Jody Burfening - Investor Relations, LHA Albert L. Eilender - Chairman William C. Kennally, III - President and CEO Douglas Roth - SVP and CFO Walter Kaczmarek, III - COO.
Dewey Steadman - Canaccord Genuity Matthew Hewitt - Craig-Hallum Capital Group Steve Schwartz - First Analysis Securities Greg Eisen - Singular Research Kevin McKenna - Main Line Capital Unidentified Analyst - Private Investor.
Good morning and welcome to the Aceto First Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Jody Burfening. Please go ahead..
Thank you, Anita and good morning everyone and welcome to Aceto Corporation's first quarter fiscal 2018 earnings conference call. With me today and providing on this call are Bill Kennally, President and CEO; and Doug Roth, Chief Financial Officer. Walt Kaczmarek, Aceto's Chief Operating Officer is also with us today to participate in the Q&A session.
The company issued its first quarter earnings press release yesterday after the market closed. For those of you who have not yet seen the release, a copy is available in the Investor Relations section of the company's website 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 Private Securities Litigation Reform Act of 1995 that can be identified by words such as believe, expect, anticipate, plans, projects, seeks, and similar expressions that involve numerous risks and uncertainties.
The company's actual results could differ materially from those anticipated or implied by these forward-looking statements as a result of certain factors that are set forth in the company's filings with the Securities and Exchange Commission. Also on today’s call, management will be referring to certain non-GAAP financial measures.
These measures Aceto's adjusted net income and Aceto's adjusted earnings per share are defined as net income excluding amortization of intangibles, debt extinguishment, and amortization of debt discounts and debt issuance cost, cost related to transactions and the impact of accounting standards update 2016-09.
These non-GAAP measures allow investors to compare results of operations in the current period to prior period results based on the company's fundamental performance and analyze operating trends of the business. To start today's call Al Eilender, Aceto's Chairman is going to make a few introductory remarks. Good morning Al. .
Thank you Jody. Good morning everyone and thank you for joining us this morning. My purpose today is to act as a bridge from the old to the new. As the company's starting in 2009 we have embarked upon a transition to one focused on the pharmaceutical industry and more specifically on finished dosage generic drugs.
In the last two years a number of external forces have buffeted our generic drug business unit Rising. The consolidation within the distribution channels coupled with intense competitive pricing pressures have been historically unprecedented.
If these external events were starting to come into focus we took an important strategic step through the acquisition of Citron and Lucid assets to increase our generic drug commercial offerings, to increase our future pipeline of products, and to partner with a reputable manufacturer of significant scale.
The Board's thinking about the company, its strategic direction, and the importance of scale remains unchanged.
Over the course of the past year we've seen shareholder value at many firms substantially eroded and many generic companies rationalizing their operations, shuffling their lineups in order to bring fresh perspective to this tumultuous business.
The Board came to the conclusion that to continue moving the company forward the company would benefit from having a pharma experience executive leading its efforts.
Having served on Aceto's Board since September of 2016 Bill Kennelly has played an active role in Board level discussions about managing the generic industry challenges and was involved in approving the decision to acquire Citron and Lucid product. He has helped craft the company's strategy and understands the company's business model.
Importantly Bill brings a wealth of industry experience and achievements to the CEO role and a dynamic leadership style that we believe will ultimately drive long-term growth for the company.
With that being said I would now like to turn the call over to Bill who's going to share some of his initial observations about Aceto and provide a brief overview of the first quarter results. Bill. .
Hey, thank you Al and good morning everyone. And I have to say I'm really excited to be here before you for my first conference call. And so I'd like, it might be helpful to provide all of you with a bit of my background and how my experiences are relevant to Aceto and the path run to transition to a Human Health Organization.
I'd also like to share with you my initial observations about the company and from there I'll recap first quarter performance before turning the call over to Doug who will give you a more in-depth analysis of the results. You know by trade I'm a sales and commercial guy.
I started out with Upjohn in the late 70s carrying the bag where I moved through a series of sales positions in my first 10 years and then rose to District Manager where I took on a variety of front line management assignments over the next 10 years.
When Upjohn merged with Pharmacia I had the opportunity to join the corporate end of the business and discovered this hidden gem called Greenstone, an authorized generic company designed to launch branded products in a generic label competing against generics. We captured revenue and earnings that would otherwise have been lost to competition.
