Good morning, ladies and gentlemen, and welcome to the Platform Specialty Products Corporation Fourth Quarter and Full Year 2017 Results Conference Call. [Operator Instructions] I will now turn the call over to Carey Dorman, Senior Director of Corporate Development. Please go ahead.

Good morning, and thank you for participating on our fourth quarter and full year 2017 earnings call. Joining me this morning are our CEO, Rakesh Sachdev; CFO, John Connolly; Ben Gliklich, our EVP of Operations and Strategy; Scot Benson, the President of Performance Solutions; and Diego Lopez Casanello, the President of Agricultural Solutions. 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 expressed written consent of Platform is strictly prohibited. Before we begin, please take note of Platform's cautionary statement regarding forward-looking statements in the earnings release and supplemental slides issued and posted today in connection with this conference call. Some of the statements made today will be considered forward-looking. All forward-looking statements are based on currently available information, and Platform's reported results could differ materially from those predicted. Platform undertakes no obligation to update such statement as a result of new information, future events or otherwise. Please refer to Platform's SEC filings for a more detailed description of the risk factors that may affect Platform's results. Please note that in earnings release and the supplemental slides, Platform has provided financial information that has been prepared in accordance with U.S. GAAP -- not been prepared in accordance with U.S. GAAP. In accordance with Regulation G, Platform is providing reconciliations of these non-GAAP measures to comparable GAAP financial measures in both the press release and the supplemental slides, which can be found on Platform's website at www.platformspecialtyproducts.com in the Investor Relations section under Events & Presentations. As a reminder, for the purposes of this call, Platform will, in some cases, be comparing the same periods of 2017 and 2016 on a constant currency and organic sales basis, as management believes that these figures provide a better comparison and understanding of the underlying business results for its operations. Please review the press release and the web deck for further information. It's now my pleasure to introduce Rakesh Sachdev, Platform's CEO, for opening remarks. Rakesh?

Thank you, Carey, and good morning, everyone. 2017 was an important and successful year for Platform. We embarked on a number of transformational initiatives, while, at the same time, producing financial results in line with our short-term goals and long-term strategic objectives. Both our Performance Solutions and Agricultural Solutions businesses saw close to mid-single-digit organic sales growth in 2017. As a company, we grew adjusted EBITDA at almost twice that rate, having driven margin expansion on both segments. This led to nearly 40% free cash flow growth in 2017 to $144 million. We invested on a number of growth projects, launched exciting new products, grew our peak potential sales pipeline for Ag and entered into a number of strategic partnerships. We also improved our cost footprint by continuing to execute against facility rationalization plans in Performance Solutions and delivering against cost savings initiatives in our Ag business. In August of 2017, we announced our intention to separate our 2 business segments. This objective is driven by a desire to accelerate value creation for our shareholders and enhance each business' ability to deliver value to its markets. Our teams are working hard to accomplish the separation in both a timely and efficient manner. We run these 2 segments separately today with a minimal amount of shared functional support. This makes the operational separation a rather seamless undertaking, and it is well underway. From a capital markets perspective, we have also made progress, while, at the same time, reducing our cost of debt. For our 2018 outlook, we are announcing today an increase to our prior adjusted EBITDA guidance to a new range of $870 million to $900 million. This represents an increase of 8% versus 2017, at the midpoint of the range. We remain focused on delivering our financial commitments, as…

Thanks, Rakesh, and good morning, everyone. Turning to Slide 12. Platform generated $144 million of free cash flow in 2017 after adjusting for the one-time payment associated with the refinancing of our 10 3/8% notes. This year-over-year growth of about 40% was primarily driven by increased earnings and reduced cash interest expense in the year. Cash invested in working capital was about $34 million in the year, which is generally in line with our expectations, given the growth we saw in the businesses. Some of this increase is attributable to temporary inventory builds in our Performance Solutions facilities, as we continue to execute our rationalization plans. We would expect to lap that in the latter part of 2018. Additionally, cash taxes increased about $24 million for the year, primarily attributable to higher earnings. It's important to note that this cash spend grew slower than our adjusted pretax earnings did this year, reflecting some of the tax planning initiatives currently underway. I will discuss tax in more detail on the following slide. Our 2018 outlook on cash flow items remains unchanged from what we provided to you a few weeks ago. We expect cash interest spend of about $300 million for the year, as we capture the remaining benefit of our term loan and senior notes refinancing activities. We are also providing a cash tax outlook in the range of $145 million to $165 million for 2018, which, at the midpoint, reflects the continued improvement in the cash tax rate year-over-year. We believe that there is significant long-term tax planning opportunities to reduce global cash taxes, which we expect should start to materialize in a meaningful way in 2019. Finally, our net CapEx outlook is approximately $100 million for the year. Given these expectations, we believe we will see another year…

