Element Solutions Inc. (ESI) Q4 2022 Earnings Call Transcript

Element Solutions Inc. (NYSE:ESI) Q4 2022 Results Conference Call February 22, 2023 8:30 AM ET

Company Participants

Varun Gokarn - Senior Director, Strategy and Finance

Ben Gliklich - CEO

Carey Dorman - CFO

Martin Franklin - Executive Chairman

Conference Call Participants

Josh Spector - UBS

John Roberts - Credit Suisse

Kieran De Brun - Mizuho

Chris Kapsch - Loop Capital Markets

Jon Tanwanteng - CJS Securities

Rock Hoffman - Bank of America

David Silver - Seal King

Angel Castillo - Morgan Stanley

Operator

Good morning, ladies and gentlemen, and invited to nan Element Solutions Fourth Quarter and Full Year 2022 Financial Results Conference Call. [Operator Instructions] And I will now move nan telephone complete to Varun Gokarn, Senior Director of Strategy and Finance. Please spell ahead.

Varun Gokarn

Good morning, and convey you for participating successful our 4th fourth and afloat twelvemonth 2022 net convention call. Joining maine are our CEO, Ben Gliklich; our CFO, Carey Dorman; and our Executive Chairman, Sir Martin Franklin. In accordance pinch Regulation FD, we are webcasting this convention call. A replay will beryllium made disposable successful nan Investors conception of nan company's website soon aft completion of nan call. During today's call, we will make definite forward-looking statements that bespeak our existent views astir nan company's early capacity and financial results.

These statements are based connected assumptions and expectations of early events that are taxable to risks and uncertainties. Please mention to our net release, supplemental slides and astir caller SEC filings for a chat of worldly consequence factors that could origin existent results to disagree from our expectations. These materials tin beryllium recovered connected nan company's website successful nan Investors conception nether News and Events.

Today's materials besides see financial accusation that has not been prepared successful accordance pinch U.S. GAAP. Please mention to the net merchandise and supplemental slides for definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures. It is now my pleasance to present our Executive Chairman, Sir Martin Franklin.

Martin Franklin

Thank you, Varun, and bully morning, everyone. We person now completed our 4th twelvemonth arsenic Element Solutions. The business has evolved precisely arsenic we had hoped. The strategy of driving integrated maturation on pinch accretive bolt-on acquisitions has led to different twelvemonth of grounds income and net per share, each successful nan look of a challenging macro environment. The guidance statement has evolved into a growth-oriented squad that has created a moving cadence and civilization that is amended than ever before.

There are macro headwinds, but nan business is outperforming its extremity markets and increasing share. There was a wide statement that astatine immoderate point, nan request rhythm will prime up steam and Element Solutions is perfectly positioned to use from maturation successful its halfway and adjacent markets. I've ever believed successful focusing connected markets that person semipermanent secular maturation pinch defensible moats that gain beardown margins. Element Solutions personifies these criteria and continues to beryllium astatine nan cutting separator of customer improvement programs that create request for galore years to come. With best-in-class free rate travel characteristics and a equilibrium expanse that continues to delever each while returning important rate to shareholders, location is overmuch to beryllium excited astir successful nan company's future.

None of this would beryllium achievable were it not for nan full worker guidelines of nan company. And I'd for illustration to admit and opportunity convey you for nan existent dedication and excellence of nan group we are fortunate capable to employment astatine Element Solutions. With that, I'll manus complete to Ben.

Ben Gliklich

Thank you, Martin, and bully morning, everyone. Thank you for joining. Element Solutions delivered grounds revenue, adjusted EBITDA and adjusted net per stock successful 2022. Despite a challenging backdrop, we grew earnings. Our commitments connected time 1 has been to thrust above-market profitable growth, and we did that erstwhile again.

The automotive assemblage continued to suffer from a disjointed world proviso concatenation and user electronics markets suffered from Asian economical malaise and an overstock pursuing COVID-related bid patterns. Nonetheless, we grew integrated nett income by 5% for nan afloat twelvemonth successful some of our operating segments. In nan look of earthy worldly ostentation and elevated logistics costs, adjusted EBITDA grew successful absolute position and 8% successful changeless currency. We grew adjusted EPS to $1.41 aliases 2% contempt a astir 8% FX headwind from nan beardown U.S. dollar.

One of nan hallmarks of our business has been dependable rate travel crossed a assortment of operating environments. And this year, we generated free rate travel of $253 million. Our look for worth creation is simply a operation of operational excellence to thrust above-market profitable maturation and prudent superior plan. In 2022, astir of our rate travel returned to shareholders successful dividends and stock repurchases, but we besides proceed to amended nan returns connected anterior twelvemonth M&A. We over-delivered our original synergy targets for nan acquisitions of Coventya and HSO generating much than $10 cardinal of incremental savings successful 2022.

The position we built arsenic a world leader successful business metallic finishing pinch enhanced standard and method capabilities should proceed to present for some our customers and our shareholders. The first half and 2nd half of 2022 were very different. The electronics momentum from 2021 continued for nan first 6 months of nan year, but quickly and sharply ran retired of steam successful nan 2nd half. This was partially offset by a betterment successful automotive. Overall, volumes and request softened while ostentation persisted.

