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Adicet Bio (ACET)

Participants
Jody Burfening IR, LHA
Bill Kennally President and CEO
Doug Roth CFO
Walt Kaczmarek COO
Dewey Steadman Canaccord
Matt Hewitt Craig-Hallum Capital Group
Steve Schwartz First Analysis
Call transcript
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Operator

Good day and welcome to the Second Quarter Fiscal 2018 ACETO Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jody Burfening with LHA. ahead. go Please

Jody Burfening

Kennally, Financial issued ACETO’s Chief Good Officer. second after Anita. me and to earnings release are its with second is Operating Q&A the the welcome and and Kaczmarek, participate Thank yesterday to fiscal morning XXXX Corporation’s quarter Bill call today the in quarter comments Walt market With session. and earnings Chief ACETO CEO; providing Doug you, on everyone President Officer also conference Roth, today us The closed. Company press call.

the you a Investor For have Company’s those of who of section is not website the yet in seen www.aceto.com. release, available at the copy Relations

by actual XXXX as to as a Bill. believe, measures. Before of impact and from results non-GAAP identified Commission. update and uncertainties. like today’s prior as issuance turn and of share The the Company’s remind starting of now such will that of housekeeping that operating the by standards and call, that defined Litigation words plans, anticipate, to today’s amortization and results per will statements out you to adjusted similar analyze set Good These I’d net certain items those excluding call numerous Company’s Reform and related discounts Act and that income compare period extinguishment, factors filings XXXX-XX. the Private trends the these of measures the measures, Act earnings and forth Cuts net referring financial cost performance expressions Tax fundamental Securities operations call, to those implied can are by the to cost, the adjusted on would involve like way, with could in Securities to based be as be of contain to intangibles, seeks, projects, debt Exchange are the the anticipated the and defined morning, expect, call forward-looking result statements certain of With forward-looking Company’s or impact on Jobs non-GAAP Also differ in amortization These Bill. management materially risks investors business. income ACETO’s accounting the results of over the period debt current transaction acquisitions, allow of I ACETO’s debt

Bill Kennally

that Friday. Thank at full happy the the and not morning, of weather voyage. on was everyone, My ACETO captain you, quarter Jody, encounters good maiden helm unlike the first rough sea

market particularly segment. anticipated we a Ingredients Although generic for choppier, headwinds, sea the our Pharmaceutical bit was

Jobs and effective resulting favorable of the at December profit compared $XXX.X $XXX.X last down Gross to of sales. reflecting a quarter. All-in-all, Citron results, net from generated due Tax the XX% difficult addition the XXXX, part year. at contributions Company net that year, lower lower products. a in and offset impact end pharmaceuticals of Non-GAAP of we acquired $X.XX and $X.XX ingredient by included it Looking products from from Lucid rose total was due the Act. was sales $X.XX and million tax Stripping out, million Lucid to to to passage our Cuts the rate EPS Citron gross we profit the compared last was

Citron results than declines boosted by the Let’s take sales Health, more addition offset which Lucid were a sales the Human on profit legacy look Rising segment. and and profit side. and at in gross the gross for each products the In of

those customers and our and impact now EconDisc up into during clarity launched portfolio from one quarter the the greater negotiations and with hard. Continued consolidations especially a are competition the have entrants ClarusONE from going the market that hit customer on our from finalized few forward. our products have harmonization new wrapping in of with discussions harmonization We

treatments. one market in commercialized products, generics four bringing solid a diverse been to challenging, portfolio therapeutic have and continue launched conditions covering the of total we XXX for We habits, the giving product market this While advantage We two with the with molecule. of have to linked be products, physician relaunched we competitive the prescription are will new half closely first that with us SKUs believe a year seven. what be

changing we projects reflects to XXX We’re and some XXX quarter’s reported total of adding Currently better the additional the products We give Starting call. takes. hold versus conditions, to products, more-complex, pipeline the in mix puts products down variance of on one five and optimizing filed our with pipeline the high-value The have four us placed on market products due to products. last product. launched and opportunities. returns ANDA pipeline road XXX

We currently is limited also competition. new previously added we more conditions which parked favorable we to approved there contribute were due and product will brought products market two nicely believe one as

