Carey take you through the quarter, and we'll rejoin for the questions at the end.

Ben?.

Thank you, Martin, and good morning, everyone. Starting on Slide 3. As Martin said, we had a very productive quarter. From the close of the Arysta transaction on January 31 and the subsequent launch of our new company, together with our share repurchase, this was an active three months in addition to our ongoing commercial operations.

We made progress on many fronts. We solidified our leadership ranks with an internal reorganization, most notably with my stepping into the CEO seat, as Rakesh Sachdev retired and Carey Dorman's promotion to CFO, and we added to our Board. As Martin mentioned, we are excited to have Chris Fraser and Scot Benson join us on the Board as of last week.

Our reorganization also materially contributed to our cost savings, which are coming along well. We realized an additional $3 million of cost savings in the quarter and have delivered $8 million cumulatively in the last three quarters.

We are well on our way to our goal of $25 million of annualized cost savings that we committed to in the context of the Arysta sale. Since February 1, we've spent a lot of time on the road communicating our vision for the company, our strategy and our cultural priorities internally to our colleagues around the world and to investors.

We were pleased by the receptivity and look forward to seeing more of you and going into more detail at our Investor Day in New York on May 20. Our end markets did not help us this quarter.

The softness we saw towards the end of last year persisted into Q1 with mobile device industry shipments continuing to be down in the mid-teens and the automotive market, particularly in China, remaining quite weak. These are two of our biggest end markets and their softness translated into a weak topline.

We offset this weakness through cost actions resulting in adjusted EBITDA growth of 1% year-over-year on a constant currency basis despite our topline being down 3% organically. The resilience that our variable cost structure provides is a hallmark of our businesses in periods of macro weakness like the one we are in right now.

Cash flow generation was strong. Excluding the impact of our capital structure for the month of January and transaction costs, the business would've generated $54 million of free cash flow on an adjusted basis in the first quarter.

We believe the cash flow characteristics of our businesses and their returns on capital are a real distinguishing factor, which unfortunately were obfuscated by debt service and the legacy Platform structure balance sheet and Arysta working capital requirements.

This will change this year even with the challenging market environment, and we look forward to that cash flow showing up on the balance sheet. We do not expect a recovery in Q2, but we are optimistic for the second half as our customers and the overall industry tone are positive looking towards that period.

In that context, we are reaffirming our full-year adjusted EPS guidance of $0.82 to $0.87, but moderating our organic topline expectations given the persisting pressure we see in our end markets. On Page 4 you can see more detail on our first quarter 2019 financial results. We reported net sales of $460 million and adjusted EBITDA of $99 million.

Net sales declined 3% on an organic basis year-over-year, while adjusted EBITDA was up 1% on a constant currency basis.

We anticipated the continued softness in higher end mobile and automotive markets as well as lagging industrial production across Europe and Asia and during the year, and we do believe our businesses meaningfully outperformed these end markets.

Our Electronics segment experienced an organic sales decline of approximately 5% in the quarter with another 4% headwind from FX translation. Semiconductor solutions realized modest organic growth, while Assembly solutions saw a 2% organic net sales decline.

Our Circuitry Solutions business accounted for most of the organic net sales decline in the segment as it is more directly tied to higher end mobile markets, which saw the most severe demand softness in the quarter.

Our Semiconductor Solutions products continue to perform well in the electric vehicle, defense and telecom markets despite a broader slowdown in ship growth in Q1. We've introduced new products and continue to gain traction in the event packaging market within the semiconductor space.

Assembly Solutions experienced more mixed end markets, but its diversification helped offset some of the negative volume trends that more directly impacted our Circuitry business. Most of the softness we experienced was in our Asian businesses, and we believe some of that is driven by the ongoing trade tension, which we hope will be resolved soon.

In our Industrial & Specialty segment, organic net sales were flat year-over-year with growth in Energy Solutions and some volume softness in Graphics driven by a slow start to the year in that market, particularly Europe.

