May 19, 2015
Executives
Shaylee Healy - Director of Investor Relations Dan Rykhus – President and Chief Executive Officer Steven Brazones – VP and Chief Financial Officer
Analysts
Joe Sroka - Spectrum Advisory Services Ben Hearnsberger - Stephens Beth Lilly - GAMCO Investors
Operator
Good morning, and welcome to the Raven Industries Fiscal First Quarter 2016 Investor Conference Call. Today's call is being recorded.
At this time, I would like to turn things over to Shaylee Healy, Raven's Director of Investor Relations. Ma'am, please go ahead.
Shaylee Healy
Thank you, and welcome everyone. Today's call is being webcast live and will also be archived on our website for future listening.
Joining me today are Dan Rykhus, Raven's President and Chief Executive Officer; and Steven Brazones, Raven's Chief Financial Officer. Before beginning, I 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 1995.
Since such statements reflect our current expectations, actual results may differ. In addition, during today's conference call, we will be discussing certain non-GAAP financial measures, specifically net sales, excluding contract manufacturing sales.
All of the non-GAAP measures discussed today should not be construed as an alternative to the reported results determined in accordance with GAAP. Management believes that a discussion of these measures is useful to investors because it assists in understanding the operating performance of the company and its operating segments.
The non-GAAP information discussed today may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the fourth quarter earnings release.
With that, I would now like to turn the call over to Dan.
Dan Rykhus
Thanks, Shaylee, and welcome, everyone. As we expected, the first quarter of fiscal 2016 was very challenging, largely due to the continued weak end market demand conditions, particularly in ag and energy.
We have seen reductions in demand of more than 40% within our largest market segments, which has made growth difficult. While we have focused on reducing our cost structure to restore profit margins, we are also continuing to successfully roll out new products to the marketplace and competing aggressively to expand share with existing customers.
These are bright spots of performance to give us optimism. However, based on what we are seeing at this point, we are not expecting end market demand conditions to greatly improve this year.
On a consolidated basis, sales were $70.3 million in the first quarter, down more than 30% versus a year ago. Excluding sales from contract manufacturing activity, sales were down 29% versus the first quarter of last year.
All three divisions reported declines in sales. In the case of Applied Technology and Engineered Films, these declines were substantially driven by noticeably lower end market demand.
In Applied Technology, sales to OEMs were off approximately 40% and organic sales to the aftermarket, excluding the additional sales this year from SBG were off approximately 30%. In Engineered Films, sales in the energy market were off 75%.
Although our competitive position remained strong in these markets, we are unable to overcome this dramatic drop in end market demand through market share gains and sales from new product introductions. Our consolidated operating income performance was heavily impacted by our decline in sales year-over-year.
As a result, operating income for the quarter declined $9 million or 56% versus the prior year's first quarter. Robust cost reduction measures were implemented during the quarter and will greatly benefit the year and help increase our profit margin percentages in the quarters ahead.
However, we did not realize the full benefit of these actions in the first quarter due to timing and associated one-time cost. We expect operating margins to increase sequentially throughout the year as cost reduction measures are fully realized.
Now, I will talk about the three divisions starting with the Engineered Films division. Net sales for Engineered Films were $31.3 million, down 26% year-over-year on a reported basis.
The decline in sales was driven primarily by the drop in energy market sales year-over-year. Declining oil prices have dramatically impacted land-based rig counts, which are down approximately 50% year-over-year in the first quarter.
However, the number of new wells being completed at this time is down even further and this is having a significant impact on the demand for our products. The remaining markets for Engineered Films in aggregate were slightly up year-over-year in the first quarter.
Sales into the important ag market segment were particularly strong, increasing at a double-digit rate. We continue to focus on maintaining pricing discipline to improve our contribution margin of the division.
Operating income in this division was down 24% versus the first quarter of fiscal 2015. The decline in operating income was driven primarily by the decline in energy market volume, which constituted approximately 35% of the division sales in last year's first quarter.