It was there I learned the ins and outs of the generics business.
When Pfizer acquired this business as part of the Pharmacia acquisition, the model captured the interest of Senior Management and for the next six years we launched numerous Pfizer products including a number of blockbuster drugs that made the corporation a tremendous amount of revenue and earnings.
Our success with Greenstone gave me the opportunity to lead and manage Pfizer's established products business in North America where I was responsible for running five separate businesses with a combined P&L of just under 7 billion in annual revenue.
During my time in that role we built a top tier generic injectable business from scratch that eventually led to the Hospira acquisition. When I left Pfizer I had the privilege to serve on Aceto's Board as an independent director brought on primarily for my generic industry knowledge and expertise as well as a strong pharma commercial background.
Serving on the Board exposed me to the inner workings of Aceto and provided an opportunity to help shape the strategy of the company especially in the human health arena. When presented with the CEO opportunity I jumped at the chance to return to running a business and leading people which has always been my passion.
And I look forward to providing meaningful leadership and moving Aceto towards its strategic objectives. What I bring to Aceto in my new role is my pharma experience in building small businesses into larger ones and creating successful products franchises from the ground up.
So turning to the generic industry, as you know it's a dynamic yet complex industry to master. It's an exciting environment where every day is different and multiple decisions are generally required every day and sometimes every hour. It's risky and you have to have an appetite for risk in order to be successful.
A former leader and mentor once told me if I was not making mistakes then I was not taking enough risk. Well I am not advocating making mistakes but the point is it's acceptable to take risks as long as they're fully vetted. And I can tell you it's really empowering to hear your boss encourage you to take risks.
What I've learned is that success in generics requires creating a culture that's fast, flexible, and focused and you need an ever present sense of urgency in your day to day dealings and that means everyone in the organization needs to drive towards that end goal to where it becomes a norm in the organization.
And that's part of creating an ownership culture where colleagues owned their own part of the business. And along with ownership comes accountability and employee engagement and I've had the chance to witness firsthand how creating a culture of ownership drives engagement and results.
So my goal is to instill a vibrant culture here that works best for the business we operate. It's a process but I'm confident we'll get there. Over the past few weeks I've started looking under the hood and I'm very impressed with the quality of people in our organization and I'm learning why they're good at their jobs.
A recent example in China is our folks there have responded beautifully to a crackdown by the Chinese government on thousands of plants that have been closed due to environmental hazards to the country. Our colleagues there have done an amazing job ensuring that the risk to all Aceto businesses is mitigated successfully.
We think we have this contained to where any potential risk is not material and I'm proud of the team and how they've stayed ahead of this real challenge. I've also had the correspondences from potential partners reaching out to me asking if they can do business with us. And I think that speaks to our reputation around the globe.
We continue to source partners we want to work with and it's terrific that others want to be part of our plans. We have extraordinary partner reach that should help us with our developmental objectives in all our markets.
So when I look at near-term priorities it's to work the company from the inside out, meaning meet with Aceto colleagues, understanding the challenges they face, and make every effort to remove obstacles. In addition I plan to meet with our customers and partners trying to best understand how we can be a preferred supplier.
We're building the functional and platform support that we will need to effectively compete in all of Aceto's markets. However, we're not there just yet and these are critical steps to put the company on a path to sustainable success.
Longer-term we have an asset like model that offers a lot of whiteboard opportunities to move up the generics industry value chain which is depicted in the back up slide in our updated investor deck as well as finding ways we can expand our partner relationships and leverage our API resources.
We also need to do a better job on our gross profit and I'll be looking for ways to raise our margins not just in human health but across the Board in our pharma ingredients and performance chemical segments. We have work to do and it will be exciting to see how the company's path to successful outcomes evolves.
Turning now to the first quarter performance which I now own, our results were generally in line with the expectations and compare favorably to our final quarter of fiscal 2017. We generated net sales of 185.3 million compared to 128 million last year. Net income was down to 0.5 million compared to 4.4 million.
On a non-GAAP basis adjusted net income was 10.7 million up 29.1% over the 8.3 million we reported last year. And non-GAAP EPS was $0.30 compared to $0.28, a modest 7% increase.
