Q4 2021 Raven Industries Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Raven Industries, Inc. Fiscal year 2021 earnings conference call. At this time all participant lines are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star.
For one on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Jared Stern Investor Relations manager. Thank you. Please go ahead Sir.
Good morning, and welcome to the Raven Industries fiscal 2021 year end Investor Conference call. Today's call is being webcast live and will also be archived on the company's website for future listening on the call today will be Dan Ricketts Ravens, President and Chief Executive Officer, a mortuary Ravens, Vice President and Chief financial.
Officer, Steve in Brazil Division, Vice President of applied Technology, Lon Stroschein Executive director of corporate development, and Bo Larsen director of Finance before beginning the company would like to inform everyone that certain matters discussed. During this call will include forward looking statements as that term is defined under the private securities.
Litigation Reform Act of 1095 as such statements reflect statements reflect the company's current expectations actual results may differ.
I would now like to turn the call over to Dan <unk> Ravens, Chief Executive Officer.
Thanks, Jared good morning, and thank you all for joining US today, we look forward to recapping, our Q4 and FY 'twenty one performance with you and I wanted to start by addressing our response and performance throughout the pandemic.
A year ago as the impacts of the global pandemic started to set in my leadership team and I quickly established a critical and essential priorities and objectives for how Raven would lead through the pandemic.
Our primary focus became the health and wellbeing of our team members and our company.
In April of 2020, we adopted for strategic priorities for the year.
First priority was to uphold and preserve the Raven way, which consists of our values dimensions of competition and business model. As these are the guys. These guide our decision making.
We also placed a strong emphasis on generating cash flows through an enhanced focus on working capital management.
Additionally, we focused on preserving the core and all three of our divisions by ensuring the strength of our team our product lines and our customer relationships.
For in a bold move we prioritize our continued and unwavering investment in Raven autonomy, our strategic growth initiatives that will drive substantial long term growth.
One year later I'm very proud of the way our team responded and executed on these priorities our company and team members showed resiliency ingenuity and compassion for one another inside and outside of Raven throughout the pandemic.
This compassion as evidenced by our quick pivot to produce PPE gallons for medical personnel locally and throughout the Midwest along with fulfilling a contract for FEMA to aid in the pandemic response.
Our team rose up to meet the challenge again and again.
And we've learned a great deal in fiscal 2021, and those lessons have made us stronger.
In spite of the pandemic related challenges. We also made key advancements on our strategic platforms for growth Raven autonomy, Raven composites, and Raven thunderhead by further developing technology and autonomy and thunderhead, while building out our composites operations.
In a few minutes Stephen in line, we will be discussing these further but I will say this the opportunities across these markets are substantial and will drive a step change in the long term growth of our company.
Raven remains in a very strong position to deliver significant near term revenue growth and significant profit growth in our core businesses. While also investing aggressively in these key long term growth drivers.
With our focused operational discipline and financial strength, we are confident in our ability to deliver on both the immediate and long term growth opportunities.
And with that I'd like to turn the call over to Bo Larsen to discuss our fiscal year 2021 financial results. Thank you Dan as Dan mentioned, we are proud of how the company executed throughout Q4, and all of fiscal 2021 and that includes our financial performance.
During the year, we generated over $55 million in cash flow from operations and increased our cash position by over $12 million.
This growth in cash was achieved while aggressively investing in raven autonomy acquiring the remaining voting control of that.
<unk> 16 million in capital expenditures.
And while facing a pandemic related challenges, which significantly impacted customer demand in some of our end markets.
In applied technology, the fundamentals of the division and the market are extremely strong in the fourth quarter and throughout the fiscal year, we leverage for these strengths and our industry, leading technology to drive year over year growth.
This growth was led by increased sales in our OEM channel, both domestically and internationally.
We continue to aggressively invest in Raven autonomy to drive a step change in long term growth.
But we have maintained strong profitability in each of these underlying operations. Despite unprecedented production challenges and supply chain constraints brought about by the pandemic.
In the fourth quarter, improving commodity prices and market conditions helped drive an increase in demand further building our confidence for an even stronger fiscal 2022.
Out of the three divisions engineered films faced the biggest challenges throughout fiscal 2021.
