Steven Brazones – VP and Chief Financial Officer Dan Rykhus - President and Chief Executive Officer

Ben Hearnsberger - Stephens Andrea James - Dougherty & Company

Thank you, Chelsea and welcome everyone. Today’s call is being webcast live and will be also archived on the company’s website for future listening.

Before beginning, we 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, the company will be discussing certain non-GAAP financial measures, specifically net sales excluding contract manufacturing sales, adjusted operating income, adjusted net income and adjusted earnings per share. All of the non-GAAP measures discussed today should not be construed as an alternative to the reported results determined in accordance with GAAP.

We believe that a discussion of these measures is useful to investors, because it assists in understanding the underlying operating performance 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 the reported GAAP results in our earnings release. I would now like to turn the call over to Dan.

Thank you, Steven, and welcome everyone. This quarter was a very challenging quarter due to the disappointing developments in Vista Research and the impacts those developments have on the second half of the year for Aerostar.

At the same time, we are starting to become more optimistic for both Applied Technology and Engineered Films. We believe end market conditions are beginning to stabilize for these two divisions.

And with the progress we continue to make on our commercial initiatives, we expect improved sales developments for both divisions next fiscal year. I will provide more commentary on our outlook a little later, but first I would like to discuss the significant developments impacting Vista Research and the Aerostar division.

During the third quarter, we significantly reduced our expectations for sales and operating income of the Vista business. We experienced an unexpected and most likely prolonged delay in the awarding of a significant contract in the Middle East, North Africa region.

We had previously expected a contract award in the third quarter of this fiscal year. As a result of this delay, we extended the timing and reduced the likelihood of completing not only this pursuit, but future international pursuits.

Unfortunately, we are not likely to successfully execute a significant contract within the next 12 months and therefore, significantly revised on our financial forecast with the Vista Research business. As a result of this significant revision in outlook, we determined we had a triggering event for goodwill impairment purposes and tested for impairment in the third quarter.

We determined that the goodwill associated with the Vista Research reporting unit was impaired and booked a non-cash impairment charge of $7.4 million. Concurrent with the revised outlook for Vista, the pre-contract cost associated with these Middle East, North Africa region pursuits were written off during the third quarter and the earn-out liability associated with the business was materially reduced.

The write-down of pre-contract costs resulted in an unfavorable impact to operating income of $2.9 million, of which $2.1 million was related to prior periods. The reduction in the earn-out liability resulted in a favorable impact to operating income of $1.5 million and the total net impact to pre-tax income of all these items totaled $8.9 million.

While we are disappointed that Vista was unable to successfully win a large international contract this year as previously expected, we continue to see growth opportunity for the business and we will continue our pursuit of these international opportunities albeit on a more measured basis. In the third quarter, we restructured Vista, taking out more than $3 million in cost on an annualized basis and we also took a hard look at leadership and have realigned our talent for improved execution of our strategy.

Effective November 30, Lon Stroschein will transition to become our Director of Corporate Development and Scott Wickersham, who previously served as Aerostar’s Director of Product Development, will become the General Manager of our Aerostar division. Scott’s engineering, business education and experience will serve Aerostar well today, while Lon will bring a new perspective and strong strategic understanding of Raven in his new role, which will focus on mergers and acquisitions for the entire company.

I am confident that Scott and Lon will both be successful in these roles and that both moves will be very positive for the company going forward. We are committed to improving the execution capabilities of the organization and returning Aerostar to growth.

The breakout potential of the business remains, but with the delays in winning international pursuits, this will likely take more time to realize. The Vista development this quarter is very unfortunate, but we believe we have our arms around it now.

We had expected the Aerostar division to be the bright spot this year and generate growth as Applied Technology and Engineered Films both face significant end market challenges. I will now discuss the results for the third quarter in more detail, division by division and then turn the call over to Steven for a review of the financial statements.

Starting with the Engineered Films little has changed in this quarter. Energy declines continued at the same level experienced in the first half of the year, down 80%, while the remaining markets in aggregate continue to grow.

Sales into the ag market were particularly strong, driven by sales of grain and silage covers, a product line we acquired with the Integra acquisition. The third quarter represents the seasonal peak for the ag market for EFD and we are quite pleased with the growth in this market.