Despite declining volume, value engineering, pricing discipline and favorable raw material cost comparisons led to operating margin increasing 40 basis points year-over-year and 300 basis points, sequentially. Regarding the Integra acquisition, we believe the accretive potential of the transaction is intact, but we recognized that it is going to take longer to achieve and sustain given the energy market conditions.
Integra sales mix was very similar to our legacy mix with approximately 35% of total sales being derived from the energy market. We are confident that with the actions we are taking to adjust the cost structure of Engineered Films, the division will be in a strong position to capitalize on the rebound in drilling activity when that occurs.
In the meantime, we are aggressively pursuing profitable volume opportunities in other markets to help offset the energy market decline for 2016, looking for additional ways to further reduce expenses. The division remains focused on margin expansion, continuing to apply value engineering and process improvements to select product lines with positive results, which will continue to improve margins.
Now, let me cover our Applied Technology division. First, I would like to discuss the leadership change that we made earlier this month.
This change was made to enhance the execution capabilities of the organization and instill a higher degree of accountability for results, regardless of the end market conditions we face. Brian Meyer has served as our Chief Information Officer for the last five years and has a proven track record of building and leading high-performing teams.
He is a no-nonsense executive leader, who is going to accelerate the execution of our strategy, while at the same time preserving the R&D investment dedicated to maintaining our innovation leadership in the industry. Brian has extensive experience across disciplines and we are confident that in his new role, the division will benefit greatly from his leadership.
For Applied Technology, the challenging end market demand conditions worsened during the quarter. Net sales for apply technology in the first quarter of fiscal 2016 were down 30% versus the first quarter of 2015.
The decline in sales was predominantly due to lower end market demand and was across all channels and most geographies. Our OEM channel was the hardest hit with sales declining more than 40%.
Our aftermarket channel continued to fare better, but still experienced declines of approximately 30%. OEM and aftermarket channels have each represented roughly 50% of revenue in the past, with our trend moving toward more OEM revenue over the past couple of years.
Operating income for the division was down 45% versus the first quarter of 2015. The decline was principally due to the significant reduction in sales volume year-over-year.
Although division operating income was down the restructuring actions taken during the quarter are bringing the cost structure of the division more in line with the current level of demand. As a result, division profit margin increased significantly versus the fourth quarter, increasing from 13% to 27%, as we expected it would.
Despite the backdrop of end market weakness we are facing, we remain steadfast in our resolve to protect the core innovative function of the division. Our focus has been and will continue to be on machine control and the collection and transmission of data.
We are expanding into new markets with the goal of mirroring the strong position we have an application controls. At the same time, we are investing to maintain our technology leadership position and introducing next-generation solutions such as the Hawkeye precision spray control.
We introduced Hawkeye, our next-generation sprayer control into the aftermarket this year and the customer feedback has been very favorable. Hawkeye allows for turn and speed compensation by using a revolutionary nozzle-by-nozzle pressure control system that is fully integrated with our Viper 4 field computer.
Several additional ongoing product development projects with our strategic OEMs give us confidence in future revenue opportunities with important existing customers. In addition to continuing to invest in new product innovation, we also continue to look for acquisition opportunities to improve our product offering and competitive position.
Like the acquisition of SBG we made last May, SBG manufactures advanced GPS steering systems for a variety of agricultural applications. The acquisition has broadened our guided steering product line by adding high accuracy implement steering application.
That acquisition is performing very well and is achieving its first year sales growth and profitability expectations. As we continue to integrate the business into our technology platform, we are excited about the opportunities for growing the Raven brand in Europe.
Now, let me turn to Aerostar. Net sales for Aerostar for the first quarter of 2016 were $6.6 million, down 53% versus the first quarter 2015.
Excluding sales from contract manufacturing, first quarter net sales were $5 million, down 47% versus the first quarter 2015. As we expected, the first quarter was a challenging start to the year for Aerostar.