Thank you, John, and good morning. Progress against our separation objectives continues as anticipated. We're on track to complete the separation in 2018 and working to have as many market windows available for our capital markets activities as practicable. You will have seen that in early January, we announced a leadership team for Arysta and what we have been calling RemainCo. As we said when we announced our intention to separate last year, our internal bench is deep enough to support both companies, and we are pleased to have announced an internally sourced senior leadership team. Formalizing leadership was just one of several operational separation objectives we set for this past January, and we are pleased to have met each of those objectives to enable the businesses to function separately with limited transition services requirements. At this juncture, we remain on track for the separation with the primary gating items relating to the documentation, regulatory approvals and, of course, a favorable capital markets environment. As we have said before, we believe that the separation is the best path to accelerate value creation for our shareholders and deliver enhanced value to our customers. With that, I'll pass the call over to Rakesh to wrap up. Rakesh?

Thanks, Ben. I'm now on Slide 15. We always wrap up by reminding you of our goals for the year. These are the overarching priorities we are driving towards every day and frame our decision-making. The first 3 goals are largely unchanged from last year. We will continue to execute, focusing on growing the top line in excess of our end markets by launching new products, emphasizing faster-growing niches and continuing to take share. Second, we will remain disciplined with regard to cost to ensure our revenue growth converts more efficiently into earnings growth. We have a robust margin position that can be further expanded in both our businesses. Third, these businesses are attractive because of their cash flow profile, and we are committed to generating cash flow and ultimately reducing our leverage. And finally, we are focused on accelerating value creation through the separation of our businesses. Once again, we are separating these businesses as a means to not only accelerate the creation of shareholder value, but also allow each business to be fully focused on serving their respective end markets and customers. With that, operator, we'll take any questions from the line.

[Operator Instructions] And our first question is from the line of Neel Kumar of Morgan Stanley.

Your organic growth outlook for 2018 in agriculture of 3% to 4% is a bit below your longer-term target of 5%. Do you still believe that 5% is an achievable long-term target? And will the 5% objective require more of a pickup in the overall crop protection market growth?

So Neel, we do. One of the things that is happening, and I'll let Diego comment on that, we are gaining steam on our new product launches. If you look at even in Q4, the fact that we grew 15%, a little less than half of that growth came from new product launches. The pipeline of new product launches has expanded quite considerably. So we are -- I think that takes a couple of years before we start seeing the full brunt of the new products. This year, we are guiding to 3% to 4% for both the businesses. But longer term, I think this business should definitely do in the mid-single digits. Diego, I don't know if you want to add something.

Yes. The market, I mean, we don't have final estimates on how the market performs overall in '17. But we estimate that we are growing above the market in '17. We have put a significant emphasis on business quality in '17. That means really driving for the right applications, new product launches, as that Rakesh was referencing, and this has basically translated in a better EBITDA margin performance for the full year.

I think the other thing you will see, our growth in Latin America was in the low single digits this year in a market that actually shrank in the low single digits. And so we significantly outperformed in the Latin American region versus the market.

That's helpful. And it looks like you'll complete your Performance Solutions cost synergy realizations next year. Can we expect a similar continuous cost improvement program to be implemented, like the one you're doing in Ag right now?

Yes. As I said, we don't believe there's a start and stop for these synergies. We are creating a culture where people look at taking cost and getting efficiencies every year. And Scot's got a program with his people, and I'll let Scot say a few words. We have got a global supply chain function. We have got -- not just on the back office side, but also on the customer-facing functions. We are looking at all possible ways of using technology to get more efficient. We are increasing the use of tools for our salespeople across the globe, which is substantially reducing the expenses, but -- so, you're going to continue to see that journey go forward in the years to come.

