Q4 2020 Earnings Call
Ladies and gentlemen, thank you for spending by and welcome to the recent industry fiscal 2020 year in Investor Conference call.
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The conference or what your speaks to me bone loss Larsen director of finance. Thank you, please where it's true.
Good morning, and welcome to the Raven Industries fiscal 2020 yearend Investor Conference call.
Today's call is being webcast live well also be archived on the company's website for future listening.
On the call today will be Dan Rickets, Adams, President and Chief Executive Officer.
Steven Bizarre Raven, Vice President and Chief Financial Officer.
Before beginning the company would like to inform everyone that certain matters discussed during this call will include forward looking statements as that turns as defined under the private Securities Litigation Reform Act of 1995 as such statements reflect the Companys current expectation actual results may differ.
I would now like to turn the column in the Dan Records and Chief Executive Officer.
Thanks.
Good morning, everyone and thanks for joining us our comments today to start the call we'll be focused primarily on the year ahead, rather than a quarter and your clothes.
We believe last year was a very important year for the company as we completed numerous initiatives to prepare the company for growth and launch two exciting strategic growth platforms.
Despite the impact of the current pandemic.
Even autonomy and Raven composites, along with the numerous growth numerous growth investments made over last two years and each division will prove to be critical to our long term growth and performance.
Over the past month much has changed outside our business that has impacted Raven.
Global pandemic has certain cities dates and countries literally locked down and uncertainty has become the central theme that we're all living one.
Because of the pandemic end uncertainty our outlook for the business performance is changing day by day, but the outlook for some segments improving and some declining.
My view today as the economic activity for the next two quarters will be greatly suppressed due to the pandemic and then we are hopeful for fourth quarter recovering.
No one knows for sure what to expect but we must former best opinions and run the company guided by our values our belief in our long term strategy and our current view of the health of our markets over the next several quarters.
With those guiding principles in place we have formed the following strategic priorities for the remainder of fiscal year 21, our current year.
First we will uphold and preserve the Raven way and all that we'd do.
Our values dimensions of competition in our business model or the from ground on which we stay on the guys their decision making.
Second we will actively preserve cash the lifeblood of any company.
Third we will preserve the core in each of our three divisions, which means our highly talented teams, our core product lines and services and our customer relationships.
And our fourth and final strategic priority for the current year is to continue investing aggressively in Raven autonomy as a long term growth driver for the company.
These four strategic priorities are guiding the many decisions, we're making to be prudent and disciplined in our investing an expense controls while ensuring the preservation of our business for the short and long term.
Stephen will talk a little more about our specific measures related to cash liquidity and balance sheet and a few minutes.
As we think about the unique position Raven holds during these challenging times, there's reason for home and other areas of greater concern.
We believe the diversification of markets served by the company is generally positive and a while growing our international business is a priority the dominance of our revenue being base in the U.S. as a current positive.
The AG markets, we serve have potential to show greater resilience and other industrial markets and we hold strong positions and our AG markets served by Eightd NDF D.
New orders for this fiscal year to date in or Eightd AG business are up 25% over the same period last year.
Well this is not likely to hold up it shows an indication of the strength of our starting position for the year in a TV.
Much of our U.S. government related work in Aerostar, which is around 80% of the current revenue for that division should hold up better than the general economy in our opinion.
The Raven customers, who likely stand to take the hardest hit in the next couple of quarters are those serving the energy market.
This business last year was around $38 million in total revenue or around 10% of the total company revenue.
All this business has also held up well for us so far this year as leases and projects are completed over the next couple of months this business will slow.
Revenue from these customers could be half of last year's revenue, which would be around a $20 million decline in revenue or 5% of the full company revenue.
As we manage the company for the current year, we're significantly and responsibly, reducing new growth initiative spending in fiscal year 21 other than Raven autonomy.
We see I'm confident in the numerous growth investments we've made over the last two years and will be keenly focused on optimizing returns from those investments.
Let me remind you a few of those investments right now.
During the past two years, we completed three important acquisitions in Eightd, we opened our Latin American operations and expanded our Raven your operations.
We've introduced Rs, one steering XR t. Boone controls and our new vision steering.
