Financial Releases

Raven Industries Reports Strong Third Quarter Fiscal 2018 Results

November 20, 2017 at 5:30 PM EST

SIOUX FALLS, S.D., Nov. 20, 2017 (GLOBE NEWSWIRE) -- Raven Industries, Inc.(NASDAQ:RAVN) today reported financial results for the third quarter that ended October 31, 2017.

Noteworthy Items:

  • Consolidated net sales and earnings per share increased approximately 40 percent and 106 percent year-over-year, respectively;
  • Closed on the acquisition of Colorado Lining International, Inc. (CLI), further strengthening Engineered Film’s presence in the geomembrane market;
  • Engineered Films modified its production schedules to assist in hurricane recovery efforts, generating $8.4 million in recovery film sales during the third quarter;
  • Applied Technology was issued a patent by the U.S. Patent Office for its Hawkeye® Nozzle Control System;
  • Aerostar was awarded a $6.8 million aerostat contract through the Department of Defense;
  • Aerostar’s stratospheric balloons achieved a new duration record of 197 days;
  • Launched Project Atlas, a strategic investment to replace the Company’s existing enterprise resource planning platforms to enhance the Company’s execution of its long-term growth strategy;
  • The Company repurchased approximately 350 thousand shares at an average price of $28.71 for a total of $10.0 million.

Third Quarter Results:    
Net sales for the third quarter of fiscal 2018 were $101.3 million, up 39.7 percent versus the third quarter of fiscal 2017. Engineered Films and Aerostar both achieved significant growth year-over-year in the third quarter, increasing sales 68.9 percent and 23.3 percent, respectively. Applied Technology sales were up slightly versus the prior year. In this year’s third quarter, sales related to the acquisition of CLI were $5.2 million. CLI was acquired on September 1, 2017. As a result, CLI was only part of the Company for two months of the third quarter. In addition, sales of hurricane recovery film during the third quarter of this year were $8.4 million. It has been several years since the Company received a substantial increase in demand for hurricane recovery film. Sales of such film are generally less than $2.0 million on an annual basis.

Operating income for the third quarter of fiscal 2018 was $17.8 million versus operating income of $7.4 million in the third quarter of fiscal 2017, increasing 141.3 percent year-over-year. Operating margin increased 740 basis points year-over-year, from 10.2 percent of net sales to 17.6 percent of net sales. The significant improvement in profitability was principally driven by strong operating leverage on higher sales volume within Engineered Films and improved financial performance of Aerostar.

Net income for the third quarter of fiscal 2018 was $12.0 million, or $0.33 per diluted share, versus net income of $5.7 million, or $0.16 per diluted share, in last year's third quarter. The increase in earnings per share was driven primarily by the improved operating performance in both Engineered Films and Aerostar. The impact of the CLI acquisition was neutral to earnings per share in this year’s third quarter.

Project Atlas Launched:
During the third quarter, the Company launched a company-wide initiative called Project Atlas. This is a strategic long-term investment to replace the Company’s existing enterprise resource planning platforms. Project Atlas is expected to take approximately three years to complete and cost between $8 and $10 million. This investment will drive efficiencies across the enterprise, enable faster integration of future acquisitions, automate a significant portion of internal controls, and enhance the enterprise’s execution of its long-term growth strategy. All of the costs associated with this project will be reported within corporate expenses. During the third quarter of this year, Project Atlas costs were approximately $300 thousand. Project Atlas costs are expected to be approximately $1 million per quarter in fiscal year 2019.

Balance Sheet and Cash Flow:
At the end of the third quarter of fiscal 2018, cash and cash equivalents totaled $36.9 million, down $18.3 million versus the prior quarter. The decrease was primarily driven by the acquisition of CLI and share repurchase activity, partially offset by strong operating cash flows.

Net working capital as a percentage of annualized net sales1 improved 60 basis points year-over-year, from 25.2 percent in the third quarter of last year to 24.6 percent in this year’s third quarter. The decrease in net working capital percentage1 was the result of higher payables, as well as managing inventory and receivables efficiently with the substantial increase in sales versus the prior year.

