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American Pacific Corporation (APFC)

F4Q 2012 Earnings Call

December 13, 2012 4:30 pm ET

Executives

Linda Ferguson - Vice President, Administration, Secretary

Joseph Carleone - President, Chief Executive Officer, Director

Dana Kelley - Chief Financial Officer, Vice President, Treasurer

Analysts

Presentation

Operator

Welcome to the fourth quarter 2012 American Pacific Corporation earnings conference call. My name is Tilda and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Ms. Linda Ferguson. Ms. Ferguson, you may begin.

Linda Ferguson

Thank you. Good afternoon, everyone. Welcome to our review of the financial results for our fiscal year 2012. 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 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 Annual Report on Form 10-K 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 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. Thank you for joining our conference call. Fiscal 2012 has proven to be a year of positive e change for AMPAC, both strategically and financially.

With the forecasted consolidation of the aerospace and defense sector, we decided to digress our in-space propulsion business which specialized in developing and producing liquid propulsion thrusters. This strategic shift allows us to focus on our chemical businesses, especially in the growing and potentially more profitable pharmaceutical sector.

The proceeds from this transaction were used to pay down debt and significantly delever the company. The remainder of the 9% notes were redeemed in October 2012 and replaced with a term loan at a very attractive interest rate. The lower interest provides a significant savings of approximately $5 million in the first year and approximately $7 million per year thereafter.

I am also pleased to report that both of our chemical segments performed exceptionally well during the latter half of fiscal 2012 and profit results exceeded our previous expectations by a significant margin. Fiscal 2013 is shaping up to be another good year for AMPAC.

New pharmaceutical products are now in production. These products are poised to replace some of our legacy products as demand for those older products decreased with an increase in demand for the newer products. Our specialty chemical segment remains stable and profitable. Dana Kelley will be discussing detailed guidance for fiscal 2013 in her remarks.

Let us now discuss each of the business segments beginning with our fine chemical segment. The fine chemical exceeded our expectations for the second half of fiscal 2012. Fiscal 2012 revenue increased 25% compared to fiscal 2011 with a major portion 62% being realized in the second half of the year. We therefore overcame the gap in certain pharmaceutical orders of the previous year plus additional growth.

EBITDA margin also increased significantly to 18.5%. The team has dedicated significant efforts over the last two years to improve the efficiency of its manufacturing activity. Client utilization and throughput has improved, resulting in increased EBITDA margins.

Redesigned processes are now providing increased throughput on key product lines. Also our cost reduction initiative, especially in the area of solvent recycling has contributed to the bottom-line performance. These actions, together with improved overhead absorption a result of higher production volumes, have resulted in increased margins for all major pharmaceutical product categories.

This year also witnessed a five-year contract renewal of our major central nervous system product which uses our large-scale simulated moving bed chromatographic facilities. We have also signed a significant agreement to produce a new antiviral product that is in late Phase 3 and has a high probability of approval by the FDA.

Our three new cancer product are beginning to see increased demand and will contribute meaningful sale in fiscal 2013 and will be partially replacing sales of one of our legacy products for which the demand has been reduced. We continue to focus on the oncology products using our technological position. The oncology market continues to grow and offer new opportunities.

We have also signed multiyear agreement for some of the new oncology products. Our product pipeline continues to be strong and is an essential part of the long-term stability of the fine chemical segment. We continue to pursue active pharmaceutical ingredient development and production opportunities in the antiviral and oncology areas.

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