American Pacific's CEO Discusses F2Q 2012 Results - Earnings Call Transcript

American Pacific Corporation (APFC)

F2Q 2012 Earnings Call

May 9, 2012 4:30 pm ET

Executives

Linda G. Ferguson – Vice President, Administration and Corporate Secretary

Joseph Carleone – President and Chief Executive Officer

Dana M. Kelley – Vice President, Chief Financial Officer and Treasurer

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Second Quarter 2012 American Pacific Corporation Earnings Conference Call. My name is Lisa, and I’ll be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instruction)

I would now like to turn the conference over to your host for today, Ms. Linda Ferguson, Corporate Secretary. Please proceed.

Linda G. Ferguson

Good afternoon. Welcome to our review of the financial results for fiscal year 2012 second quarter. Joe Carleone, Chief Executive Officer and Dana Kelley, Chief Financial Officer, will each provide remarks. Following their remarks, we will be happy to take your questions.

Today’s call includes forward-looking statements. You can identify these statements by the fact that they use the words such as will, expect, anticipate, believe, and other words and terms of similar meaning. These forward-looking statements are not historical facts and are subject to risks and uncertainties. Our actual results may differ materially.

For a description of the factors that may cause actual results to differ materially from our forward-looking statements, please refer to the risk factors forward-looking statements section of our earnings release furnished today to the SEC on Form 8-K, our most recent quarterly report on Form 10-Q and our other filings made with the SEC. All forward-looking statements are made as of the date hereof and we assume no obligation to update these statements except as required by law.

In addition, we will be referring to both GAAP and non-GAAP financial measures. Our recently published earnings release contains definitions of these non-GAAP measures and a reconciliation of these non-GAAP measures to the most comparable GAAP measures. Our earnings release can be found in the news release section of our website at apfc.com.

I will now turn the call over to Joe.

Joseph Carleone

Thank you, Linda, and good afternoon, ladies and gentlemen, and thank you for joining our conference call. I’m pleased to report that our second quarter results for 2012 are on track, and have demonstrated improved performance over previous quarters. Production across the corporation is meeting our expectation. Our Fine Chemicals segment continues to see expansion from our core and new products, especially in the coming two quarters. Because of this outlook, we are confirming guidance of at least $220 million in sales and $35 million in EBITDA for fiscal 2012.

Dana will discuss guidance in more detail later in this conference call. As we indicated in our last call, in the first half of this year we would see a transition to improved profitability. This is certainly the case as our second quarter results demonstrate a clear bottom line improvement over the previous quarter. We are expecting this improvement to continue, especially in our Fine Chemicals segment as the second half of fiscal year progresses.

Our Fine Chemicals and Aerospace Equipment segments continue to build upon our core products and add new products and customers. Our Specialty Chemicals segment remains stable and profitable. We continue to look for approaches to improve product margins through our operational excellence and cost reduction initiative, and are focused on keeping operating expenses, as low as profitable in the face of rising costs in many areas. Success with these products related and cost reduction activity will make us more profitable and provide a path for our growth profile in the future.

Let us now discuss each of the business segments beginning with our Fine Chemicals segment. While our second quarter gross margin in this segment has improved compared to the previous quarter, we remain significantly lower than our expectations for the third and fourth quarters.

We have successfully restructured operations to streamline production in this segment, and have increased growth by means of operational excellence tool. More specifically, we have implemented solid recycling for a number of our products, which not only reduces costs, but also provide benefits to the environment.

We will see the full benefit of these improvements coupled with greater plant utilization in the third and fourth quarter. This performance improvement is a result of a major increase in throughput for a major anti-viral product. We are also pleased to announce the recent five year extension of our major central nervous system product. Despite this product now being off patent, our customer continues to retain significant market share with Ampac Fine Chemicals being the primary supplier of the active pharmaceutical ingredient.

Our development product pipeline has given rise to two new production products being introduced in fiscal 2012. One is the controlled substance product. This is the new area for us with a lot of promise. We have successfully overcome the substantial barriers to entry in the controlled substances area. We are very pleased and fortunate to have moved into this exciting area of the pharmaceutical business.

The second is the new cancer product. While we have been in oncology for a long time, this is a new type of cancer product that uses modern inhibitor type mechanism; it also has other clinical applications that are in late-stage clinical trials at this time.

Development products continue to be a significant portion of the Fine Chemicals segment sales for the second consecutive year. We continue to expect development products to represent 20% of the sales in this segment for fiscal 2012. Our pipeline continues to be strong providing the path for the future growth and stability of this business segment.

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