Business context and reporting period
The filing is for the quarter ended March 31, 2016, and identifies the issuer as Platform Specialty Products Corporation (NYSE: PAH), not Element Solutions Inc. The company is a global specialty chemicals producer with Performance Solutions and Agricultural Solutions segments. Results reflect significant acquisition activity: Alent and OMG were acquired in late 2015, and OMG Malaysia was acquired on January 31, 2016.
Financial performance and liquidity
Unless noted otherwise, amounts are in millions of U.S. dollars. Comparative results are for the three months ended March 31, 2015; that period’s financial information was restated.
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Net sales | $823.8 | $534.8 |
| Gross profit / margin | $356.0 / 43.2% | $207.1 / 38.7% |
| Operating profit / margin | $52.1 / 6.3% | $2.2 / 0.4% |
| Net loss attributable to common stockholders | $(134.8) | $(26.7) |
| Loss per share, basic and diluted | $(0.59) | $(0.14) |
| Adjusted EBITDA | $168.4 | $132.1 |
Reported sales rose 54.0%. Excluding acquisitions and foreign-currency translation, sales increased 14.3% ($76.3). Performance Solutions adjusted sales declined 3.2%, while Agricultural Solutions sales were relatively flat on a comparable basis; lower volumes were substantially offset by favorable pricing. Acquisition contribution and foreign exchange significantly affect reported year-over-year comparisons.
- Segment adjusted EBITDA: Performance Solutions $83.0 versus $49.0; Agricultural Solutions $85.4 versus $83.1.
- Net interest expense increased to $93.8 from $39.4, primarily reflecting acquisition financing. Foreign-exchange loss was $71.1, including $66.1 related to remeasurement of foreign-currency debt; the prior-year period had a $33.9 gain.
- Cash used in operating activities was $210.4, versus $2.8 provided in the restated prior-year period. Management attributed the current-period outflow in part to working-capital changes, including higher inventory and lower accounts payable.
- Cash used in investing activities was $19.9; financing activities provided $120.7. Cash and cash equivalents ended at $329.7, down from $432.2 at year-end 2015.
- At March 31, current assets were $2,296.1 and current liabilities $1,175.6. Total debt and capital lease obligations were $5,258.1; the reported weighted-average effective interest rate was 6.92%, and expected annual interest payments exceeded $300.
- Total availability under revolving, other credit and overdraft facilities was approximately $472, including $385 available under the $500 revolving facility. The company reported compliance with debt covenants.
Material changes, outlook and risks
- Reported gross and operating margins improved year over year; acquisition-related inventory purchase accounting charges were $12.0 in Q1 2016 versus $36.1 in Q1 2015. Adjusted comparisons also reflect acquisitions, currency and changing business mix.
- The company reported no quantified earnings or revenue guidance. Management said cash, operating cash generation and available credit were expected to cover working capital, capital expenditure and other needs for at least 12 months, while noting that acquisitions or a preferred-stock settlement could require additional financing.
- Approximately $3.23 billion of principal payments, primarily term loans, are due in 2020. The Series B convertible preferred stock could require a cash payment tied to the share price; the company estimated a maximum potential obligation of about $410 as of March 31, 2016, with a possible repurchase date of April 20, 2017. Holders may also receive incremental payments of $4.0 per month from October 2016 through April 2017, subject to the stated terms.
- Management disclosed an ongoing internal investigation into potentially improper payments connected with Arysta’s West Africa government-tender business, including FCPA compliance. The company had voluntarily contacted and was cooperating with the SEC and DOJ; management said the payments and related revenue or operating income were not believed material based on the investigation to date.
- Disclosure controls were judged ineffective because previously disclosed material weaknesses in financial-reporting controls remained. The company reported remediation efforts underway and noted that Alent, OMG and OMG Malaysia were excluded from the quarter-end controls evaluation. The filing also restated Q1 2015 information for a $72.8 Arysta-related error affecting goodwill, foreign-currency translation and cash-flow classifications.
- Other matters include newly filed shareholder class and derivative actions relating to company disclosures and the Arysta investigation; environmental reserves of $23.8 and legal reserves of $12.9. Management did not expect material losses beyond recorded environmental reserves, but outcomes remain uncertain.
Important facts for investors to verify
- Confirm the issuer and ticker for this filing: Platform Specialty Products Corporation (PAH).
- Review acquisition-adjusted performance and segment trends separately from reported growth, particularly weak Performance Solutions comparable sales and Agricultural Solutions volume trends.
- Assess operating cash flow and working-capital needs alongside reported cash and credit availability.
- Evaluate debt maturities, financing costs, and the potential Series B preferred-stock obligation and related payment terms.
- Monitor remediation of internal-control weaknesses, the Arysta investigation, and the status and potential exposure of shareholder, environmental and other legal matters.
- Note that Q1 2015 comparative financial information was restated; consult the filing’s restatement note when comparing periods.