During the third quarter of fiscal 2018, the Company repurchased approximately 350 thousand shares at an average price of $28.71 per share for a total of $10.0 million.

Applied Technology Division:
Net sales for Applied Technology in the third quarter of fiscal 2018 were $25.3 million, up slightly versus the third quarter of fiscal 2017. Weaker end market conditions, coupled with challenging year-over-year comparisons for new products, led to the expected slowdown in growth for the division during the third quarter. Although Agriculture market conditions deteriorated in the third quarter of this year for Applied Technology, the Company believes that overall the division is holding market share across product lines.

Division operating income was $5.4 million, down 16.5 percent versus the third quarter of fiscal 2017. The decline in profitability was driven primarily by additional investments to enhance our customer experience as well as higher legal expenses. Combined, these items reduced division operating income by approximately $1.0 million during the third quarter of this year. The incremental investments, concentrated in research and development and selling and marketing, are strategic investments which are expected to generate new sales and market share gains in future quarters.

Engineered Films Division:
Net sales for Engineered Films were $65.1 million, up 68.9 percent year-over-year. Volume, measured in pounds sold, increased 53 percent versus the prior year. All markets contributed to the division’s higher sales versus the prior year. Sales of recovery film to support hurricane relief efforts and the recent acquisition of CLI contributed $8.4 million and $5.2 million, respectively. Excluding CLI and hurricane recovery film, net sales for Engineered Films were $51.5 million, up 33.6 percent year-over-year.

Operating income in the third quarter of fiscal 2018 was $17.1 million, up $10.0 million or 140.1 percent versus the third quarter of fiscal 2017. The year-over-year increase in operating income was principally driven by strong operating leverage on higher sales volume. Division operating margin increased 780 basis points year-over-year, from 18.5 percent to 26.3 percent, driven by improved capacity utilization, ongoing pricing discipline and favorable product mix.

Aerostar Division:
Net sales for Aerostar during the third quarter of fiscal 2018 were $11.1 million, up $2.1 million or 23.3 percent versus the third quarter of fiscal 2017. The year-over-year increase in sales was primarily driven by growth in the stratospheric balloon platform.

Operating income in the third quarter of fiscal 2018 was $1.4 million, versus an operating loss of $1.4 million in the previous year’s third quarter. Last year's third quarter results include a pre-tax inventory write-down adjustment of $2.3 million related to certain radar inventory. This year’s third quarter results include pre-tax charges of approximately $0.9 million related primarily to a strategic decision to narrow aerostat offerings and thereby further enhance the division’s focus on its stratospheric balloon platform.

Fiscal 2018 Outlook:
“We are very pleased with the performance achieved by all three operating divisions throughout the first nine months of the year,” said Dan Rykhus, President and CEO. “Each division has worked to optimize performance given their specific end market conditions and each has achieved success.

“Applied Technology has faced a more challenging agriculture market than we expected at the beginning of the year, and we don't foresee anything changing in the next twelve months to improve market conditions. At the same time, we have made the strategic decision to fund several long-term investments for growth, knowing this dampens short-term profits. We believe strongly in the long-term margin potential for ATD and we expect improved margins over time with these investments, even if end-market conditions remain challenging.

“Engineered Films’ integration of CLI is going very well. Similar cultures and strong leadership are greatly benefiting the integration efforts. We expect performance for CLI to be slightly accretive to earnings this fiscal year and contribute approximately 5 cents per share in fiscal 2019. The sale of recovery film to support hurricane relief efforts was unexpected and favorably impacted the division’s operating leverage in the third quarter. We expect sales of such films to be approximately $8 to $9 million in the fourth quarter. 

“Aerostar is achieving both improved financial performance and consistency in results on a sequential basis. During the third quarter, the division continued to improve the performance of its stratospheric balloon technology, achieving a record duration of 197 days aloft. Its partnership with Google on Project Loon remains very strong, and the division continues to advance its technology offering with new customers. Furthermore, during the third quarter, Aerostar was awarded a $6.8 million aerostat contract with the U.S. Department of Defense. We expect the majority of the revenue from this contract to be realized in fiscal year 2019.