Our Industrial Solutions vertical experienced flat organic net sales as share gains and increasing pricing offset negative trends in automotive-related products. This led to overall organic net sales growth in the Americas and Europe and declines in Asia, primarily China, due to automotive units.

Adjusted EBITDA was up 1% year-on-year on a constant currency basis. The negative $6 million impact of FX translation this quarter was consistent with our prior guidance and driven largely by the yuan, euro and pound.

We drove margin expansion despite a declining topline through successful execution on our corporate restructuring plans, containment of variable operating expenses and certain procurement and supply chain savings initiatives.

As we progress through the year, we anticipate these cost savings will increase as many of the actions were mid-quarter or have been actioned but not yet realized into the P&L. Our supply chain actions list continues to grow in many of the markets where we are seeing or are expecting growth are higher margin opportunities for us.

This should also provide an expected margin tailwind. We'll provide more detail on this progress at our Investor Day. GAAP loss per share this quarter was $0.02 impacted by FX and one-time items associated with the Arysta sale and offset by reduced interest expense and a lower share count.

Adjusted EPS of $0.20 this quarter represents a significant improvement over the prior year adjusted EPS of $0.04 due primarily to the improved balance sheet and our share repurchase. This first quarter demonstrated the resiliency of our businesses against dramatic swings in end markets.

We believe our highly variable cost structure and our sticky customer relationships help mitigate challenging macros and preserve margins and cash flow. We know how to navigate challenging markets and what levers to pull in those times to deliver financial outperformance.

With that, let me turn the call to Scot to provide more color on our activities and the end markets.

Scot?.

Thanks, Ben, and good morning, everyone. In the Electronics segment, we have seen a continuation of Q4 2018 industry volume trends. The most impactful to us has been weakness in higher-end mobile phone supply chains in China and Korea.

However, this has not just been a share shifting story to lower priced devices as overall mobile units were down double digits year-over-year in Q1.

We believe that this has both macro drivers like trade tension and slower global GDP growth as well as replacement cycle drivers as model-over-model innovation is slowing and consumers await 5G phone launches.

We have also previously discussed the increasing electronic content in automotive as an important growth driver for our business, which of course has also been impacted over the past few quarters by lower auto production despite content per unit continuing to increase.

Ultimately, we believe most of these cycles will reverse, and we believe our businesses will be well positioned when they do. One major initiative we have undertaken in the past several quarters is the integration of our former Electronics and Assembly businesses under a new MacDermid Alpha brand.

We have taken two powerful businesses with similar end markets and related customers and combined them into one product portfolio, commercial organization and supply chain. This new business offers a broad product offering and electronics expertise to our customers and to OEMs.

Our objective is to provide a single touch point for Electronics chemistry solutions, and we are already working on several needle-moving initiatives that benefit from the combination of products, technologies and our development capabilities.

As new technologies and smartphone features such as larger display screens and newer camera modules drive the need for more complex printed circuit boards and assembly materials, MacDermid Alpha should benefit in a meaningful way.

The ongoing trade tensions with China are disrupting certain customers' production and pushing several key electronic manufacturers to transfer production to other countries. As we have highlighted in prior calls, we have a highly adaptable supply chain and have been investing in growth markets outside of China to meet this demand.

We continue to monitor the situation and we work directly with our customers and Tier 1s to ensure our part of their global manufacturing process is as efficient as possible.

As we look to the rest of 2019, we currently have a cautiously optimistic view towards a second half pickup, which aligns with the phasing of our financial guidance for the year.

In our Industrial & Specialty segment, we experienced relatively flat organic net sales in the quarter as we were able to benefit from certain pricing initiatives and share-gain opportunities in Industrial Solutions. This helps offset some declines in automotive markets, specifically in Europe and Asia.

We continue to work on new product development across our Industrial Solutions portfolio as evolving technologies and automotive markets require greater reliability standards for our surface treatment chemistries.

