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…

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%…

[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.