Additionally, sales into the construction market were strong, increasing at a double-digit pace year-over-year. However, the remaining markets declined during the quarter.

The geomembrane market is being negatively influenced by the market conditions in energy and sales into the industrial market while faring much better than geomembranes still declined year-over-year. As we look forward, we are excited about the growth potential of the new production line we recently completed.

We are in the midst of startup and expect sales contributions from the line to meaningfully contribute to grow next fiscal year. Efforts to pre-sell the capacity are well underway and continue to gain momentum.

This new line will provide new capabilities with which we intend to pursue new applications within the industrial and geomembrane market. These new applications are expected to be a game changer.

For now, we are limited in what we can disclose, but we will share more specific details about this early next year. For Applied Technology, the end-market demand conditions did not worsen, but seemed to stabilize during the quarter.

Net sales for Applied Technology in the third quarter of fiscal 2016 were down 36% versus the third quarter of 2015. This is an improvement versus a 44% year-over-year decline experienced in the second quarter.

Although sales to OEMs continued to decline, we did experience an improvement in sales to the aftermarket. While it’s a bit early to call the third quarter the bottom, the velocity of sequential sales declines appear to be easing for Applied Technology.

Although the fourth quarter will be a challenging quarter for the division, given the planned OEM shutdowns, we expect sales and profit improvement in fiscal 2017. During this very challenging year, we have been quietly and successfully working with our OEM customers on long-term supply agreement that provide stability.

Our persistent stream of new ag technology continues to make Raven an attractive technology partner for many OEMs serving agriculture. We believe deals similar to the one we announced with CNH Industrial earlier this month and others we completed earlier this year, will enable growth through new products next year even if market conditions do not improve.

With respect to our recent announcement regarding the expanded relationship with Case, we are very excited about the growth prospects with this key OEM partner. Our investment in next generation precision ag technology enabled this agreement.

We expect this to contribute meaningfully to sales growth for the division throughout next fiscal year. Regarding the margin development this year, Applied Technology has not realized the full sequential improvements we had envisioned earlier in the year.

Although the restructuring efforts and cost containment actions are reducing expenses as planned, the sales development for the year has been below the expectations we had at the time of the March restructuring. We proactively made the decision not to execute additional cost cutting measures in light of our reduced sales outlook.

We are optimistic in our new product portfolio and our opportunities for international growth. We are preserving our technical capabilities and enhancing our sales focus.

We made this decision because we believe that we are nearing a market bottom and that further cost reductions would only reduce our ability to capitalize on the opportunities we will have for market share gains and growth from new products next year. Now, let me turn to Aerostar.

Aside from the disappointing results for the Vista Research business, the sales development of the stratospheric balloons, which includes Google’s Project Loon was stable year-over-year, while aerostat sales were very strong in the third quarter, up $1.6 million year-over-year. The timing of sales into the aerostat market are hard to predict.

We continue to sustain a very profitable business and pursue new opportunities to grow this small but strategic portion of Aerostar. With respect to stratospheric balloons, we continue to build momentum.

Our relationship with Google is strong and the progress they continue to make in Asia gives us a lot of optimism for the project. While we are still several quarters away from a potential breakout in stratospheric balloons, we continue to meet key milestones in the high volume manufacturability of our balloon design to meet the mission requirements.

We remain fully committed to doing what we can to make Project Loon a success. The fourth quarter is going to be challenging for Aerostar with the lack of a sizable international contract award in Vista and a challenging comparison for Vista year-over-year.

The division’s performance will most likely be similar to that of the third quarter, adjusting for the Vista charges. With that, I will turn the call over to Steven.

Thanks Dan. On a consolidated basis, sales were $67.6 million in the third quarter, down 25.9% versus a year ago.

Excluding sales from contract manufacturing activities, sales were down 21.3% versus the third quarter of last year. Operating income for the third quarter of 2016 was a loss of $2.7 million.

Adjusting for the unusual items pertaining to Vista Research, operating income for the third quarter of 2016 was $6.1 million, down $4 million or 40% versus the third quarter of last year. Adjusted operating margin was 9.1%, down 220 basis points sequentially and 200 basis points year-over-year.