In Graphic Solutions, although we experienced slower market conditions in the first quarter, we expect recovery in the balance of the year and have seen green shoots in April.

Our primary focus has been in emerging markets, such as China and India, where we are still seeing a transitional shift of analogue to digital within the flexographic printing space itself. We have also successfully launched several new products to meet the increasing demand for flexo print quality.

Energy Solutions grew during the first quarter, but we expect the rest of 2019 will be negatively impacted by the loss of a piece of business in March. Overall, our commercial teams have embraced Element Solutions and have a clear focus on our operational strategy of driving growth through innovation and service.

We believe our end market weakness is cyclical, not sector specific, and that we will be well positioned to return to above market organic growth once the markets recover. Now let me turn the call over to Carey, who will discuss cash flow and our balance sheet.

Carey?.

Thanks, Scot. On Page 6, we provide an update on our cash flow and our balance sheet for the first quarter. We completed the sale of Arysta on January 31. So this quarter's reported cash flow burdened by one month of interest expense from our prior capital structure.

If we were to assume that the Arysta transaction had closed and our new capital structure had been in place as of January 1, we would have generated approximately $54 million of free cash flow for this quarter in line with our full-year annualized expectations. This includes cash taxes of $14 million and net capital expenditures of $7 million.

Our 2019 outlook for both cash taxes and CapEx remain unchanged, and we continue to drive tax optimization activity to materially reduce our future cash taxes. While we typically invest a moderate amount of working capital throughout the first two or three quarters of the year, the investment this quarter was minimal.

We should expect this when revenues are down sequentially. As we indicated by reaffirming our financial guidance, we anticipated demand recovery in some of our key end markets in the second half, and therefore, expect working capital investments to grow sequentially, albeit modestly throughout most of the year.

Importantly, these seasonal patterns are significantly less volatile than our legacy business for most of the volatility and intensity was driven by the Agricultural Solutions segment. With our new capital structure in place, cash interest for the year should be around $80 million. The interest rate on our debt is substantially fixed through swaps.

So we will not see any material impacts and fluctuating underlying interest rates. Overall, our cash flow characteristics have markedly improved post the Arysta transaction, and we demonstrated that this quarter despite a challenging market backdrop. Our net leverage ratio at quarter end was just under 3.5x adjusted EBITDA.

We had $1.4 billion of net debt, which reflects the funding of our share buyback in Q1 and the partial settlement of a contingent consideration associated with our previous acquisition of MacDermid. We enjoyed liquidity of over $450 million at quarter end. We are also working to efficiently repatriate cash to U.S.

in order to further reduce our gross debt and related interest charge. I should also note that our balance sheet does not reflect the expected positive impact of the final post-closing adjustments related to the Arysta transaction, which should be finalized by the time of our next conference call.

As we generate cash and grow adjusted EBITDA throughout the year, we expect to continue to consider opportunistic capital allocation, including further share buybacks to drive long-term value creation.

We expect to have capacity to invest, but we will be measured and remain focused on our goal of keeping our net leverage ratio below 3.5x adjusted EBITDA. With that, I will turn it over to Ben to provide an update on our financial guidance for 2019 and for closing remarks.

Ben?.

Thanks, Carey. On Slide 7, we discuss our expectations for the remainder of the year. We are reaffirming our full-year adjusted EPS guidance of $0.82 to $0.87 and adjusted EBITDA guidance of 5% to 8% year-over-year growth on a constant currency basis.

Given continued soft market trends in the first quarter, we are tempering our organic net sales growth expectations for the year to a new range of flat to 2% growth. However, we believe we have cost measures to compensate for that change that allow us to hold our adjusted EBITDA, adjusted EPS guidance.

Our March sales were roughly in line with the average of January and a weaker February driven by Chinese New Year, and April is trending similarly. Our expectation for the second quarter is that these levels will continue. Our topline guidance is predicated on a recovery and demand in Asian electronics in the second half of the year.

