Albany Molecular Research, Inc. (AMRI)

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Albany Molecular Research, Inc. (AMRI)

Q3 2008 Earnings Call Transcript

November 6, 2008, 10:00 am ET


Thomas D'Ambra – Chairman, CEO & President

Mark Frost – Chief Financial Officer


David Windley – Jefferies & Co.

Greg Bolan – Wachovia Capital

Russ Silvestri – SKIRITAI Capital

Michael Gregory [ph] – Cummings Bay Capital



Good day and welcome to the Albany Molecular Research Incorporated Third Quarter Earnings Conference Release. Today's conference is being recorded. At this time I would like to turn the conference over to Dr. Thomas D'Ambra, Chairman, President and CEO. Please go ahead, sir.

Thomas D’Ambra

Thank you, Yolanda. Good morning ladies and gentlemen, welcome to the conference call segment of AMRI's 2008 third quarter earnings announcement. This call is a follow up to our press release issued yesterday evening on Business Wire. With me is Mark Frost, AMRI's Chief Financial Officer.

We are pleased to report strong results for AMRI for the third quarter of 2008 and reiterate our guidance for a strong full year. The third quarter of 2008 demonstrated our ability to execute against the targeted strategic plan for the continued growth of the AMRI brand in global contract services as well as generating value from our internal R&D investments.

I'm going to turn the call over to Mark for his comments after which I will have additional remarks. Mark?

Mark Frost

Thank you, Tom. Before we begin I'd like to note that much of our discussion today might be termed forward-looking, other than historical facts or statements may contain projections, estimates and other forward-looking statements that involve a number of risks and uncertainties including those discussed in the Company's Annual Report on Form 10-K for the year-ended December 31, 2007 as filed with the Securities and Exchange Commission on March 17, 2008 and the Company's other SEC filings.

While these statements represent management's counter judgment on the future direction of the Company's business such risks and uncertainties could cause actual results to differ material from any future performance suggested herein. The Company undertakes no obligations to release publicly the results of any revisions to these forward-looking statements to reflect events or circumstances arising after the date here.

I'm now going to present financial results for the third quarter along with contract revenue and earnings guidance for the remainder of the year. Further details are included in our press release issued last night.

AMRI delivered another quarter of strong earnings growth. Earnings were driven by revenue growth in all three components of our contract business. Our large scale business in particular demonstrated strong gross margin improvement and expectation we've been communicating over the past few quarters.

Key highlights for the quarter and other recent events include an increase in total revenue including 30% growth in Contract revenue, over 25% Contract revenue growth in our large scale business segment.

Our operating income increased four-fold from $2.1 million in Q3 2007 to $8.7 million in Q3 2008. Adjusted net income was $5.8 million, a year-over-year increase of just under 200%. Continued improvement in Contract services gross margin year-over-year.

Turning to financial results for the third quarter 2008 all comparisons are on a year-over-year basis. Total revenue was $61.4 million, an increase of 29% compared to $47.6 million in 2007. Total contract revenue was $54.1 million, an increase of 30% compared to $41.6 million in 2007. Total contract revenue encompasses revenue from AMRI's Discovery Services, Development Small Scale Manufacturing and Large Scale Manufacturing Business Components.

Contract revenue from Discovery Services was $16.4 million, an increase of 57% from $10.5 million in 2007. In this component we experienced growth both in the U.S. and international businesses. Natural product collaborations also contributed to the increase due primarily to the recognition of upfront fees upon the completion of screening projects. One major screening project finished slightly earlier than we expected which accelerated revenue to the third quarter from the fourth quarter.

Contract revenue from the Development Small Scale Manufacturing was $14.5 million, an increase of 11% compared to $13.1 million in 2007. The increase results from continued demand for development analytical services from emerging pharma and biotech customers in the U.S. as well as growing demand for our Development Small Scale services in India.

Contract revenue from Large Scale Manufacturing was $23.2 million, an increase of 29% compared to $17.9 million in 2007. As communicated in a prior earnings call, revenue increased because of higher GE shipments and a new commercial customer. Our expectations were exceeded in part as GE requested some shipments be pulled into the third quarter from the fourth quarter.

We earned a $1.5 million milestone payment from Bristol-Myers Squibb for the nomination of a second AMRI compound for preclinical development. Recurring royalties from Allegra were $5.7 million, a decrease of 4% from 2007.

Net income under U.S. GAAP was $7 million or $0.22 per diluted share compared to net income of $2 million or $0.06 per diluted share in 2007. Excluding an income tax adjustment for research and development benefits of $1.2 million, adjusted net income was $5.8 million or $0.18 per diluted share compared to net income of $2 million or $0.06 per diluted share in 2007.

Now I'm going to turn to year-to-date results. Total revenue for the first nine months of 2008 was $172.9 million, an increase of 19% compared to $145.3 million in 2007. Total Contract and milestone revenue was $151.3 million, an increase of 22% compared to the prior year. Total Contract revenue was $145.8 million, an increase of 19% compared to $122.7 million in 2007.

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