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#Thank you, <UNK>, and welcome everyone.
We're very pleased with the progress made and performance achieved throughout fiscal year 2017.
<UNK>th Applied Technology and Engineered Films continue to drive improved sales and profitability, and Aerostar returned to profitability in the fourth quarter, following several quarters of operating losses.
Our financial performance continues to be driven by strong growth and profitability improvements in both Applied Technology and Engineered Films.
These divisions have continued to accelerate growth in sales relative to the prior year and achieved significant growth in the fourth quarter.
As we have discussed during the year, ATD's new product introductions and market share gains are enabling the division to outperform the market.
EFD's superior product quality and investment in new production capabilities, coupled with an improvement in geomembrane demand, is driving growth for the division.
While Aerostar sales declined slightly in the fourth quarter, cost reductions throughout the year and more focused business development efforts are positively impacting the division.
Our commitment to our long-term strategic plan, despite the end market challenges faced over the last few years, have led to our improved financial returns, and we remain steadfast in executing our strategy for sustained long-term growth in fiscal year 2018.
I'll now discuss the progress made on our long-term plans during the fourth quarter and then turn the call over to <UNK> for a review of the financial statement.
Beginning with Applied Technology.
The division's performance was outstanding, and it continues to strengthen.
During fiscal year 2017, we announced expanded relationships with both CNH Industrial and John Deere, which leverage our sustained new product development investment.
Through these continued investments to advance our product offering, while building broader and deeper relationships with our core customer base, we are expanding our market share position and driving growth.
In addition to the significant sales growth from our core application control, ATD also benefited from higher demand for its direct injection systems in the fourth quarter.
The division developed this core technology many years ago in an effort to make spraying less complicated for sprayer operators.
We have continued to refine and improve the direct injection product lines, realizing that this spraying method offered strong value in certain circumstances.
ATD's industry-leading injection technology enables operators to more efficiently comply with evolving environmental regulations, while also improving stewardship and making retailer and grower operations more efficient.
As a result, the marketplace response has been very strong, driving significant growth in this product line.
With strong sales in ATD, we have driven substantial growth in division operating profit in the fourth quarter.
Incremental margins in this division are exceptionally strong.
Fixed cost leverage within manufacturing, coupled with operating expense discipline, resulted in incremental margins in line with our expectations.
Moving to Engineered Films.
Growth in both sales and division operating profit also accelerated.
Year-over-year growth in revenues improved from 4% in the third quarter to nearly 36% in the current quarter.
Like ATD, EFD's incremental margins were quite strong making progress towards our long-term profitability expectation.
Growth for the division was well balanced.
Geomembrane sales more than doubled year-over-year on the improved demand in the energy submarket, and industrial and construction both achieved notable growth.
EFD has also done a very good job expanding its market share position by leveraging past investments in both R&D and CapEx.
These investments are driving growth and have further strengthened the division's reputation as a manufacturer of high-value innovative specialty films.
We continue to make strategic investments in EFD.
In February, the division acquired a production facility in Pleasanton, Texas, which is located near key gulf ports.
This facility expands the division's geographic footprint and will enable us to service geomembrane customers in the Eagle Ford basin.
The Eagle Ford basin is one of the largest oil-producing basins in Texas and will lead to incremental growth opportunity for the division starting later this year.
Moving to Aerostar.
The division's overall financial performance improved relative to prior quarters.
Although sales declined slightly relative to the prior year, the division was profitable in the fourth quarter.
During the past year, Aerostar has prudently reduced its cost structure and strategically refocused its business development efforts on key stratospheric balloon opportunities.
Subsequent to the end of the fourth quarter, the division was awarded a new $4 million stratospheric balloon contract with a new customer.
In addition, Aerostar saw an increase in the activity with Project Loon in the second half of the year and sales to Google in the fourth quarter increased at a double-digit pace year-over-over.
Project Loon continues to make advancements, and we are pleased with the progress.
With that, I'll now turn the call over to <UNK> for our financial review.
Thanks, Dan.
On a consolidated basis, sales were $68.9 million in the fourth quarter, up 30.5% versus the fourth quarter of last year.
Applied Technology and Engineered Films both achieved growth year-over-year increasing sales 40.4% and 35.8%, respectively.
For Aerostar, sales declined 2.5% year-over-over.