ANDA a synergies two operational fully installing completed from projects both warehouse on expanding It’s at $X During the product the the Citron the filed ERP Rising products pending and we the refilling it to quarter. year. application the we the the quarter, during two end filed back moved, Lucid product, acquired. into in ANDAs area and we development and from by and were XX this this launch. the to approved savings conditions, and file strengthen fiscal to million put are anticipate Also the additional We of the initiatives, last versus point end continued FDA start by with giving ANDAs hold market quarter, On we realized of new system, on year. due a on filed us be will realize from our annualized fiscal XX was ANDA and on unfavorable was to functional should and total of implement

segments cash and Performance flow Chemicals to in each quarter, experienced other contribute Ingredients the although Pharmaceutical two continued Our challenges. some

Ingredients four environment. competition within of variety an due of business API discontinuation timing issues, factors, Our to increased negatively increased a Pharmaceutical by and impacted products was competitive

fixes transition begun that we half, gaps gross particular identified products; including in despite contributing to have of in second producers Performance many While was underway shutdowns several a revenue the and for the of experienced our temporary necessary we some leadership these at currently well In in business. have China the agricultural and will impact a the is our implement Chemicals, API chemical issues [product] gross competition quarter. higher profit, performed increased specialty during our while business on one protection to

we time quarter opportunities our the can. devoted immersing am I myself many and partners, abundant. of and my where As that XXXX, we some initiatives the we meeting costs operational second move during to and meeting the taking budgets timetables colleagues and business into the are of the half on of fiscal confident Rising’s system our in Having are out executing as focused planned,

Rising team our Our at and have new strategies leadership clicking, go-to-market is improved significantly.

support the regulatory businesses of of at teams. of in across excellent support any market customer have my generic Still, we don’t remarks, our great as easing adverse the conditions well as expect mentioned, see I We near beginning interface each to and team. as

of $X.XX, market second quarter for than by inventory earlier, these with GAAP we form our impact with Pharmaceutical half our will still earnings half to operational year stretch as will be of per all into which challenges $X.XX. mentioned Health. I business adverse finished API XX% and market XX continue still sales expect the share to Rising previously We primarily said Ingredients to the year, some working of we year. and and diluted to quarter’s launches. issues addressing. products in and to on We segment, cut earnings while caused be products share be discontinued dynamics $X conditions In a non-GAAP this charges that the a supply short-dated in due into last Pharmaceutical technical will products, deal reduced XX of loss various which profit to to some expect the net these per We generic are the to the this reported profitability chain Human hit more growth related from dynamics end. launch $X.XX challenges resolved fiscal call. These the will between plan record challenges through Ingredients the although include we accounting Also, anticipated of our range to we increased and to as And of we result, XX% expect market contribution competition revision, to by demand

the expectation the fiscal the of Our now be call opportunities for pipeline of R&D before anticipate approximately previous spending at expected million modestly half million. better to generics reminder, XXXX the on briefly year. versus want Doug, our expenditures are term half for ACETO. first than to XXXX $X turn R&D, touch a I fiscal we results as in to second milestone-based. I regarding just of are our the longer dose finished over And $XX And And

displays last meeting able of those attend from not you, a For business slide not XXXX presentation for shareholders my you model the have potential to fiscal Company. the were our that future annual may who seen December,

our investor slide a along the balance expertise. to intellectual And a where our integration our a to over formulation create describes the more slide ANDAs model more asset its Doug provide that call is can second future us financial light of capture the now, to Doug? model allow for and property like slide our state added to the vertical here within ownership, goal business to versus state which deck detailed own synergies XX. potential I’d Pharmaceutical will with have need around quarter and business. We in of review The Ingredients our asset we DMFs including current profitability light APIs and more add to turn The with results. owning strategy our to