Growth in content per unit and market share opportunities should both help our organic growth in electronics, but this market recovery is important. In Industrial & Specialty, we continue to progress on share-gain opportunities, product launches and pricing initiatives across our verticals to offset uncertain market trends.

Based on exchange rates at 3/31, on a full-year basis we still anticipate about $15 million of FX translation headwind to adjusted EBITDA. We expect in Q2 a headwind similar to the $6 million headwind we experienced in Q1. Overall, we believe achieving our guidance for 2019 will be a strong accomplishment in light of our end markets.

While we expect the Element Solutions businesses to grow net sales organically in the longer term at mid-single digits, this will not necessarily happen every year given the cyclicality of our end markets.

Nonetheless, we do expect to deliver above-market sales performance and stable margins every year, which is what we expect these results would translate to in 2019. Finally, turning to Slide 8, you can see an outline of our key priorities for the year.

I've been telling my colleagues around the world and our investors that I have one single objective this year, which is the successful launch of Element Solutions. Of course, this objective has many components, several of which are on this list.

The successful launch of Element Solutions entails establishing a recognized identity with all of our stakeholders, a strong performance-based people-centric culture of ownership and integrity that takes hold in the business and progress towards building our reputation as a high-performing leading specialty chemicals company.

I'm hopeful that our Investor Day on May 20 will contribute materially towards this objective. The successful launch of Element Solutions also requires delivering on our financial commitments and key-strategic initiatives, which should in turn demonstrate and deliver strong free cash flow generation.

For many years, we have touted the cash flow characteristics of these businesses, but that cash was absorbed by debt service. We're looking forward to that cash showing up on the balance sheet in the quarters to come. Finally, we have many opportunities to deploy our robust cash flow to uses that will compound shareholder value.

Our buyback earlier this year was one, and we look forward to the ability to be flexible and opportunistic in deploying our capital with the aim to deliver attractive returns to shareholders, while remaining within our leverage target of 3.5x adjusted EBITDA.

Before opening the call up to questions, I'd like to thank my colleagues around the world for their contributions in this quarter and for embracing Element Solutions and their optimism and enthusiasm for our future. Operator, please open the line for questions..

[Operator Instructions] Our first question is coming from Daniel Jester with Citi..

Yes. Hi, good morning, everyone.

So first a couple of questions on the revenue outlook, first, could you be specific about where the cut was in the organic revenue growth outlook for 2019? Is that the lost business that you referenced in Energy or is there something else driving that slowdown? And then secondly on revenue, throughout your prepared remarks and your slide deck, you talk a lot about market share opportunities.

Can you just talk about what gives you the confidence that you're going to be able to take share given some of the challenges you talked about?.

Sure. Absolutely, we'll take those questions in order. So first with regard to the cut in our revenue guidance, it's simply the persisting weakness we've seen across many of our end markets.

We anticipated weakness given what we saw in the back half last year, but it's been, I'd say, a little bit more dire and a little bit longer in term based on what we're seeing right now. We do however, have some real confidence in the back half as we've articulated in our prepared remarks and in the slides that we provided.

Scot, anything you'd say with regard to the revenue cut or the guidance change?.

No. I think I would just – would confirm what you're saying that the slowdown has been a little bit more persistent than we had anticipated. Yes..

With regard to your second question about market share, this is an area of real focus and one where we've been putting technology and discipline behind our selling process. And it's been an area that we've been investing in materially.

We have a Chief Sales Officer, who's implemented technology and process that's given us a lot more data around our sales process and our sales targeting to guide insight into what our key accounts are, how we're tracking along towards winning those accounts.

And so we feel pretty good about our ability to add major customers and gain market share over the balance of the year, which is something that gives us comfort in addition to an expected recovery in the back half and the market sentiment driving that that we're going to be able to outperform and grow..

And our next question comes from Duffy Fischer with Barclays..

