Salvatore Guccione - President and CEO Douglas Roth - SVP and CFO Jody Burfening - LHA, IR.

Daniel Rizzo - Sidoti & Company Kevin McKenna - Main Line Capital Gregory Macosko - Montrose Advisors Steven Howard - Morgan Stanley Lester Petruzzi - Private Investor Frank DiLorenzo - Singular Research.

Welcome to the Aceto Fiscal 2014 Fourth Quarter Financial Results Conference Call. My name is Dawn, and I'll be the 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’ll now turn the call over to Jody Burfening.

Jody, you may begin..

Thank you, Dawn. Good morning, everyone, and welcome to Aceto Corporation's fourth quarter fiscal year-end 2014 earnings conference call. With me today are Sal Guccione, President and CEO; and Doug Roth, Chief Financial Officer.

The Company issued its fourth quarter and year-end earnings press release yesterday after the market closed and for those of you who have not yet seen the release, a copy is available in the Investor Relations section of the Company's Web site at www.aceto.com.

Before starting the call, I’d like to remind you that today’s call will contain forward-looking statements as defined by the Securities Litigation Reform Act of 1995 that can be identified by words such as believe, expect, anticipate, plans, projects, seeks and similar expressions and involve numerous risks and uncertainties.

The Company’s actual results could differ materially from those anticipated or implied in these forward-looking statements, as a result of certain factors as set forth in the Company's filings with the Securities and Exchange Commission. In addition, on today’s call management will be referring to non-GAAP net income and earnings per share.

Aceto defines these non-GAAP measures as excluding all transaction costs related to acquisition. With those housekeeping items out of the way, I’d now like to turn the call over to Sal. Good morning, Sal..

Good morning, Jody, and thank you. Good morning, everyone. Thank you for joining us on our fourth quarter and year-end fiscal ’14 earnings call.

Fiscal ’14 was a very successful year for Aceto, both in terms of actual financial performance as well as in terms of the continued execution of our strategic plans to focus the company growing our Human Health business, but also maintaining healthy cash flow from our other businesses.

During the year we completed another meaningful step towards these goals, via the strategically important acquisition of the generic pharmaceutical company, PACK Pharmaceuticals, which as most of you know, we close on April 30, 2014.

Now approximately two-thirds of our business is pharma related, which is up from about 50% just four years ago and an even greater percentage of our earnings or gross profits are pharma related. Looking at the full-year results from a numbers point of view, we reported record results for sales, gross profit, net income and earnings per share in 2014.

Net sales were $510 million, which is an increase of 2% versus 2013. More importantly, gross profit was $114.7 million, which is an increase of 16.5% versus 2013. And net income was $29 million or an increase of almost 30% versus last year. So very good profit performance.

On a GAAP EPS basis, earnings increased 26% to a $1.2 per share, up from $0.81 in fiscal ’13 and non-GAAP EPS increased 20% to a $1.7 and that’s compared to $0.89 in fiscal 2013. Taking a look at the segments, our Human Health segment achieved sales of $160.2 million for the year. That’s up $30 million versus 2013 or almost 24%.

Sales increase reflects both organic growth as well as acquired growth in 2014. We achieved approximately $15 million of organic growth within our Rising Pharmaceuticals business excluding the PACK deal. And with the PACK deal, we pick up an additional $8 million of growth through the acquisition which we own for about two months in 2014.

In addition, our nutritionals business also had a strong year adding about $7 million in sales growth. The segments gross profits reached a level of $48.5 million for the year, which is up 23.5% from 2013, and 2013 level was $39.3 million.

So overall, I’d say a very good year for the Human Health segment both strategically as well as from a financial point of view.

Regarding the generics products and pipeline, as we talk about in the prior conference calls, with the addition of PACK we’ve increased our commercial pharma product portfolio by 50% and we’ve almost doubled our new product development pipeline.

We currently have over 90 product candidates in our pipeline, with a total brand market opportunity of $5.7 billion. That includes nearly 50 applications that are currently filed with the FDA. We currently anticipate launching 11 new generic drugs in fiscal ’15 including two potential first to market opportunities.

I caution you however that this number can and likely will change over the course of the year due to uncertainties in the drug development process such as the timing of the FDA approval process. We continue to increase our investment in research and development in order to expand our pipeline of new drugs.