Oil prices and rig counts are significantly lower than the previous year, where the rig count's down approximately 70% for much of the year.
This led to a sharp decline in revenue for our film within the energy sub market and for our installation services.
Despite end market challenges the division's fiscal 2021 accomplishments included.
Year over year growth within the industrial market improve.
Improved net working capital levels, leading to strong cash generation.
So selling a $4 8 million dollar contract with FEMA to aid in the pandemic response.
And adjusted sales and production processes to better serve our customers and gain share in the markets we serve.
Looking forward improving market conditions over the past few months have resulted in increased demand providing optimism for a strong rebound in fiscal 2022.
Turning to Aerostar, we made significant progress in advancing our technology and demonstrating industry, leading performance of our thunderhead balloon systems.
Fiscal 2021 performance was impacted by department of Defense travel restrictions, which limited flight opportunities and led to the year over year decline in revenue and profitability.
Despite those challenges the division has industry, leading technology and we remain committed to delivering stratospheric and radar technology solutions for use in a variety of applications.
On a consolidated basis, we saw revenue decline approximately 9% year over year for fiscal 2021.
From an earnings perspective, we generated diluted EPS of <unk> 88 in fiscal 2021 compared to $1 <unk> in fiscal 2020, when excluding the impact of Raven autonomy from both years.
This decrease was primarily driven by engineered films year over year decline in sales volume and corresponding negative operating leverage.
With that I would like to turn the call over to Stephen Byrd zones for further discussion on Raven autonomy.
Thank you Paul.
It took over as division Vice President of ETD, only a few months ago and I couldnt be more excited or more inspired to be a part of this impressive team.
We have made progress in the development and integration of Raven autonomy to advance our autonomous solutions and.
In preparation for auto parts market introduction this summer we.
We have recently started providing field demonstrations for customers and have already received the first orders if you will.
Demonstrations will continue through the next several months, while we take orders and begin production of units to be shipped out ahead of the harvest season.
For that we have conducted extensive field validation and testing meeting critical milestones for performance covered acres in run time, and we are progressing toward product launch later this year.
The interest from the market has been extremely strong we are working with potential partners to expand our capacity as we expect to sell all of our current manufacturing capacity in fiscal 2022.
The demand for autonomous technology in Agriculture continues to grow and we are in a strong position to capitalize on the substantial opportunity to change the way farming has done around the world.
We regularly receive requests from Oems and other technology companies wanting to partner with us as we work to progress this technology.
We remain focused on delivering solutions through our technology, while also transforming AG equipment to address the needs of the next generations of farming.
Raven autonomy is the largest investment our company has ever made and expands our total addressable market by more than five X.
The growth potential of delivering semi autonomous and fully autonomous solutions is substantial and we are in the leadership position excuse me.
To execute on the opportunities.
Next I'd like to turn the call over to Lon Stroschein to discuss Raven composites and Raven Thunderhead lawn.
Thank you Steven and the same way Raven autonomy expands the addressable market for applied technology or move into rigid composites for engineered films also propels the division into growing adjacent markets.
By integrating our technology, a printable and payable high value surface films with the lightweight rigid composites the addressable market for engineered films grows significantly this strategy will allow us to generate strong growth within the division from high margin opportunities.
Covid impacted different people in different ways. This year for me it created an opportunity to spend eight months in engineered films, leading our sales organization, there was no greater or better experience to build a deeper appreciation for Raven composites.
Hi, Raven composite strategy was slowed by the pandemic as we put certain acquisition acquisition activity on hold to preserve our cash throughout most of the year. However, we remain focused on developing solutions that combine our high value surface films with Richard Composites, and then introducing proprietary solutions to growth markets, such as transportation and.
<unk> vehicles.
This strategy Leverages, our existing production capabilities and our expertise in extrusion and lamination. Despite the pandemic, we held to our strategy of being.
Building, our composites operations in our Waynesboro, Virginia facility, while also pursuing acquisition opportunities to Brazil to propel Raven composite strategy.
We resumed investments in raising for Raven composites in the third and fourth quarters of fiscal 'twenty, one and moving forward. We will continue boldly investing in this strategic platform for growth through research and development manufacturing capabilities and acquisition activity the opportunity to leverage our expertise in thinner lighter and stronger materials within rigid <unk>.
