American Pacific's CEO Discusses F3Q12 Results - Earnings Call Transcript

American Pacific Corporation (APFC)

Q2 2012 Earnings Call

August 9, 2012 4:30 PM ET

Executives

Linda Ferguson – VP, Administration, Secretary

Joe Carleone – President & CEO

Presentation

Operator

Welcome to the Third Quarter 2012 American Pacific Corporation Earnings Conference Call. My name is Jackie and I will be your operator for today’s call. (Operator Instructions). And I will now turn the call over to Ms. Linda Ferguson. Ms. Ferguson you may begin.

Linda Ferguson

Thank you and good afternoon everyone. Welcome to our review of the financial results for our fiscal year 2012, third 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 facts that they use words such as will, expect, anticipate, believe and other words in 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 material 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 8K, our most recent annual report on Form 10K and our other filings made with the SEC.

All forward-looking statements are made as of today here and we assume no obligation to update these statements expect as required by law. In addition, we will be referring to both GAAP and non-GAAP financial measures. Our recently published earnings release contained definitions of the 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.

Joe Carleone

Thank you Linda and good afternoon ladies and gentlemen and thank you for joining our conference call. AMPACs third quarter fiscal quarter was a very significant one. First, we are reporting strong financial results and second we have completed a divesture of our aerospace equipment segment for $46 million in cash. Since we previously have a separate call on the aerospace segment divesture in June. We want to elaborate further on the strategic aspects of this action today. But of course we will answer any of your questions on this topic during the Q&A session.

We have decided to use the proceeds of this transaction to reduce debt and interest which will enable on refinancing of the company as Dana will describe in her remarks. We are pleased to report a very strong quarter for both our specialty chemicals and fine chemicals segments. This performance is largely driven by our fine chemical segments, increased production volumes and corresponding improved margins, combined with the consistent performance of our specialty chemicals segment.

A small portion of this performance is due to timing of sales on the part of both the segments. As we indicated in our call last quarter, in the first half of this year we would see a transition to improve profitability that would occur in the second half. Our third quarter results clearly demonstrated that we are on track to meet those second half objectives. We continue to build upon our core products and add new products and customers especially in our fine chemicals business. Our specialty chemical segment remained stable and profitable. We continue to look for approaches to improve product margins through our company wide operational excellence and cost reduction initiatives and are focused on keeping operating expenses as low as possible in the face of rising cost in main areas.

Because of this outlook we are increasing guidance for our continuing operations, we are providing guidance of $36 million in EBITDA in fiscal 2012, a 26% increase over 2011 based on continuing operations for both years. Dana will discuss guidance in more detail later in this conference call.

Let us now discuss each of the business segments beginning with our fine chemical segment. The fine chemical team exceeded our expectations for the third quarter, client utilization and throughput has improved resulting in improved profit margins. Also our cost reduction initiative especially in the area of solvent recycling has contributed to the bottom-line performance.

The increase in plant utilization is been driven by our major core products, our two large simulated moving bed or SMB units are being fully utilized. You may be called and reported last quarter that we entered into a new 5 year agreement for the central nervous system product that utilizes our large SMB units.

Despite this product now been off pattern, our customer continues to retain significant market share with AMPAC buying chemicals being the primary supplier of the active pharmaceutical ingredient. Our anti-viral products are also driving the increase in plant utilization as well as achieving targeted throughput. Our development product pipeline continues to bear fruit enabling us to bring new products to the market. We have successfully completed the validation of two new cancer drugs and are currently producing them at commercial scale, both of use novel mechanisms to treat different types of cancer.

In addition, we anticipate bringing a third new product to market. We are currently validating the process for the production of our first controlled substance. This is a major accomplishment that will lead to continue new opportunities for our fine chemical segment. This area of controlled substances has significant barriers to entry and we are pleased to have been able to penetrate those barriers and be one of the few U.S. producers of pharmaceutical chemicals in this arena.

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