Doug Roth

everyone. morning, good and Bill, you, Thank

XX% quarter fiscal the Human period. XX.X% part for two range quarter of second lower reflecting offset a sales business. XX.X% while Lucid declined our XXXX, acquired Rising sales profit in we compared million, the legacy the $XX.X which the of segment’s in year Rising in Now, more $XXX.X from margin of in Citron XX% gross from and $XXX.X in profit increase $XX was of Gross I’ll margin XX.X% from compared on the Health large the gross the was the increased million, second contributed past million year the million legacy an Sales were prior second business reported take fiscal Human fiscal an a Citron last addition profit the XX% reflecting XXXX, increase of quarter. Nutritional from $XXX from $XX.X this to Gross reporting or XXXX. million. quarters. increase you quarter our for sales sales, through margin an Health to basis, first variance, second during $XX.X. segment results addition to the and reported increased than in gross segment fiscal million million the million, December of XX% Lucid XX% million compared the and Of On the $XX.X which Net to financial quarter basis XXXX. year-over-year were our $X.X million, Gross $XX.X $X.X products of the of sales products. of was Citron we

another been lower Lucid products, has reflecting, $XX.X was X.X% delayed profitability million, a of product. Gross as XXXX, primarily in before, two on lower decline $X.X quarters, quarter consolidation. for due profit case products, to of primarily half products, the and product competition lower second volumes the customer Rising reduced to including discontinuation Citron gross million increased products, slippage the profit and decreased customer As the of which certain margin segment The XXXX, launch some to the mix. mentioned Pharmaceutical preceding of APIs reasons, the from $X.X to second decrease the and of well for API in shipment product due gross certain these second quarter select to second in into as were XX.X% as legacy declined mix million of our compared year-over-year of sales, products, quarter Ingredients on due largely and gross Bill unfavorable several sales

XX% compared XX% agricultural decreased in of chemicals. million year was specialty segment for protection our Gross million X.X% year. to pardon from the sales from sales $X.X the Chemicals quarter to as products by was me, lower Performance and was sales sales the decline last XXXX to from -- stemming prior down of margin with X.X% sales or larger profit all higher our $XX.X the XX.X% $X.X gross products. protection offset in period partially agricultural lower reduced $XX.X million second Our decreased of profitability million

to last gross margin compared XX.X% was XX.X% year. Our

a the quarter with costs year’s of Our of the figure $X.X percentage quarter million fiscal of assets, of product amortization attributable flat $XX.X the we operating saw XXXX. costs services included second second related XX.X% XXXX year’s versus quarter period. versus as of the million, $X.X were Citron fiscal acquisition second transition of prior and and XX.X% intangible expenses administrative associated the sales, and also the in Last year decline to to SG&A for products purchase although comparable in $XXX,XXX at includes Lucid to of agreement. This million the a transaction

Our year. our -- included prior R&D product pipeline from generic gross second million quarter, R&D expenses in $X.X $X.X rose income operating and period. the in totaled our pharmaceutical growth our SG&A which With $X.X million the and growth, investments profit milestone in based, represent versus million are last million collectively $X.X below up to year

rate. income spend this signed minute Act, in our as into law as and Jobs a tax how of on results quarter, the let full the me down Tax impacted Moving statement, well XXXX, year December our discussing Cuts

or U.S. additional was deemed our deferred the for of from lower diluted related we recorded tax $X.X and million to tax arising of jurisdictions. rate, fiscal million foreign deferred million unremitted $X.XX tax repatriation finally, foreign million the assets of this of our During the comprised $X.X subsidiaries, per corporate tax related $X.X $XX.X related liabilities the to tax earnings to expense which of share, remeasurement year, an

$XX.X first enjoy rate, In as year saw XX.X% basis. million the year, share calendar half tax share in The last $X.XX tax or $X.XX net to terms year-to-date loss will per second or $X.XX decline to fiscal corporate was the a compared benefit second XX% resulted ACETO’s on XXXX. in fiscal of approximately lower the a of from we rate domestic the per effective lower of of rate tax a only begins quarter the per in of share $XXX,XXX The loss for net of non-GAAP diluted that for our year. quarter half

last net quarter or $X.X for $X.XX the million $X.XX year. per million second income Our share to was or $X.X share compared non-GAAP per

versus for quarter prior was the million, year’s second XXXX million EBITDA the an increase quarter. Our of $XX.X of $X.X

short as sheet, XX, XXXX, balance cash working share. per cash, just million, the to $XXX and $XX equivalents million was of investments million $XX.XX our turning Now, short-term and of equity $XXX was December totaled shareholders’ or capital

million, and facility. under was senior Our $XXX credit our million total convertible bank debt including $XXX

was X.X ratio leverage debt net Our times.