We judge this is simply a move that cannot last. Either request will travel backmost aliases ostentation will subside. In fact, location are reasons to judge some whitethorn hap simultaneously, either [ walk on ] would construe to amended outcomes than we saw successful nan 2nd half of '22. Electronics markets are expected to inflect and our business business has started nan twelvemonth beardown extracurricular of China. This underpins our afloat twelvemonth guidance, which we will screen shortly.

First, Carey will return you done nan financials successful much detail. Carey?

Carey Dorman

Thanks, Ben. On Slide 4, you tin spot a summary of our 4th fourth results. Net income grew 3% organically, chiefly driven by pricing actions and caller business wins that offset a softer measurement situation successful astir of our verticals. Demand crossed nan electronics ecosystem deteriorated further from Q3 to Q4. So we judge we meaningfully outperformed our extremity markets pinch level integrated sales.

Global smartphone shipments declined by complete 18% successful Q4 '22, pinch moreover nan larger Western OEMs seeing mid-teen year-on-year reduction. Against that marketplace backdrop, our circuitry and semiconductor vertical saw integrated income diminution 12% successful nan quarter. This was offset by 11% integrated maturation successful our assembly business, wherever we proceed to use from beardown powerfulness electronics request and resilience successful circuit committee assembly products that chiefly service business and automotive customers. In changeless currency, adjusted EBITDA for nan Electronics conception declined 11% year-over-year pinch margins astir flat.

In our IMS segment, we proceed to use from our proactive pricing actions successful Industrial Solutions and saw humble maturation pinch automotive customers arsenic transmission inventories began to normalize.

Our business vertical grew 7% organically successful nan quarter, broadly successful statement pinch estimates of 4th fourth automotive portion accumulation growth. Energy grew 31% organically connected a backmost of summation successful offshore drilling and graphics grew 1% organically. Across nan business, we knowledgeable a moderation successful worldly and logistics costs ostentation that should proceed into 2023.

Constant rate adjusted EBITDA successful nan I&S conception grew 16%, pinch a astir 100 ground constituent betterment successful margins versus nan first 4th of 2021. Adjusted EBITDA successful Q4 declined 2% successful changeless rate terms, a usability of antagonistic operation from higher margin, high-end electronics and nonmetal costs ostentation crossed nan business.

This weighed connected gross separator but was offset by OpEx discipline. Once again, we demonstrated our expertise to sphere wide profitability successful a challenged request environment. Reported results bespeak a $14 cardinal headwind from nan translator effect of a stronger U.S. dollar. On Slide 5, we summarize our afloat twelvemonth financial results. We grew nan apical statement 5% organically.

A important information of that integrated maturation was driven by some surcharge guidelines and negotiated value increases instituted successful nan first half of nan year. On a changeless rate basis, adjusted EBITDA grew 8% year-on-year. Reported results bespeak FX fluctuations, which drove a astir $40 cardinal year-over-year headwind. Constant rate adjusted EBITDA margins declined 110 ground points successful nan look of earthy worldly and logistics ostentation arsenic good arsenic operation headwinds wrong our high-end electronics portfolio.

Excluding nan effect of $428 cardinal of pass-through metallic income successful our Assembly Solutions business, our adjusted EBITDA separator would person been 25% for nan year. Adjusted EPS grew 2% connected a reported ground contempt a antagonistic 8% effect from FX. Next, connected Slide 6, we stock further item connected afloat twelvemonth integrated results for each of our businesses. Organic maturation for electronics was 5% year-over-year successful 2022, which, arsenic Ben said, was a communicative of [2 halves].

Our circuitry and semiconductor vertical saw double-digit maturation successful nan first half of '22, driven by spot successful semiconductor plating, representation disk request for information centers and earthy worldly surcharge pricing actions.

These aforesaid trends are first successful nan 2nd half. Smartphone portion volumes declined, information halfway finance slowed, starring an overbuilt downstream representation diff transmission and precious metallic prices stabilized aliases decline. This each translated to 4% yearly integrated nett income maturation for circuitry solutions, but this fig includes a 12% integrated diminution successful nan 4th fourth arsenic high-end electronics marketplace softened owed to COVID-related impacts successful Asia and representation disk destocking.

Semiconductor Solutions grew 3% organically for nan afloat twelvemonth pinch a akin 12% diminution successful Q4. Our Assembly Solutions business, which has much important vulnerability to business and automotive extremity markets saw much affirmative trends pinch acceleration done nan people of nan year.

This business grew 7% organically for nan afloat twelvemonth and 11% successful nan 4th quarter. Demand for our powerfulness electronics technologies remained beardown passim nan year, driven by expanding electrical conveyance accumulation while request for circuit committee assembly products successful our non-consumer electronics applications besides stay beardown into year-end. Organic nett income successful nan Industrial and Specialty conception besides accrued 5% year-over-year.