Third quarter net loss was $1.6 million or $0.04 per diluted share. Adjusting for the unusual items pertaining to Vista, net income for the third quarter of 2016 was $4.8 million or $0.13 per diluted share.

This compares to net income of $6.8 million or $0.18 per diluted share in last year’s third quarter. On a divisional basis, net sales for Engineered Films was $36.9 million, down $4.3 million or 10.5% versus the third quarter of last year.

The decline in sales for the division was driven largely by the significant decline in energy market-related sales, which were off approximately 80% year-over-year. Agriculture, construction, geomembrane and industrial sales in aggregate increased 18% year-over-year.

The increase in sales in these markets was driven primarily by the acquisition of Integra last year as well as organic growth in the agricultural market. Division operating income for Engineered Films was $6.1 million in the third quarter of 2016, an increase of nearly $700,000 or 12% year-over-year.

Division operating margin was 16.6% in this year’s third quarter, up 340 basis points versus the third quarter of last year and 160 basis points sequentially. In line with the company’s strategy to acquire and integrate Integra, Engineered Films realized improved margins through generating a higher proportion of sales from fabricated products as well as continued pricing disciplines, raw material cost development and value engineering efforts.

For Applied Technology, third quarter sales were $29.3 million, down 35.6% year-over-year. Sales to OEMs were down 41% and sales to aftermarket were down 26% year-over-year.

Excluding contract manufacture activities, sales for the division were $21.3 million, down 32.5% year-over-year. Division operating income for Applied Technology was $3.3 million, down $3.1 million or 48.8% year-over-year.

A significant decline in volume was the result of the challenging end market conditions was the main driver for the decline in profit. Division operating margin was 15.5%, down 400 basis points year-over-year and 430 basis points sequentially.

As Dan mentioned, we chose not to execute additional restructuring actions in Applied Technology as a result of the lower unexpected sales development this year. Our additional cost reductions would have benefited margins in the short-term we believe that would hinder our efforts to generate growth in fiscal 2017.

For Aerostar, third quarter sales were $9.5 million, down nearly $10 million or 51% year-over-year. Excluding contract manufacturing activities, sales for the division were $8.8 million in this year’s third quarter, down $3.6 million or 28.9% year-over-year.

The decline in proprietary sales was driven by a significant decline in Vista Research sales which were down $4.5 million year-over-year. Aerostar sales were up $6.1 million year-over-year, while stratospheric balloons sales were flat versus the third quarter of last year.

Division operating income for Aerostar was a loss of $8.4 million. Adjusting for the unusual items pertaining to Vista Research, division operating income for the third quarter of 2016 was $500,000, down $2.5 million or 84% versus the third quarter of 2015.

The significant decline in Vista Research sales year-over-year drove the decline in profit. Turning to the balance sheet, we ended the second quarter with $32.5 million in cash, down $15 million versus the previous quarter.

The decline in cash was principally driven by the $18.5 million repurchase of shares during the quarter. Net working capital defined as net accounts receivable plus inventory less accounts payable was 29.9% of annualized sales from the third quarter, down 240 basis points versus the second quarter and down 390 basis points versus the first quarter peak 33.8%.

Net working capital benefited primarily by our continued efforts to reduce inventory levels with both Applied Technology and Engineered Films reducing inventory by approximately $3 million versus the previous quarter. Regarding our share repurchase authorization we bought back approximately 1.1 million shares at an average price of $17.59, equivalent to approximately $18.5 million.

Year-to-date through the third quarter, we had bought back approximately 1.6 million shares at an average price of $18.31 equivalent to slightly more than $29 million. Total shares repurchased thus far roughly equate to the number of shares issued in conjunction with the Integra acquisition last year.

The remaining authorization is approximately $11 million. Cash flow from operations was $11.4 million in the third quarter of 2016, down $3.3 million versus the third quarter of 2015.

The decrease in cash flow was primarily driven by lower net income. Capital expenditures were $3.4 million in the third quarter, down $2.1 million versus the third quarter of last year.

Year-to-date, capital expenditures for the year were $10.8 million versus $12.8 million for the first nine months of last year. For fiscal year 2016, we expect total capital expenditures to be approximately $13 million.

