Good day, ladies and gentlemen, and welcome to the first quarter 2012 American Pacific Corporation earnings conference call. My name is Chris, and I will be your conference moderator for today. Presently, all participants are in a listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions).
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.
Furthermore, our team has now adapted to the much smaller demand for ammonia perchlorate, and it’s performing excellently with DoD as the major end user. This business is sustainable with the demand from DoD alone. The continuous of NASA’s commitment to heavy lift, however, provides additional support to this product line. Quantities for other Specialty Chemical products, including halotron, remains stable in fiscal 2012, and consistent with fiscal 2011.
Let’s now briefly discuss the Aerospace Equipment segment, also known as AMPAC in stage propulsion. We expect moderate growth of this segment in fiscal 2012, and the first quarter was on target as to our expectations. Liquid fuel, rocket engines for satellites, also called thrusters, continued to be the driver for growth in sales, as well as profits. Orders for new and following opportunities remain strong for the sophisticated satellite components.
Propulsion systems for both satellites and missiles continue to provide opportunities for growth. Profits for these systems programs are still not where we believe they can be. There was a large effort being applied to improve the bottom line on systems project, which represents an opportunity and a challenge for our end-stage propulsion team.
We continue to build a strong engineering team around these systems integration projects. In summary, we are continuing to protect our core products across our segments, by being responsive to our customers, and delivering high-quality products on time.
Furthermore, we are making progress and expanding our product line in diversifying our customer base, especially in Fine Chemicals, while we continue to look for approaches to improve product margins and keep operating expenses as low as possible.
Of course, the proof will be in demonstrating the improvement in our bottom line as we have forecast in our re-acclamation of guidance. I’d like now to introduce our CFO, Dana Kelley, who will discuss the financial aspects of the quarter and her guidance for fiscal 2012. Dana?
Thank you, Joe. As Joe indicated, our first quarter performance is in line with our business plan for fiscal ’12. first quarter revenues of $51 million show a 46% growth from the first quarter last year. Operating income improved to $3.4 million from a loss of $3.5 million last year. The improvement in our fiscal first quarter financial performance, are shared companywide, with each operating division reporting increases in revenues and operating profits.
We’re reporting net income of $150,000 and we anticipate an improving trend of net income through each of the quarters in this fiscal year. Our Fine Chemicals segment reported fiscal ’12 first quarter revenue of $21.5 million, which reflects a $7.6 million improvement from a year ago. Revenues from antiviral products are the primary contributor.
You’ll recall that last year’s first quarter included no antiviral product revenue. Supported by a three-year supply agreement, antiviral revenues are back on track for fiscal ’12, and should contribute substantially to the 15% plus anticipated year-over-year revenue growth for this segment.
Fine Chemicals bottom line performance for the quarter show a reduction in the operating loss from $3.6 million to $1.2 million. Of equal importance, is that the loss was also reduced from the immediately preceding quarter. Our Fine Chemicals segment is executing on its performance improvement goals. Performance today has not yet reached acceptable level, but we are achieving milestone and progressing. Complete execute of this plan will occur over several quarters, and we anticipate a continuing trend of quarterly improvement as we progress to targeted profits by the end of this year.
Our Specialty Chemical segment reported first quarter revenues of $14.2 million compared to $9 million in the first quarter last year. The variance is attributed to timing between quarters within each fiscal year. For the full fiscal year, we continue to forecast that Specialty Chemical revenues will decline by up to 10% in fiscal ’12, which we believe is within the stable range for this non-growth segment.
As is [inaudible], our release provides statistic about volume and average unit price variance. In this particular quarter, the comparison to the prior year amount is geared by a condition that exist in the prior year first quarter data. The first quarter of fiscal ’11, includes revenues recognized for product that was both produced and sold in fiscal ’10 when production volumes were significantly higher. However, application of proper accounting rules resulted in the revenue recognized – recognition occurring early in fiscal ’11, and a corresponding reduction in computation of abergina priced for that quarter.
Our Aerospace Equipment segment is reporting another strong quarter, with first quarter revenues of $12.8 million compared to $11.5 million a year ago. Revenue from instate compulsion engines was the largest contributor to the increase, as this segment continues to benefit from the market expansion of its advanced bipropellant ACS engine.
Operating income improved to .9 million consistent with the growth in revenue. We ended the quarter with $18.2 million in cash, and no borrowings on our credit line. This amount is well in excess of our forecasted cash balances at this point in the fiscal year. [inaudible], we are preforming well to our efforts, we deliver cash flow at better than planned level.
As we discussed on last quarter’s call, fiscal ’12 includes some significant and non-recurring cash requirements. Most notably, remediation spending of approximately $12 million and pension funding of approximately $9 million. None the less, we anticipate being able to fund these requirements with cash generated from our operations during the fiscal year, and are striving to keep free cash flow positive for the full fiscal year, despite these atypical [inaudible] cash requirements.
As a result of our first quarter performance and the visibility of product orders provided by our customers, we are reaffirming our outlook for fiscal ’12, which includes revenues of at least $220 million and adjusted EBITDA of at least 35 million.
That concludes our remarks, and we’d be happy to take your questions at this time.
(Operator instructions). Our first question comes from the line of Lee Crocket. You may proceed.
Good afternoon. Looking at your operating segment EBITDA, it looks to be about 11 million, but your consolidated number is 7.1. Is the balance of that all corporate overhead and this 15 to $16 million the run number that we should use for this year?
The difference would be called overhead. Yes.
Could you give us any breakdown as between salaries, your rent and legal and professional fees, just the major pieces within that component? And if possible, the number of employees that that covers?
The employee base, Lee, is roughly 30 that are included in the corporate component of it. The related salary component, I’m sorry, I don’t have that data quickly available, but it’s roughly – I don’t know, 40% or so of our total corporate costs. And the rest of it would be infrastructure, corporate-level activities such as benefits, management and public company costs, you know, the cost of our Board of Directors, or audit preparations, those type of items.
Okay. Thank you. One other question. You mentioned the unusual funding this year. You said the remediation CapEx of 12, pension of 11, interest of somewhere 9 to 10 and do we still add to that the traditional CapEx as you forecasted or mentioned in the memo of 13?
Yes, I think you have one number in there wrong, that’s the remediation pending is forecasted 12 for the year. The – our interest runs just over $9 million each year and our pension funding for this year is approximately $9 million. But if you’re running those on kind of an [inaudible] calculation, then you’ll end up double counting remediation because remediation, both remediation and pension are embedded within the cash flow from operations calculation.
(Operator instructions). And we have no further questions at this time. I would now like to turn the call back over to the speakers for any closing remarks.
Well, thank you very much, ladies and gentlemen, for joining our conference call. We hope you will join us again for our second quarter fiscal ’12 call in May. Have a good day.
Ladies and gentlemen, that concludes today’s conference. Thank you so much for your participation. You may now disconnect.
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