The second half of the year is our seasonally stronger half for proprietary product sales given the traditional timing of contract awards. Although sales for proprietary products were down in the first quarter, we do remain very optimistic for the year.
The division continues to pursue high-quality new opportunities and make progress on key initiatives, key strategic programs relating to both, radar and stratospheric balloon programs. These opportunities include customers in both, the public and private sectors, as interest in stratospheric balloon technology is particularly high.
Border surveillance requirements using our unique radar technology continued strong pipeline of potential programs as well. Operating income in the first quarter was a loss of $900,000 versus breakeven in first quarter last year.
The decline was primarily the result of dramatically reduce contract manufacturing revenues as planned and lower sales of proprietary products, which were impacted partially by the timing of orders. Project Loon continues to build momentum and achieve new performance milestone.
We are very pleased with the progress we are making and our partnership with Google is strong. We continue to work in close collaboration with the Google team, providing technical support and expertise.
At the same time, we continue to innovate and improve our balloon designed to enhance the performance and capabilities of the project. Google also views us as their primary source for manufactured balloons and our mission is to do everything we can to help Google's Project Loon to become a commercial success.
With that I will now turn the call over to Steven.
Steven Brazones
Thanks, Dan. Net sales for the first quarter of fiscal 2016 were $70.3 million, down 31.4% versus the prior year.
During the quarter, we completed the planned runoff of the contract manufacturing business in both, Applied Technology and Aerostar. For the remainder of fiscal year 2016, sales from contract manufacturing will only be a few million dollars in total.
First quarter operating income came in at $7.2 million, down $9.3 million or 56.4% from 2015. Lower segment operating income across all three divisions drove the decline in operating income year-over-year.
Corporate spending was down slightly year-over-year in the first quarter and down approximately $800,000 versus the fourth quarter. First quarter net income was $4.9 million or $0.13 per diluted share versus net income of $11 million or $0.30 per diluted share in last year's first quarter.
Given the timing of the share repurchase activity during the quarter, the program did not have a material impact to the diluted shares outstanding. Turning to the balance sheet, we ended the first quarter with $47.7 million in cash, down $4.5 million versus the fourth quarter of 2015.
The decline in cash was primarily due to lower earnings, higher net working capital and the repurchase of shares during the quarter. Net working capital defined as accounts receivable, plus inventory less accounts payable was $95.1 million or 33.8% of annualized first quarter sales.
This compared to $99 million or 24.2% in last year's first quarter. The increase in net working capital is being driven primarily by higher levels of inventory in relation to declining revenues.
Inventory levels were higher for a number of reasons, but primarily due to development within in our Engineered Films division. The division has moved from selling mostly through a distribution model to selling direct.
In addition, the recent acquisition of Integra together with advanced production of grain covers for sale in future quarters, contributed to the higher inventory levels. All divisions have already begun executing plans to drive inventory levels down and we expect progress starting in the second quarter and continuing through the year.
During the first quarter, we announced our new five-year $125 million revolving credit facility. The new syndicated credit facility replaced the company's previous $10 million bilateral credit agreement.
This new revolving credit facility provides us with additional flexibility to execute our long-term strategy and pursue strategic acquisitions in the future. This was put in place now take advantage of the favorable lending environment and to allow us to be more nimble when acquisition development warrant.
Regarding our share repurchase plan, we began executing on the authorization during the first quarter. At the end of April, we had repurchased approximately 150,000 shares at an average price of $20.36.
In total we purchased about $3 million of stock during the quarter. Cash flow from operations was $9.3 million in the first quarter versus $18.2 million in the previous year's first quarter.
The decline was primarily driven by lower net income and higher inventory levels. Capital expenditures were $5 million in the first quarter of 2016 versus $2.9 million in the previous year.
The majority of the capital spend during the quarter was in the Engineered Films division. For fiscal year 2016, we continue to expect capital expenditures to be between $13 million and $15 million.