Hey, guys. It's Mike Leithead on for Duffy this morning. I guess first question for Ben, tying in a little bit to the last question. You have embedded a second half recovery in your EBITDA guidance.

I was hoping maybe you could just talk through in size, two or tree of the factors that you expect to be better in the second half versus the first half year?.

Sure. So I think the place to start is that the back half of last year was quite soft, and so the comps, as we roll for the second half, will be much more favorable.

The second is that – and I'm sure you've heard this from many of the industry participants around us, but the tone from the industry, from our supply chain, from our customers, is that the second half will be better.

We have optimism, and we've seen optimism around product launches in the second half in mobile phones and also around semiconductor markets recovering. Look from a data perspective, we don't have too many empirical data points that support that second half recovery, but we don't have any evidence to the contrary.

Ultimately, as we think about this, we can't control volumes in our end markets, but our EBITDA guidance can sustain a flat topline due to our flexible business model and variable cost model and our ability to control cost is something that we've prided ourselves on and something we're very focused on.

We're hoping for the best, but preparing for the worst from a cost perspective to enable us to deliver our guidance..

Got it. That's super helpful. And then second question for Martin. It seems like with the change in portfolio as well as leadership, your role in the company has evolved somewhat.

So I was hoping you could just touch on one or two of your new areas of focus with the company, and how you see the longer-term story for Element developing over time?.

Sure. I mean we've created this Office of the Chairman structure. I'm spending a lot of my time with Ben and Scot. We've gone really around the planet, visited pretty much every corner of our major business segments. And it's all about culture building.

So at the end of the day, I'm there to – if you like, provide a lot of support and guidance to Ben, take a lot of the experiences that I've had over the years in culture building of the business that I've built in Jarden and applying those types of approaches and disciplines to Element. I think that it's been very enlightening.

We had a lot of great conversation and come out with a lot of – you see like, priority lists of things that need to be done and opportunities that exist. But overall, it's really more of what I did in the past, but being a lot closer to it if you like.

And really, giving Ben some insights onto some of the little, if you like, points as about being a CEO..

And our next question comes from Josh Spector with UBS. Your line is open..

Yes. Hey, guys. So in Electronics you talked about some of trade tensions maybe shifting the production days. I was wondering if you could kind of walk through your customers' process when they're looking at moving production from one country to another.

How they would go about selecting a new supplier? And kind of related to that, how Element can benefit?.

Yes. Hi, Josh. This is Scot. There's a lot of factors. Obviously, I can't really speak to all of the decision process that our customers go through. But generally speaking, we see – we do see the opportunity to follow the supply chain.

And the fact that we are truly global and we've invested in all these growth markets has helped us because they can get the same processes in these new countries without having to make any changes within their supply chain, so specification, et cetera.

So our ability to give them exactly the same thing they're using in one country in any country they choose to move to really factors into how we can follow that supply chain..

It's a real opportunity for us. The competitive dynamics in some of these markets outside of China are better and favorable for us relative to the domestic Chinese market..

So then who would you say you're winning share from there? Would it be more local producers then? Or would it be some of your global peers?.

Well, as they moved into newer countries, generally it's global competitors. The local competitor situation is less for us in those areas. So we compete in the emerging our growth markets more against the global competitors..

As opposed to in China where it's domestic producers..

And we will take our next question from Steve Byrne with Bank of America. Your line is open..

Yes. Thank you. I wanted to ask first of all about the share count.

What was it at the end of the quarter? Is it fair to assume that, that is incorporated into your reaffirmation of EPS guidance for the year that the lower share count? And do you have any view on potential timing of taking action on the remaining portion of the share repo authorization?.

Steve, it's Carey. Good morning. So on a GAAP basis, at the end of the quarter, we had 268 million shares outstanding, both basic and diluted. On an adjusted basis, we were using a number of 262 million for the quarter. That's fully reflective of the 37 million shares that we repurchased from Pershing earlier in the year..

And we updated our guidance to reflect that buyback when we made it..

Yes..

