RAVN
#Sure.
I'll answer high level, and, <UNK>, if you want to provide more color, feel free.
So, we're starting to see some of the impact in Q1 from the adjustments we made back in November and January, but those have been ---+ those will start to show up now.
The larger part of the impact is going to come as we close out our first quarter, and start to impact Q2 and Q3 and Q4.
So, that's sort of ---+ it's not all going to happen today.
But significant impacts should start to show up in April, and then be strong throughout the rest of the year.
Yes, <UNK>, this is <UNK>.
So, from a raw material standpoint, we are seeing our raw material costs decline somewhat here in the first quarter.
And we are expecting raw material costs to remain relatively stable at this level through the first half of the year.
And based on what we are seeing in the marketplace, we would expect raw material inflation to increase in the second half of the year.
Now, how does that flow through our P&L.
Obviously, as we bring on lower-cost inventories, we carry about 30 to 45 days of raw material inventories, and so it takes about a half a quarter for those to start flowing through the P&L.
And so, we're starting to see that flow through here in the first quarter.
And we saw that flow through a little bit in the fourth quarter as well.
And in tandem with that, we are really focusing in on maintaining pricing discipline.
And so, we want to make sure that we are valuing our products appropriately, and pricing them to value.
And as a value provider of films, we really are focusing in on that to recover some of the margins shortfall that we've had in the past.
Well, as you know, this is creating two impacts for us.
On the top line, we have some headwinds from a demand standpoint, as oil prices have declined.
We have seen demand for our products go down.
We sell products into the energy sector, where, if they're drilling new wells, they're going to require our products.
And so, we're seeing a decline in that, and we're expecting 20% to 25% decline in that market.
Now, offsetting that, as you point out, is the raw material benefit that we should garner as a result of that.
Most of our raw materials in the EFD division are petrochemical-based.
However, I'm not sure that's going to totally offset the top-line pressures that we're seeing in that market.
To give you a little summary statement, though: Just to be clear, we do expect to grow division operating income in films.
It is central to our strategy this year, and it is central to our expectation.
And we're going to do that through some margin expansion that'll come from the disciplined pricing, as well as the value engineering, as well as our ability to get closer to our end customers as a result of our investment in Integra.
So, just to be clear, we are expecting full-year growth from films.
It's early in the year.
And what I will tell you is that Q1 is going to be challenging for us as a Corporation.
But we are making aggressive changes that we feel are necessary to put the Company in the best shape possible to optimize our earnings for the full year.
And there's a lot of year to come.
We do have high expectations for films and aero.
We're managing ATD aggressively, and we are preparing for a difficult end-market environment through the full year.
And we'll see how it pans out.
But that's what I can tell you for now.
We are focused on returning to our long-term objective of 10% to 12% earnings growth.
Yes, Rob, we had about $300,000 of severance-related expenses in the fourth quarter related to the $7-million restructuring that we had announced in November.
Yes.
In the first quarter, related to the $13-million restructuring, we will have costs.
And that $13 million is net of those costs, and we expect those costs to be less than $0.5 million.
We continue to have high expectations for Vista, based on a lot of different factors.
One, on their historical performance ---+ has been very strong since we made the acquisition, growing 30% to 40% annually; as well as the value that the technology provides for situational surveillance.
Fourth quarter was strong.
But when ---+ first quarter is not going to be as strong.
But for the full year, we do expect to continue our historical growth rates that we've accomplished over the last two or three years for Vista.
We are selling our radar systems into lots of different applications; many find their way on to UAVs.
Others are installed in towers, and others are installed on aerostats.
So, we have a broad range of applications ---+ a broad range of geographies that our radars find their way to, and a good set of end customers.
Second inning.
So, we continue to be very bullish, and have high expectations for the Project Loon.
And Google has been a lot more ---+ they've been a lot more involved in providing insights as to their expectations for Project Loon.
And I would point you to do a search, and really look for what they are saying about Project Loon.
They are focused on commercialization efforts this year, and we are a part of that.
The balloon technology is working well ---+ meeting expectations.
The customer continues to work, with great success, on the communications aspects, as well as building the relationships with the telcos across the world.
And the business model, in particular, is looking to be very promising for them.
We are very proud of our 187-day balloon duration that they've cited recently in their publications, and that sets all kinds of records.