Our legacy Rising business posted for first year-over-year increase in sales since our third quarter of fiscal 2016 as new product launches, market share increases on select inline products, and select favorable pricing dynamics more than offset the negative impact of competitive pricing.
Our other two segments, performance chemicals which showed favorable revenue and gross profit increases and the pharmaceutical ingredients business remains steady generators of cash for us this quarter.
And kudos have to go to Doug and the Rising team for improving our receivable collections during the quarter and for paying down our long-term debt by $24 million. At Rising we continue the complete task of integrating all facets of the acquired assets of Citron while preparing for the implementation of a new ERP system in warehouse.
We have made a strategic decision to delay the implementation date of the ERP system by 90 days to allow a robust integrated point of sale accrual system to concurrently go live.
The new implementation date is at the beginning of quarter four and as the operation of our new warehouse is closely tied to ERP conversion the warehouse will now begin a soft start towards the end of fiscal quarter three, becoming fully functional in quarter four.
Getting both of these critical projects on line will allow us to fully realize the synergy value from the transaction of 4 million on an annualized run rate which will begin in the fourth quarter of fiscal 2017.
And somewhat related to the integration work, we recently moved the Rising colleagues into a new and larger office in Saddle Brook, New Jersey.
We're currently experiencing some short-term supply challenges that are largely the result of API constraints and we're working diligently to ensure uninterrupted supply to our customers and we anticipate full recovery by the end of the fiscal year.
During the quarter we also had discussions and completed some negotiations with ClarusONE and EconDis [ph] and now have better clarity on the impact of harmonization from these customers going forward. Rising launched three products in the quarter and we expect to maintain our 15 to 20 product launch schedule for the year as previously communicated.
We now are marketing approximately 140 products that represent approximately 420 individual SKUs. We currently have 115 projects in our pipeline which compares to 133 projects we reported on our fourth quarter call. The difference is a combination of several factors.
With the beginning project total of 133 we added three projects, launched three products, terminated one project, and due to adverse market conditions and poor developmental delays made these products less commonly, excuse me, commercially attractive.
We made the commercial decision to halt 17 products we had previously intended to launch and should market conditions become more favorable we will put them back into the product queue for launching. During the quarter we also filed five ANDA's bringing the total number of ANDA's on file with the FDA to 39.
And last we've significantly enhanced our Rising Senior Management team over the last three months with addition of functional leaders in business development, commercial operations, sales and finance that represent a combined total of 60 years of generic experience.
We now have a team in place with the operational and strategic expertise to take Rising to the next level. I've been working closely with these leaders taking a fresh look at our forecasting methodology and instituting some changes.
And while unforeseen developments can and do occur in the generic industry, I want us to improve the quality of our forecasts. We're now more working more effectively as a team bringing together perspectives from our sales operations and business development areas to thoroughly scrub the numbers and sharpen our analytics.
Our assessment of the current generic market conditions indicate the annual price erosion is now a bit higher in the low double-digit percent range and new competitive entrants and other market pressures are weighing in our outlook for fiscal 2018.
In addition Rising net sales on a few products are being pushed beyond original launch date due to the API constraints and product launch delays I mentioned earlier. The outcome of this bottom up exercises that we were resetting our fiscal 2018 guidance.
We now expect net sales growth of 15% to 20% and reported diluted GAAP earnings per share to be in a range between $0.23 and $0.33 and diluted non-GAAP earnings per share to be between $1.05 and a $1.15. Now our results for the second half of fiscal 2017 are expected to be moderately higher than the first half of the year.
And regarding R&D we have adjusted our outlook to reflect the first quarter numbers and now anticipate spending approximately 10 million in fiscal 2018 for our finished dose generic pipeline. That was -- that's versus the previous range of 10 million to 13 million. And just as a reminder our R&D expenditures are milestone based.
So Doug if I could I'd like to turn the call over to you. .
Thank you Bill and good morning everyone. Net sales for the first quarter were 185.3 million, an increase of just under 45% from the 128 million reported in the first quarter of fiscal 2017 reflecting in large part the addition of Citron products.
Gross profit was 40 million, an increase of 29.7% compared to 30.8 million in the first quarter of fiscal 2017. Gross margin for the first quarter was 21.6% compared to 24.1% in the prior year. On a reporting segment basis human health segment sales were 106 million an increase of 58.1 million or 121% from the first quarter of fiscal 2017.
