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American Pacific Corp. (APFC)
F1Q12 Earnings Call
February 8, 2012, 4:30 p.m. ET
Linda Ferguson - VP and Corporate Secretary
Joe Carleone - President & CEO
Dana Kelley - VP, CFO & Treasurer
Previous Statements by APFC
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At this time, I would now like to turn the conference over to your presenter for today, Miss Linda Ferguson, Vice President and Corporate Secretary. Madam, you may proceed.
Good afternoon. Welcome to our review of the financial results for our fiscal year 2012 first quarter. Joe Carleone, Chief Executive Officer and Dana Kelley, Chief Financial Officer will 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 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 statement 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 our CEO and President, Joe.
Thank you, Linda and good afternoon, ladies and gentlemen, and thank you for joining our conference call. I am pleased to report that our first quarter results for 2012 have met our expectations. Production in all of our segments remained on track and new products in our Fine Chemical segment continue to progress as well.
Because of this outlook, we are confirming guidance of at least $28 million in sales, and at least $35 million in EBITDA for fiscal 2012. Dana Kelley will discuss this later in this conference call.
As AMPAC progresses in to fiscal 2012, we continue to build upon our core products and add new products and customers in both our Fine Chemicals and our Aerospace Equipment segments. Our Specialty Chemical segment remains stable and profitable. Our corporate wide operational excellence and cost reduction initiative, continues to be a focus of all business segments as we seek innovative approaches to improve product margin and keep operating expenses as low as possible, in the face of rising cost in many areas, including employee benefits.
These product related and cost reduction activities will make us more profitable and secure our growth profile in the future.
Let us now discuss each of the business segments beginning with our Fine Chemical segment. Excellent news was received at the end of our first fiscal quarter of 2012. The Drug Enforcement Agency approved our registration as a bulk manufacturer of schedule II controlled substances. Furthermore, we have also recently executed a manufacturing agreement with a large pharmaceutical customer to produce controlled substances, and will soon be conducting a full scale validation of a chemical product in this area.
The pharmaceutical using this chemical product, has already been approved by the regulatory agency and is on the market. Revenues from development product continues to be a significant portion of the Fine Chemical segment sales in this first quarter and will remain so throughout the entire year. This is important for a number of reasons. First, expansion of development products over the last two years will lead to two new products reaching markets this year.
Second, as total segment sales continue to grow, sustaining development sales in the range of 20% of total segment sales, translates to a growing new pipeline of products and diversification of the customer base. Orders for development product currently represent projects from 18 different customers.
And third, virtually all of the development products in our pipeline make use of our unique technologies. This provides a clear discriminator as the product moves in to production. While our first quarter margins in this segment have improved compared to fiscal ’11, they still lag behind where we expect them to be. We are continuing to restructure operations, to streamline production in this segment, and increase throughput through operational excellence tools. Margins in this segment are expected to improve in the second half of the year.
Moving on now to the Specialty Chemical segment. We see the demand for rocket-grade ammonium perchlorate evolving in fiscal 2012 to be about the same total volume as fiscal 2011. There is however, a difference in the product mix. Last year’s DoD program were the predominate users of the product. In fiscal 2012, we see the return of product directed to NASA, for the new space launch system, as part of the development of the heavy launch vehicle. The space launch system, also known as SLS, was announced in September. SLS included the five segment, solid rocket boaster, which was unveiled on Capitol Hill, by NASA and by the Congress. That was very good news for us and our customer, in terms of establishing an on-going long-term production base and capability for NASA. That architecture has been reaffirmed in meetings between the various contractors and NASA. Some of these meetings were as recent as last week.