Remember, we started with balloon technology that lasted for one day with a 100-day target.
And now we've accomplished 187-day balloon duration.
So, look, we are excited about where this can go, long term, and this year is going to be about commercialization efforts.
We don't expect a significant ramp in terms of production units this year.
But all the momentum and all the press that they are choosing to give the project is very encouraging for us.
And our role with them is as strong as it's ever been.
Our level of collaboration and integration with their efforts is greater than it's ever been, so we continue to be bullish about this opportunity.
You bet.
Sure.
So, we've had a lot of opportunities in the past six months, as we've been active in looking at those as opportunities to grow our three divisions.
And I will say ---+ I want to clarify that ---+ our acquisition strategy starts with that of strengthening our existing divisions.
We are not looking to make a big acquisition and add a fourth division; we like the three divisions we have.
They serve great, long-term markets, and we have opportunities to strengthen both our product lines and/or our distribution channels through strategic acquisitions.
We've looked at several companies.
We've passed on some.
We made the Integra acquisition.
And we continue to have high-quality targets within our existing divisions.
It's always a delicate dance, because I can't tell you a lot of specifics.
I probably told you a lot more than we have traditionally in the past already, but we feel that there is good opportunity to put our balance sheet to work more aggressively than we have in the past.
We're not going to make a ---+ we're not going to do a [bet-the]-company type acquisition; that's not who we are.
If we do acquisitions, they'll be strategic in nature, in that they will give us opportunity to grow one of our existing divisions in a way that we wouldn't have today.
But they also need to meet a threshold now of being accretive to earnings in the first year.
$13 million to $15 million.
Correct.
That's correct.
That's correct, <UNK>.
We paid that all off in the fourth quarter, so we will have no interest expense at this point in time.
Thank you.
That's a great question.
So, I'm glad to be given the opportunity to clarify that.
We do have a portion of our engineered films business that we call the ag segment.
And let me just start by explaining what ATD does.
So, ATD is machine control, and our whole suite of precision ag products is geared towards row crop, and crop production.
We help farmers optimize crop production by increasing yields and reducing costs.
So, the crop production segment is the tough segment right now, given the corn and soybean prices.
So, pivoting over to engineered films, the ag segment within engineered films is very different.
The majority of our ag sales in films go to high-value fruit production primarily, throughout the western US and somewhat in the southeastern US.
That's the vast majority, and that market's fine.
The second portion, which is maybe less than 15% or 10%, goes to what we would call silage covers.
And silage is a feedstock used mostly in dairy, but in raising cattle, and that market is good.
And then, we also have a part of our Business that's used in ---+ a small part ---+ in covering grain piles; so, when you produce a lot of grain.
And there should be strong production; that's why the commodity prices are so low is that we keep producing record crops.
There continues to be need to cover grain, and that's a part of our engineered films division.
So, long answer ---+ we are not concerned about pressure in the ag segment in our engineered films division.
So, we do have an authorization, and we believe that our first and best use of cash would be continued, strategic acquisition.
We want to use our cash to grow the Company.
We believe in maintaining dividend distribution.
That's a part of what we are.
That's a part of the investment proposition that we offer.
But we do see that there may be opportunity to get in to the market, and use some cash for buyback.
We are authorized to do so, and will continue to look at, as a Board, what's the best use of cash.
And what's the best mix of those competing uses of cash.
<UNK>, if you want to add any color, feel free.
Yes.
I would just add to what <UNK> said is: We kind of look at share buybacks opportunistically.
We look at them over a long term.
It's a strategic mechanism for us to return capital to shareholders, and I would envision us being opportunistic at times when appropriate.
So, I'll attempt to answer that.
So, Integra Plastics ---+ we did approximately 80% with shares, 20% with cash.
We got to a place where, in working with the sellers, and considering the tax implications with both parties, and considering a range of purchase valuation, that this mix allowed us to buy the company at the best value for our shareholders.
That's exactly why we chose to structure it the way we did.
What they've done with their shares ---+ I really have no idea what they've done with their shares.
We also authorized the buyback; and as we've already talked about, that remains an opportunity for us.
<UNK>, thanks for the question.
This is <UNK>.
We don't ---+ no, we don't believe so.
We've been in consistent and ongoing contact with all of our OEM customers.
And, in the contrary, we are all in this together, in this tough ag market.
