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Atotech, a leading specialty chemicals technology company and a market leader in advanced electroplating solutions, reported its financial results for the first quarter ended March 31, 2022. Chemistry organic revenue growth, a key performance indicator for Atotech, increased 3% over the first quarter of 2021. Chemistry organic revenue growth reflects chemistry revenue growth excluding the impact of foreign exchange translation (FX) and palladium pass-through (palladium).
Geoff Wild, Atotech’s Chief Executive Officer, said, “We are very pleased with our performance in the first quarter of 2022. The Atotech team managed effectively in a complex macro environment by focusing on finding solutions to serve the global customer demand for our technologies.
“The recovery in automotive that was expected for the first quarter was delayed due to the ongoing chip shortage and other supply-chain issues,” continued Mr. Wild. “Despite this delayed recovery of the automotive industry overall, we are seeing very positive dynamics for our business related to automotive electrification and higher electronics content per unit. Atotech’s comprehensive systems-and-solutions approach, combined with our leading R&D capabilities, will allow us to leverage the demand that will come as volumes pick up and the proportion of battery-powered vehicles increases.
“In addition, the trend to increase capacities for high-performance computing and advanced-packaging applications has continued,” said Mr. Wild. “Particularly for FC-BGA (flip chip ball grid array), we see that the demand is still greater than the supply, and we are delighted that our customers are ramping up their capacities with additional lines and production facilities.
“In the first quarter, we continued to manage higher freight and energy costs as well as broad-based inflationary pressures, including raw-material price increases,” concluded Mr. Wild. “We consequently have implemented price increases with our customers to mitigate those factors and will continue to roll those increases out over the coming months.”
First Quarter 2022 Results
Total revenue was $358 million for the first quarter, a 1% increase over the prior-year period. Total organic revenue, which reflects total revenue excluding the impact of FX and palladium, increased 6% from the prior-year period. FX reduced total revenues by 3% and palladium decreased total revenue by 2% for the quarter. These quarterly results were driven by organic growth in chemistry revenue of 3%, reflecting increases in both the Electronics (“EL”) and General Metal Finishing (“GMF”) segments as well as a strong equipment business, which grew 33% excluding the impact of FX translation.
Adjusted EBITDA was $112 million for the first quarter, a 2% increase over the prior-year period, reflecting chemistry organic revenue growth, strong equipment sales, and cost discipline, partially offset by FX headwinds and increased costs associated with global supply-chain disruptions.
Diluted earnings per share was $0.24 for the quarter ended March 31, 2022, and Adjusted EPS was $0.37.
Adjusted EBITDA margin was 31% for the first quarter of 2022, a gain of 20 basis points over the prior-year period. The improvement reflects operating leverage on chemistry organic revenue and cost discipline, offset by the product mix of chemistry versus equipment and supply-chain inefficiencies.
First Quarter 2022 Segment Highlights
Electronics: Revenue for the first quarter in Atotech’s EL segment of $232 million represented a 3% increase from the prior-year period on a reported basis. Total organic revenue increased 8%, consisting of 5% chemistry organic growth and a 26% increase in equipment organic revenue. Palladium pass-through and FX decreased revenue for the quarter by 3% and 2%, respectively.
Organic revenue for the EL segment was driven by strong demand for Atotech’s leading solutions for high-performance computing, partially offset by lower smartphone business due to Covid-19-related lockdowns in China. As in prior quarters, the global build-out of production capacity for advanced packaging applications translated into strong demand for Atotech’s equipment, which the Company expects will also support sales growth in the future.
Adjusted EBITDA for Atotech’s EL segment was $81 million for the quarter, an increase of 7% over the prior-year period, primarily driven by chemistry volume growth as well as cost measures. Adjusted EBITDA margin increased 150 basis points to 35%, largely reflecting operating leverage on chemistry organic growth, offset by inflation-related cost, which is passed on to customers over time.
General Metal Finishing: Revenue for the first quarter in Atotech’s GMF segment of $126 million represented a 1% decline from the prior-year period on a reported basis. Total organic GMF revenue increased 3%, consisting of 1% chemistry revenue growth and a 124% increase in equipment revenue. Palladium and FX decreased revenue for the quarter by 1% and 4%, respectively.
GMF Chemistry revenue growth was affected by the delay in automotive recovery due to supply-chain issues caused by the Russia/Ukraine crisis, chip shortages, as well as Covid-19-related lockdowns in China. Other industry sectors continued to show strong growth in the first three months of the year.
Adjusted EBITDA for Atotech’s GMF segment was $31 million, a decrease of 10% over last year, reflecting the impact of inflation-related factors, which the Company is addressing through its pricing and other initiatives. Adjusted EBITDA margin decreased 250 basis points to 25%, mainly related to lower sales volumes and the additional cost of global supply-chain disruptions.
Update Regarding Geopolitical Events and Palladium Sourcing
Atotech noted that its direct exposure to Ukraine and Russia is currently expected to be immaterial to operations and financial results. Atotech does not source palladium directly from Russia or Ukraine; the majority of its palladium is from South Africa and recycling sources. Additionally, Atotech is continuing to pass the cost of palladium on to customers in order to mitigate the impact of price volatility on its results from operations.
On July 1, 2021, Atotech announced that it had entered into a definitive agreement with MKS Instruments, Inc. (“MKS”), a global provider of technologies that enable advanced processes and improve productivity. Under the agreement, MKS will acquire Atotech for $16.20 in cash and 0.0552 of a share of MKS common stock for each Atotech common share (the “MKS Transaction”). The MKS Transaction is to be effected by means of a scheme of arrangement under Article 125 of the Companies (Jersey) Law 1991 (as amended).
The MKS Transaction has been unanimously approved by the MKS and Atotech boards of directors, and each of the resolutions put to Atotech’s shareholders at the court meeting and the general meeting convened in connection with the MKS Transaction, which were each held on November 3, 2021, were passed by the requisite majority of votes.
Atotech previously announced that it has agreed to exten the date for completing MKS’s pending acquisition of Atotech to September 30, 2022, from March 31, 2022. The extension is intended to allow additional time for receipt of regulatory approval from China’s State Administration for Market Regulation (“SAMR”). In addition to receiving approval from SAMR, the acquisition, which is to be effected by means of a scheme of arrangement under the laws of the Bailiwick of Jersey, is subject to obtaining the required sanction by the Royal Court of Jersey and the satisfaction of customary closing conditions.