Of the 58 million -- of the 58.1 million variance sales from Citron and Lucid products which were acquired in December 2016 contributed 55.1. In addition, our legacy Rising business realized its first year-over-year sales gains since the final quarter of fiscal 2016 and nutritional sales were up modestly during the quarter.
Our gross margin -- pardon me, our gross profit increased 73.5% to 24.6 million reflecting again the addition of Citron and Lucid sales partially offset by lower gross profit from certain other legacy Rising products.
Human health gross margin was 23.2% compared to 29.7% last year and is consistent with the gross margin run rate where the prior two quarters were subsequent to the product acquisition.
The decline in gross margin was primarily due to the lower gross profitability of the Citron and Lucid products and a lower gross profit on legacy Rising products reflecting unfavorable product mix and price erosion on certain products.
Our pharmaceutical ingredient segment sales were 36.6 million, a decrease of just under 10% versus the first quarter of 2017 due in large part to reduced orders of a customer launch API.
Gross profit in the first quarter decreased 16% to 5.8 million from 7 million in the first quarter of 2017 primarily due to lower domestic sales of API as well as API product mix. Our gross margin was 16% compared to 17.1% last year.
The performance chemical segment sales increased 8% to 42.7 million from 39.5 million in the first quarter of 2017 largely due to higher specialty chemical sales of agricultural and pigment intermediate. Gross profit was down 1.9% to 9.5 million reflecting a less favorable mix of specialty chemical products.
Our gross margin was 22.3% compared to 24.5% last year. Our SG&A expenses increased from 21 million to 31.1 million.
The absolute increase of 10.1 million in the quarter included a $5.4 million attributable to the amortization of intangible assets associated with the recent Citron product purchase and $4 million of onetime costs associated with the departure of the company's former CEO and 1 million of transition and administrative services costs associated with services related to the Citron and Lucid products.
Also in the first quarter SG&A was a $900,000 environmental charge related to the remediation of our closed Arsynco facility in New Jersey. Research and development expenses were 1.6 million compared to want 1.1 million in the comparable period last year as milestone achievements and project initiations remain uneven on a quarter-to-quarter basis.
With SG&A and R&D growth modestly outpacing our gross profit growth, operating income dropped to 7.2 million compared to 8.8 million last year. Our net income was 500,000 or $0.01 per share compared to net income of 4.4 million or 15% per share on a GAAP basis.
On a non-GAAP basis net income was 10.7 million or $0.30 per share for the first quarter compared to 8.3 million or $0.28 last year. Our EBITDA for the first quarter of 2018 was 15.8 million, an increase of 3.6 million or just under 30% versus 12.1 million in the prior year quarter.
Just wanted to point out that are effective tax rate being reported in the first quarter looks like 79%. The tax provision includes a charge of 1.1 million related to the accounting change under ASU new accounting pronouncements. If you were to exclude this charge we expect our effective tax rate to be consistent with our previous run rates.
Turning to the balance sheet, as of September 30, 2017 cash and cash equivalents and short-term investments totaled 75 million. Our working capital was 240 million and our shareholder equity was 409 million or $13.38 per share. Our total bank and convertible debt was 331.6 million including approximately 206 million under our senior credit facility.
Our senior secured net debt leverage ratio was 3.71 times. As Bill mentioned earlier our trade receivables decreased by 20.3 million to 240.6 million at quarter-end versus 260.9 million for our fiscal year-end June 30, 2017. As a result our consolidated DSOs came down to $0.74, pardon me, 74 days at June 30, down from the 99 days as of June 30, 2017.
Collections from the Rising customers were particularly strong in July and August as we continued to benefit from lack [ph] price reductions on select products that we have discussed over the past two quarter. Rising DSOs at 9/30/2017 were 79 days versus 114 days at 6/30/2017.
Rising's net trade AR at 9/30 was approximately 57% of the company's total trading -- net trade receivables. However, while we're pleased to have Rising DSOs at a sub 80 day level we know a few things went our way this quarter and this run rate is likely not sub 80 is likely not sustainable in the coming few quarters.
Finally, this morning we filed an 8-K in which we have disclosed that we identified and recorded an adjustment related to the misapplication of cash in the year-ended June 30, 2015. The correction resulted in a $4 million decrease of trade receivables and sales as of June 30, 2015 and a reduction of net income of 2.6 million for fiscal 2016.