Just to follow up, Neel. We're working on what we call areas of core competence, which will be follow-ons to what synergy activity we took over the last 2 years. So as Rakesh said, these are based on efficiencies, leveraging back office, leveraging global purchasing programs, things of that nature that will give us returns on an ongoing basis versus one-time synergy action.

Our next question comes from the line of Daniel Jester of Citi.

So maybe just to follow up on that last set of questions about Ag. So if in the quarter, half of your growth was from new products, which, I assume, were good margin, you still had a 200 basis point decline in the margin overall year-over-year. So you talked about some sales in Africa. You talked about some raw material pressure. Can you just give us a little more color about what exactly is happening to the margin profile of the Ag business as we go into 2018? Why should market improve in that business?

Yes. So I think if you look at the gross margin on a reported basis in the Ag business was down in Q4, I would say you could almost entirely explain that gross margin decline because of a very significant growth we had in our public health business in Africa. In fact, most of the public health business in Africa took place in Q4. So that was -- so if you just do the math, and we can do it off-line if you want, but that kind of explains the dilution in the gross margin. There was nothing else that was happening in this business that would suggest that the gross margin was deteriorating. On the operating expense line, we did have some one-time events, which actually reduced the EBITDA margin in Q4. So we had a Japan tax issue, which is a tax issue not on revenue, but on the capital structure, which is a one-time thing that the Ag business absorbed. We had higher bonuses because we have a payout on commissions for sales growth. And sales growth was so significant in Q4 that we hadn't anticipated the growth to be that strong. We had to bill for the full year some of the commissions in that. And then finally, I think we did increase R&D spending, which tends to be lumpy during the year to be -- and that was higher in Q4 and will go back to normal levels. But because of the way we look at how we conduct R&D expense, especially in Europe, it was a higher number. And so that really put some pressure on the EBITDA margin. But otherwise -- and I would say the same thing for Performance Solutions. Performance Solutions also had the issue related to the raw material pressures, but we are recovering from that. I think the best way to look at is on the full year. If you look at the full year for both the businesses, we got about a 40% conversion in EBITDA from the organic sales growth. If you look at it, our total sales growth in the year was roughly about $130 million, roughly $80 million for MPS performance and roughly $50 million for Ag. If you remove the FX component, the metal pricing component, and we got 40% conversion on both the businesses and in corporate. So for the full year, I think we did a pretty good job. And I think when you look to -- just let me finish this, I think, as you look to 2018, we will clearly see the margin expansion in the Ag business.

Okay. That was very helpful. And then maybe just 2 quick ones. On CapEx, about 20% growth in 2018. Can you just talk about sort of how much of that is from new product registration? Is there sort of any one specific project that is tied in that? And then I also noticed there was $160 million goodwill impairment. Can you just talk about what that's about?

So the CapEx is roughly the same. I think we had CapEx of a little over $80 million in '17, but that was net of dispositions. We had dispositions of close to about $20 million. And so the real CapEx was $100 million, but we -- since we disposed some stuff. And it's going to be about $100 million this year. Now we may have some more dispositions this year, but we don't forecast dispositions. But if we do, then the total CapEx bills, net of dispositions, will also be lower. As far as the Ag impairment, I mean, this is -- as you know, we go through a review with the accounting folks every year. We make slight changes to the outlook, the long-term outlook for this business. And I think because of what was happening in the recovery, we made certain changes in the estimates, and I think that's all that was.

Our next question comes from the line of Jim Sheehan of SunTrust.

Could you update us on the timing of the separation? How do you see that playing out? And what are the mechanics behind the separation as you see it today?

Yes. So we have had 2 streams of work from a separation standpoint. We have been working on an operational separation, which is to say that we want to be sure that we are ready to separate at launch internally. And I think we have pretty much got to the point where we think that the 2 businesses can stand on their own. I mean, the second piece of the separation is actually the mechanics of actually separating the businesses. And we have to go through a process of regulatory approvals, filing stuff. We have to get carve-out audits, including for '17. As you know, we have just closed the '17 books. So all that's just taking time as you would expect it to take time, but -- and the other thing is we want to make sure that when we launch that the capital markets are good. This is somewhat of a self-imposed timing, and we don't feel that we would just launch at an inopportune time. But nevertheless, right now, we are proceeding as if the markets will continue to stay well. I don't know, Ben, if you want to add something.