We are winning the connectivity market in AG with their slingshot and exiting solutions. All these past growth initiatives remain areas of focus for us in fiscal 2001 and provide excellent growth prospects for eightd.
In addition, and of the highest importance we are firmly committed to widening the gap we already enjoyed in the growing autonomous AG equipment market.
In Aerostar, we've greatly expanded our R&D investments in stratospheric platforms and radar signal processing and have won numerous contracts based on the innovations delivered through those R&D investments.
Our capabilities to deliver technical services to our U.S. government customers greatly increased in fiscal year 2000, and we see that continuing as a strong growth area for aerostar, given our exceptional capabilities in the delivery of technical services.
Leveraging these prior an ongoing investments our priorities in our core aerostar business.
Over the past few years, we have expanded our capacity and capabilities throughout her engineered films Division.
New extrusion lines fabrication facilities and R&D staff expansion are resulting in new business opportunities in our existing markets, which we will continue to cultivate through fiscal year 21.
We launched our long term composite strategy late last year and are committed to that growth strategy for the long term, but will slow the pace of implementation in the current fiscal year.
With that overview of our priorities for the year I will pass the call the Stephen to share some thoughts on the balance sheet.
Thank you Dan.
First of all I want to emphasize that rate and has a very strong balance sheet position cash flow profile. This not only able enables us to fund certain growth initiatives, but it also provide the level security when global economic challenges arise.
As for this reason that we're able to preserve continued investment in driven autonomy a key strategic platform with tremendous long term growth potential.
Our balance sheet strength is a clear competitive advantage during this unprecedented.
With that being said, we are being prudently proactive to ensure the strong liquidity position does not deteriorate.
Actions are already underway to reduce inventory levels managed receivables and optimize payments to vendors.
We are targeting approximately $20 million and improved cash flow from the actions being taken to reduce networking capital.
Most of planned capital expenditures are being delayed or canceled and expense reduction measures across the company are being developed and evaluated all with the goal of maximizing our preparedness and maintaining flexibility.
We are also hitting pause on acquisition activity, although we are not completely rolling these out later in the near.
The actions, we're taking now to emphasize cash flow will continue to keep written here and also a florida the flexibility to continue to find Raven autonomy and perhaps in pursue acquisitions again later in the here.
At the end of the fourth quarter, we had approximately $120 million and available liquidity and that continues to be the case today. We are in a very strong balance sheet position actions were taken the contingency plans that we are developing.
I'll emphasize cash flow and ensure we remain in a strong liquidity position.
With that I'll turn the call back the Dan for a few closing comments.
Thanks Steven.
I remain very confident in the long term prospects for Raven.
We are acting quickly to refine our strategic priorities and ensure the preservation of our Raven way.
Our cash and liquidity and the preservation of our cores in each business. During this unfortunate pandemic driven economic slowdown.
We are taking aggressive actions to reduce discretionary spending reduce capex improved net working capital and to refine or invest in card is all with the intent to preserve that which is most important in the immediate term. However.
I'm also completely committed to preserving the long term strategy of the company.
Other companies May take more aggressive actions over the next couple of quarters and Raven, we have certainly done that in the past when specific market conditions turned down and we believe those challenging conditions would persist.
I believe our future growth beyond this near near term challenges, just two important and promising to react in that way.
Over the past couple of years, we have taken bold actions in each of our businesses that expand their total addressable markets by billions of dollars annually and have prepared each business to execute on those new opportunities.
We are now positioned with the expectation that through the addition of Raven autonomy Raven composites, and our technology and services strategy in Aerostar each division can grow at a $1 billion in annual revenue over the next seven to 10 years.
We remain keenly focused on these growth drivers in the success of each of them with reasonable expectations for substantial growth given our market positions.
The growth potential and our chosen markets and our plans and readiness to execute those plans over the next several years.
We will make the most of the current year, given our new reality, while upholding the priorities. We just discussed with you.
And with that we would turn this call back to the operator and open it up for questions.
Thank you.
And as a reminder to ask a question you need to pursue star one when your telephone and to withdraw your question. Please press the pound Keith Please stand by always and by the culinary roster.
Okay.
And our first question comes from the line of Chris Moore with CJS Securities. Your line is open.
Good morning, guys.