“Overall, we are very pleased with our third quarter and year-to-date financial performance, and we are very proud of our team members’ resolve and determination to drive improved results.”

Regulation G:
The information presented in this earnings release regarding earnings before interest, taxes, depreciation, and amortization (EBITDA) do not conform to generally accepted accounting principles (GAAP) and should not be construed as an alternative to the reported results determined in accordance with GAAP. Management has included this non-GAAP information to assist in understanding the operating performance of the Company and its operating segments as well as the comparability of results. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the tables below.

Conference Call Information:
The Company will host an investor conference call to discuss third quarter fiscal 2018 results tomorrow, Tuesday, November 21, 2017, at 9:00 a.m. Central Time (10:00 a.m. Eastern Time). The conference call audio will be available to all interested parties via a simultaneous webcast that can be accessed through the Investor Relations section of the Company’s website at http://investors.ravenind.com. Analysts and investors are invited to join the conference call by dialing: +1 (866) 393-0676. The event is scheduled to last one hour. For those unable to listen live, an audio replay of the event will be archived on the Company's website.

About Raven Industries, Inc.:
Raven Industries (NASDAQ:RAVN) is dedicated to providing innovative, high-value products and solutions that solve great challenges throughout the world. Raven is a leader in precision agriculture, high-performance specialty films, and lighter-than-air technologies. Since 1956, Raven has designed, produced, and delivered exceptional solutions, earning the company a reputation for innovation, product quality, high performance, and unmatched service. For more information, visit http://ravenind.com.

Forward-Looking Statements:
This news release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. The Company intends that all forward-looking statements be subject to the safe harbor provisions of the Private Securities Litigation Reform Act.

Generally, forward-looking statements can be identified by words such as "may," "will," "plan," "believe," "expect," "intend," "anticipate," "potential," “should,” “estimate,” “predict,” “project,” “would,” and similar expressions, which are generally not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future - including statements relating to our future operating or financial performance or events, our strategy, goals, plans and projections regarding our financial position, our liquidity and capital resources, and our product development - are forward-looking statements.

Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements, because such statements speak only as of the date when made. Our Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain known risks, as described in the Company’s 10K under Item 1A, and unknown risks and uncertainties that may cause actual results to differ materially from our Company’s historical experience and our present expectations or projections.

Contact Information:       
Bo Larsen             
Investor Relations Director              
Raven Industries, Inc.        
+1(605)-336-2750        


 
RAVEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands, except earnings per share) (Unaudited)
 
  Three Months Ended October 31,   Nine Months Ended October 31,
  2017   2016   Fav (Un)
Change
  2017   2016   Fav (Un)
Change
Net sales $ 101,349     $ 72,522     39.7 %   $ 281,494     $ 208,480     35.0 %
Cost of goods sold 68,016     52,683         189,692     149,609      
Gross profit 33,333     19,839     68.0 %   91,802     58,871     55.9 %
Gross profit percentage 32.9 %   27.4 %       32.6 %   28.2 %    
                       
Research and development expenses 4,083     4,151         12,319     12,475      
Selling, general and administrative expenses 11,421     8,212         31,476     24,174      
Long-lived asset impairment loss     87         259     87      
Operating income 17,829     7,389     141.3 %   47,748     22,135     115.7 %
Operating income percentage 17.6 %   10.2 %       17.0 %   10.6 %    
                       
Other income (expense), net (34 )   (273 )       (327 )   (579 )    
Income before income taxes 17,795     7,116     150.1 %   47,421     21,556     120.0 %
                       
Income tax expense 5,798     1,375         14,842     5,802      
Net income 11,997     5,741     109.0 %   32,579     15,754     106.8 %
                       
Net income attributable to noncontrolling interest (1 )           (2 )   1      
Net income attributable to Raven Industries $ 11,998     $ 5,741     109.0 %   $ 32,581     $ 15,753     106.8 %
                       
Net income per common share:                      
- basic $ 0.33     $ 0.16     106.3 %   $ 0.90     $ 0.43     109.3 %
- diluted $ 0.33     $ 0.16     106.3 %   $ 0.89     $ 0.43     107.0 %
                       