With that, I would like to turn the call back to Dan for our outlook going forward.
Dan Rykhus
Thanks, Steven. The outlook for the rest of the year is challenging and it is going to be a challenge on multiple fronts due to market conditions.
For ATD, we have seen end market demand deteriorate from January through April, and we believe these conditions will be challenging through our fiscal year 2016 and make persist well into next year. Corn prices have continued to slide since the beginning of the year and are now at eight-year lows.
Farmer sentiment is weak and productivity investments are being delayed. Demand for high-value ag equipment such as sprayers, combines and high horsepower tractors have been hit the hardest.
Based on what we see and the feedback we are getting from our strategic OEM partners, we believe right now our market is looking for the bottom and believe that that bottom will be found sometime in the remainder of this year. Meanwhile, were managing everything we control and staying committed to our long-term growth through a new product innovation.
With our Engineered Films division, we have a similar [ph] and outlook. With energy end market demand down dramatically, it is not likely that we will see a full recovery this year.
Although oil prices have rebounded somewhat lately, rig counts continued to decline. Operators are more likely to delay new drilling and completion of new wells until the oil prices stabilize and then establish some sustained improvement.
At this point, we are expecting a slower and more measured return in demand for films for energy market. The second half of the year should be stronger than the first half, but likely down around the 50% level given where rig counts are today.
We expect full-year revenue growth in our other four market segments for films and we expect to continue to improve operating margins. In aggregate, we have over half of our consolidated business facing severe end market demand challenges.
As a result, we do not expect consolidated sales to grow over the prior year. We are financially strong company with the resilient organization.
We have adjusted our cost structure for the current level of demand and we continue to look for opportunities to reduce expenses and further optimize our structure as necessary. While current end market conditions are not conducive to growth, we believe in the long-term fundamentals of the markets we serve.
We are committed and confident that we will return to the growth rates consistent with our strategic objectives when commodity market conditions cycle in our favor. In the short-term, we will continue to manage expenses, work diligently on margin improvement initiatives and take the necessary actions to preserve the core capabilities of the organization.
We will continue to focus on pursuing additional market share gains and leveraging our innovative culture to introduce value-added product offerings to each of our core markets. As we move through fiscal 2016, I have great confidence in our business.
We have three very strong businesses with excellent value propositions offered to our customers. As I have said, we face a very challenging set of end market conditions and because of that, we have executed a dramatic and swift restructuring of operations over these last two quarters.
We have also made significant investments over the past three years in each of our three operating divisions. These investments in research and development, acquisitions and capital expansions, will deliver the returns we have been expecting as we improve on execution and benefit from healthier market conditions.
A combination of these actions will make us stronger, more nimble and more profitable. Through these actions, we will protect our core as a corporation.
We believe in the long-term prospects of each division. Each division plays an essential role in our course to recovery.
When our end markets begin to turn positive again, we will be well-positioned for significant and rapid growth. With that, we would like to open up the call to your questions.
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Joe Sroka with Spectrum Advisory Services.
Your line is now open.
Joe Sroka
Good morning, gentlemen
Dan Rykhus
Good morning.
Joe Sroka
I have two questions, and I’ll just ask them both and then you can answer. The first one would be, could you put some structure around the share repurchase program?
Do you have a time out on the calendar when you think you would recover the shares that were issued in the Integra purchase? Then second, if you could give a little more color on the Project Loon as far as calendar milestones and when we will start to see that be impactful to the P&L?
Dan Rykhus
Steven, why do not you take the first one and I will handle Project Loon?
Steven Brazones
Sure. Joe, on the repurchase plan, we have a $40 million authorization from our Board, and we began repurchasing obviously in the first quarter.
We are going to continue to be opportunistic when it makes sense, but we have not provided a timeline as to when we will execute the $40 million purchase.