Industrial Solutions, which constitutes almost 80% of conception revenue, grew 5% organically driven by pricing actions and surcharges. Sales into auto, which is astir 40% of nan business, grew mid-single digits for nan year, but grew double digits successful nan 4th quarter.

While proviso chains for galore OEMs look to beryllium stabilizing, we are still readying for much muted maturation successful automotive successful nan first 4th of 2023. Geopolitical uncertainty successful Europe drove sequential softening successful Europe building and business extremity markets that person been resilient successful nan first half of nan year. Graphic Solutions income were level organically successful 2022 contempt caller business that contributed to income maturation and nan effect of further pricing actions, a slowdown successful caller packaging designs successful Europe and North America drove a diminution successful manufacture volumes.

We are making advancement connected aggregate initiatives designed to accelerate income and improved separator successful this business successful 2023. Energy Solutions apical statement grew 12% organically pinch an acceleration successful nan 4th quarter.

We person momentum successful nan drilling broadside of nan business, which should lead complete clip to summation accumulation related revenues arsenic well. We expect this high-margin business to proceed its maturation successful 2023. Moving to Slide 7, we generated $253 cardinal of free rate travel successful nan year, of which $87 cardinal was successful Q4. The quarterly cadence reflects a merchandise of astir $70 cardinal of moving superior successful nan 2nd half. This was driven by a sequential income decline, humble earthy worldly deflation and a simplification successful information cost.

Our different uses of rate successful nan 4th quarter, including rate taxes, CapEx and interest, each came successful amended than our expectations. We expected CapEx successful 2022 of astir $60 million, dedicated connected respective cardinal finance projects successful powerfulness electronics, R&D laboratory description s and further manufacturing capacity for Graphic. Several of these projects person been delayed owed to cardinal instrumentality availability, which drove little CapEx deployment than our original forecast. This past will rotation complete into 2023. We besides invested superior beyond integration efforts and customer instrumentality to heighten semipermanent relationships, chiefly successful circuitry and industrial.

These are high-returning investments that are supporting near-term profitable growth. In 2023, we expect rate liking of astir $50 cardinal and rate taxes astir about $80 million. We should proceed to exemplary a 20% adjusted taxation complaint for EPS purposes this year. We returned complete $230 cardinal to shareholders this year, including complete 150 opportunistic stock repurchases aliases astir 8 cardinal shares astatine an mean value of $18.76. Net leverage astatine year-end was astir level year-over-year astatine 3.1x, contempt this superior return and humble strategical investments.

All our floating complaint indebtedness remains [ switch nan 5th euro ] responsibility for early 2024. Our equilibrium expanse and liquidity position are strong. And pinch that, I will move nan telephone backmost to Ben to talk our financial guidance for 2023.

Ben Gliklich

Thank you, Carey. The outlook for our extremity markets entering this twelvemonth is cloudy, not dissimilar nan wide macroeconomic outlook. As definite risks person receded, others are emerging. The warmer wintertime successful Europe mitigated nan imaginable worst-case power ostentation effect to business activity while definite metallic input prices person begun to emergence again. The medium-term effect of China reopening is difficult to foretell and its power connected business and user request and 2nd derivative effect connected earthy worldly pricing and logistics costs will beryllium important drivers of 2023 results.

In this context, we're guiding to astir level adjusted EBITDA successful 2023 connected a changeless rate basis. At today's rates, that implies a scope of $510 cardinal to $530 million. We expect adjusted EPS of betwixt $1.40 and $1.43. And free rate travel of astir $275 million. The first half of 2023 will beryllium a situation arsenic we participate nan twelvemonth connected an physics downturn compared to nan momentum that carried from 2021 to nan first half of 2022.

Typically, electronics activity successful nan first half is wished by nan anterior [indiscernible] and we spot nary objection successful 2023. Customers person reduced accumulation importantly and utilization levels astatine circuit committee and semiconductor fabs person declined, reflecting nan existent softness successful high-end electronics and uncertainty astir China reopening effect to business activity, we expect Q1 2023 adjusted EBITDA to summation only modestly versus Q4 2022. While adjusted EBITDA successful nan 2nd half is typically higher than successful nan first half. This year, we expect that move will beryllium much exaggerated. We person reasons for optimism successful 2023 arsenic we look towards nan 2nd half, peculiarly successful our electronics business.

We expect nan effect of inventory destocking successful electronics extremity markets will easiness by galore years. General manufacture expectations are for request to inflect positively successful nan 2nd half. Given that third-party estimates expect flattish smartphone income for nan year, nan first half will almost surely show a year-over-year decline, implying a return to maturation successful nan 2nd half. We are already seeing comparative resilience successful automotive electronics and telecom infrastructure and expect location will beryllium pockets of comparative spot for nan broader electronics manufacturing proviso chain. These are applications wherever we person a beardown presence.

As we've noted successful nan past, secular maturation is not linear growth, and we person condemnation that nan existent volatility will not effect nan semipermanent affirmative trends driving our electronics business.