Operating income improved significantly in the fourth quarter of fiscal 2017, increasing nearly $6 million from $0.6 million in the fourth quarter of last year to $6.3 million in this year's fourth quarter.
Significant operating leverage on volume gains, coupled with restrained growth in operating expenses, drove the improvement year-over-year.
Correspondingly, operating margin increased 800 basis points versus the fourth quarter of last year, increasing from 1.1% to 9.1%.
Corporate expenses increased $1.9 million versus the fourth quarter of the prior year.
The increase was primarily the result of higher incentive compensation accruals and approximately $600,000 of expenses associated with the restatement process and remediation actions.
Net income for the fourth quarter of fiscal 2017 was $4.4 million or $0.12 per diluted share versus $1.9 million or $0.05 per diluted share in last year's fourth quarter.
The increase in fourth quarter earnings per share was primarily driven by the significantly improved operating performance of both Applied Technology and Engineered Films.
For Applied Technology, fourth quarter sales were $25.9 million, up $7.5 million year-over-year.
The growth in sales was driven by market share gains from the sale of new products and progress in key international markets.
Geographically, domestic sales were up 44% year-over-year and international sales were up 30% year-over-year.
Division operating income for Applied Technology was $6.4 million, up 184% versus the fourth quarter of fiscal 2016.
Increase in operating income was driven primarily by higher sales volume and lower manufacture costs versus the previous year.
Operating margin for the division increased substantially versus the prior year from 12.1% to 24.6%.
Increase in operating margin was driven by fixed manufacturing cost leverage on the higher volume and operating expense discipline.
For Engineered Films, fourth quarter sales were $34.5 million, up $9 million or 36% versus the fourth quarter of fiscal 2016.
Volume as measured by pounds sold increased 34% year-over-year.
Division operating income for Engineered Films in the fourth quarter was up substantially versus the prior year from $1.9 million to $5.3 million.
The year-over-year increase in operating income was driven principally by higher sales volumes and lower operating expenses.
Division profit margin increased 780 basis points year-over-year from 7.5% to 15.3%.
For Aerostar, fourth quarter net sales were $8.8 million, down $0.2 million or 2.5% year-over-year.
The decline in sales was driven primarily by lower Aerostat sales partially offset by an increase in sales for stratospheric balloons and services to Google versus the prior year.
Division operating income for Aerostar was $200,000 flat year-over-year.
Turning to the balance sheet.
We ended the fourth quarter with $50.6 million in cash, up $4.3 million versus the previous quarter.
Increase in cash was largely driven by free cash flow generation as a result of improved profitability.
Net working capital as a percentage of annualized net sales improved 9 percentage points year-over-year, declining from 36.9% in the fourth quarter of last year to 27.9% this year.
The improved net working capital efficiency was primarily the result of managing to lower inventory levels and an increase in payables balances as a result of improved timing of payments to suppliers.
Ongoing net working capital improvements are expected in fiscal 2018.
Cash flow from operations was $10 million in the fourth quarter of fiscal 2017 versus $8.8 million in the previous year's fourth quarter.
Capital expenditures were $900,000 in this year's fourth quarter, down $1.4 million versus the fourth quarter of the prior year.
For fiscal year 2017, capital expenditures were $4.8 million, down $8.2 million year-over-year.
For fiscal 2018, we expect capital expenditures between $10 million and $12 million.
With that, I'd like to turn the call back to Dan for our outlook going forward.
Thank <UNK>.
As we look forward to fiscal year 2018 and beyond, we are optimistic.
We have weathered some very challenging conditions in the recent past, but we have remained steadfast in the execution of our strategy.
We've reduced the cost structure of the company, but not to the detriment of sustaining long-term growth.
The capital allocation choices we have made over the last several years in research and development as well as strategic acquisitions and capital spending have put us in a much more favorable position today and positioned the company for growth in fiscal year '18.
For Applied Technology, the ag market is expected to remain subdued, but we'll focus on capitalizing on our new products and strong customer relationships to drive additional market share gains.
In addition, our direct injection system, which is industry-leading technology is poised for growth this year.
Regarding Engineered Films, the geomembrane market, which includes energy, is rebounding from trough levels in fiscal year 2016, and momentum continues to build in the industrial market.
Market share gains and success in selling the capacity of our recent strategic investments in new production lines are driving sales growth in this market.