$XX trade million million at June receivable under Our decreased by million to $XXX quarter-end, year-end XX, $XXX our for just fiscal versus XXXX.

XX of XXst, that June As September pleased our XX came a XX days down as days December from as and result, report of XX. DSOs am of XX, to I to down as days

resources Additionally, days. future keeping as healthy obligations. our meet XXst Rising of December financial strong DSOs and a financially growth ample were ACETO XX on our support capital We remain plans with to our focused

I call over the to the turn to like Now, operator. would

Operator

from go first The Please Steadman Instructions] Canaccord. question ahead. with [Operator comes Dewey

Dewey Steadman

quarter expecting for that to business, API strong seasonally again fiscal first you, And now, year? Bill, in gentlemen, is and what that are morning, for steps API, all. this you Friday CEO? surprised the this in then, repeat take Good you’ve you been and And days XXX business? happy to in role and what XQ both stabilize to positively as your can we a negatively, days

Bill Kennally

hear good comment. I missed yes, morning, So, last from Nice Dewey. you. question. to of I will the question, your the to be portion last And, happy

just So, me? could repeat that you for

Dewey Steadman

Yes.

So, fiscal for revenue in API seasonally strong tends API, be XQ to a the business a from perspective. quarter

to year? that in that the you do challenges again this repeat expect Given business,

Bill Kennally

Okay.

two through really experience an focus it’s trying to But, excited quarters, best the first interesting the So, really we’re in future. at our to present we’re ACETO. these there -- trying I’m look, headwinds. and been the manage on certainly about

the people. start is of with the have that’s you I surprise things been one think, -- I to pleasant a think

of the businesses. they’re people very and working Our hard across committed all are

support. regulatory excellent have We

a bench Our improving businesses, think, that these of our to support over we sales of folks strength, I number of And of And, in I them. folks new addressing have business. some having excellent. have those all and challenges From and acquisition challenges of recognizing and the that as of some nice think, days that the bringing organization our presented we are are -- are the say think, really the the have result XX and last for challenges the in are standpoint, particular, improvement, I a are done an the the people think team, new XX is I Citron operations to job sales we’re a operational colleagues a surprise significantly. into hired kind

example, over there historically for been process So, Rising, a S&OP is hadn��t case. established robust and that that’s really been the at

has sell that so our getting of to stock new also some times that, partners can of and This we the be result terms also over in standpoint. increasing and has from will that lead a is it of us, team product our freight identified times safety lead helping our our improved. As and with

we costs when result freight increasing. nice we’ve And So, have of this a charges. as been new our a process, freight the short have S&OP supply, in seen decrease

it The I So, that. surprise. issues, think, surprises have probably been most like the operational

really generics similar over seeing Turning really has increased some new the are kind API seeing loss been to the API, shortfalls that’s the competition And industry, we’re and road. down and to the experiencing we’re result competitors, like of side. we But, on potentially crossing to to for that our stabilize what we’re business looking in degree headwind -- the it’s grow the there. opportunities of the the some of

see API the terms the in of third performance performance. increase expect do business, In to we quarter for an the

base factor we full revenue a down. However, for took why the significant in year, API our is

longwinded that Dewey. answer, answered hope I question, but -- your a I it’s So, hope, I

Dewey Steadman

rate that XX% the and something have right for ‘XX tax fiscal And or model should you. beyond? that we’re the tax second down going the should But, you into low-XXs use that Is Doug. indicated? the you half on and rate. tax on movements, Thanks then thank ‘XX for of color then, the Yes, we how

Doug Roth

Okay. rate. that’s great this don’t question. right, of blended a year, for we forget, balance a Dewey, And the have

So, tax is XX.X%, domestically, rate reflective the plus of which new we’re using stake rate. our