No, I think that's exactly right. We're on track to our separation objectives and putting all the pieces in place, such that we can separate these businesses this year.

Is that still a midyear target?

Yes. So as we articulated previously, our goal is to have the separation complete middle of the year. And as we said, that deadline is self-imposed. If the markets are there and all the process steps that we have to get through are complete, we can meet that objective. But we're not going to force into -- force the separation, force the capital markets activity when the markets aren't supportive. And so we'll put ourselves in a position to access as many market windows as practicable.

Our next question comes from the line of Ian Bennett of Bank of America Merrill Lynch.

John, you mentioned about tax savings in 2019 being significant. Could you help quantify what that is? Then also the separation is expected to result in additional tax planning opportunities. Is that just from lower interest? Or what other areas are you uncovering?

So I don't expect significant tax savings in '18. I think we'll see it a bit lower than what we've seen in the past. I think we have some -- the planning is ahead of us. And what I see from a -- from an opportunity, as we separate the 2 businesses, we've got to go through the legal structure on how we want to structure the organization. I think that presents an opportunity, along with the new tax legislation, for us to reassess what our -- the structure of our business and -- because right now, we're not really getting a -- we're not getting much of a shield on the interest expense that we pay. And so we're taking the opportunity of the separation to look at changing that as we move forward.

And a follow-up just on the IPO. Could you help us think about the total amount of capital expected to be raised, if it all occur in one point or later tranches being sold down? And what is the desire to raise a significant amount in order to be able to acquire and roll out businesses in perspective Ag and Specialty?

I think that we've previously articulated target leverage ratios for these 2 businesses on a standalone basis, and those do remain our goals. So you should expect post-separation leverage to be within shouting distance of those levels. With those healthier balance sheets, we can continue to be a consolidator on a measured basis in both of these distinct end markets. With regard to sizing and so forth for capital markets activity, it's a little early to say. So we're limited in what we can say in advance of accessing the market, but I would look at those leverage ratios that we've targeted for guidelines.

Our next question is from the line of Chris Parkinson of Crédit Suisse.

You hit on this a little, but can you just talk a little bit more about the degree of which the Performance margin weakness was driven by mix versus raws and then what's embedded in 2018 guidance? And the also, in the long term, can you just talk about your views in product mix as well as production costs as well as the consequent effects on margins?

Yes. So the bigger picture is that our goals, and I think I've said this in our previous calls, our goal is to expand margins roughly 50 basis points here. That's what we wanted to do. So it's important you understand that. And I think we achieved that. We achieved a 50 basis point margin expansion 2017. And if you run the math and the guidance we have given you, we will be roughly in that ZIP code of margin expansion for 2018. Now obviously, mix plays a factor in both businesses. You've got -- in 2017, the Performance Solutions business saw a faster growth in the industrial business. I mean, the industrial business was a very strong grower for us in 2017. The Alpha business, which, as you know, has a high metal content was also a faster-growing business. If you actually remove the effect of Alpha's metal business and the pass-through, our margins are roughly flat in Performance, despite the industrial business being higher. In 2018, we fully expect that the core electronics business, that didn't grow as fast as Alpha or industrial, will be a big driver of the growth. And that -- and the margin of that business segment is significantly higher. So we expect that the mix will improve in 2018. We have cost reduction initiatives, as Scot talked about. And we fully expect that his business will again see a margin -- year-over-year margin expansion about 50 basis points. I would echo the same thing for the Ag business. The Ag business actually has put in place -- I think there are several things that are driving margin expansion in Ag. One, we are expanding in certain territories in Europe, as we have talked about. Those territories have higher-value crops and so, we get higher prices and we get higher margins. Second, our biosolutions business is growing roughly 15%, 20% a year, and that's also a very high-margin business. We fully understand that we have some generic pressures in some of our products. We are absolutely aware of that. We have been working with our supplier base to get concessions, so we can offset some of that pressure, which we did quite successfully 2017. So there are puts and takes, but I would say, again, at a high level, our plans are all drawn, so that we can continue to expand margin about 50 basis points every year.