In the fourth quarter of fiscal ’14 our R&D spend more than doubled to approximately $2 million versus 2013. And for all of fiscal ’14 we spend $5.2 million which was up significantly from the $2.8 million we spent in fiscal ’13. Looking forward, we plan to increase our R&D spend again in 2015.

In the Pharma Ingredients segment our 2014 sales were $176.4 million, which is 5% below last year’s level. Although the sales are below 2013 levels, the segments gross profits of about $36.5 million for fiscal ’14 were actually up 16.5% versus 2013.

So good profit performance on the segments performance in fiscal ’14 and particularly the first quarter and first half profit was favorably impacted by the high margin API that we discussed last year. We currently do expect to receive additional orders for this high margin API in fiscal ’15.

But we believe the quantities will be significantly less than fiscal ’14 as this business is now moving to more steady state. Our best information is that the orders will come in during the second half of fiscal ’15 whereas for fiscal ’14 they came in for the first half of the year and mostly in Q1.

That said, I will remind you the lumpy nature of our business and how order pattern can affect a quarter-to-quarter comparisons. Turning to Performance Chemicals segment, its annual sales were $173.5 million, which is 6% below the 2013 level. However, I’d like to note that fourth quarter sales increased by 13% compared to last year.

And this is the first meaningful quarterly growth -- sales growth for the segment in almost two years. We’ve been focusing on improving selling activities, improving product mix, and improving overall segment margins.

And I’m pleased to report that the segments gross profit for the year increased by 7.2% to a level of $29.6 million, despite the sales decrease. I’d also like to note that quite a bit of the yearly sales decrease is due to product rationalization as we’ve talked about before. I’d say that rationalization at this point is essentially complete now.

For the quarter, gross profits increased by 17% versus last year’s quarter. And for the year, gross margins expanded by over 200 basis points to 17.1%.

Carlos Restrepo, who is the (indiscernible) executive we brought in during the year to head up the Performance Chemicals segment, has put renewed emphasis on expanding the customer -- the segment’s customer base as well as the selling activities. And we feel real good about the direction this business segment is heading.

Looking at the business on a high level, for fiscal 2015 we believe that the 11 new generic drug launches that we currently anticipate making, plus the full-year results of the PACK acquisition, as well as other selling initiatives, will help drive sales and profit growth particularly within our Human Health segment and enable us to mitigate anticipated decrease in sales and profits within the Pharma Ingredients segment.

At this time, we plan to increase R&D spending to approximately $9 million to $10 million in 2015 as well as make investments in the selling infrastructure of the branded generics business that we acquire as part of the PACK transition -- transaction.

Taking these various factors into account, we’re currently projecting double-digit percentage increase in both sales and earnings per share for the full fiscal 2015 year.

On a comparative basis, however, I’d like to emphasize that we expect a decrease in sales of the high margin API has favorably impacted the fiscal 2014 year and particularly the first quarter and first half. Therefore we expect the first quarter of 2015 to be slow versus the first quarter of 2014.

Looking longer term and with the acquisition of PACK, together with the new management team at Rising, we’ve expanded our footprint in the pharmaceutical industry, we’ve strengthened our presence in the higher margin end of the pharma supply chain and I believe we’ve enhanced our opportunities for growth.

We remain confident in the long-term outlook for Aceto and look forward to the fiscal 2015 year ahead. With that, I'll turn the call over to Doug.

Doug?.

Thank you, Sal, and good morning, everyone. I’ll be commenting on the Q4 financial results. Net sales for the fourth quarter were $139.6 million, an increase of just over 13% from the $123.1 million reported in the fourth quarter of fiscal 2013.

Gross profit was $29 million, an increase of 18.3% compared to $24.5 million in the fourth quarter of fiscal 2013. Gross margin for the fourth quarter was 20.8% compared to 19.9% in the prior year period. On a reported segment basis, Human Health segment sales were $47.8 million, an increase of 28.7% from the fourth quarter of fiscal 2013.

Excluding the PACK sales of $8.1 million for the last two months of the quarter, Human Health segment sales were still up nearly 7% year-over-year. The increase is mainly due to the new product launches that occurred in the fiscal fourth quarter and during the year. Gross profit in the Human Health segment was $14.3 million, an increase of 26.8%.