Dan Rykhus
Project Loon, we continued to meet the initial design milestones for endurance over the past six months, so that is going extremely well. We are working with Loon, with Google, through this year on the continued refinement of the balloon and payload and the whole process for delivering Internet connectivity around the world and we expect that throughout this year those improvements will lead to a test that will allow us to determine the scalability of this solution going forward into next year, so the milestones are continued design testing for the overall system with commercial volume ramp up possible in the next year.
Joe Sroka
Thank you.
Operator
Thank you. Our next question comes from the line of Ben Hearnsberger with Stephens.
Your line is now open.
Ben Hearnsberger
Thanks for taking my question. On the cost cuts of the restructuring, I think, you have announced $20 million or so.
Can you give us on a percentage basis, how much of that impacted the first quarter?
Dan Rykhus
Go ahead Steven.
Steven Brazones
Yes. We figure we got about $1 million or $2 million of the benefit in the first quarter from the restructuring actions that we taken and we expect that to ramp up significantly starting in the second quarter kind of in that $5 million to $6 million run rate starting in the second quarter.
Ben Hearnsberger
Okay, so $5 million to $6 million run rate starting in 2Q, but of the $20 million total, so the idea would be it has fully impacted your P&L by the back half of this year?
Steven Brazones
Yes. We expect to have the $20 million benefit in the fiscal year, so it is going to ramp up from Q1 to Q2 to that $5 million to $6 million range and then continue at that pace in Q3 and Q4.
Ben Hearnsberger
Okay. That is helpful.
When you are looking at operating expenses on an absolute basis, would you expect them to continue to come down throughout the year as these costs gets rolled through?
Steven Brazones
Yes.
Ben Hearnsberger
Got it. I know the demand picture is very cloudy, but at least sounds like the back half of year is potentially better or the outlook is a little bit brighter in the back half, so given the expectation that later this year maybe demand stabilizes somewhat and you have got OpEx on an absolute basis coming down, should we think about or do you guys think about trough profitability later this year or is it just too cloudy of a picture to comment on that at this point?
Dan Rykhus
I will comment on that, Steven, and then you can jump in. We do expect our third and fourth quarters to be substantially improved.
We see Engineered Films having a real strong third quarter. When we look at ATD's third quarter that will really be the first quarter where we will have reasonable revenue run rates on this, a much lower cost structure and we expect that will start to show what ATD can do and we expect a strong third quarter from Aero.
Then quarter four, not quite as good, but still a good earnings growth quarter for Raven, so second quarter is going to continue to be difficult for us. I think, full company earnings for second quarter will be similar to the first quarter.
Revenue should be improving over Q1, but won't exceed last year's revenue in the second quarter.
Ben Hearnsberger
Okay. That is really helpful.
Thank you. Then on the R&D spend, it is a lowest of all on absolute basis we have seen in a while.
Is there a level that you guys would consider mission-critical kind of a base level that you would expect to maintain?
Dan Rykhus
We do not have that line in the sand. I would tell you that and Steven feel free to add more color if you like, but the reduction for the first quarter in our R&D spend was largely a year-on-year difference in Aerostar.
The majority of our R&D spending goes to Applied Technology traditionally and that level of spending was down a little bit for first quarter, but not the way it looks when you look at the consolidated picture. We were down about $1 million year-on-year in Aerostar R&D spending and that really sort of colors that perhaps in the wrong way.
Ben Hearnsberger
Okay. That is good color.
Then the last question for me and I will jump back in queue, so you have undertaken a difficult task of kind of winding down your capacity as you face these end market headwinds. How quickly can you go out and add capacity?
Should see your end markets turnaround fairly quickly?
Dan Rykhus
Sure. That is a good question.
You got to kind of look at it by division. In our Engineered Films division, we have the ability to very quickly re-ramp capacity.
We did idle one factory in late January, as a result of the declining energy market and that factory is on standby ready to ramp up. We have got the people available, because it is near the Sioux Falls area to start that back up, so that one is quick.