If I could add one thing, it's with regard to the longer-term trajectory for the Performance Solutions margins, which was the second part of your question, I think 2017 was a bit anomalous because offshore didn't grow as fast as the rest of the businesses. Graphics was a bit weak. Those are higher-margin businesses. We continue to invest in higher-margin segments of electronics, like semiconductor. And so as you think about the long-term trajectory of Performance Solutions margins, there is more opportunity, and 2017 was a bit of an anomaly.

Great. Very helpful color. And just very broadly, if you can answer, just in regard to the capital structure of the pro forma entities, are there any -- just on a very preliminary basis or broadly intermediate-term, refinancing efforts which you're currently evaluating? Or is it simply too early to tell?

We are obviously going through our capital structure and evaluating the mechanism by which we can allow for the separation. Don't want to say, in any specifics, about how we're thinking about that at this juncture, but we do need to create some flexibility in the capital structure to facilitate the separation, which we will be doing.

Our next question is from the line of Jon Tanwanteng of CJS Securities.

I appreciate the cash flow items outlook for 2018. I guess, the missing piece is just the change in working capital. Any projections for that?

This is John Connolly. We expect that to be about the same, as we had this year. I mean, what we expected to be a little bit better. We had a little bit of a working capital build at the end of the year, primarily due to the late season we had in Ag. And so we expect that to release in kind of the first half of the year. But generally speaking, in line, we expect a little bit better cash flow from working capital, but nothing substantial.

Okay. Great. And then, Rakesh, I'm not sure if you covered this earlier, but can you talk about the Ag trends heading into Q1 from both the regional perspective and if weather and planting have been helpful or hurtful for your outlook?

I'll let Diego talk to that. But as you know, at the tail end of Q4, we saw a lot of strength in Latin America and Brazil. As you remember, in Q3, we talked about a very dry season and drought conditions in Brazil. I think the rains came in and that's improved. I think weather-wise, we are seeing also the rains in Africa. Europe is doing reasonably well. North America, unfortunately, there's still very cold conditions, especially around wheat and cereal, so that's impacting us maybe a little negatively in Q1. But overall, I don't know, Diego, if you want to give any more color about Q1. So...

Yes. I think, overall, we are well positioned to grow in the first half of the year. For this season, we believe that we have adequate levels of general inventories coming into 2018. We referenced before that we are launching new products. I mean, we have products like EVEREST 3.0 in North America, new herbicide with an enhanced formulation for wheat. We have a new launch in LatAm with a product called Select One Pack, which a new herbicide for soybeans. We continue to expand geographically. We are going to benefit, obviously, also on the cost and SG&A improvement programs that we have. So overall, we are confident for the first half. Then obviously, we will follow the seasonality of the business. We have to see how much we can do in Q1 and how much we can do in Q2. But we're optimistic of other prospects.

Yes, probably -- I'll just say it's probably better to look at the first half and the second half because there's -- there are a lot of things in the Ag business that slip from a one quarter to the other. So we will monitor that because, as you know, first half is strong for the Northern hemisphere. It's strong for Europe. And then the second half is strong for the Southern hemisphere. But it's really the halves that are more important than just a quarter.

Got it. And then just to touch on the Graphics business. The '17 was a little bit tougher. Is that expected to grow this year, number one? And do you still see that fitting in the portfolio going forward on a -- from a high-level basis?

Yes, John. This is Scot. Yes, '17 was a little bit tough for us in the Graphics space, but we made some significant progress. As Rakesh said earlier, we restructured the management team within the business and have had some pretty nice wins in the second half of the year that we'll see it materializing in '18. So we do expect growth in Graphics in '18. And we think it's a really nice fit within our portfolio going forward. It's a very attractive business for us with good long-term growth potential.

[Operator Instructions] And our next questions is coming from the line of John Roberts of UBS.

I'm looking at Slide 11 on your 2018 outlook. In Ag Solutions, you talked about the Chinese supply disruptions as a negative to your raw materials. But I think aren't there a number of Chinese producers of finished formulated products that are also being impacted, now you're picking up a benefit from less competition maybe from the Chinese as well?