We are determined this adjustment is not material to our fiscal 2015 financial statement. We will expect to file an amendment, the 10-K(a) amendment to our annual report on Form 10-K(a) for the fiscal year ended June 30, 2016 to reflect this -- pardon me, for the year-ended June 2017 to reflect this matter.
We believe that we have remediated the underlying causes of this material weakness as we will more fully describe it in our upcoming of Form 10-Q for the quarter ended September 30, 2017. The company will continue to monitor and test the remediation to ensure its effectiveness on a go forward basis.
Now I would like to turn the call over back to the operator for questions..
[Operator Instructions]. The first question comes from Dewey Steadman with Canaccord. Please go ahead. .
Good morning and congratulations Bill on the new role and welcome to the generics jungle. My first question is just on the on the generic cycle.
Bill, obviously you've been around for quite a while as well is Walt and you've seen several cycles in the industry and is this cycle shaking out to be more severe or prolonged than previous cycles because of the customer consolidation and other external factors?.
Thanks for the question Dewey. Nice talking with you. I think you might be onto a point here, it is two keys, first of all it is a cycle.
I think for those of us who have been around for a little while can remember back when the Indian companies first came into the marketplace, there was a really significant downturn to the pricing environment and that lasted similar to what we're seeing now.
I think one of the difference is now versus then is there were a few -- there were more customers and less consolidation. And there were less generic competitors that were being approved from the FDA.
So on a scale if I were to say that this particular turn is I think been especially painful but not inconsistent with what we're seeing in the market and we will see a recovery..
Great, on [indiscernible] I guess Sigma [ph] has announced that they're going to launch a competing product, what are your thoughts on the market there and the potential impact to gross margin and revenue from a competitive launch and was that factored into the reduction in guidance?.
Yeah hi Dewey, I'll take that one and yeah, you're absolutely right. Sigma [ph] did get an approval on the product. We are seeing some activity in the marketplace and it absolutely has been factored into our thinking for the remainder of fiscal 2018 and that is one of the contributing factors to refreshing our model..
Excellent, obviously you're not going to -- I don't want you to give details for competitive reasons but are there any launches in 2018 that are particularly lumpy or important, and we don't we don't even know what they are but are there any out there?.
When you mean lumpy what do you mean Dewey. .
Sort of any launches that are particularly more important than others that are upcoming out of those 15 to 20?.
You know, I think first of all, all the products are going to be important for us to ensure that we launch on a timely basis. But I don't think that any of our triples are home run so to speak..
Okay, and then I want the ERP question, many pharma companies stopped shipping ahead of an ERP implementation or conversion, is there any modeling concerns -- not concern but any modeling aspects that we should make in terms of 3Q versus 4Q in our models related to that ERP conversion?.
So, thanks for that Dewey and historically as you're probably aware there is an inventory build on the part of the customers towards the end of the period just prior to make -- going live with the implementation.
Historically I think it depends on the customer but you might see a couple of extra weeks of inventory in the channel which might -- that would be reflected in the third quarter of this year. I'd be surprised if it was more than that but that would be something you could expect to see. .
Okay.
And my final question is sort of broadly, in your first weeks in the role Bill what do you think is working for Aceto and what's not working relative to your prior experience?.
Well, I will say that the last 30 days have been really interesting and exciting.
The -- if you take it from a like SWAT analysis if you would I think from a strength standpoint clearly we have great people in the organization and I think that China example I gave is just one example of the work that's being done in order to really show some favorable results for the company.
The asset like model is giving us a lot of flexibility with our partners around the world. One of the things that I'd like to see us get to which I'm not sure where they are yet is in that model. We go to our partners and ask what can you do, sorry, we go to the partners and the partners say here's what we can do for you.
I'd like to go to the partners and say here's what I need you to do for me. So I wouldn't necessarily say that's a weakness but I would say that we're evolving to that as well.
So, I think I mentioned in my prepared comments that my goal is to work the company from the inside out and that's essentially what I've been doing over the last 30 days, meeting with leaders, meeting with people below the leaders to understand what our challenges are and with a goal of addressing those as best I can.
From here the plan will be to go and visit with customers and partners to kind of go full circle on the company's overall business so that we can implement the strategies necessary to be competitive..