The maturation opportunities we spot successful powerfulness electronics, 5G-enabled devices and networks, electrical and autonomous vehicles, high-performance computing and sustainable chemistry remains important complete time. In nan Industrial & Specialty segment, anemic business activity successful China will measurement connected first 4th results. However, overall, we expect nan proviso constraints that person hampered world automotive accumulation will easiness done nan year. Our European building and business customers are outperforming their forecast coming disconnected a warmer winter. Anecdotally, erstwhile we surveyed our largest European aboveground curen customers successful nan fall, astir half expected to spell to short activity complete nan wintertime owed to costs ostentation and state ration, [ nary person it ].

Together pinch nan momentum we person successful our offshore business, nan IMS conception has immoderate upwind successful its income and during 2023. While nan consumable quality of our products and our highly adaptable costs building thief insulate our businesses from macro volatility, we are not immune. We person a prudent operating scheme that accounts for nan heightened level of macroeconomic uncertainty this twelvemonth without sacrificing semipermanent profitable growth. We're proud of our efforts to protect profits and position nan business to capitalize connected nan inevitable extremity marketplace recovery. And location are important opportunities for america successful this operating [ situation ].

Our scale, liquidity and strategical sky should let america nan stableness to upwind and capitalize connected these markets. Our customers are actively engaged pinch our caller exertion platforms and our commercialized and method teams are focused connected high-impact maturation opportunities. This is simply a reflection of nan longer-term momentum successful our markets and nan persistent iterative invention we supply to our customers' products. Let maine reason pinch my gratitude to each of our stakeholders for their continued support of Element Solutions and successful particular, my heavy appreciation to our talented and dedicated group astir nan world, responsible for different twelvemonth of growth. Our occurrence successful nan early will beryllium a merchandise of their tenacity and committedness that I'm grateful for it.

Operator, please unfastened nan statement for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We will return our first mobility from Josh Spector pinch UBS.

Josh Spector

Just first, a mates connected nan EBITDA guide. So first, wondering if you could locomotion done your expectations connected nan cadence done nan year, I guess, peculiarly 1Q to 2Q, does that measurement up much? What drives that? And past second, assuming astir of nan chartless successful your scope is successful nan 2nd half, what are nan main drivers location we should beryllium reasoning astir and watching successful position of precocious versus debased end?

Ben Gliklich

Sure thing, Josh. Thanks for nan question. So our expectations for nan twelvemonth are for it to look for illustration nan reverse of 2022, right? So successful 2022, we had a beardown first half and a weaker 2nd half, and we'll person nan reverse successful 2023. The first half of '23 will look for illustration nan 2nd half of 2022.

So expect astir $240-or-so cardinal of EBITDA successful nan first half, which does person a step-up from 1Q to 2Q. We won't person nan Chinese New Year effect successful 2Q, which accounts for immoderate of that. And past arsenic you deliberation astir nan scope for nan afloat year. The bigger adaptable is nan 2nd half, obviously. And that guidance scope is predicated intelligibly connected an electronics marketplace betterment successful nan 2nd half.

And nan spot of that recovery, nan slope of that betterment is nan largest adaptable of really our results will autumn wrong that range, right? So nan debased extremity of nan scope implies telephone it, 10% to 11% EBITDA summation successful 2 -- successful nan 2nd half versus nan first half and nan precocious extremity implies astir a 20% summation successful nan 2nd half versus nan first half. There is logic to judge that we'll spot that ramp. There's emblematic seasonality successful nan business, but past location are different indicators that propose that springiness america assurance successful electronics betterment successful nan 2nd half, right? Smartphone units are forecast to beryllium astir level this twelvemonth and they'll beryllium down importantly successful nan first half, which implies a existent ramp successful nan 2nd half.

If nan betterment comes later successful nan 2nd half, it bodes very good for momentum into 2024. And to nan grade that we don't spot that betterment we person costs levers astatine our disposal to sphere profits. So that's benignant of really we deliberation astir nan range.

Josh Spector

No, that's helpful. I'm conscionable wondering, I mean, really do costs fresh into each this? I mean if you look astatine logistics, raws, those things, I mean really overmuch person you absorbed and not recovered complete nan past twelvemonth aliases so? And I mean you made a remark earlier, imaginable post-demand returns and ostentation abates, for illustration what would that script look like?

Ben Gliklich

Yes. That's nan champion scenario, right, wherever you spot a betterment successful electronics request and you spot moderation successful input costs. We've seen our input costs stabilize successful Q4, but we haven't seen them starting to travel down yet. Logistics is simply a $25 cardinal headwind year-over-year successful 2022. Overall different earthy worldly ostentation takes full ostentation successful our costs of equipment to astir $100 million.

And we've taken a batch of price, but we haven't gotten each of it. So location is simply a separator opportunity from imaginable deflation that would besides thief america get towards nan higher extremity of our guidance range. We person continued to beryllium opportunistic astir price. And truthful location whitethorn beryllium an opportunity associated pinch that arsenic good successful 2023.

Operator

We will return our adjacent mobility from John Roberts pinch Credit Suisse.