Yes. John. I think you saw it right. There are some positives and negatives of this trend. If it's a positive, I would say that generics are highly impacted by this situation. And we hope that this is going to translate into a mild -- or milder generic pressure in '18. You saw that China enforced drastically some environmental laws at the end of '17 and some plants were shut down, some suppliers. Arysta is multi-sourced for most of our key active ingredients, which is a way for us to really manage the situation. We are passing the increasing prices of selected products to pass some of those raw materials price increases. I think we're well positioned, overall, together with the mix improvements that we are starting to achieve. And obviously, we're watching the situation closely.

Okay. And then over on Performance Solutions and the raw material pressures there, aside from the metals issues. What are the key raw materials that you're having to deal with? Are we talking about solvents and organic acids, things that move with oil prices?

John, we see a bit of a mix on that, depending on which business. It's really a commodity issue, so across most commodities. But what we found is our ability now with the combination of the companies is we're having pretty good success looking for alternative supply in different parts of the world and leveraging our purchasing. So we're pretty optimistic that we'll be able to mitigate most of those impacts in '18. At least, we won't see any real pressure on the business, and there's no one significant raw material that's impacting us.

Our next question comes from the line of Bob Koort of Goldman Sachs.

Rakesh, I wanted to discuss the value liberation on -- from the separation. Do you feel it's primarily an issue around leverage? And when you look at the 2 separated companies, do you think there's more of a value discount on fair value to your Ag business or your Performance Solutions business? And have you arrived at that conclusion?

Well, leverage is one of the factors, as you know. We obviously have been working to reduce the leverage. And frankly, by generating the cash, we can do that. It's -- it takes time. On the other hand, the separation will allow us to get there a little sooner. And I think the other thing is once these 2 businesses -- and now they have the maturity in the scale, I think just looking at how we have run these 2 businesses over the last 2 years, on their own, I think they'll be a lot more focused. I think there's -- there are a lot of exciting opportunities for both these businesses. And I think they will be valued properly by those people who want to invest in these 2 businesses. And I think that's what this is. It's the ability for these 2 businesses to create excitement and value for people who want to invest in these 2. And I think we are at a point where they absolutely can stand on their own and do well.

And I thought you guys have maybe intimated a bit that there could be alternatives to an IPO as a capital raise strategy. What else is under consideration?

There are -- the base case has always been an IPO. And there are multiple avenues that we have at our disposal to increase the proceeds from our financings. But the base case has always been articulated as an IPO behind the Ag business and remains so.

Our next question is from the line of Aleksey Yefremov of Nomura Instinet.

What would have to happen from debt refinancing perspective as you separate Ag business? And what are the potential impact on your interest rates, on your debt and potential make-whole payments?

As we've talked about, we would raise equity capital behind the Ag business in an IPO, which would reduce leverage across the system. That IPO would be a restricted payment under certain -- of our credit agreement. And so we need to work with our capital structure, both our term loans and our senior notes, with the exception of the $800 million we raised last year, to allow for the separation. And so that is when we had questions earlier, we talked about this, the flexibility we need to create to enable to facilitate the separation, which we're working on doing over the next couple of months.

Okay. So basically, you have to negotiate with your debt holders how that would -- could be outside of your capital structure would look like?

Yes. There are several different avenues we have to create that flexibility. I'm going to leave it at that.

Okay. And in biosolutions, you mentioned double-digit growth this year. How big is this business now? And what's your expectation for growth in 2018?

Yes. I think biosolutions is approaching 10% of the Ag business. Not quite, it's in the high-single digits. And that growth is going to continue.

Yes. If I can add something. I think the -- it's not only the growth of biosolutions, but also the opportunity for us to differentiate our offering in the market in combination with the conventional crop protection product. It is really what is driving growth in LatAm and Europe, and what differentiates Arysta in many instances in the market.

And at this time, I'm showing no further questions. I'd like to turn the conference back over to Rakesh Sachdev for the closing remarks.

Thank you, Amanda. And again, I want to thank everybody for being on the call this morning. We look forward to giving you further updates as we progress and talk to you again at the next earnings call, for sure. So thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.