With Aerostar cost controls that were implemented throughout fiscal year '17 and refocused business development efforts helped the division better positioned for improved financial performance.
Overall, we are optimistic about the future and expect to make continued progress on our long-term goal to sustain 10% annualized earnings growth, while also generating strong relative return on equity and assets.
We have a solid strategic plan that emphasizes the investment for growth encompassing both organic development and acquisition.
We will continue to invest our research and development dollars to support new product introduction, not just for the next year, but for the intermediate and long-term horizons as well.
With that, we will open up the call for questions.
Yes.
John, its <UNK>.
Just kind of go back to your first question.
I think $6 million to $7 million CapEx probably is earmarked for EFD, got $2 million to $3 million for ATD and around $1 million probably for Aerostar, including the EFD CapEx, is the approximately $2 million that we spent on the new production facility in Texas.
And currently, Eagle Ford basin is not a basin where we have a big presence.
We don't service that basin out of our Midland locations today.
And so that does represent incremental growth opportunity for the division, and we do expect to start up production here in the second quarter.
Yes.
I think we're confident that the investments we're making for growth in the division are going to translate into incremental sales and incremental volume and capacity utilization.
So line 14 was put into production first quarter of fiscal '17, and we continue to see strong growth in the industrial market, and it was up substantially in the fourth quarter, we continue to see progress there in selling our capabilities.
Sure.
Specifically, we've had good success in Latin America and Europe and Australia.
For the full year, Canada was a strong international market for us in FY '17, and we expect to continue to realize good opportunities in those markets.
Long-term growth in the international ag markets is exceptionally important to us.
We have a great presence domestically and do well here.
We have strong OEM relationships here, but we have a lot of opportunity abroad that we need to continue to capitalize on.
And you'll see us more and more active in those particular markets, including Eastern Europe as well as Western Europe.
Let's say, there ---+ it's not great out there.
I know you cover ag companies.
And I would say, it's improving at a real fundamental level of getting used to commodity prices in this country where they are and where they have been for, what seems like, several years now.
So I think the sentiment among the growers and the ag retailers is still cautious.
We plan on laying in a lot of inventory in our aftermarket channel.
So what we're seeing in growth is really what's moving through.
For the OEMs, you can listen to their earnings calls, but I think that there is an expectation that the fundamental ag market is not going to be our friend in calendar '17.
But that there is a growing necessity for fleet replacement and upgrades as we continue to move through this long, low element of the typical ag cycle.
That is an important point is that we have focused over the last 3 years on expense controls and focusing our R&D on our core and the results that we've been able to obtain in 2017 and what we believe will do in 2018 are only because of that and they are direct result of being prudent on all other expenses and being laser-focused and generous with our R&D investments where we believe the best opportunities were.
So to answer your first question, there were no one-time events that drove the improvement.
We've just continued to collaborate well with that customer, and they continue to realize progress.
So what we're seeing is that, its progression, sequential improvements, and we hope and expect for that to continue.
As far as Aerostar, our expectation now is that Aerostar will be profitable throughout the year for FY '18.
And as of we sit here today, we have every reason to believe that's going to be the case.
Thank you.
One thing that I want to close on and comment on, even though it wasn't a question, is that we're really pleased with our FY '17 performance of $0.56 a share.
But we do need to keep that in the proper context of what this company has been able to do in the past.
And while $0.56 on $0.40 is great growth, $0.40 as our adjusted earnings, it's a long ways from where we've been historically.
I just want our owners and our investors to know that we are focused on that long-term return to our expected growth rate for the 10%, and we had made progress.
But in the larger context, we still have a long ways to go, and we look forward to continue to make progress on that challenge.
The conditions were very different when we reached our peak several years ago.
We had very favorable ag market conditions, we had oil trading at $110 or $120 a barrel, we had plenty of incentives for ag producers, and those conditions are very different now.
We also had around $80 million in contract manufacturing revenue that we strategically moved away from.
So we have a different set of circumstances.
We're making good progress on our long-term growth objectives, and we'll expect to continue to make good progress on that throughout the coming year.
And we did in one of these calls, it seems like just a month ago, and here we are at the end of March, and, I guess, we'll be talking to you all again in mid-May as we close out our first quarter at the end of April.
So we look forward to updating you on our progress in Q1 on our long-term goals, and we'll do that sometime in mid to late May.