And we have long-standing relationships with all of our OEM customers, and we have 33 of them.
And we've been working with them to work our way through a really difficult market, where their machine volumes are down dramatically.
We are trying to expand our take rate of our technology, as well as the breadth of the technology that they put on the machines, but it's tough.
But our ongoing relationships are strong, and we're working together to work through this.
And I would say the same with our after-market partners.
No, that doesn't mean that at all.
We're not ---+ I don't really think of those words as one or the other.
We're looking for strategic acquisitions that are accretive in the first year.
And in particular as it relates to Integra, we do expect Integra to be accretive to earnings in the first full year.
We did expect it to be accretive in our fourth quarter that we just closed out, and it came up just a little bit short of that.
And that was based on the energy market dropoff that started in early November, and continued through the quarter.
But it's ---+ if we didn't call it strategic before, then that was a mistake.
It's always been a strategic acquisition for us.
That's why we did it.
And this is ---+ I am so pleased that we made that acquisition when you consider the energy market that we face today.
Now we are able to convert more goods, in locations where the energy market is strong.
And we have a distribution channel that's significantly more efficient, that allows us to, one, understand the nuances and the dynamics of the market differently, but two, continue to be competitive in serving those markets.
So, it is strategic.
It is intended to be accretive to earnings in this first full year, and it was not in the fourth quarter.
So, I'm not saying that we are going to have dramatic improvement in market conditions in second quarter.
I'm saying that we've made ---+ we've taken actions to put a cost structure in place that will allow us to improve our profit margins and improve our profitability on the business that we have available to us.
So, we're controlling everything that we can on this end.
We are doing everything we can to get the sales that the market will allow.
And we believe that the net result of that is going to allow us to continue to improve out of the trough that is Q1.
Yes.
I think, for the right transaction, <UNK>, we would be putting leverage on the balance sheet.
And so, we've got about $50 million in cash today, and quite a bit of room on the debt side to make acquisitions, and still not, as <UNK> said, make a huge bet, but definitely something we'd consider doing.
Well, I mean, I think in the event that we were to take on debt for a transaction, we are looking at maintaining investment-grade credit quality metrics.
So, you can apply those to our EBITDA in a pro forma situation, and come up with an estimate.
But I think we could comfortably do $100 million to $200 million, utilizing the cash we have.
Sure.
Thanks, <UNK>.
So, we do have a long relationship.
And AGCO, like a lot of the OEMs, continues to see the great value in adding more and more technology to their equipment.
And they have a broad strategy to bring in their closest partners in technology, of which they consider us one of those.
We've renewed our ongoing relationship that we've had in the past, and memorialized that with the right documents that allows both of us the confidence that we can continue to collaborate with new developments for them, in particular our latest field computer called Viper 4.
But in addition, many of the legacy products that we've enjoyed such a good relationship on over the past, it just continues to give us opportunity to work with them to refine that technology.
Under.
Due to the energy market.
So, 35% of Integra, just like 30% of ---+ 35% of engineered films ---+ was related to the energy market.
And the distribution channel that we acquired through Integra faced, obviously, the same headwinds that we faced, because it's a market-based problem.
So, we had a shortfall on the energy segment with Integra.
Sure.
I guess I would just ---+ I want to reinforce that we strongly believe that we are on the course to recovery.
We've made some tough choices, and implemented some decisions over the last 24 hours that none of us want to go through.
But as we've looked at the Business, we know that it's the prudent thing to do, and it's the right thing to do.
We're on the course to recovery.
We believe in all three of our divisions.
We're proud of the performance that aerostar and engineered films turned in last year.
Two out of three divisions met our long-term objectives for earnings growth.
ATD hit a market headwind, and we're working our way through that.
We're controlling what we can.
And we're being responsible with the Business.
And we are looking ---+ continue to look at acquisitions as a part of this course to recovery.
And we're optimizing our internal investments.
What that means is we're sharpening our focus as it relates to R&D, as well as capital expenditures.
We like each of the businesses that we have.
They serve great long-term markets.
We've got strong businesses, and we're going to continue to invest in those.
We remain true to the Raven business model: exercising fiscal prudence and honoring our purpose to solve great challenges.
And that we're optimistic that the markets we've chosen will continue to provide long-term profitable growth opportunities.
We look forward to updating you on our first quarter in May.
Thank you.
