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American Pacific Corporation (APFC)

F1Q 2013 Earnings Conference Call

February 7, 2013 16:30 ET

Executives

Linda Ferguson - Vice President, Administration, Secretary

Joe Carleone - Chief Executive Officer

Dana Kelley - Chief Financial Officer

Analysts

Gunnar Hansen - Sidoti

Bruce Baughman - Franklin

Presentation

Operator

Welcome to the Q1 2013 American Pacific Corporation Earnings Conference Call. My name is John 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 - Vice President, Administration, Secretary

Thank you, and good afternoon. Welcome to our review of the financial results for fiscal year 2013 first 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 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 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.

Joe Carleone - Chief Executive Officer

Thank you, Linda and good afternoon, ladies and gentlemen, and thank you for joining our conference call. The outlook for fiscal 2013 continues to be positive as demand for our legacy core products remained strong and the introduction of new pharmaceutical products is beginning to have meaningful financial impact.

As a result of our positive and quite transformational fiscal 2012, the AMPAC’s focus on our chemical business lines is having a very positive effect on our day-to-day operations as well as on responding to new opportunities. We are very pleased with the results of our first quarter in this new fiscal year. As indicated on our conference call in December, we expected to have a somewhat weak first quarter. This was largely due to timing of sales and the plant, pharmaceutical plant shutdown for maintenance in the first quarter. Results remained consistent with our initial expectations. Because of our confidence in the AMPAC’s performance, we are reaffirming our fiscal 2013 guidance. Dana will be discussing the specifics in her remarks.

Let us now move strategic business segments beginning with our Fine Chemicals segment. Over the past year, we have seen a strengthening of the pharmaceutical fine chemicals industry. Opportunities for pharmaceutical ingredient suppliers remained strong as indicated by the number of inquiries we are seeing and the number of new drugs being approved. The FDA approved 39 new drugs in 2012, almost twice the number approved just two years ago and the highest figure the agency has seen since 1996. The excellent quality, reliability of supply, and development capabilities afforded by U.S. suppliers is once again very attractive to pharmaceutical customers and causing them to maintain a consistent base of suppliers within the United States.

We are very pleased with the growth in our development products. We now expect that our development products will generate over 25% of our Fine Chemicals segment revenue in fiscal 2013. This growth in development products revenue is highlighted by a large validation program of a new antiviral product within the expected FDA approval during fiscal 2014. Our controlled substance program, while not yet providing significant revenue remains promising.

In January the Drug Enforcement Agency branded our Fine Chemicals business registration as a manufacturer of Tapentadol, which is used to treat acute pain. We are also proposing on a number of opportunities while completing the validation campaign of our first controlled substance pain reliever. Our product pipeline continues to device the path for future opportunities, potential growth and is an essential part of the long-term stability of the Fine Chemicals segment. Production products are continuing as planned for 2013 with the antiviral and central nervous system products making up a large portion of production activities.

We are essentially pleased with the growth of our new oncology products. Two of these products use new inhibitor mechanisms to address the growth or spread of the cancer as compared to the cytotoxic mechanisms of the more traditional cancer therapies. These new cancer products are beginning to contribute meaningful sales in fiscal 2013.

Now moving on to the specialty chemicals segment, our specialty chemicals segment continues to provide stable revenue on an annual basis. There will be variations as in the past on a quarterly basis because of customer delivery requirements. Our forecast for fiscal 2013 shows specialty chemicals revenue to be relatively weak in the next few quarters with a very strong fourth quarter. This was driven by a few large rocket grade ammonium perchlorate deliveries scheduled for the fourth quarter based on current customer requirements.

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