Our Pharmaceutical Ingredients segment sales were $42.7 million, which was the same as the fourth quarter of last year. Gross profit in the fourth quarter increased 3.9% to $6.2 million as compared to last year.

Our Performance Chemicals segment, sales increased 13.4% to $49.1 million driven by strong sales of a few agricultural protection products and a solid overall performance in the specialty chemical segment or business unit.

Gross profit increased 17% to $8.6 million reflecting an improved product mix from the selective pruning that we’ve been doing in our product portfolio mainly the higher volume, lower margin products.

Our SG&A expenses for the fourth quarter were $18 million or 12.9% of sales, which was approximately 50 basis points higher than the fourth quarter of fiscal 2013. The fourth quarter of 2014 included approximately $800,000 or $0.03 per share of transaction costs primarily related to the PACK acquisition that closed in April.

Last year’s numbers include -- fourth quarter numbers included a $400,000 or 2% per share charge for the earn-out accrual related to the Rising acquisition.

Without these deal related adjustments, SG&A expenses were up 15.4% in the fourth quarter which is due to the inclusion of the PACK operations which have recorded about $2.5 million of SG&A expenses. As Sal mentioned earlier, our investment in R&D continues to increase.

In the fourth quarter R&D totaled $2 million as compared to $800,000 in the comparable period last year. Now our higher gross profit more than offset the increased SG&A expense and R&D spend, leading to an operating income increase of 7.1% to $9 million as compared to $8 million last year -- $8.4 million last year.

Our EBITDA for the most recent quarter was $12 million, a 13.6% increase over Q4 last year of $10.5 million. Just a moment on the full-year EBITDA, full-year EBITDA was $54.9 million, an increase of over a $11 million or 26% over fiscal 2013.

Now finally, our net income for the fourth quarter was $5.6 million or $0.19 per share compared to net income of $5.4 million or $0.19 per share for the fourth quarter of last year.

On a non-GAAP basis, our net income was $6.1 million or $0.21 per share for the fourth quarter of -- for the fourth quarter as compared to last year which was $5.6 million or $0.20 per diluted share.

The PACK acquisition including all transaction related expenses cost us about $0.07 per diluted share in fiscal -- in the entire fiscal 2014 on a pro-forma basis. Earlier in the year, we mentioned that we anticipated the PACK acquisition to be dilutive by $0.08. It was only diluted by $0.07.

Now turning an eye over to the balance sheet, during the fourth quarter we closed on a $130 million credit facility to finance the acquisition of PACK. We drew down approximately $86 million to complete the transaction and at June 30 we had total bank debt including mortgage of $105.5 million.

Cash and cash equivalents and short-term investments were $43 million and our working capital was $158 million with shareholders equity of $233.6 million. Financially, Aceto remains strong, with ample capital resources to support our future growth plans. Now, I’d like to open-up the call for questions.

Operator?.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Daniel Rizzo from Sidoti & Company. Please go ahead..

Hey, guys.

Could you just provide some color on the two new products that are going to be first to market? Just the size, I don’t know -- and just if there is a period, the period of exclusivity or just anything you could give us on that?.

Good morning, Dan. There is really not much I could give you on them. Right now, again, just to repeat kind of the process, these are always estimates because we do not know who has filed what products with the FDA.

These are estimates that we have as we look at our portfolio and the products that we have filed based on just market information, attributes of the products itself. We kind of make estimates as to this one we have a chance of being a first to market.

So, A; it’s not a guarantee, and B; on the particular products I don’t have the actual numbers to give you. But it should be in the normal range of size that you’ve seen come out of Aceto and Rising. This is nothing out of the ordinary..

And is this something you’re going to try to focus? This is a unique opportunity with these two products or it’s like first-to-market something you kind of focus on going forward?.

We always try to focus. So when you’re first-to-market -- the first one to the market gets the lion share in the beginning and hopefully the better margins. So the goal would be to have a 100% first-to-market. So, meaning we love them all today, but it’s a very competitive market and it turns out that you’re not usually first-to-market.

So, and just -- we’ll just highlight this as to give you a sense for in this year there might be a couple that where we might get our first which sometimes gives the superior margins at least until the other competition comes in..