Yeah, maybe we could start with engineered films, so talking about slowing the pace of implementation there likely no acquisitions this fiscal year.
Can you maybe get a little bit more specific in terms of beyond the no acquisitions.
Where the kind of where you will slow down a little bit.
Sure I'll take that and you can build on us even if you like this Dan.
What we said as we're going to pause on acquisitions and that.
We're going to look at them a lot more carefully in terms of their value given the current environment.
And.
So thats going to slowdown, but if there is a value opportunity out there.
The work we've done to prepare accompanying from a balance sheet standpoint leaves us integrate position to be able to take advantage of that so that's a little more clarity on where we stand there we have a lot of different initiatives throughout our engineered films division that have been implemented over the last two years, we've we've expanded our fabrics.
Patient footprint, we've expanded our extrusion capabilities.
We've expanded our value added capabilities to the extruded films that we have and Weve.
Weve built out plans to begin greenfielding, our composites strategy. So we're going to evaluate that throughout the year, we have the opportunity to push back a few months right now and as this whole market condition starts to become more clear for us we're ready to reengage in that.
Got it thank you.
Maybe just some specifics sounds like you still be investing in 80 into except aerostar.
R&D was.
$31 million range something like that.
For the fiscal year just ended.
Can you give a sense in terms of expectations for R&D for this year.
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Well, we're still we're still working through our our various scenario plans right now I think one thing I can tell you is that our investment Raven autonomy is going to continue to be very robust.
Although we've reduced the amount of going into R&D and selling next year from roughly 20 million to 15 million.
Order of magnitude life, we're still going to be seeing an increase in an R&D expenses next year.
Got it and I guess I was just I would also want to clarify for you and for anybody else out there as I said in my comments that we think the next couple of quarters are going to be challenging for just about every business out there including Raven.
But we're running the business with the expectation that we're going to come through this and we're going to continue to.
Execute our strategy and that.
The fourth quarter is going to start to create we're going to have some opportunities by them. So I don't want to.
Pair this company back so severely for a couple of quarters. One our outlook is so unbelievably bright beyond that and that's what's really driving the way, we're making decisions for the company right now.
Got it thank you.
So just.
Similar similar question on the Capex side.
You.
Still looking to be meaningfully above where you were in fiscal 20, but obviously keeping in mind, what's going on the first half a year.
Yes, I would expect our capital expenditures to be to increase in fiscal year.
21.
However, given the plans that we had leading into the year, we've curtailed them quite a bit I think our our plan was heading into the or about $50 million and capital expenditures.
And we'll probably be in the 20 20 million range. This year. That's helpful. Alright, guys. Thanks, I'll jump back in line.
Thank you.
Next question comes to the line of Joe Mondello with Sidoti and company. Your line is now open.
Good morning, everyone.
Good morning, so the excluding the hurricane related sales your ft sales were down about 12% just could you I'm just wondering what your thoughts are on such a such a big decline I wasn't anticipated.
Through the January quarter at least.
And do you think this is channel destocking or more end user demand.
Through at least January and then I guess, you know to tie on to that.
I assume you're thinking.
Declines will accelerate just given oil prices and just the overall economy in Soc.
You're just address those thanks. Thanks.
Yeah, there's two things in there Joe at the in the fourth quarter one.
South of weak demand from our customers in the industrial market.
In the flexi tank market.
That demand is actually coming back right now.
But.
Definitely impacted the fourth quarter results for industry for engineered films.
In addition energy market in the Permian Basin deteriorate went down rig counts were down 25% to 30% in the fourth quarter and a that definitely had an impact as well for us.
In the energy market.
And looking forward, obviously as Dan mentioned in his prepared comments.
For the energy market is very weak given where energy prices are today, and it's not inconceivable for us to see our.
Energy based revenues in films be cut in half.
Now as we look forward to the current year. We do have we do have a diversified portfolio within engineered films and so energy market is likely to be under a lot of pressure.
We've got good balance and we see some positive signs on agricultural side of things and in the industrial side as well so.
Little bit more balanced for for fiscal 2001, but we're going to be under pressure the energy market pressure.
Alright, and then could you just expand on the industrial side of it you know your comments on the industrial end markets there 'cause just given.
You know what's transpired in the last six weeks or so.