Weighted average common shares:                      
- basic 35,939     36,174         36,108     36,265      
- diluted 36,320     36,296         36,477     36,335      
                       


 
RAVEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands) (Unaudited)
 
  October 31   January 31   October 31
  2017   2017   2016
ASSETS          
Cash and cash equivalents $ 36,873     $ 50,648     $ 46,313  
Accounts receivable, net 59,573     43,143     39,554  
Inventories 53,481     42,336     42,813  
Other current assets 3,910     2,689     2,747  
Total current assets 153,837     138,816     131,427  
           
Property, plant and equipment, net 105,651     106,324     108,948  
Goodwill and amortizable intangibles, net 58,127     52,697     53,214  
Other assets, net 2,926     3,672     3,746  
Total Assets $ 320,541     $ 301,509     $ 297,335  
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
Accounts payable $ 13,383     $ 8,467     $ 9,377  
Accrued and other liabilities 22,553     19,915     15,862  
Total current liabilities 35,936     28,382     25,239  
           
Other liabilities 13,456     13,696     12,134  
Shareholders' equity 271,149     259,431     259,962  
Total Liabilities and Shareholders' Equity $ 320,541     $ 301,509     $ 297,335  


Net Working Capital and Net Working Capital Percentage1
Accounts receivable, net $ 59,573     $ 43,143     $ 39,554  
Plus:  Inventories 53,481     42,336     42,813  
Less: Accounts payable 13,383     8,467     9,377  
Net working capital1 $ 99,671     $ 77,012     $ 72,990  
           
Net working capital percentage1 24.6 %   27.9 %   25.2 %
                 


 
RAVEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) (Unaudited)
 
  Nine Months Ended October 31,
  2017   2016
Cash flows from operating activities:      
Net income $ 32,579     $ 15,754  
Adjustments to reconcile net income to net cash provided by operating  activities:      
Depreciation and amortization 10,985     11,526  
Long-lived asset impairment loss 259     87  
Other operating activities, net (12,989 )   11,318  
Net cash provided by operating activities 30,834     38,685  
       
Cash flows from investing activities:      
Capital expenditures (7,003 )   (3,901 )
Payments related to business acquisitions (12,700 )    
Proceeds from sale or maturity of investments 250     250  
Purchases of investments (255 )   (750 )
(Disbursements) proceeds from settlement of liabilities, sale of assets (333 )   1,145  
Other investing activities, net (36 )   (498 )
Net cash used in investing activities (20,077 )   (3,754 )
       
Cash flows from financing activities:      
Dividends paid (14,032 )   (14,148 )
Payments for common shares repurchased (10,000 )   (7,702 )
Payment of acquisition-related contingent liabilities (364 )   (318 )
Other financing activities, net (308 )   (256 )
Net cash used in financing activities (24,704 )   (22,424 )
       
Effect of exchange rate changes on cash 172     24  
       
Net increase (decrease) in cash and cash equivalents (13,775 )   12,531  
Cash and cash equivalents at beginning of period 50,648     33,782  
Cash and cash equivalents at end of period $ 36,873     $ 46,313  
               


 
RAVEN INDUSTRIES, INC.
SALES AND OPERATING INCOME BY SEGMENT
(Dollars in thousands) (Unaudited)
 
    Three Months Ended October 31,   Nine Months Ended October 31,
    2017   2016   Fav (Un)
Change
  2017   2016   Fav (Un)
Change
Net sales                        
Applied Technology   $ 25,319     $ 25,203     0.5 %   $ 94,233     $ 79,327     18.8 %
Engineered Films   65,108     38,551     68.9 %   157,691     104,307     51.2 %
Aerostar   11,103     9,003     23.3 %   30,078     25,313     18.8 %
Intersegment eliminations   (181 )   (235 )       (508 )   (467 )    
Total Company   $ 101,349     $ 72,522     39.7 %   $ 281,494     $ 208,480     35.0 %
                         