With that, I would like turn the call back to Dan for our outlook going forward.

Thanks Steven. This year has proven to be a most challenging year with all three divisions now experiencing significant declines.

Although we believe the worst will be behind us once we begin our next fiscal year, market conditions in Engineered Films and Applied Technology are not likely to improve significantly for the foreseeable future. And the setback Aerostar realized this quarter pushes out for sometime some time the development of sizable Vista business pursuit.

Looking at fourth quarter, conditions are not expected to improve. We will face tough year-over-year comparisons in both Engineered Films and Aerostar.

Last year’s fourth quarter was quite strong in the energy market for EFD as it was the last quarter before the significant decline in the market began. In addition, the division had just transitioned to a new distribution model and benefited from last time buys.

In Aerostar, Vista finished the prior year strong with radar sales to a major prime contractor for deployment in the Middle East. As a result, we do expect next quarter earnings to be down sequentially versus the third quarter.

As I have stated throughout the year, we remain focused on executing our plans on key initiatives with strong long-term growth potential. Each division is focusing on the most promising and highest growth potential projects.

These include starting up and selling the capacity of our new cast line in Engineered Films, focusing our selling efforts on the sale of our new Hawkeye sprayer control system through Applied Technology and continuing the design and manufacturing improvements of our stratospheric balloon product line in Aerostar. Given these initiatives, we do expect to return to growth in fiscal year 2017 even though market conditions are not expected to improve.

With a more appropriate cost question structure, strong new product portfolio and continued process improvements, we expect to begin delivering revenue and profit growth next year. And with that, we would like to open up the call for questions.

Hi. Thanks for taking my question.

I wanted to start in ATD and the question is really around the outlook for improvement next year. OEMs have been out over the last few months kind of talking about a down calendar year ‘16.

I guess what gives you confidence you can grow next year given what the OEMs are saying?

Thanks for the question, Ben. For ATD, we have got a really exciting new product called Hawkeye, which is a novel control system that is generating several different business development projects for us that we are pursuing right now, some with existing OEMs, some with other players in the ag market that haven’t been customers traditionally.

So, that gives us some optimism. We do think our second half looks to be stronger than our first half for ATD.

And we do expect that the market conditions are going to continue to be difficult, but they were difficult for us last year as well. So, we are not expecting - I am not saying we are going to have strong, strong growth out of ATD, but when you look at the full year benefit of a reduced cost structure with the new product initiatives that we have, we think we can eke out some growth in ATD next year.

Okay, that’s helpful. And then I think we have talked a little bit about some replacement sales or the expectation that we would start to see some replacement sales next year.

Is that playing into the outlook as well?

As of backdrop issue, yes, there is the same phenomenon that we talked about in the past still applies that we sell a lot of our products to businesses there. Ag retail organizations that apply chemicals and fertilizers as a business for farmers and those business tools, a sprayer, will wear out.

It gets used, it runs across tens of thousands of acres each year. So that same dynamic is there.

We are not [weighting] [ph] that heavily to say this is how we are going to grow, but there will come a time, where those sprayers don’t hold together anymore and there will be replacement requirements.

Can you tell us how much of your business goes into the commercial sprayer market?

We have been changing from OEM to aftermarket. The majority of our OEM sales end up going to customer applicators eventually, goes with that organizations that buy them.

I would say it’s in the 55%, 60% range.

Okay, that’s great. And then one for Steven, can you give us, this is an EFD, can you give us the sales growth, excluding Integra and excluding oil and gas, kind of legacy EFD?

Yes. So, estimating – we have to estimate Integra sales for the quarter, because obviously we fully integrated the business into our existing EFD business.

But we estimate that excluding Integra, we are probably down around 25% to 30%, including the decline in energy. If you were to just look at non-energy related sales, excluding Integra, we are probably down in the 5% to 10% range for those remaining markets.

Okay, that’s helpful. And then the margin, the margins in this segment improved and they have been improving nicely for the last three quarters or so.

Can you just talk about the sustainability of this margin improvement over the coming year?

Yes, I think we have done a lot of systemic things this year to help improve margins regarding reformulations, which is a continuous activity of ours that we will continue to do that. We believe there is future benefits from that as well.