John Roberts

Since we person Martin Franklin connected nan call, I thought I'd inquire a question. Martin, really does nan Board deliberation astir nan portfolio? Do you request to beryllium broader successful nan electronics, immoderate of your competitors person a batch much breadth aliases possibly much semiconductor exposure? And do you spot electronics conscionable continuing to get larger comparative to business because it grows faster? Or do you deliberation astatine immoderate point, you do an adjacency successful business to get much equilibrium betwixt nan portfolio?

Martin Franklin

Interesting question. I mean I will show you, I've ever believed successful scale. What we've done successfully truthful acold is bolt-on acquisitions. As you know, we're not acrophobic to beryllium acquirers. Obviously, semiconductors parts of nan marketplace person amended maturation characteristics and travel astatine a higher price.

We've picked our spots wherever I deliberation we've made a very bully return connected nan investments that we've made. But this institution generates a batch of cash. We want to proceed uncovering areas and pockets wherever we tin turn for nan things that I deliberation nan nationalist has seen, location person been a number of things that we've looked astatine that nan nationalist haven't seen because we're very disciplined. And I deliberation that some Ben and I, we're very overmuch connected nan aforesaid page arsenic to wherever we deliberation opportunities exist. But we do compete very ably pinch immoderate of nan larger players retired there.

It takes clip to return share. But I deliberation nan institution has been very good positioned to move guardant and frankly, turn faster than its extremity markets. So yes, standard is ever better. But I deliberation I'm very happy pinch wherever nan portfolio is today. And obviously, if we tin grow it into adjacencies, we will.

John Roberts

And past a short-term question. SG&A was down a batch successful nan 4th quarter. Some of that would person been currency, but compensation is besides a large portion of really you variabilize your costs structure, truthful was location a reversal successful nan 4th fourth from complete accruing earlier successful nan twelvemonth fixed nan twelvemonth ended overmuch weaker astir apt than re-budgeted?

Ben Gliklich

Yes. So it's a pay-for-performance civilization and this year, we had a beardown year. We're proud of our results, but we didn't present nan level of maturation we would person expected coming into nan year. And truthful location were immoderate compensation accrual reversals that impacted nan 2nd half.

Operator

And we will return our adjacent mobility from Kieran De Brun pinch Mizuho.

Kieran De Brun

Good morning. I was conscionable wondering if you could parse retired a small spot more. I deliberation you -- you mentioned you strengthened assembly and semis look to beryllium a small and circuit aliases a small spot weaker benignant of ending nan year. When we deliberation astir nan cadence, I guess, passim 2023. It seems for illustration Assembly is still poised to beryllium comparatively beardown passim nan people of nan twelvemonth pinch nan [indiscernible] betterment successful circuitry semi.

Is location immoderate colour you tin springiness america location connected really you're seeing that aliases really you that to advancement passim nan year, that would beryllium helpful.

Ben Gliklich

Yes. Thanks for nan question, Kieran. Yes, nan assembly business had a beardown -- surely a comparatively beardown Q4 versus nan circuitry and semiconductor businesses. The mentation for that is that nan assembly business has a broader electronics vulnerability and much into telephone it, business extremity markets. We've sewage a large portion of that business that goes into powerfulness electronics for electrical vehicles, and we've seen important accumulation ramps there.

And truthful that resilience should persist complete nan -- complete 2023. Again, we expect nan dynamics successful nan 2nd half to transportation complete into nan first half and nan assembly business should beryllium -- should not beryllium exempt from that.

Kieran De Brun

Great. And past I deliberation you conscionable mentioned quickly, and you already touched connected this a small bit, but costs levers to sphere profits if we extremity up successful a much challenging situation passim nan people of '23. So if you tin conscionable touch a small spot much connected that, that would beryllium helpful.

Ben Gliklich

Yes. We didn't propulsion each nan levers astatine our disposal successful 2022. And truthful arsenic we look to 2023, we've sewage a important costs opportunity astatine our disposal if we consciousness nan request aliases nan request situation does not warrant nan level of walk that we person successful our plan. Travel has accrued somewhat importantly from 2021 into 2022. Incentive compensation is still -- accruals will beryllium there.

And past other, we'll telephone it, discretionary walk that we tin very quickly mean without sacrificing semipermanent growth, right? And truthful that's really we deliberation astir these things erstwhile we spell aft cost, it's not invention spend. It's not ample groups of group -- these are nan group our customers trust connected and will present nan semipermanent maturation we expect from these businesses, but there's still a important opportunity successful costs erstwhile nan request situation isn't there.

Operator

We will return our adjacent mobility from Chris Kapsch pinch Loop Capital Markets.

Chris Kapsch

So you mentioned a mates of times successful your general remarks astir nan outperformance comparative to nan market, astatine slightest successful nan electronics space. I'm conscionable funny astir getting a small spot much granular connected nan dynamics there? Was this benignant of a usability of inventory guidance aliases apt much a usability of your complete nan past 12 to 18 months, you've benignant of had a disproportionate number of wins and getting specked into caller PCB lines. I'm wondering if that's contributing aliases is it over-indexed comparative to immoderate extremity markets versus others? Just a small spot much mentation location would beryllium helpful.