Yes. And I would say that – and I think we've made this comment in our prepared remarks. In the back half of the year depending on availability and depending on where our share price is, we're buyers of our stock at this price at these levels. But we will wait until we have plenty of room in our stated leverage cap to exercise that.

But if we do no buybacks, we'd be around 3x or below 3x leverage, which would give us capacity in the second half, obviously, to execute share repurchases should market conditions be appropriate..

And Ben, you talked a little bit about share gains in some of your end markets, and wanted to just drill into whether you have some visibility on your product share within potentially new devices or next-generation products that are either getting launched in electronics or in autos? Are you already in on those new devices such as in 5G? Is your share going to be larger with those new products?.

Yes. So as a general comment, we tend to have outsize share in the higher end innovative new platforms than we do in lower end electronics, particularly in the Circuitry business. With regard to new launches, so the new launches that we see coming towards the end of the year, we generally know what our business is on new launches well in advance.

What we don't know is the production rate that translate into sales. So we've got a good sense of where we're going to be playing and what our share is on those products, but we don't have visibility into units, which translates into the topline. We do see ourselves as taking market share through the new platforms that are coming out.

We also the automotive side of the business have been investing quite a bit in building our presence and being a solutions provider on multiple touch points, and we'll talk about this much more at the Investor Day, across electronics displays and plating in automotive, which is driving market share for us as well..

And our next question comes from Robert Koort with Goldman Sachs. Your line is open..

This is [indiscernible] on for Bob. I just had a question on your visibility.

So you're expecting a second half rebound, what kind of gives you the confidence here? And do you have the specific visibility on customer behavior like out a few months or quarters? Or how does that shape out?.

So as we were just talking about, we do have line of sight into our share, our scope, on new platforms that are launching in Electronics also in automotive. But we don't have direct line of sight beyond our customers, which speaks to production rates, which translate to the top line.

So as we said, the tone from the industry, from the supply chain, from our customers, is very positive with regard to the second half, both in terms of new platforms that are launching, in terms of the semiconductor market recovery. And from a data perspective, we don't have much in terms of empirical data that supports this.

We also don't have any evidence to the contrary. So while we can't control volumes, we can control costs. And we're focusing on preparing for the worst and hoping for the best. And through cost, we believe we can still deliver on our guidance..

And we can take our next question from Yefremov Aleksey with Nomura Instinet. Your line is open..

Thank you. Good morning, everyone. On free cash flow, you generated pro forma $54 million in Q1. You mentioned there was some maybe more favorable working capital this quarter.

For the full year, can we roughly annualize those Q1 results?.

So Aleksey, I think in general, if you were to take our EBITDA guidance today and now items that we've given you on CapEx, cash taxes and cash interest, you would get to something close to annualizing this Q1 normalized number.

As we mentioned in our prepared remarks, we do expect lifted growth in the back half to see some incremental working capital investment relative to Q1. So I wouldn't be necessarily normalizing or annualizing that working capital number. But on a full year basis, you should see effectively an annualized Q1..

Yes..

Thank you. Understood. And Ben, you mentioned several times that you expect recovery in the second half and that's embedded in your EBITDA guidance for the full-year.

If that recovery does not come, how should we think about, sort of, the downside case for this year? Again similarly is sort of the Q1 a good run rate? And maybe somewhere around $400 million, is that downside case absent recovery?.

No, Aleksey. That's not what we would point you towards. As you know this is a highly variable cost model. There is more we can do from a cost perspective to protect margin and to drive earnings up. We've got a long list of actions that we're prepared to take if we don't see that recovery materialize.

And I would also note that in the first quarter, you get the Chinese New Year, which deflates the run rate, if you will, on the quarter. So there are a few factors that would drive us, again, as I said, closer to our guidance range, even without that recovery, really driven by cost..

And our next question comes from Jon Tanwanteng with CJS Securities. Your line is open..