We have seen favorable raw material environment this year and I would say courage on the pricing side to maintain our pricing discipline. In addition, with the Integra acquisition, it’s really increased our fabrication capabilities and typically we are in higher margins when we sell fabricated products and we would see that continuing going forward as well.

So, it’s our expectation that we will be able to sustain the margin improvement that we have garnered so far going forward.

What did pricing do in this segment in the quarter?

Pricing was up in the 8% to 9% range year-over-year. Now, that’s not pure price necessarily.

I think that does have the benefit of – there is a big mix benefit in there in terms of higher proportionate sales from fabrication, but ASP which is a broad measure was up about 8% to 9% year-over-year.

Okay. And then typically the segment sales see strong correlation to rig count.

Rig count was down 60%. I think your oil and gas sales were down 80%.

Can you help us true-up the discrepancy here; it seems like you maybe growing a little bit slower than the industry?

Well, I think you have to look at rig count is one of the things that we look at, but also well completion rates and so well completion rates have fallen more than rig counts. And so, I think that’s the connection between what rig counts are down and what our sales activities are down year-over-year.

60% to 80% we believe is well completions.

Okay, got it. And then one more question, on the new line that you have, can you give us the expected revenue capacity of the new line?

Yes. Pounds capacity is going to be around 20 million, 22 million pounds and then the pricing on that is going to be higher than our normal.

So, it’s in the – it’s well into the 40 million to 50 million would be my estimate on that, of which we are not going to capture that all in the first year by any means, but we are expecting to get at least $10 million of new revenue out of that line next year and probably closer to $15 million.

Okay. And how much of the capacity you have pre-sold at this point?

It’s - all of that revenue is in the works. So, yes, we feel more confident in our presale activities on this line than any line that we have started up in the last 5 years?

Okay, great. Gentlemen, thank you very much.

You are welcome.

Hey, thanks for taking the questions. Good morning.

Good morning.

Yes. And just first one about cash, it looks like you guys are doing a good job generating cash even with a lot of your segments in this recession like environment.

So, just wanted to just check in on your thoughts on the use of cash going forward, I know you have $10.7 million remaining on the buyback program and you also have your dividend program. I am just wondering what you are thinking as things improve what you do next year?

Well, we have been active as we said and we are pretty pleased with the buyback activity that we have in this quarter that we disclosed out. We do remain committed to our dividend policy and our dividend payout at this time.

And we have a Board meeting in early December where we will continue to discuss that. But our intention is to continue to pay a dividend and to discuss that thoroughly as to what level that would be and we believe that we can sustain where we are at, but we will have a good conversation on that in December.

As we look at other uses of cash, our CapEx, we’ve held down this year and continued to hold that down. We don’t believe that that’s limiting our future growth, because the most of our CapEx goes into films and we have invested so aggressively there over the last – the prior three, four years.

So, we are going to have some improved cash position just as a result of a little less CapEx. And then as you mentioned, Andrea and thank you for noting that, we have been working hard on controlling what we can here as a company and one of those items is our inventory and our accounts receivable and as Steven talked about, our net working capital, and we are expecting to continue to get some cash flow positive – cash flow generation out of those activities in the fourth quarter and as well as moving through the first half of next year.

Thank you. That is helpful.

And then just your CapEx plans for this year, I think you had originally said $13 million to $15 million, now you are thinking it might come in at $13 million. Is that just a matter of timing on payments?

And then also what is the balance of that $13 million going toward this year?

Yes. Andrea, I think most of the balance is going to grow towards films and completing last payments for our new production line that we are putting into that – we are starting up this quarter.

And $13 million – we had a range of $13 million to $15 million we have just been pretty prudent this year in terms of measuring and managing our capital expenditures. And I would think next year, we would actually have a further reduction in capital expenditures from that $13 million level as we don’t anticipate any significant growth CapEx in the films division next year.

And what percentage of your film division is tied to energy at this point?

About 10%.

And that’s down from 50% to 60% a few years ago?

35%.

Well, 3 years ago about 50% and we intentionally – you have been with us a long time Andrea, we were intentionally driving that down and then we mission accomplished and then the market fell apart on us. So it’s gotten to be a pretty small part of the overall business right now, which means there is a lot of potential for us as the market comes back.