So, should be the But domestic, it foreign also then, have for XX.X%. earnings. we

the XX%. year, half for So, the use on of average second this year, I’d for

stake. XXXX, on to fed XXXX, XX%, yes, you new have of terms full of but do In the the rate add of have then we benefit year

So, of domestically, include once range a XX.X or XX%. be But, here, the it’s you then, foreign, going that, expecting we’re XX% XX. mid-XXs, to

Dewey Steadman

saw Phil buyers? more with see it working Okay, seeing and great. six it’s more shadow, that most of with And weeks guess, coming I of Is contracting then, flow does winter. or we Punxsutawney now and into the for so is Day Groundhog his settled six do the purchasers? dust How winter that the weeks spring

Bill Kennally

I’m good only Phil that me think the in thing terms I on. But, a had winter would concerned anyway. thing Punxsutawney about of the not the So, the look, be Eagles jersey is an That spring. for versus

down going it, kind some can. to and try headwinds, We’re see by continue of out on and manage to to necessary cost system taking hunkering steps the to where remain to take of we’re some rough focused business, we through to the

that there is Dewey, something or more specific? So, where is are going, you

Dewey Steadman

about pricing the how and Yes, thinking purchasers are acting.

for we’re You we’re is round-tripping it more ClarusONE in or market initial come? those that is Is contracting you more cuts, mentioned do so seeing something with price cuts stability now to where there that’s then coming completed another some there room think contracting you’d a the bit and and up.

Bill Kennally

see. I

a with bit We little forward. ClarusONE visibility yes. Okay. we do of can harmonization more the Well, what that into expect we that going so, EconDisc believe have and

the probably So, of that that a as of taken hits most I we’ve result over. that would are say pricing

you more in XXXX XX% is there than that were in hand, approved ANDAs other the XXXX. saw On

those customers to process. with from customers we’ll headwinds RFP that versus pricing get from may the see the So, come as increased approved of products that their competition exception more annualize our going are

Dewey Steadman

Okay, great. hop And queue. into back Thanks, gentlemen. I’ll

Bill Kennally

Thank you, Dewey.

Operator

Hewitt next Craig-Hallum question Please Capital ahead. go The with comes from Group. Matt

Matt Hewitt

morning, gentlemen. Good Thanks questions. taking for the

Bill Kennally

Good morning, Matt.

Matt Hewitt

particularly given or consider at portfolio, the headwinds products what what competition, increasing where but you the legacy Rising they’ve within other you’re become at the to facing, point discontinuing given one, start First unprofitable? look that do point, of at some

Bill Kennally

that that takes the if like and buying one there the to think we can’t one quarter, for as And The vary. well. enough be in that time, of were And been puts I customers vary patterns portfolio. the -- that have of I tell So, see, really result as charge-backs example, wouldn’t a you assess. down

could product buying loss based So, on upside send patterns you quarter which your be charge-backs potentially one mode. would down into on

So, is I the products. it look agreements over of have then, you of at on portfolios that partners think that’s have part longer we And with our it. thing to term; other the

for pricing try there or we If have are we visibility don’t agreement partner. the a carry that stem do So, an and partners have take around. loss, strategies on than loss, our try of a really end that it’s more have have into I then, might where a day change we’ll whether to take can. that what product and we at we bottom-line at we But, commitments products there can the product the example, we that to think to great we’ll the have the to you, discontinue based the is with with are isn’t that marginal much

Matt Hewitt

is bringing a market been upon you Is Okay, great. relates be may it at stability as priority, then, the that showing little your own Board thinking should little are Thank high to I about generic business that? in bit where having or manufacturing is dependent side? your it you a do say, what how see priority, or on here, while now as you. a the for look of And you the on

Bill Kennally

our good in a that to because and job the I it’s it’s control going real we our I although increase are do property, model of advantages, being that more able DMF, those the and asset bit integrated, light be slide profit. think we Well, for us reasons the high gross offers and to posted one a our our some a why things own increase vertically intellectual priority and are holding little ANDA environment, all

available looking in the accordance that with of into we’re bring at trying those aren’t things readily assets necessarily But, us. the looking organization the at. strengthen out we’re to to So, assets there some

So, it’s high a priority.