Good morning, gentlemen. Nice job on the margins. First, can you tell us if you're feeling any potential for the Chinese stimulus efforts particularly into the auto and consumer spaces into your guidance? Number one.

And number two, what do you think normalized margins and growth look like if trade tensions are ultimately resolved and if you have a good proxy for 2020 performance?.

Yes. It's a good question, Jon. So I think the place to start is, in our prepared remarks, we made the comment that April is looking roughly like March at the moment. And March was about an average of January and February. So we are seeing a stabilized level in April. We haven't seen an uptick associated with the stimulus you've spoken to.

But obviously, we've heard about it, and that's part of what's giving us confidence in the second half recovery.

With regard to our progress around margins and steady-state growth, we have many reasons to believe we have margin expansion that we can deliver over the coming quarters and years from corporate cost savings that we've been delivering well on, other functional cost opportunities we have identified, general mix, we see a path towards – cut several points of margin expansion over the next couple of years.

With regard to growth, as we've talked about, visibility isn't terrific, certainly not for 2020 at this point. But we do believe that sort of normalized growth rate through the cycle is low to mid-single digit GDP plus we talked about a couple of points better than the market. So call that 4%, 5%.

And we do anticipate being able to deliver that through the cycle basis in addition to the margin expansion we've talked about..

Okay. Great. And then just a follow-up.

Ben and Martin, with the last year new Board appointments, can you give us an update on your marketing competitive positioning against consolidating peer group in the Electronic chemistry markets?.

Yes. It's a good question. We've obviously seen some of the strategic activity and consolidation in electronics materials. That activity doesn't really impact us. We're leaders in the markets in which we participate, and that consolidation isn't damaging our market position and our ability to provide value and grow in our markets.

So we're very comfortable with where we are and from a strategic perspective, M&A around us isn't changing our strategy..

Yes. I completely agree with that. There is definitely activity that's going around us. We're keeping our heads down and driving our business internally, and we said that before. You'll hear that on Investor Day.

Obviously, we have won, if you like, potential comp, which will be Atotech, which we don't know whether that's the company that's going to go public or be sold. It's done by private equity. In a way, it would be nice to see it as a public company because I think it will enhance the multiples for how this company is perceived in trades.

If we have go at it alone and get to the multiples, this business probably deserves, we'll do it on our own. We'll see what happens..

And we will take our next question from Jim Sheehan with SunTrust. Your line is open..

Good morning. This is Pete Osterland on for Jim.

On energy prices, have you seen the higher oil prices translate into increased volumes in the offshore end market so far in the second quarter? And how much growth do you think is possible in that vertical this year if you assume oil prices stay around where they are?.

So our offshore business has much longer lead times than onshore energy markets. And so that is one business where we have pretty good visibility associated with new production coming online and drilling activity increasing.

We have seen CapEx increased from our customers, which does over time translate into growth for us, but it's not as instantaneous as you'd see onshore. We made a comment in our prepared remarks about that business having had a loss this quarter, which will impact growth, and we will see that business decline modestly this year.

But it's a great business and the secular growth trends outside of this specific instance are very compelling. We should see growth in that business over time..

Thank you.

And in the automotive end market, could you quantify how your organic volume growth currently compares to the underlying market? And how do you expect this to trend this year if underlying unit production improves in the second half?.

Yes. So for us, obviously, units are very important but content per unit is an added bonus. And we are seeing material increase in content per unit, which impacts both the Electronics business and our Industrial surface coatings business.

We see those two things combining to allow us to outperform units, and we should continue to see that for many, many years to come. That's a mega trend that's very exciting for us..

This does conclude today's Q&A session. I'd like to turn the program back over to Mr. Benjamin Gliklich for any additional or closing remarks..

Thanks, Aaron, and thanks to all for participating. We look forward to seeing many of you at the Investor Day on May 20, and continuing to tell the Element Solutions story broadly in the quarters to come. Thanks very much..

Thank you for your participation. This does conclude today's program. You may disconnect at any time..