Well. And so I am thinking just thinking out loud, oil goes down to $25 a barrel, I mean do you think it’s pretty de-risked in the films business for you at this point or maybe if that could be...?

Yes. But it’s down – and it’s gone down as far as it has and we have managed our expenses the way we have.

There isn’t much further for it to go, which means there is a lot of upside. So yes, before it was to fall to $25, we could – we have another, whatever $15 million of revenue at risk and we have got costs associated with that, that we have to deal with.

But that’s in a lot better position than having $60 million out of $130 million in sales, which is the position we are approximately in a few years back.

Great, helpful. Thank you, guys.

You bet.

Andrea back on cash, I do want to say that we continue to be very active in acquisition consideration and analysis, especially in our Applied Technology division. And there is a lot going on in the marketplace as all of you have read some very large deals that have gone through, some very large deals that haven’t gone through, but that trickles all the way down throughout the ag economy and precision agriculture, in particular.

We see – we are seeing more and more opportunities that we are going to be pursuing more aggressively. And I am very pleased to have Lon committing his time fully to that as we go forward here.

And we feel good about the opportunities there. So that continues to be a way that cash may be used and of course, we have the borrowing capacity that we put in place last year as well.

Thanks. Actually, I was going to hop offline but since just one more and then I will get out of the queue here.

I noticed that Trimble put out an announcement a while ago saying that they have products that work with yours now, is that the first time you guys have ever partnered or you are actually partnering or kind of what’s some of the genesis of that new product announcement?

First time, probably it is the first time on this level. The genesis is that this is a different marketplace where companies that haven’t traditionally worked together are finding it both of us more favorable to work together.

And for us, it means we can continue to sell more and more field computers and we can allow our farmers and ag retailer end users to use the data management system of their choice and the software of their choice and not take a position where we are or they perhaps, are forcing people to make those decisions. So it is a new world and we are happy to be collaborating with them on this particular project.

Thank you. I appreciate it.

Hi. In the EFD segment, I want to make sure I understand the new line because on its face, it seems like you are adding capacity in a really tough environment, but it sounds like there is some nuance here that may generate some new sales, I just want to make sure I understand whether this new capacity cannibalizes some of your existing capacity or existing lines or if it’s expected to generate new sales?

Yes, let me jump on that and clarify. It doesn’t cannibalize the thing and it’s really strategically important that we are adding capacity that will allow us to grow our industrial market segments.

And as a reminder, we have five different market segments in films and we seek to get a better diversification balance in films. And these pounds that I talked about will allow us to grow that segment in a way that we haven’t been able to in the past because we are developing new products and applications that only can be produced on that line.

So there are higher margin products, there is a lot of capacity there that’s fine tuned to serve the industrial market segment, which is only 10% of our overall revenue today.

Okay, that’s helpful. And then, Steven on the – if you kind of dig through all the adjustments, it looks like the tax rate, it’s on an adjusted basis is running around 23%, 24%, which is lower than the historical that we have seen, is that the right number and then if that is, how can we think about the tax rate going forward?

Yes. Ben I think for the full year, a good proxy for our tax rate would be about 28% for this fiscal year.

Going forward, it will go back to the 32% range that we traditionally have seen. This year we have a disconnect between pretax book income and taxable income given the tax deductibility of the goodwill impairments.

And so that phenomenon is driving our rate lower by about 4 percentage points this year versus the 32% that you would normally expect to see.

Okay. And then one last question on Aerostar, I just want to make sure I understand the nature of the contract push-out, were these really pushed out or was this a competitive loss and there has been some shift in competitive environment over the last quarter?

Yes. I would say it’s been pushed out.

The pursuit that we believed was imminent in late Q2, early Q3 has been delayed. And so we are still pursuing this opportunity, but the probability of us recovering those costs in the next 12 months is lower than it was.

And that’s why you saw the activity that we took there on the breakdown of our free contract costs.

Okay. Thank you very much.

You’re welcome.

Thanks Chelsea. Thank you, all again for taking the time to join us on today’s call.

We look forward to updating you on our fourth quarter in March.