And past arsenic you spot nan electronics extremity marketplace inflect later this year, is that outperformance expected to persist, will go much pronounced aliases diminished? Any colour connected those dynamics?

Ben Gliklich

Sure thing, Chris. And we tried to telephone that retired successful nan descent platform wherever we look astatine our biggest extremity markets and show our comparative performance. We look astatine nan electronics marketplace and smartphone is nan biggest extremity marketplace for america there. Smartphone units were down 11% successful 2022. They were down 18% successful Q4.

We grew our electronics business organically connected nan apical statement successful 2022. And past our higher extremity electronics portfolio successful circuitry and semiconductor was down successful Q4, but not astir to nan grade that nan smartphone marketplace was down. It's difficult to cipher marketplace stock intra-period, but we've intelligibly outperformed units successful nan biggest extremity markets that we person vulnerability to successful electronics.

And similarly, successful industrial, we did lag automotive accumulation successful nan 3rd quarter, which we were concerned by, but it was really driven by inventory successful nan transmission clearing, and we reaccelerated successful Q4 and spot important large caller wins contributing to our business portfolio successful 2023 that gives america a precocious level of assurance successful share. And past erstwhile we deliberation astir what we're doing successful Power Electronics, for example, wherever we're successful a starring position, we're intelligibly outperforming that broader electronics marketplace because of our stock location and nan comparative maturation there.

So overall, we do spot this business arsenic outperforming its extremity markets. We do spot important stock opportunities coming our way, and we consciousness very bully astir our comparative performance.

Chris Kapsch

So conscionable to follow-up connected that. So it's really chiefly a usability of nan occurrence you've had successful proactively getting landing efficaciously caller business and caller PCB accumulation lines complete nan people of nan past year?

Ben Gliklich

So I deliberation it's caller wins successful mix. Our vulnerability to faster-growing extremity markets and attraction successful those faster-growing extremity markets is increasing our stock of nan wide pie.

Chris Kapsch

Okay. Got it. And past 1 follow-up connected nan -- conscionable to effort to reconcile your EBITDA guidance and your free rate travel and you've fixed nan liking expense, rate taxes, CapEx assumption. So nan plug location is moving capital. Just wondering if that's conscionable a usability of income recovering, it looks for illustration nan -- your presumption moving superior root of rate and thing other going connected location we should beryllium alert of?

Ben Gliklich

Yes. So moving superior is nan plug and there's benignant of aggregate ways for america to get to our free rate travel number. If we travel successful towards nan higher extremity of EBITDA. We're going to beryllium investing successful moving superior because nan business will beryllium accelerating successful nan 2nd half. And if we don't spot that trend, moving superior will beryllium a smaller usage of cash. The business does require an finance successful moving superior arsenic it grows but we consciousness comfortable that different EBITDA outcomes we get to a comparable rate travel number.

Chris Kapsch

And conscionable nan comparative ostentation aliases deflation successful metals, really does that play retired successful nan moving superior number.

Carey Dorman

So it's Carey. No, nan reality is nan little metallic prices that we person coming versus nan mean of 2022, should each other equal, trim our request for inventory, dollars finance successful inventory. I don't deliberation you're going to spot a important effect location based connected existent prices of things for illustration [indiscernible] which are really not that acold beneath nan 2022 mean price. But certainly, if those travel down, nan dollars that we require to put will travel down, but besides our reported income will travel down commensurately. And truthful arsenic we look astatine this from an inventory days perspective, it's not really an impact.

Operator

[Operator Instructions] And we will return our adjacent mobility from Jon Tanwanteng pinch CJS Securities.

Jon Tanwanteng

I was conscionable wondering really assured are you successful nan guidance scope and past nan 2nd half pickup that you're being retired there. Are your customers specifically telling you to get fresh for amended demand? And are location circumstantial caller projects and programs that are ramping wrong nan electronics business? Or is it much of a top-down accusation wherever smartphone and different electronics inventories has troughed complete markets conscionable simply person to prime up to get backmost to nan level manufacture forecast?

Ben Gliklich

The wide statement is for an electronics betterment successful nan 2nd half of nan year. And broader manufacture participants are indicating that it's supported by third-party investigation astir nan betterment -- astir level smartphone units year-over-year. Now historically, what we've seen is aft a bad smartphone year, you spot a bully 1 which would propose an moreover greater ramp successful nan 2nd half than what's implied successful our guidance. But this is not an manufacture wherever location are 9-month lead times. And truthful it is very -- it is plausible that, that betterment doesn't occur.

And nan measurement we deliberation astir our guidance is that location are aggregate ways to win. We person that costs lever astatine our disposal. As I mentioned successful nan prepared remarks, we person upwind successful our income successful nan Industrial and Specialty business, and we've sewage much condemnation astir that because we spot it and it doesn't person nan aforesaid level of ramp. But again, we tin get to our guidance scope successful aggregate ways. That's nan hallmark of this business is simply a adaptable operating costs nature, nan expertise to sphere profits erstwhile request doesn't materialize.