In Applied Technology, as we start to see improved conditions and demand return, we will need to add manufacturing staff and that is a little bit more gradual process but one that we feel very comfortable that we could keep up with.
Ben Hearnsberger
Okay. Great, thank you gentlemen.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Beth Lilly with GAMCO Investors.
Your line is now open.
Beth Lilly
Hi, Dan and Steven.
Dan Rykhus
Hi.
Steven Brazones
Good morning.
Beth Lilly
I want to make sure I understand exactly what is going on in the three businesses. As you look out for the rest of this year, it sounds like Applied Technology, you think is going to be down, but you are somewhat optimistic for 2016.
Is that correct?
Dan Rykhus
Well, our fiscal '17, calendar 2016, that is correct.
Beth Lilly
Okay. In terms of Films, you think that the energy piece of the Films business is going to continue to be weak, but you see other parts of that business offsetting that weakness, so do you think Films is going to be down this year as well on a revenue basis?
Dan Rykhus
Revenue is going to be pretty flat this year as our view of things at this point and again you hit the nail on the head with energy being down over 50% for the full-year and the other market segments all being up and resulting revenue being, perhaps down slightly but pretty close to last year but we do expect operating income growth for the full-year based on our…
Beth Lilly
Okay.
Dan Rykhus
…efforts value engineering and expand margins.
Beth Lilly
Which segments, so besides - on the Films side, so ag, where else have you seen strength to offset the weakness on the energy?
Dan Rykhus
Construction, industrial markets and ag markets and particularly the ag market.
Beth Lilly
Okay. Interesting.
Okay. All Right, then as we look out to calendar 2016, then my guess is that Films will be up?
Dan Rykhus
Calendar '16, yes, we would expect eventually that this energy market will stabilize and offer some growth for us. That is not going to be stay down 75% off where it was, so there is some upside there, but just to clarify in the ag market that our ag market for films is the high-value crops, growing fruits and vegetables in California, but also the feedstock covers such a silage and other feedstocks that are used in livestock and dairy operations, so those parts of the ag segment are not under the same kind of pressures as the crop production ag segment, which is what our ADT supplies.
Beth Lilly
Yes. Okay.
Less commodity-type crop?
Dan Rykhus
Right. Exactly.
Beth Lilly
Okay. All right, and I want to drill down just a little bit more in Aerostar and just to understand the decline in the revenue.
If we strip out the contract manufacturing, you still had a pretty dramatic decline, but it sounds like you are optimistic on the back half of the year because of the relationship with Google and what you see on that front, so can you say more about what you see for the rest of the year for Aerostar and do you think revenues on a full-year basis will be down or do you think they will be flat?
Dan Rykhus
Well, Steven, you may want to help with desegregating Q1 in terms of contract manufacturing and other, but as we reported in March, I believe, we expected our first quarter in Aero to be down. It is a lumpy business and becoming even more so with the absence of contract manufacturing.
We do expect our Vista Research product lines and pursuits to provide a really strong second half. We also have various stratospheric balloon opportunities that have developed in addition to our work with Google, that should provide some help in the second half, but we are still facing some difficult comparables for one last year on the contract manufacturing, so we expect our revenue probably to be down for the full-year, but the percent of that will be almost all proprietary products now, but will be off some and we expect that we can offset that revenue decline with the improved operating margin on our proprietary products.
Beth Lilly
Okay. In terms of the Google relationship, so it sounds like - did I hear you correctly, you would expect commercial ramp up potentially at some point over this in just in this, the calendar year 2015?
Dan Rykhus
We expect that as we progress through the year, the results of the system-level testing will give us good visibility into what that commercial ramp looks like and I would expect that the commercial ramp would be sometime in calendar '16, but will no more, as we work through the year, and we will report as we can as soon as we are able.
Beth Lilly
Okay. Commercial ramp in 2016, calendar 2016?
Dan Rykhus
Yes. It is possible.