<unk> is substantial and we look forward to delivering new products in fiscal 2022.
Moving now to Raven Thunderhead, Raven Aerostar stratospheric balloon platform for communications and persistence for meetings.
Raven Thunderhead progressed significantly in fiscal 'twenty, one we achieved another flight duration record of 94 days earlier. This year, while also autonomously piloting the platform over customer designated areas of interest. We also conducted a multi flight campaign with the department of defense in Guam, which demonstrated the persistent capabilities.
And functionality of Thunderhead platform during a war time simulation.
Momentum within the department of defense to use stratospheric technology is growing and we will continue to make necessary investments to enhance our positioning to capitalize on significant opportunities for thunderhead.
Dan I would like to turn the call back over to you.
Thank you Lon.
You can see why we're so confident in our long term investments in growth.
Switching gears, a few months ago asked Stephen <unk> to move into a new role as the division Vice President for applied technology.
Over the past year, we have initiated a bold growth plan, which is favorably reposition the business and started a substantial growth trajectory for applied technology. The.
The division needed the right talent to lead during this period of accelerated and substantial growth.
With Stephen's experience and strategic decision, making and drive for execution.
The ideal executive to lead the division.
Stephen has been an exceptional leader for our company over the past six years as our CFO and I am very excited to have him in this role today.
Stevens moved to applied Technology has also led us to add Inc, and more should read as our new Vice President and CFO.
Tomorrow brings a wealth of experience as a senior financial leader across a variety of organizations in industries and will be a great fit for our team and culture Tomorrow.
Thank you Dan.
One of the first things that.
That jumped out from the when I joined the company was Raven commitment to solve great challenges.
And in the first few unique that I spend time with our team members.
Throughout the organization, but maybe from production sales engineering, our senior leadership.
I see this this mission to get it out to solve great challenges with passion drive and attention to detail.
Raven has a very strong margin profile and exceptional balance sheet.
And very healthy cash flow generation capability.
All three of these elements are foundational and key to success in any strategy.
I look forward to helping the company leverage these trends.
Capitalize on the opportunities in front of us.
Drive a step change in growth and generate significant channel to that.
Thank you Tamara.
Looking at fiscal 2022, we have robust demand and strong underlying market fundamentals across most of the markets we serve.
This is particularly true in applied technology, and we expect much of the same for engineered films.
In applied technology, rising corn and soybean prices in the U S have created one of the strongest AG markets in the last decade.
Commodity prices remained substantially above the five year average U S farm income in 2020 reached their highest level since 2014, and China's screen demand is increasing.
In addition, we have seen strong forecast from AG equipment, Oems and AG retailers in North America, and these market factors combined with the strength of our product lines have led to record demand for AG technology solutions like many other companies and industries across the globe pandemic related supply chain constraints.
Our challenging the division's ability to satisfy all of this demand, but our team is working diligently to solve those challenges.
I know from my experience, how well this division can perform when we earn the high order volume that we're seeing today.
Net order volume along with our investments in new products operational efficiencies and a larger international presence have applied technology, well positioned to deliver an excellent result for the year.
As for Raven autonomy commercialization of auto card is underway and.
And we have received purchase orders for 12% to 75 units, we intend to sell in this first year limited release.
Customer response to infield demonstrations has been very encouraging as we bring this advanced solution to the market.
Auto part will be the first of many use cases for this revolutionary autonomous technology.
Related to that the Raven economists power platform, we expect to sell up production. This year and we continue our investments to expand our manufacturing capacity and established distribution channels.
Overall, the number of companies wanting to partner with us on our autonomous solutions is vast and continues to grow.
The excitement surrounding our product offerings and market position is extremely encouraging and emboldens us to step up our investments in fiscal 2022 over fiscal 2021 to advance Raven autonomy.
In engineered films the impacts of COVID-19, pandemic caused loss revenue opportunities of $40 million to $50 million in fiscal 2021.
Looking forward to fiscal 'twenty, two we expect this to fully rebound as all of the divisions end markets continued to show sequential improvement with expectations of acceleration as we progress through the year.
One of the challenges facing the FD and all films producers is rising resin prices.