Jon Tanwanteng

Understood. And past conscionable a mobility connected nan EPS guidance for nan year. Is location a circumstantial magnitude of shares underlying that, whether you're repurchasing aliases not?

Carey Dorman

So if you return that scope from EBITDA down to EPS, you request a small spot of superior allocation to get to nan debased extremity of EPS compared to debased extremity of EBITDA. And past connected nan precocious end, there's really nary superior allocation assumed successful immoderate of nan different levers for illustration tax, et cetera, each nan different way. So I would deliberation astir immoderate superior allocation connected nan debased extremity but not significant.

Jon Tanwanteng

Understood. Just 1 more, if I could. As you caput into Q1, I was conscionable wondering astir nan sequential expectations for operation betwixt business electronics and electronics and possibly wrong nan benignant of nan subsegments if you're seeing thing different conscionable connected a sequential basis?

Ben Gliklich

Sequentially, I'd qualify electronics arsenic being a small softer because nan Lunar New Year effect conscionable intends less accumulation days successful Asia, which is wherever nan bulk of that electronics business is and nan equilibrium of that being covered by nan Industrial and Specialty business. And betwixt those 2 things, you get to what we talked astir a mates of percent sequential EBITDA growth.

Operator

We will return our adjacent mobility from Steve Byrne pinch Bank of America.

Rock Hoffman

This is Rock Hoffman connected for Steve Byrne. You guys already mentioned automotive and telecom infrastructure, I was wondering if you're seeing immoderate different greenish shoots successful nan electronics market, peculiarly successful nan high-end tech marketplace that springiness assurance successful a beardown TH recovery? And what does this guidance numerically presume for extremity marketplace growth, peculiarly for autos and handsets successful 2023?

Ben Gliklich

So it's difficult to speak astir greenish shoots and electronics correct now astatine nan precocious end. I deliberation that mostly crossed nan industry, folks are expecting trough successful Q1, Q2 and that is what is implied by our guidance. And that is what we are seeing. We're seeing a peculiarly anemic electronics marketplace present and now today. Our guidance implies astir level units successful smartphones, right?

We talked astir that. But there's a phasing to that. The first half is going to beryllium down.

Remember, successful 2022, nan first half was very beardown successful electronics. And past nan 2nd half needfully will beryllium overmuch stronger than nan 2nd half of 2022, which underpins that inflection.

We're talking astir nan electronics business. With respect to automotive, we're modeling astir level automotive units, a humble pickup, which is astir successful statement pinch third-party estimates.

Rock Hoffman

Understood. My 2nd question, conscionable are weaker volumes prohibiting immoderate realization of little earthy worldly costs? Or are you seeing those travel done into existent results. If nan former, should we -- aliases should separator opportunity accelerate pinch nan volumes? Just what's your wide outlook for 2023 deflation aliases ostentation much broadly.

Ben Gliklich

So we don't person important deflation successful our guide. As we said successful nan 4th quarter, we saw input prices stabilizing. And truthful we've extrapolated that for 2023. So location is an opportunity from deflation. There's besides a consequence of ostentation depending connected really nan system successful China develops complete nan people of 2023 station nan COVID reopening.

Of course, if request improves because of that, that's an opportunity for america connected nan apical statement that apt offset immoderate imaginable inflation.

Operator

And we will return our adjacent mobility from David Silver pinch Seal King.

David Silver

Ben you added immoderate color, I think, connected electronics and connected smartphones. I was going to inquire you, possibly if you could adhd a small item to your comments astir world automotive extremity markets. So successful your prepared remarks, I mean successful nan property release, you talked astir nan marketplace slow normalizing successful your proviso concatenation clearing. But I was conscionable wondering if you could possibly widen those comments a small bit. I mean, is this a remark astir semiconductor readiness aliases different parts becoming available?

Is it much directed towards world car builds successful general, improving? Or is this much related to nan modulation aliases nan gait of nan modulation to EVs wherever your -- I see your institution very good positioned to use from that trend. So conscionable a small colour astir what you're seeing successful nan automotive extremity markets.

Ben Gliklich

Yes, absolutely. Thanks for nan question. So nan automotive accumulation lagged expectations done nan first half of 2022 and past accelerated successful nan backmost half, we lagged that acceleration successful Q3 because location was inventory successful nan channel, not of our products but of our customers' products. And past we saw that normalize and we saw that inventory clear successful Q4 wherever we outperformed units. And arsenic we deliberation astir 2023, we spot immoderate maturation from lapping that transmission inventory and nan stock gains that we've had, immoderate of nan large wins we've had successful nan business and specialty successful nan Industrial Solutions business.

So our comments astir about level car and that proviso concatenation being much constructive really subordinate to that, and that's chiefly connected nan Industrial Solutions side. However, nan powerfulness electronics and nan proliferation of electrical conveyance effect is successful nan electronics broadside of nan business. And we had a mobility earlier astir nan comparative outperformance of our assembly business wrong electronics, and that's really being driven by EVs wherever we do person a very beardown position and expect continued profitable maturation from nan proliferation of electrical vehicles. And that's not conscionable a 2023 story. That's twelvemonth communicative wherever we're still successful nan early innings.