All right. Thank you guys..

Thank you..

Thank you. Our next question comes from Kevin McKenna from Main Line Capital. Please go ahead..

Hi. Good morning, gentlemen. Great quarter. Thank you..

Thank you. Good morning, Kevin..

You’ve added what looks to be about $9 million of fresh cash to the balance sheet in this quarter -- they’re over the last year pardon me, and it would seem that in the annual meeting for the Board of Directors you would raise your dividend every year, that didn’t happen this year.

Do you have plans to raise the dividend in coming quarters and can you do that in between your annual?.

Kevin, thanks. It’s a good question, and I appreciate it. We look at it every quarter. We can raise it frankly whenever the Board decides it would like to raise the dividend.

So, far we left it where it is just because as you know Aceto maybe by its nature is a little conservative with its balance sheet and the fact that we took on some debt over the course of this past year, we decided just to hold off little bit now.

So, there’s nothing -- there’s no particular message at all within that, its just that we decided we’ll leave it the way it is for now..

And just as a follow-up, the cash that’s been generated by that balance sheet in the previous 12 months, would you expect the next 12 months to have a similar result?.

Well based on what Sal said before in terms of what we’re looking forward to in fiscal 2015, yes we would think that we would generate cash in the same range or slightly better than fiscal 2014..

All right. Thank you very much..

Thank you, Kevin..

Thank you. Our next question comes from Gregory Macosko from Montrose Advisors. Please go ahead..

Yes, thanks. Just with regard to the Performance Chemicals, it looks like things have turned around very nicely there. Looking forward you’re saying it stabilized.

Are we talking about going forward now core growth within that segment, and are the gross margins that you saw there kind of should we see that as being sustainable?.

Okay. Good morning, Greg. Thank you. So the gross margins we see them at this point as being sustainable. I don’t know that you’ll see much more expansion, but we think they’re sustainable. In terms of the growth going forward just two things. One, I would just remind you that this business segment in general is a very competitive business segment.

So, we feel good about the growth that we achieved recently. We feel good about the change we’ve made, but we’re not expecting hyper growth out of this segment. Having said that we do expect the business to -- it’s just not growing at a better rate than it has been in the past..

Good. And then the R&D, it looks like the R&D could almost double next year versus the sales.

Is the sort of the spend rate going to be kind of matching sales growth or give us some color on that?.

Yes, it’s a good question. So historically our R&D spend when we acquired Rising way back then was on the low side, Rising didn’t spend that much. We brought it up to now what we think are -- and we’ll bring it up this year to levels that we think are nearly industry norms.

So, yes it does look like we’ll almost double and again we’ll see the fruits of those investments three to five years out from now because of just the profit on the process here. But what we feel good about it is that should give us a robust pipeline for the three to five year time horizon..

Yes, good. And then finally, with the SG&A if I look at it, it ticked up on a percent basis a little bit. It looks like it will be about sort of with things backed out about 12.4% of sales.

Is that a kind of sustainable rate? Do see any leverage on that line?.

Yes, our SG&A expenses this year when you compare to last year there was some one-off items in there which included the earn-out, separation and transaction.

If you would have backed out the R&D expense and the depreciation and amortization expense and the one-off earn-out separation and transaction expenses, on a year-over-year basis we were approximately under 11% with those backed out. So, when you talk about 12%, I don’t know if you include like depreciation and amortization.

But with all that backed out we’re looking at something just south of 11% and we believe that’s the range -- it maybe a little bit more than that in 2015 due to the PACK acquisition having it under our belt for a full year. And one of the components of the PACK acquisition is the generic division and that little ….

Branded generic..

Branded generic, pardon me, and that’s a little bit heavier on SG&A as a percentage of sales..

Thanks. And so, Greg just to finish-up that question. As we look at ’15 we don’t see much leverage because of the points that Doug just made. But as we get behind that we would expect to see a little bit of leverage as we continue to grow the business..

Thank you. Good color..

Thank you, Greg..

Thank you. Our next question comes from Steven Howard from Morgan Stanley. Please go ahead..

Hello, good morning..

Good morning..

Hi, Steve..

Two quick questions. One, just to callout on ag-protection. We know prior callouts have been kind of the times of warning to say this is not sustainable.