However, our highly engineered and technically advanced products provide us some ability to pass on pricing volatility and maintain our strong margins.
In Aerostar, we will continue to advance the technology and capabilities of our stratospheric and radar technology solutions as we pursue contracts and opportunities with federal government agencies for use in a variety of applications.
Our company's purpose is to solve great challenges and we have a long successful history of evolving our business and technology to meet the challenges of <unk>.
Dynamic world.
This desire to solve challenges is the driving force as we execute our bold growth plan across Raven autonomy, Raven composites and Raven Thunder.
Our technology customer relationships and our strong order activity gives me great confidence in our ability to grow our business this year and to capitalize on the tremendous opportunities in front of us.
And this concludes our prepared comments and I would ask the operator to open up the call for questions. Thank you.
As a reminder to ask a question Neil I need to press Star one on your telephone to withdraw your question press the pound key.
These standby, while we compile the Q&A roster.
Our first question comes from the line of Chris Moore from CJS Securities. Your line is now open.
Hey, good morning, guys. Thanks for taking a few questions.
Maybe just start on autonomous can you maybe talk a little bit more about the autonomous roll out between you know.
The art rollout this summer and the fall of calendar 2022 are there what are the important milestones that you're looking to achieve during that time frame.
Sure. Good morning, Chris This is Steven so right.
Right now we're in the midst of taking taking orders right now on auto card and.
And we've been doing customer testing and demonstrations.
Throughout the beginning of this year in anticipation of the fall harvest season here in North America.
And our expectation is to sell 75 units in this limited release in fiscal year 'twenty two.
So for us we're hitting the milestones that we've expected to hit and the response that we're seeing from our customers and from the dealers has been tremendous and so we're really really emboldened by that and encouraged by that.
With respect to auto cards.
With respect to that.
We've got limited production capacity this year and we expect to sell out the capacity that we have.
There are two the tremendous response from our from our customer base has been significant.
And we're in the midst of finalizing the testing of that.
And preparing orders and for.
For for a fall launch so there too we are hitting the hitting the milestones that we're expecting to hit this year overall I would expect about $7 million of revenue to be contributed from from Raven autonomy in FY 'twenty two.
On a path to a substantial ramp.
In fiscal 'twenty, three so really exciting time right now for Raven autonomy.
Got it that's helpful.
And maybe so.
Which gears to composites for a second obviously.
As you talked about engineered films was.
Really impacted by Covid, maybe just talk a little bit about the strategic expansion plan on composites should we view it as kind of being delayed by a year I know there was some R&D going on during that timeframe.
Obviously acquisitions.
Didn't happen, but.
How should we view the composites kind of strategic plan that was laid out.
The Investor Day in November 19th.
Yes, longing for handle this one.
Yeah, absolutely Hey, Chris This is lance structuring.
There is no doubt when COVID-19 set and we hit pause on raising Raven composite strategy as it relates to certainly the acquisitions, but there were some other parts of the strategy as it relates to developing our film that's going to marry up with Raven composites that we continued to invest in.
And now more recently as we turn back on the investment later in the year.
We anticipate having having the capability.
Manufacturing some of our own.
Posits and eliminating our products to them. So we anticipate seeing revenue in this year, but it's absolutely been delayed by about a year.
Got it that's helpful. All right I'll jump back in line I appreciate it guys.
You bet.
Thank you. Our next question comes from the line of Christian Owen from Oppenheimer. Your line is now open.
Hi, Good morning, Thank you for taking my questions.
I appreciate all of the commentary on the growth platform I just wanted to ask a follow up on autonomy. When you talked about accelerating some of the spend there to support. These launches later in the year, how should we think about that comparing to the 17 million spent in autonomy in fiscal 'twenty one.
Sure.
Sure Good morning Kristen.
This year, we're expecting to invest approximately $23 million into Raven autonomy.
So increasing increasing that investment from from what you saw in fiscal year 'twenty one.
Primarily given the just the.
The confidence that we have that we're on the right path with with our investment in Raven autonomy and also the opportunities that we're seeing particularly with respect to a lot of the industry participants.
Who are giving us a.
Calls almost on a continuous basis looking to partner with us.
To bring this technology to the marketplace.
