Business context and reporting period
Platform Specialty Products Corporation (the registrant named in this filing) filed this unaudited Form 10-Q for the quarter ended March 31, 2015. The filing describes a global specialty chemicals business operating in Performance Applications and Agricultural Solutions. The supplied filing does not identify Element Solutions Inc. as the registrant.
Results reflect major acquisitions: Agriphar (October 2014), CAS (November 2014) and Arysta (February 2015). Accordingly, year-over-year comparisons are substantially affected by acquisitions and are not fully comparable.
Key financial metrics
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Net sales | $534.8 million | $183.7 million; up 191.1% |
| Gross profit / margin | $207.1 million / 38.7% | $84.2 million / 45.8% |
| Operating profit / margin | $2.2 million / 0.4% | $4.0 million / 2.2% |
| Net loss attributable to common stockholders | $26.7 million; diluted loss per share $0.14 | $7.4 million; diluted loss per share $0.07 |
| Adjusted EBITDA | $130.6 million | $45.9 million |
| Cash flow from operations | $(70.0) million | $21.1 million |
| Cash and cash equivalents | $297.3 million at March 31 | $397.3 million at December 31, 2014 |
| Total debt | $3,445.2 million at March 31 | $1,415.9 million at December 31, 2014 |
Net interest expense was $39.4 million, versus $7.7 million. Income tax expense was $24.7 million, including a $19.0 million valuation allowance on foreign tax credit carryovers. Total assets were $8.07 billion and total liabilities were $5.30 billion at quarter-end. The company reported $201 million of availability under lines of credit, net of letters of credit.
Material changes versus the prior period
- Sales increased by $351.1 million, primarily from acquired Agricultural Solutions businesses; excluding acquisitions and foreign currency translation, sales rose $9.9 million, or 5.4%, in Performance Applications.
- Performance Applications sales were $180.3 million and adjusted EBITDA was $48.6 million. Agricultural Solutions sales were $354.5 million and adjusted EBITDA was $82.0 million.
- Gross margin declined 7.1 percentage points. Acquisition-related inventory fair-value charges included $15.9 million for Arysta and $20.2 million for CAS in cost of sales.
- Operating cash use reflected working-capital needs, including higher receivables and slower collections; days sales outstanding increased to 83 from 69 a year earlier.
- Other income of $35.6 million included approximately $23 million of foreign-exchange gains on remeasurement of foreign-currency debt and about $10 million of gains on operating transactions. Foreign currency translation reduced other comprehensive income by $425.3 million before tax.
Outlook, risks and unusual items
Management stated that cash on hand and cash generated from operations should be sufficient for working capital, capital expenditures and other needs for at least the next 12 months. No specific revenue or earnings guidance was provided. Management noted that future acquisitions could require revolving-credit borrowings and additional debt or equity financing.
- Arysta was acquired for approximately $3.44 billion, funded with cash, debt and $600 million of Series B preferred stock. The purchase-price allocation was not finalized. The preferred stock may convert into up to 22.1 million common shares and includes a potential cash make-whole obligation, subject to terms described in the filing.
- Debt rose materially following acquisitions and financing. The company said it was in compliance with credit covenants at March 31, 2015. Its revolving facility includes a leverage covenant triggered at specified borrowing levels.
- Environmental reserves were approximately $4.3 million; legal reserves were approximately $7.2 million. An $11.3 million crop-damage claim was not reserved; the company said it intended to defend the claim. Tax audits and $71.0 million of unrecognized tax benefits are also disclosed.
- Management cited integration and acquisition risks, foreign-currency exposure, environmental and product-liability claims, and the possibility that actual results may differ from forward-looking statements. It reported effective disclosure controls and no material change in internal control during the quarter; acquired businesses were excluded from the internal-control evaluation.
Investor facts to verify
- Confirm the issuer and entity relationship: this filing is for Platform Specialty Products Corporation, not a registrant named Element Solutions Inc.
- Review acquisition integration, the final Arysta purchase-price allocation and the effect of acquisition accounting on margins and earnings.
- Assess debt service, refinancing and covenant headroom, including the filing’s distinction between $3.445 billion of balance-sheet debt and approximately $3.62 billion of indebtedness cited in MD&A.
- Track working-capital conversion, receivables collections, and whether operating cash flow improves after the acquisition-related outflows.
- Evaluate potential dilution or cash payments tied to Series B preferred stock, and developments in the disclosed legal, environmental and tax matters.