Operating income (loss)                        
Applied Technology   $ 5,357     $ 6,415     (16.5 )%   $ 25,447     $ 20,280     25.5 %
Engineered Films   17,115     7,129     140.1 %   35,386     17,666     100.3 %
Aerostar   1,359     (1,375 )   198.8 %   4,165     (1,804 )   330.9 %
Intersegment eliminations   (12 )   (16 )       (3 )   (21 )    
Total segment income   $ 23,819     $ 12,153     96.0 %   $ 64,995     $ 36,121     79.9 %
Corporate expenses   (5,990 )   (4,764 )   (25.7 )%   (17,247 )   (13,986 )   (23.3 )%
Total Company   $ 17,829     $ 7,389     141.3 %   $ 47,748     $ 22,135     115.7 %
                         
Operating income (loss) percentages                        
Applied Technology   21.2 %   25.5 %   (430)bps   27.0 %   25.6 %   140bps
Engineered Films   26.3 %   18.5 %   780bps   22.4 %   16.9 %   550bps
Aerostar   12.2 %   (15.3 )%   2,750bps   13.8 %   (7.1 )%   2,090bps
Total Company   17.6 %   10.2 %   740bps   17.0 %   10.6 %   640bps
                         


 
RAVEN INDUSTRIES, INC.
EBITDA REGULATION G RECONCILIATION2
(Dollars in thousands) (Unaudited)
 
  Three Months Ended October 31,   Nine Months Ended October 31,
          Fav (Un)           Fav (Un)
Segments 2017   2016   Change   2017   2016   Change
Applied Technology                      
Reported operating income $ 5,357     $ 6,415     (16.5 )%   $ 25,447     $ 20,280     25.5 %
Plus: Depreciation and amortization 872     949     (8.1 )%   2,524     2,857     (11.7 )%
ATD EBITDA $ 6,229     $ 7,364     (15.4 )%   $ 27,971     $ 23,137     20.9 %
ATD EBITDA % of Net Sales 24.6 %   29.2 %       29.7 %   29.2 %    
                       
Engineered Films                      
Reported operating income $ 17,115     $ 7,129     140.1 %   $ 35,386     $ 17,666     100.3 %
Plus: Depreciation and amortization 2,259     2,201     2.6 %   6,424     6,431     (0.1 )%
EFD EBITDA $ 19,374     $ 9,330     107.7 %   $ 41,810     $ 24,097     73.5 %
EFD EBITDA % of Net Sales 29.8 %   24.2 %       26.5 %   23.1 %    
                       
Aerostar                      
Reported operating income (loss) $ 1,359     $ (1,375 )   198.8 %   $ 4,165     $ (1,804 )   330.9 %
Plus: Depreciation and amortization 351     421     (16.6 )%   1,112     1,258     (11.6 )%
Aerostar EBITDA $ 1,710     $ (954 )   279.2 %   $ 5,277     $ (546 )   1,066.5 %
Aerostar EBITDA % of Net Sales 15.4 %   (10.6 )%       17.5 %   (2.2 )%    
                       
Consolidated Raven                      
Net Income $ 11,998     $ 5,741     109.0 %   $ 32,581     $ 15,753     106.8 %
Interest expense (income), net 24     77         139     225      
Income tax expense 5,798     1,375         14,842     5,802      
Depreciation and amortization 3,801     3,893         10,985     11,526      
EBITDA $ 21,621     $ 11,086     95.0 %   $ 58,547     $ 33,306     75.8 %
EBITDA % of Net Sales 21.3 %   15.3 %       20.8 %   16.0 %    

____________________________

1 Net working capital is a defined as accounts receivable (net) plus inventories less accounts payable. Net working capital percentage is defined as net working capital divided by four times quarterly sales for each respective period.
EBITDA is a non-GAAP financial measure defined on a consolidated basis as net income/(loss) attributable to Raven Industries, Inc., plus income taxes, plus depreciation and amortization expense, plus interest expense (net). On a segment basis, it is defined as operating income plus depreciation expense and amortization expense. EBITDA margin is defined as EBITDA divided by net sales.

Source: Raven Industries, Inc.