So we would expect FY 'twenty three to have about excuse me FY 'twenty two to have about a $23 million investment in Raven autonomy.
Okay. That's helpful. Thank you.
Just on more of the core business, we are seeing a focus on spring applications by the Oems in terms of both the economic and environmental benefits of precision Brian.
Can you talk about sort of what you're focusing on.
And what we would call that core Raven technology platform and how we should think about maybe the opportunity to gain share as the Oems start to turn more of their attention to this area.
Sure.
So for US we're in a we're in a very enviable position from a technology standpoint with our Hawkeye.
Gen two application control system industry, leading technology in the marketplace, which lends itself very nicely too.
Two I think what you're referring to as spot spray technology.
So we've got the we got the application controls.
We have the.
The boom controls and all of the systems to make the sprayer perform at a very high level in a spot rate spot spray environment and so we are in conversations with a number of potential partners.
In that space.
That will allow us to bring additional hawkeye units into the marketplace globally, and FY 'twenty, two and 'twenty three and beyond.
Great. Thank you so much I will take the rest offline.
Thank you.
Thank you. Our next question comes from the line of Ben Please from Lake Street Capital markets. Your line is now open.
Alright, Thanks for taking my questions first just a couple of quick housekeeping items and then.
Big picture questions.
In the applied technology segment.
Can you break down the revenue that was delivered in the fourth quarter on a full year basis from the customer that you parted ways with.
Yes, perhaps I'll answer that one zone.
Yes, so in the fourth quarter, we did about $1 million with that last time by exiting that compares to the prior year fourth quarter of about $4 million.
So if you look at the underlying performance of the division the growth rate.
Growth rate was about 18% when you look at the full year, we did about $17 million in that last time buy activity and that compares chain customer sales for the prior year of about $8 million.
Okay perfect. Thank you.
And then on the in the Aerostar segment, you alluded to some issues around timing of awards.
<unk>.
It looks like the conclusion of the aerostat.
Significant Aerostat award can you kind of breakdown that a bit more I mean was this timing was the timing effect exclusively it seems like revenue that was pulled into the third quarter rather than pushed out into fiscal 2022, and then on that Aerostat award their renewal extension possibilities or has that contract expires.
Yes, so from a timing perspective, it wasn't net revenue was pulled forward.
Essentially completed that aerostat contract in the third quarter, a bigger picture looking at Aerostar.
The change in sales between the third and fourth quarter part of that was <unk>. That's a part of that was also lower flight campaigns.
We look forward.
In terms of new aerostat contracts, those do come in and out and we don't necessarily know the timing of those.
And that tends to be the history of interest that business for us. It is a nice profitable business and we do like to execute on those from the opportunities come up but they aren't necessarily as recurring in nature assay flight operation opportunities in our radar platform capabilities.
Got it got it. Thank you that's helpful.
Now turning to a big picture question on autonomy.
Very exciting developments here curious if you can talk about the branding of the you alluded in your press release kind of a rebrand the talk about how the how this segment is going to market and kind of what that rebrand really really entail.
I didn't know if there would be helpful.
Sure. So we are we are probably within weeks of launching our new campaign and our rebranding.
Raven autonomy and the technology that we're bringing to the marketplace.
We're in the final stages of selecting certain.
Phrases in certain terminology that we're going to use so.
I'd love to give you a sneak peak, but I think we're on the cost per year, and we'll be communicating more about that here in the next few weeks, but really excited about how it's coming together she had some external help coming in.
From a marketing perspective, that's really providing us some some really interesting ideas.
And to supplement that with our technology so.
Okay. That's helpful. And then I guess I guess, a quick follow up and then I'll get back in queue. So it sounds to me like there's not really a rebrand here that this is basically just establishing the marketing.
Okay.
Ahead of the launch so theres not theres not any kind of material rebranding here is that for that right.
Well no.
So that as it's referred to in the press release and during today's call. We will not be referred to as dot ending loans. So that will be re got it.
Okay. Okay. Okay.
That's helpful. Okay very good.
I appreciate the.
The answers and that does it for me I'll jump back in queue.
Thank you.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Jeremy Stein for closing remarks.
Thank you very much for joining us today, we appreciate you listening in and for your interest in Raven industries. Thank you and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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