American Pacific Corporation (APFC)
F3Q 2011 Earnings Call
August 11, 2011 4:30 PM ET
Amanda Ferguson – VP and Corporate Secretary
Joe Carleone – President and CEO
Dana Kelley – VP and CFO
Bruce Bauman [ph] – Franklin
Previous Statements by APFC
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Good afternoon. Welcome to our review of the financial results for our fiscal year 2011 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 fact that they use 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 released furnished today on 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 other 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.
Thank you Amanda and good afternoon ladies and gentlemen and thank you for joining our conference call. Consistent with our expectations, we have shown strong sales for our third quarter. We are also reaffirming guidance for sales and EBITDA of at least $195 million and $29 million respectively.
We are however, somewhat disappointed that profits in our Fine Chemicals segment are lagging behind our expectations. This reaffirmation of guidance clearly implies that Q4 will be a major quarter for impact.
Fourth quarter sales are expected to be at least $65 million. Profits will be more concentrated in Q4 because of the product mix. Of course, as with any plan that is so concentrated at the end of the fiscal year, a small timing change could move some sales between fiscal 2011 and 2012 in either direction.
In addition, we were required to take a substantial environmental charge this quarter. As you may recall, we have been designing an improvement and expansion of our remediation facility in Henderson, Nevada. Prior to this quarter, our existing reserves were based on conceptual models and estimates developed during the pre-engineering phase of the project.
During Q3, detailed designs, using updated data, were finalized to a point where hard bids could be obtained. We have received the firm quotes for the new equipment, pipeline, construction and installation costs.
These quotes, together with updated operating cost estimates came in $6 million higher than our forecast developed approximately two years ago. On the plus side, the expanded capacity of the project could reduce the overall life of the project by four years.
Our year of transition back to profitability remains on track as we continue to expect at least $29 million of adjusted EBITDA compared to $24 million reported for fiscal 2010, a nearly 21% increase. We are building upon our core products and adding new products and customers in both our Fine Chemicals and our Aerospace Equipment segments.
In addition, our operating costs for the first nine months have improved considerably compared to historical levels as a result of our operational excellence, cost reduction initiative. We have improved $2.6 million for these first nine months compared to the first nine months of fiscal 2010 and an even greater amount compared to earlier years.
These product related and cost reduction activities will make us more profitable and secure our growth profile in the future.
Let’s now discuss each of the business segments, beginning with our Fine Chemical segment. As we stated last quarter, the major near term focus is to return the segment to more typical profitability levels. We have made some progress towards this goal, but there is still more improvement required.
We are restructuring operations to streamline production in this segment and increase through put. We expect our Fine Chemicals core product to generate significant fourth quarter revenue that is consistent with our guidance.
Also, substantially all of the core and development product orders for our fourth quarter are in hand. We continue to expect development product sales to represent 20% or more of the total annual revenue for this segment. Efficient production execution will be a significant key to a successful fourth quarter and beyond.