Can you talk a little bit about the strength of ag-protection, whether it’s sustainable and whether it’s a meaningful proportion of that side of the business?.

Okay. So, ag which is within the performance chemicals business had a good year in 2014. I think it’s sustainable in terms of the performance they’ve reached. Might be a slight dip this year because just the way the -- kind of the orders come in and has to do with the seasonality and the weather and things like this.

Last year, sometimes it ranged too much, sometimes it ranged too little. Last year it was kind of just right, so it helped. I think the levels we’ve reached are same below the long haul, but might see a little bit dip this year..

Okay, that’s helpful. And then, you guys have discussed both in the call and the Q&A the two side of the pipeline being the first-to-file.

Can you talk a little bit about where you stand from a competitive position on the other non first-to-file in terms of where you expect market share to be and how many players there are currently in the high end of the future. I know its all in estimates but ….

Sure. Yes, I’ll talk more generally because we don’t -- its estimates that we don’t know. But typically we will go after products that are not the blockbusters and because there might be -- it’s a little bit difficult to formulate, little bit difficult to find API or something like that.

And because of the nature of those products we tend to end up in markets that have maybe three, four, maybe five in the high side competitors. And our estimates are generally that we would achieve anywhere from 15% to 30% market share, we’re figuring -- centered around 20%, 25%..

That’s very helpful. Thank you very much. Good quarter..

Yes..

Thank you..

Thank you. Our next question comes from Lester Petruzzi. Please go ahead with your question..

Yes, congratulations fellows on a great quarter and another great year bringing into the bottom line..

Thank you, Les..

And I want to thank you for the guidance, crude though is, do you expect the -- the first question, do you expect to maybe provide us that annually into the future?.

Good question. We haven’t decided. Les, I’m sorry. Go head, continue. I’m sorry, I cut you off..

Yes, I was just going to say, if I promise not to press you where that double digit means closer to 10% or 40%, would you repeat what you said about the Pharmaceutical Ingredients going forward, did I -- little more granularity, did I hear that we should expect the sales in earnings to be relatively flattish year-over-year next year because of the competitive headwinds? Thank you..

Okay, so a couple of things. Thank you. In terms of the guidance, we haven’t decided formally in terms of going forward. This year it is -- there’s quite of bit of flux between the PACK acquisition and its integration on the one hand, the investment in the branded generics as Doug mentioned, the decrease on the higher margin API.

On the other hand growth projects we have. So there is a lot going on and we thought it would be helpful to at least try to give some directional (indiscernible) investor. I’m sorry, we’re having some feedback, hopefully you all can hear us.

With respect to the Pharma Ingredients piece Les, what I was saying is, we actually expect that segments to be down this year in sales and more so in profits because that high margin API that heavily impacted the first half and in particular the first quarter of 2014 is not expected to repeat at the levels that we achieved in 2014.

We do expect to see some of it. But again given it was a very high margin product it will have an impact on that Pharma Ingredients segment..

But if you could tease that away for a moment just ignore that if you could recast the Pharma Ingredients business for a couple of years, should we look at the whole -- the rest of the balance of the Pharma Ingredients also coming under pressure or is it just because of that one goodie that we’re going to lose the size of it?.

I think that one goodie as you call it is the major impact. The segment in general we expect to grow the growth slowly. It’s a competitive segment. We have had some good wins this year and aside from that product and we have a number of projects that we’re working on, but those are going to be of the smallest nature compared to this one..

Okay, great. I can hardly wait for the first quarter or September 30 result in early November. In the meantime congratulations again, and good luck to you all. Thank you..

Thank you..

Thank you..

Thank you. (Operator Instructions) Okay, we have Frank DiLorenzo from Singular Research. Please go ahead..

Thanks and good morning. I had a question about the projects you have under development for the generics division. And in the past you’ve provided some pretty useful charts showing the number of projects going out a number of years and that there is going to be a very nice ramp in 2015 relative to 2014.

And we have another potentially good bump up in the number of projects and potential launches between 2016 and 2018. Then going out into 2019 there is a bit of a lull -- I am assuming that’s only because it’s early days and that over time you'll kind of update us with regards to projects for the generic side of the business longer-term.