Great, thank you very much for the questions..
The next question comes from Matt Hewitt with Craig-Hallum Capital Group. Please go ahead. .
Good morning gentlemen, congratulations Bill on the new role. .
Thank you Matt. Nice to talk with you..
A couple questions, first regarding the API issues that you faced in the quarter, I'm curious have those been resolved, if not how long do you think it will take to get those resolved? And I guess longer-term or as you look out over the next few quarters and years, what's been driving those issues on the API side, is it displacements, is it more FDA scrutiny of some of these international facilities, any color on the API will be helpful?.
So I might ask Walt to add but I think the point of the API shortfall now is we anticipate that that's going to be corrected by the end of the fiscal year. So we have had some technical issues related to that and maybe Walt can address the specifics on that. .
Right, hi Matt. So a couple of different products in particular being impacted, one is more of an API constraint where we're not able to get as much of the API as we need to completely fulfill what market share that we have in our market share goal.
And the other issue is a technical issue so it's the combination of those two factors and as Bill mentioned we fully anticipate to have both of those issues fully corrected by the end of the fiscal year..
Okay and thank you.
Bill as you've come on board and I realize it's you're moving as quickly as possible, I'm wondering if there's any low hanging fruit, excuse me, any low hanging fruit as you look through the organization that you could implement new changes, get an immediate return on those changes, and then maybe as you look out a little bit longer are there any bigger or larger changes that you could see for example, one of the things that's come up over the past couple of years has been the performance chemicals division, any color there would be helpful? Thank you..
Sure Matt, thanks for the question.
As I kind of look around the organization there are some short-term opportunities and I think one of the things that we will take a look at closely especially in light of the revision in the forecast is what business opportunities present themselves that we're not looking at especially considering the consolidation of our customer base.
So there's some work going on behind the scenes that's looking at exactly that. For example, looking at our market shares do we have the right market share out there, what is it that we can do to generate additional business there. So I think that's one area that we're going to focus on.
In the longer-term what I hope to be able to do is I think I mentioned in my prepared comments that we have a white board of opportunity with our asset like business model and as you move up the value chain on the generic side as depicted in that slide that's in the back up, right now if we look at where we are with our product portfolio we have some product opportunities in some of the higher boxes.
But one of the challenges I think that we have even though we have great partners is that we're not in control of our business. So it would be really nice if we could be in more control of our business and that might mean taking a look at having in-house R&D, maybe a in house manufacturing down the road.
So in the short-term obviously with this tough environment looking for opportunities not only in the Rising business but across the other two businesses as well, can we maintain the momentum that we've seen with performance chemicals this quarter and try to create some value with the other businesses as well..
Great, thank you. One last one from me, then I will hop back in the queue, were there any whack changes or cuts done in the most recent quarter and in Q1 or was that just an impact from the last two quarters? Thank you..
Yes, Matt I will field that question. There we look at the whack price and we look at each molecule virtually every month and every quarter. There the low hanging fruit and the more impactful whack changes occurred a few months ago and we reaped the benefits this quarter.
During this quarter there were a few but there were not -- they were just opportunistic and not likely not move any dials. .
Yet if I could add to that Matt, as Doug said this is going to be a part of the routine ongoing cadence that Rising performs and as we see continued ASP declines we're going to have to closely manage our whack to a net spread.
So in order to even keep a straight line across on that DSO we're going to have to continue to modify those whacks and continue to manage it so it will be an ongoing cadence in an ongoing process..
Understood, alright, thank you. .
Thanks Matt. .
The next question comes from Steve Schwartz with First Analysis. Please go ahead. .
Good morning everybody and welcome Bill. First thing R&D spending, it looks like you reduced your guidance for the year, you were looking to spend up to 13 million as of the last report, it looks like it's now down at the bottom end of the range of 10.
Bill you talked about a couple of different things that might be behind that but if you could make a clear connect for us on what's happening there?.
Yes, sure Steve. Thank you for the question. Look I think as you know our R&D is milestone based and we have a budget and we've just lowered the -- we have put it at the lower end of the guidance based on what the spend is in the first quarter. So if we need to flex up due to some additional opportunities then we'll take a look at that..