Yes.
Beth Lilly
Okay. Great.
Okay. Then my last question is, the $13 million into $15 million in capital spending, you spent $5 million year-to-date, so the rest of the CapEx, where is that going go?
Dan Rykhus
Well, I think, Steven?
Steven Brazones
Yes. We noted that that is definitely not our run rate for the year, but the majority of our CapEx spending will go into the completion of, what we call line '14, which is a significant new cast [ph] line for our Engineered Films division and will allow us to serve certain industrial markets for heavy good film solutions and that is important to us for a couple reasons.
The first is, it provides us another opportunity for diversification, strengthening one of our smaller five segments that we serve for our Engineered Films division. Secondly, that line '14 should mark the end of the a pretty significant season of capital expansion capacity expansion in our Engineered Films division, and we believe that with the completion of that line that we should be pretty well set for the next two years to four years on CapEx requirements and films for growth.
Now, we will always have some maintenance CapEx requirements there.
Beth Lilly
Okay. Great.
All right, those were all my questions. Thanks.
Dan Rykhus
You bet.
Operator
Thank you. We have a follow-up question from the line of Ben Hearnsberger with Stephens.
Your line is now open.
Ben Hearnsberger
Hi. Thanks for taking my follow-up.
If you expect or if there is a potential for commercial ramp in the Project Loon, in 2016, would you expect to have to make a significant capital investment to add the required capacity ahead of that?
Dan Rykhus
Not this year.
Ben Hearnsberger
Can you give us a sense for if you are looking out next year, the potential size of the capital investment?
Dan Rykhus
That depends on the degree of scale that the customer chooses to pursue and I am really not comfortable talking about what that may be, because we do not know. We feel like we are in good shape given the facilities that we have invested in and some of the automation investments that we have done over the last year to support what we view this first phase potential ramp up to be and the we do not expected to consume a lot of capital to satisfy that first ramp.
Ben Hearnsberger
Okay. Then Steven, I know you mentioned kind of your priorities for cash and then this incremental capacity you have on your credit line.
I just wanted to make sure I had those correct, so the idea would be strategic M&A, one, our repurchases, two. Is that kind of how we should think about it?
Steven Brazones
Yes. I think the whole purpose of the revolving credit facility that we have put in place, the primary purpose of that is for strategic M&A.
We would not rule out all options are on the table to use that for other reasons, but strategic M&A is not primary reason for the revolving credit facility that we secured in the first quarter.
Ben Hearnsberger
I know you cannot give a ton of color on it, but can you just give us maybe a sense for how robust the M&A pipeline is at this point?
Steven Brazones
Yes. We continue to develop opportunities across the three divisions that we have and we continue to sources of ourselves and also relying on outside parties to help us the source transactions as well, so we continue to build our pipeline of opportunities, and as a normal course of our operation, look at a number of transactions on an ongoing basis.
Ben Hearnsberger
Is the expectation that you would do a deal within this fiscal year?
Steven Brazones
Well, I would certainly hope that, we would be in a position to do that, but we going to be very prudent. We are going to make sure that we do not overpay.
A lot of the deals you look at, you never do, so we have got a very disciplined approach from a due diligence perspective, from a return perspective that we are going hold to and I would be hopeful that we will be able to find some transactions that fit the strategic focus that we have, but M&A is one of those things you cannot really predict.
Ben Hearnsberger
Yes. Okay.
I understood. Thank you.
Operator
Thank you. I am showing no further questions at this time.
I would like to turn the call back over to Dan Rykhus for closing remarks.
Dan Rykhus
Thank you again for taking the time to join us on today's call. We remain true to the Raven business model, exercising fiscal prudence and honoring our purpose to solve great challenges.
We are optimistic that the markets we have chosen will continue to provide long-term profitable growth opportunities over time and we look forward to updating you on our second quarter call in August. Thank you.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect.
Everyone have a wonderful day.