So, I was wondering if you could just talk about what you’re doing there and how you see that playing out on the longer-term basis for your generic projects in 2019 and beyond. And also, separate from that, potential for other -- if not outright acquisitions of a company, but maybe product-type acquisitions. Thank you..

Sure, thank you. Okay, I appreciate the question. So a few things in that. Number one, as we wrap up the year now, we will continue to provide that information of where the process of updating it and we’ll post that to our website and it will be in our road shows going forward, so you’ll see that. In terms of ’19, ’20 and beyond couple of things.

One, the money that we’re spending now will result in products that we file and then those will start to fill that, what looks like a lower number as you get beyond into ’19 and beyond. So that’s what -- so you’ll see that, those numbers going up, number one, because of that.

Number two, the other thing I would predict just because it’s just the nature of this process is right now as we see it, kind of what's posted there is you see the numbers as we see them and the process slows, products drop off. The FDA doesn’t approve a product that you think might get approved.

And some of the larger number that you see in ’17 and ’18 might also slip to ’19. So you might see a little bit of a decrease there over time. But so, anyway to answer your question that void will be filled for ’19, ’20 beyond as time goes on. There was one more called acquisition. On acquisitions, as before PACK we are looking.

We continue to look both for acquisitions of entire companies just like we do with PACK as well as for product lines and et cetera and we’ll just keep you posted, we don’t predict them. We try to remain disciplined and we’ll keep you posted as they come out..

Thanks.

Are you looking across all three business segments or is it primarily in the Human Health?.

Well we look across all three, but the main focus would be in the human health side of the business.

Okay and one other question. Longer term on the Chemicals side of things, it seems like this last quarter was a turnaround and a bit of a stabilization.

Do you still plan long-term to hold on to the Chemical side? Does that provide you some important leverage in your other two verticals or its something long-term you will consider jettisoning or doing something else with? Thanks..

We like the cash flow that that business provides. It’s a very good business for us. There are no plans at this point to get rid of the business.

We speak annually into Board level about all of our businesses and that would be at top of the conversation like many others but at this moment we like the way we’re built and what we’re focused on is more the, the transition of and therefore product mix shift and margin shift to the higher margin, higher growth Human Health.

But we like all our businesses..

Thanks. Just one other question; in hindsight, the Rising Pharmaceuticals acquisition has turned out to be a very solid one for the Company.

And relative to that, much more recent PACK acquisition, I was wondering how the integration of the PACK acquisition, the fit for the Company, how that’s going relative to Rising and just your thoughts there, early days. Thanks..

Thank you. So far, so good. We’re in the midst of it. We’re about just four and half months or so into the integration. I can tell you that the sales force for example is one team is now, it’s made up of former PACK and former Rising folks. So that’s operating well.

We focused first on the outward facing part of the business so that the customer base sees a very quick transition and if that’s done and clean we’re in the midst of some other pieces of the transition like some of the logistics pieces inventory, things like that, some finance. But basically it’s going according to schedule.

We are, have been moving some back office operations for example PACK outsourced some of their back office operations, we’ll bring them in house. So with the team we have at Rising and the folks that have come along with the PACK deal we feel really good about the entire team and the integration process which has got few months to go yet..

Thank you..

Thank you..

Thank you. We have no further questions. I will now turn the call back to Doug Roth for closing remarks..

Thank you. And before we end this conference call, there’s one accounting item that I would like to bring to your attention. As you will be reading in our upcoming shareholder letter that will accompany our proxy statement which we expect to issue in mid-October.

We have decided to modify our methodology for calculating the non-GAAP adjusted diluted EPS in our future filings. We believe the change will better align us with the pharmaceutical industry financial reporting practice and therefore make financial comparisons more meaningful with our peer group.

This soul change will be to include amortization of intangible assets into our non-GAAP reconciliation. So, for modeling purposes our amortization expense run rate is expected to be about $10 million in fiscal 2015 and it was $6.7 million in 2014.

Again we expect to adopt this change in the first quarter of fiscal 2015 more details will be presented in the upcoming shareholder letter..

Great. Thanks, Doug. Okay, well thank you. I appreciate those comments, again those are for 2015. Again thanks for joining us on the call today. We’re pleased with the 2014 performance, and we look forward to 2015. See you all in the next call. Thank you..

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..