Okay, but like in terms of the products that you parked and those different puts and takes that have occurred within the pipeline, is the lower number related to nearer-term commercial opportunities or longer commercial opportunities that were farther out by years, can you give us a sense there?.
Yeah, hi Steve. These are products that are undergoing development so to speak, so they're not near-term opportunities, they're in the process of -- the technical process of being filed for an ANDA. So they're still a ways off anywhere from 18 to 24 months depending on their particular projects. So that is the scenario. .
Okay, on the ERP transition, this is companywide so it's across all regions and all three business groups or segments, is that correct?.
No, that's not correct. This is strictly for the Rising business. The other two business segments have a separate ERP system. .
Okay, and then just with respect to pharmaceutical ingredients, Europe has been particularly strong driver of results for you over the past several quarters, was that the case again in the first quarter and can you just remind us what's happening in France and Germany and I think actually Singapore too has popped up as a driver, what's going on there that has generally been more favorable?.
So, one of the drivers is the FX so we'll have to say that we're getting a positive lift out of that. And as far as Singapore is concerned we do have a finished goods portfolio there that is just now starting to take hold and starting to drive some revenue. So we're very happy to see that starting to bear fruit.
We're going to continue to put a lot of time, effort, and resources into that particular part of the world and continue to grow that business. We've also got strategic initiatives on finished doses in other parts of Europe that we're hoping are going to start to bear fruit as well.
So we're paying a little bit more attention to Europe and it's performing very well. So we're happy to see that. .
Okay, very good, that's it for me. Thanks for taking the questions. .
Thanks Steve..
The next question comes from Greg Eisen with Singular Research. Please go ahead. .
Thanks, good morning and Bill welcome to Aceto management.
I think in the prepared remarks you talked about wanting to work on improving the gross margin in the human health segment and I was wondering what would be the levers that you see the company has at its disposal to improve margin going forward?.
Well thanks Greg, I appreciate the question.
I think it's really two parts, one is are there some short-term opportunities that we can look at that haven't been explored in the traditional model and I would say that there is some activity going on in that area to try to think out of the box in terms of how we can deliver business at a higher gross profit.
But I think in the longer-term the way we probably need to look at it is relative to the comments I made about the partners that we work closely with and enjoy that working relationship. Our asset like model is a primary driver for the lower gross profit as compared to some of our competitors.
So, what is it that we can do to increase our gross profit when it comes to having more control over our business and then that really relates to looking at bringing on the capabilities inside the company perhaps on the R&D front and/or perhaps even on the manufacturing front. So these things will help us too.
If we can do those and execute against those it will help us improve our situation..
Thanks for stating that so clearly.
One more question on my part, since you've arrived to the job as CEO what's been the biggest surprise you have had that you've seen inside the company? What surprised you most?.
You probably had me a little tongue tied on that one Greg. I can tell you that I haven't been candidly surprised by a lot. I mean I've had a lot of leadership experience historically. I think people in general are trying to do the best job that they can. I haven't seen any hinting of problems in that area.
I think my experience as a leader has kind of prepared me for really just about everything, just about everything that I've experienced in the first 30 days..
Great, well thanks for answering that question. .
Yes sure, you got me a little tongue tied on that Greg. .
It's okay, thanks..
The next question comes from Kevin McKenna with Main Line Capital. Please go ahead. .
Good morning, thank you everyone. Mr. Kennally I would say that my question is really more of a request. What I'm trying to do is to get -- good morning, I'm just trying to get you over to my side of the table.
You're looking at a company right now with about a $300 million plus or minus market cap, some people would say that's actually the value or near the value of just the chemical division by itself.
And so if you want to institute this ownership culture at Aceto I would say maybe we should look at the Egger Search results on the Form 4 that had been filed by management.
I am all for you guys getting paid with the options that are granted for the work that you do but a stock that has gone from near $30 to under $10 in about 18 months, that is not a reward that I think should be granted.
What I would like to see is I'd like to see management eat their own cooking, I'd like to see people buying stock in Aceto at these levels not selling or option exercising and selling?.
Well Kevin, look I appreciate the comment and I want to thank you for your suggestion. .
Well, that's what I got..
Thank you very much..
The next question comes from Lester Patrisie [ph] a private investor. Please go ahead. .