There's a seemingly a pretty good chance that anything cyclical, including sort of industrial or construction potentially could be seen.
Pretty good downtime.
You have in seem not yet I guess could you just expand on what your.
Talking about industrial markets most of the weakness we saw in the fourth quarter and industrial market was due to lost market share.
In the funding tank market.
And.
Various reasons and our product performed very very high level and I think what we're seeing now as a return of.
Our customers two or two lots as a supplier because of the quality of our product.
So.
We're not really looking at the underlying industrial market per se, but more on the transportation market, but with the flexi. Thanks.
Is the key driver for our industrial business today.
Okay, and flexi tank is what kind of application is that the.
The bladder.
Correct.
Yes for transient for converting a dry goods container into illiquid container for for shipping purposes.
Liquid product.
Okay, and just last question I'm, sorry to sort of harp on this but on the market share losses I assume there was you know the factors there or something a temporary because it sounds like you're a lot more positive going forward.
Well I think from our perspective, there was some price competition, but also that price was at a lower quality and the quality.
With leading to challenges for those who are shipping using those in shipping containers and when you have a.
Leak you know, it's a it's a catastrophic event and so our product doesn't leak and I think our customers realize met gone back to us.
Okay, and then just a I had a question on Eightd I'll hop back in queue. After this but the revenues being up 12% could you talk about.
Was that a surprise to you could you talk about the markets on what you're seeing there and what you think it sounds like you're thinking that things will slow with just the overall market, but I know, it's sort of a isolated a little bit with the AG markets and thoughts could you just talk about what you're seeing in market trends and competitive.
Yeah mix and how you think about that 12% that you saw in the quarter and you know sustainability wise.
Sure it's Dan.
We introduced some really exciting new products at the end of last year, and our vision steering system got off to an excellent start.
Ben.
Working on our enhancing and really deepening our OEM relationships.
And the work that we've done over the last.
Year in that area is producing some good returns.
So.
We're continuing to be pleased with the overall direction of our of our applied Technology Division and we started to see a little bit of the return on that in the fourth quarter.
As I said, our our year to date orders for.
Month and a half.
Well more than a month and a half are up 25% compared to the same period last year.
That isn't going to continue yeah, there's going to be some everybody is going to be down.
It seems like no matter what industry year end, but that gives you a sense of the health of the underlying business pre pandemic. So we continue to be optimistic about are applied technology Division.
Alright, Thanks, I have some more questions, but I'll, let someone else over trends.
Thank you.
And again, ladies and gentlemen to ask a question we need to press star one of your telephone and to withdraw your question. Please press the pound key.
And our next question comes from the line of Ben Klieve with National Securities. Your line is now open.
Alright, Thanks for taking my question first just a quick follow up on on your comments that you are just making on year to date bookings in eightd.
On.
The drivers of that is that primarily being driven by Oems or by aftermarket and then it was there any kind of like large onetime order that really skewed data or was that a.
Or was it a pretty kind of wide spread.
Widespread improvement.
So we almost never talked about our current quarter, but I felt like this was important team to people to understand the underlying momentum the only answer I'll give it said it was not skewed by a single order and that we have Oh, we have good strong broad underlying demand.
Pre pandemic and that's really all we're going to tell you about the new order book.
Okay that side of that Thats helpful. Thank you on.
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Turning over to the M&A strategy in composites.
Can you I certainly understand that the.
In the context of the current environment kind of pushing that off to the right, but can you talk a bit about.
About how that decision was made and if it was if it was purely just a function of of having a bias towards conservatism or where the candidates that you're looking at kind of uniquely exposed to the.
To the issues of the day and as such you know maybe they just simply aren't attractive candidates at this point.
No.
Not that it's really we have a great funnel of candidates and we think that those candidates are going to continue to be opportunities for us really it's a matter of.
For the weeks the days the months ahead, just taking a hard look at cash every company has to do that's right now we're in great cash position like Stephen outlined.
But even companies who are in a great cash position need to think hard about cash right now and probably not for years, but for the next weeks and months.
We're just looking at all uses of cash and applying a little more conservative.
View on that and we'll come out of that that will change the long term strategy hasn't changed the implementation of it has changed slightly over the next couple of months for quarters.
Got it okay on yeah, and that obviously, obviously makes sense and died.