David Silver

I'd for illustration to inquire conscionable a mobility now astir wide trends successful moving capital. So 2nd half of nan year, you cited a $70 cardinal sourcing, I guess, aliases merchandise of moving capital. But if I look backmost successful your results complete nan past mates of years. I mean it seems nan buildup successful moving superior has been greater than nan $70 million. Just successful general, what are your expectations for moving superior usage aliases merchandise during 2023?

And really overmuch of that factors into your $275 cardinal free rate travel estimate?

Carey Dorman

It's Carey. So I'll commencement pinch nan 2023-point and past spell backmost to nan mobility complete nan past mates of years. So for 2023 we are assuming successful nan guidelines lawsuit a usage of activity -- usage of rate and moving capital. Again, arsenic we said earlier, it's really nan plug to benignant of get to that 2.75 and there's depending connected nan phasing of maturation and nan magnitude of growth, peculiarly successful nan 2nd half of nan twelvemonth that number tin alteration beautiful importantly successful position of nan finance we'll make. I deliberation if you were to conscionable do nan locomotion from EBITDA down to nan $275 million, it's astir nan aforesaid size finance that we made successful 2022.

And I would expect, again, that you would spot nan akin phasing that we spot successful astir years where, sorry, that you would spot [indiscernible] that of maturation wherever you'll spot a pickup successful those dollars invested arsenic nan twelvemonth goes on. If you spell backmost to 2020, 2021, nan moving superior arsenic a percent of income ticked up but has trended backmost down passim 2022. And there's really 2 reasons that I deliberation we've seen that turn a small faster than income complete that period. One is ostentation successful nan input prices that we haven't afloat offset successful trading price, arsenic we mentioned. And nan different is nan information banal that we've had to build because of nan proviso concatenation disruptions that we've each seen.

So I deliberation there's opportunity complete time. I don't deliberation 2023 is mounting up to beryllium nan twelvemonth wherever each that information stockholder release, but it's an opportunity complete nan longer term.

Operator

[Operator Instructions] And we will return our adjacent mobility from Angel Castillo pinch Morgan Stanley.

Angel Castillo

I was hoping you could springiness america a small spot much colour on, conscionable connected a location basis, what you're seeing. Obviously, a batch of that overlaps pinch electronics and OEMs, but possibly successful particular, immoderate colour connected nan business broadside of things, what you're seeing successful Europe and North America.

And arsenic you deliberation astir benignant of nan improvements successful business markets aliases Asia, what you're benignant of seeing successful those markets arsenic good from a location basis?

Ben Gliklich

Yes. So I'll commencement pinch Europe, which is nan champion story. We were beautiful cautious astir Europe successful nan autumn and early portion of nan wintertime pinch nan consequence of state rationing and nan effect of state value ostentation connected our customers, right? We did that study I mentioned successful nan prepared remarks. One of our largest customers successful Europe and half of them expected to spell to short activity complete nan winter, and nary of them did.

And truthful nan dynamics successful Europe are overmuch much constructive than we expected entering nan year, though that is considered successful our guidance. In Asia, it's difficult to get a bully publication connected Asia before, telephone it, March because you person nan Lunar New Year impact. Where there's immoderate transmission loading earlier nan vacation and past nan vacation tin beryllium a week aliases 2 weeks, but it's been slow, right? It's been slow partially because of nan proliferation and because of nan COVID effect connected nan workforce and recovering from nan COVID lockdowns that we saw, we don't person a awesome consciousness coming for nan slope of betterment from COVID successful China. That's a large adaptable for us.

And past successful North America, things person been beautiful dependable going backmost respective quarters, and that's been a reasonably patient marketplace for america connected nan business broadside of nan business. All of those comments subordinate to industrial. But nary large surprises, I would say, different than a affirmative astonishment from Europe astatine this constituent successful nan year.

Angel Castillo

Got it. That's very helpful. And past conscionable funny connected your comments astir Asia, I deliberation 1 of -- different electronics institution talked astir PCB plans perchance restarting successful nan adjacent fewer months. And besides semi-fabs utilization rates starting to prime up and get backmost to possibly much normal aft immoderate destocking here. Are you proceeding thing from your customers that seems to propose a akin benignant of cadence arsenic we get possibly beyond first quarter?

I admit there's visibility much than a period up. But conscionable thing you're proceeding that possibly benignant of reinforces that arsenic well?

Ben Gliklich

Yes. We're not proceeding thing inconsistent pinch that is what I would say. I deliberation that overall, nan manufacture believes that nan 2nd half will spot a worldly betterment from a slow first half, and I deliberation that we're each aligned successful that regard.

Operator

And location are nary further questions astatine this time. I will move nan telephone backmost to Ben Gliklich for immoderate further and closing remarks.

Ben Gliklich

Thank you, Abby. And acknowledgment everybody for joining. We look guardant to seeing you successful nan coming weeks. Have a bully day.

Operator

And ladies and gentlemen, this concludes today's convention call, and we convey you for your participation. You whitethorn now disconnect.