Good morning fellows, two questions maybe the first I would suggest Douglas Roth takes a crack at it is just simply what was the EBITDA for the quarter Doug? And the second thing I'm still confused about is the share count outstanding. It looks like you're now including the 5.1 million shares, is that true over the Citron deal consideration.
I thought those were going to come in, in equal quarterly amounts but it looks like maybe you accelerated the fourth serial quarter into this quarter, is that true or is there yet a step up next quarter and something else has increased?.
I don't -- Lester let me answer the first question first. The EBITDA for the quarter was 15.8 million versus last year of 12.1 million. And in terms of the outstanding shares we have included the 5 million shares that were issued to the seller.
Well they weren’t technically issued yet but for accounting purposes we do need to include them in our -- in the basic and diluted share count. That is consistent from the transaction..
Okay, so going forward we shouldn't see too much of a change.
I mean the full dilution isn’t your amount?.
Correct Lester. The 35 million in change that should hope for the future. .
And if I may make just a comment, welcome aboard William.
I wrote down a few words from your narrative and thank you for your narrative, words like aggressive and ambitious and driven, success oriented and my most important take away from your talk was that you are a risk taker something I think with all the M&A that has taken place in the company but something that I think we haven't heard in the past narrative from leadership and I am refreshed to hear you articulate what you want to do with the company going forward.
And it is a segue to a criticism I would have and you don't know me well, I've been an investor and a CEO for sixty years sorry, sixty quarters rather, a large investor I would add in and something is lacking I think that I put in your suggestion box.
And I know it's early days but what would be really appreciated would be a very crisp strategic plan articulated to us, a strategic goal with strategic imperatives and what often we're hearing in conference calls is strategic vision 2020 or 2025, where you expect to take us? You've laid some of the spadework in your narrative but what can we expect in three years, in five years, are we $1 billion organization or we are $3 billion organization, you touched on the margin improvement that you're going to go for, I liked what I heard there as well.
I'm also a former a veteran executive especially chemical and pharmaceutical industries so I have some experience and understand how certain amount of patience is going to be required and these aren’t changes you're going to make overnight.
But you touched to get on this concept of manufacturing, investing in manufacturing it was mentioned at the Morgan Stanley Conference and prior conference calls.
I should certainly appreciate you're not going to invest in heavy CAPEX pots and pans and what chemistry to produce APIs, that's the strength of ours, it's been demonstrated to me at least for 15 years as an investor.
So that leaves a forward integration strategy, is there merit to explore either through acquisition or homegrown or both acquiring the finished dosage formulation expertise, the drug discovery tech or drug delivery technology that would help us to capture this 50% we're giving away in our model to our partners who are providing the finished dosage form and perhaps even further to the packaging and product dress.
So if you could in the future I would appreciate and I think all the participants on this call would appreciate a more crisp articulation, bookends, where you expect to take us. But in the meantime welcome aboard our new captain..
Well, Lester thank you very much for your comments as much appreciated and by the way I'm Bill not William. My wife calls me William when she's angry at me from time to time so I don't want you to be angry at me.
So I think you made some great comments and look one of the things I do plan to implement soon is taking a look at our strategic plan and then not necessarily ripping it up but adding to it in line with what your expectations might possibly be. Because if you don't have a plan you're not going to get where you want to go.
So I think many of the comments that you made are part of my whiteboard opportunity that's out there. And what you're asking for is exactly what we need to do and that is put pen to paper, discuss the strategies that we planned to bring to the company in the intermediate and long-term, and then implement.
So I take your comments under advisement and I appreciate them very much. .
So this could be the beginning of a beautiful relationship, somewhat….
Well, I certainly hope so. And thank you very much for your support of the company. .
Good luck to you Bill. .
Thank you..
This concludes our question-and-answer session. I would like to turn the conference back over to Bill Kennally for any closing remarks..
Thanks Anita, appreciate it. Nice job today by you. And for everyone on the call I wanted to thank you for joining us today.
It was certainly a pleasure participating in my first quarterly conference call and I hope I was able to provide you with some clarity regarding what I can bring to the company and how I intend to manage our operations going forward.
I look forward to meeting all of you in 2018 and speaking with you again in February on our second quarter fiscal 2018 conference call. And I hope everyone has a great day and a good weekend coming up. See you later. .
This conference is now concluded. Thank you for attending today's presentation. You may now disconnect..