That does it from me for questions, but but that's what kind of navigating the.
Challenges that everybody is facing right now it's a tough time for everybody. So that's a lot easier for taking my questions.
Thanks for the good questions.
Thank you.
We do have a follow up with from the line, though Joe Mondello Sidoti and company. Your line is now.
Hi, guys just a few follow up questions on regarding one of the product. This the one of the recent question.
Mainly related to OEM production related to pay TV segment.
A lot of they Oems.
I have been including many of your customers have been ramping down production, but I know you don't sell into a large percentage of you know there tractors and combines you're more into the.
Sprinklers and you know other smaller type equipment could you discuss enough to give us an idea of how are we production has been into the.
Units that you're selling into.
Well, we're seeing some of our OEM a strategic partners shutting down some of their plants temporarily I'm seeing some supply issues were components.
But just to remind everybody, we've got a pretty balanced portfolio and a lot of about half of our market.
Sold into the aftermarket.
Yes.
We're seeing strength as Dan mentioned throughout.
The beginning of this year.
Okay. Okay.
And then I wanted to ask about the two recent acquisitions that you acquired.
Just regarding.
You know the progression of both businesses and really sort of the cars commercialization and what you're primarily what when you're anticipating these businesses will get off in terms of generating revenue and how that growth trajectory looks.
Just I guess the timing of when you start seeing the commercialization.
Yes so.
We are investing $15 million in R&D in selling this year and developing integrating and technologies that we acquired a smart ex perception technology onto the debt dot platform. Our expectation is that that will be commercialized towards the end of this year. So we will start seeing revenues at the.
End of this year, there will be there will be very modest.
But the technology that we're integrating and the platform are creating.
In Gen. One is a is going to be substantial game changer in AG market and we expect as we said at the Investor day event revenues to ramp up from there and and see a substantial increase in revenues by year three.
Okay, and then just going back to the overall segment.
Would you.
Would you characterize this year since the last year.
One sort of a softer year.
I know you don't give guidance, but do you think you'll see growth. This year are they TV.
So yes, right now anybody answering that question would be answering it without a firm understanding of what they're saying these markets.
Our unpredictable right now.
What we can tell you is the underlying health of Eightd.
His exceptional and that continues.
But how long factories will be open what the buying sentiment will be.
That's unpredictable right now.
How quickly it will respond what I do know is that farmers across the world.
There are going to put seat in the ground.
In their springtime and they're gonna fertilized that they're going to control weeds, and they're going to attempt to grow up crop because that's what they do and that fundamental underlying demand will be there. So we feel better about our AG business than other areas, but I can't tell you what certainty.
Is that it's going to be.
Up or down we're monitoring it.
By weak.
Not all the factories are shutting down.
We have this this uh huh.
Supply chain for agriculture, and many others is doing everything they can just stay open to satisfy the demand that's there and I believe that's going to persist and we're ready to satisfy that.
Demand from our OEM customers in or aftermarket customers and were overall, we're very optimistic about or apply technology division.
I think the fact that we're able to generate growth last year.
The market conditions that we saw last year with the flooding and cross said U.S. and the ongoing commodity price declines shows you that strengthen the resiliency of that business.
Okay, Yeah, definitely a challenging time I, just one way or ask it I guess, maybe if there wasn't a risk of plant closure within your supply chain in your customers.
Do you think just given the isolation of the <unk> market.
That you'd be maybe more positive, especially given what we saw last year regarding <unk>.
The other challenges markets on.
Yeah I didnt.
What's the question yet it seems like you're you're making more statements and questions can you just shorten up your question and make it Chris.
Yes, I mean, I'm essentially just saying if you don't see plant closures due to.
You know shutdowns related to the global pandemic, so plants continue to operate.
Just wondering what your.
Outlook.
Got more optimistic given the isolation.
Within the AG markets.
Yeah, we're not interested in stacking hypotheticals on hypotheticals, so we're not going to provide an answer to that.
Given you enough guidance on how we see the.
Thank you.
This concludes today's question and answer session or would now like turn the call back to director of finance, both large and for closing remarks.
Thanks for joining us today, we appreciate you listening in and your interest in Raven industries have a good day and we look forward to providing the next update in May.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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