Matt Hewitt

for one maybe Then, one me. great. Okay, last

positive about came either As next or portfolio right ANDAs year from pay to cash for of sale, second consider you will using if the be Thank anticipation standpoint is up expectation, generating into you. would debt flow, the the think down year, that half you this you or a of that? facility that opportunity,

Bill Kennally

Yes. Matt. is Thank you, And both. the answer

So, welcome and pay debt; an then, some to down to that. the certainly assets we we will if some will opportunity there’s organization, bring in

Operator

from Schwartz The with next question comes Steve First Analysis. Please go ahead.

Steve Schwartz

morning, prepared color everyone. exactly in is in Hey, talked you it that Good with just hiccup a you What it exactly about a is Hi. hits Bill, that? us Can your it lower business? ClarusONE. remarks how you the harmonization in you impacting purchase give pattern, pricing? on Is little just that’s

Walt Kaczmarek

I that will tackle Steve. Hey, question.

morning. good So,

to when So, the ClarusONE, happens common basically McKesson take at portfolios lowest go and a the together and gets denominator. in harmonization effect, do look with is, is what forms Walmart what they they

it is portfolio resets does the lower that basis. what a So, cost just as

drives it business. essence, on the ASP in down So, book of just your current

Steve Schwartz

Okay.

it through then, see respect So, pricing? But everything a along… just necessarily is then, don’t you hiccup to volume, with moves

Walt Kaczmarek

takes Once again, as there at normally, harmonization but you share point. at market Walmart, negotiation. a there a if well. to puts have of the down drop to and price it be And you it your can are obviously bit becomes that, maintain the have to position. little some you do willingness But, then, your It on going predicated It’s business don’t McKesson, depends. if

Steve Schwartz

year In that you’ve or multiple clear What spend, milestone some development, perspective? your that your Is R&D Can million is X one respect X reducing related you product fiscal that outlook been case, With for you’re us this by give in does the that to on products? spend for payments. mean? that’s to million.

Bill Kennally

taken It’s a of the we’re you sorry. Dewey. launch to really this of I that maintaining been still I I’m still to XX the called XX you out -- mean, Matt, Steve, XX and products have that maintaining sorry, we we plan the And products take that of it’s we’re Dewey, result products combination I called Matt out. so. year. the system,

Steve Schwartz

there. list whole the through Went

Bill Kennally

my I got through the apologies. exactly, whole list,

Steve Schwartz

Okay. what’s volume ag the is happening price, And in then, to there business? my just with weakness that is one respect Is products. that last or

Bill Kennally

On the ag protection?

Walt Kaczmarek

So, bit market And a come one particular we a in the of as to we they and market competitor share. to lower product that little had a price the took had rest to result, point. of

Steve Schwartz

broader of Does are ag level? world flying and that the in your a you happening bigger. products are that impact FMC FMC DuPont where business at getting like -- they guys see you or the have significant radar What’s on

Walt Kaczmarek

We radar, under that really under to attempt fly that level.

we’ll products particular nichey don’t is a target those that we’ll very and what So, and try do of are attract pressures. lot competitive

So, we’re huge the at context products of in smaller the looking volume Dow Chemical.

areas So, those concentrate. the we are in which

Steve Schwartz

something you Do it Did go were like And I that to one or have notes that that sell through? my looking in product product. I have correct, that? pecan a

Bill Kennally

No.

ourselves ever we’ve to one believe don’t said I we’re -- agricultural divest notes of looking product. particular your think I

misheard. either you we or maybe, So, misspoke

Steve Schwartz

my for I’m Anyway, error It thank you could be on taking the end, beyond questions. that. not

Bill Kennally

Steve. you, Thank

Operator

I be closing questions, remarks. turn for no there further this [Operator question-and-answer-session. to Since over any Bill the back conference would Instructions] appears like our Kennally to to concludes

Bill Kennally

So, and again call. the Have XXXX again fiscal call today. We third thank help your on a early today. on conference appreciate your for questions in great with everyone you, look May I comments you and And thanks quarter speaking our appreciate us Anita. forward and joining to support, weekend.

Operator

for is today’s This attending Thank you now presentation. conference concluded.

You may now disconnect.