Mar 7, 2018
Executives
Bo Larsen - IR Dan Rykhus - President and CEO Steven Brazones - VP and CFO
Analysts
Jason Freuchtel - SunTrust Craig Bibb - CJS Securities Jon Fisher - Dougherty & Company
Operator
Good day, ladies and gentlemen and thank you for standing by. Welcome to Raven Industries Fourth Quarter 2018 Earnings Conference.
At this time, all participants are in a listen-only mode to prevent background noise. [Operator Instructions] And as a reminder, this conference is being recorded.
Now, I would like to welcome and turn this call to your host, Mr. Bo Larsen, Director of Investor Relations.
Bo Larsen
Good morning, and welcome to the Raven Industries Fiscal 2018 fourth quarter investor conference call. Today's call is being webcast live and will also be archived on the company's website for future listening.
On the call today will be Dan Rykhus, Raven's President and Chief Executive Officer and Steven Brazones, Raven's Vice President and Chief Financial Officer. Before beginning, the company 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 the company's current expectations, actual results may differ. I would now like to turn the call over to Dan Rykhus, Raven's President and Chief Executive Officer.
Dan Rykhus
Good morning and thank you for joining us today. At Raven, our purpose for these calls is to report the progress of the company, focusing on the long term strategic direction.
I'll spend some time discussing our strategic accomplishments in the fiscal year just closed and our longer term investment plan for the current year. And then, I'll turn it over to Steven to discuss the financial performance in more detail and the outlook for the year.
Following our comments, we will open the call to your questions. Fiscal year 2018 was a fantastic year for the company, both financially and strategically.
A year ago, at the close of FY17, I reported that after significant improvements in each of our three business units, all three were well positioned for the future. Each business leveraged those strong positions throughout FY18 as the year unfolded and opportunities were presented, resulting in an outstanding year for the company.
Every division generated substantial increases in sales, operating income with improved operating margin. As a company, we expanded sales revenue by $100 million, net income after tax by $21 million and earnings per share by $0.57 and all that after growing earnings by 40% the prior year.
This growth in FY18 sales, net income and EPS were all new growth records for Raven. Last year was a kind of follow-up year to a great year in FY17 that any executive team would be pleased with and we are.
While our financial performance was historic and very satisfying, we're just as pleased with the strategic progress made during the year, knowing it will provide long-term competitive advantages. In ATD, for the full year, we achieved 17% operating profit growth despite the market conditions.
This was a direct result of the strategic investments and decisions we made over the past few years. Our unwavering commitment to R&D drove the performance by providing growth for new precision ag products, for machine control on sprayers, tractors and implements.
Our Hawkeye Nozzle control system continued to be well received in the US market with opportunities emerging in Latin America for this exciting product line. In ATD, we also strengthened service as a competitive differentiator.
We expanded our extensive training programs delivered and our proactive services to customers who use their products on a seasonal basis. As ATD closed out the year, we launched an aggressive and comprehensive strategy and action plan to serve the Latin American market more effectively.
And finally, regarding ATD margins, while the reported numbers don't reflect it, I'm very pleased with solid progress made for the full year and the quarter, which are on track with my expectation. Moving to Aerostar, the business continued to successfully execute its strategy, emphasizing its core technology, which is the stratospheric balloon platform.
By narrowing the focus in Aerostar, we have accelerated product advancements as well as operating efficiencies that are laying the groundwork for longer term strategic success and have established a more financially successful and stable business model for the immediate term. The R&D activities resulted in significant system performance improvements, extending the duration and improving the navigation capabilities of our balloon platforms.
These improvements made our product lines even more attractive to broader markets. While the entire company performed very well, it was our engineered films division that had a remarkable year, one that made FY18 historic for Raven.
Engineered films grew sales by over 50%, increased operating income by over 100% and expanded operating margins by 570 basis points. In FY18, engineered films generated over $47 million in operating profit, just a few hundred thousand dollars less than the entire company did in the prior year.
This tremendous progress and result can be traced to three high level drivers. First, the strategic investments made in the division over the prior four years were essential.
These included capacity expansions, strategic distribution changes and key acquisitions. Second, world class execution of the business model drove FY18 profit expansion.
The EFD team grew revenues for the underlying business by 26%, exercised exceptional discipline in managing the supply chain and managed high plant utilization rates effectively, balancing urgent needs with long term customer needs. The third driver for full year success was the demand for hurricane relief products.
Our companywide responsiveness to the un-forecasted and urgent demand for film used to repair roofs and provide temporary shelters for hurricane victims was critical. The division was already busy, integrating the CLI acquisition and growing the business and the team responded superbly to this great challenge.
For the company, FY18 marks strong progress in executing our long term strategy and purpose to solve great challenges. Our expanded applications of stratospheric balloon platforms, our delivery of critical products and services in support of relief efforts and our advancements in the effectiveness of agricultural spraying are only a few of the many examples of strategic and purpose aligned progress in FY18.
Now, I'll move to our planned investments for the current year. We are maintaining our focus on our three operating divisions as they've been refined over the last couple of years.
We carry strong momentum into this year and have aggressive plans underway in each division to expand performance and prepare the way for future years' successes. We are executing aggressive plans to gain market share in Latin America for ATD and through our CLI integrated efforts addressing geomembrane market opportunities in EFD.
We're also investing in capacity expansion in EFD, adding line 15 to support our growth in the industrial and geomembrane markets. R&D investments will continue to ramp in FY19 with increasing investment in ATD where we expect strong new product results in future years and increased investments in balloon platforms and radar systems, supporting our Aerostar strategy.
Acquisitions also remain an important part of our investment plans for FY19 with emphasis in ATD. We are diligently pursuing strategic acquisitions in support of our precision Ag strategy.
And finally, we're committed to the ongoing advancement of precision ag practices, technology and people through our long term investment in state of the art facilities and programs at South Dakota State University. And now, I'll turn the call over to Steven.
Steven Brazones
Thanks, Dan. Our fourth quarter financial results were strong for the company and we are very proud of the significant growth and improved financial performance.
All divisions drove significant improvements in sales and profitability in fiscal year '18. Let's take a closer look at the fourth quarter performance of each division.
Starting with applied technology, net sales for the division in the fourth quarter of fiscal '18 were up $4.6 million or 18% versus the fourth quarter of fiscal 2017. The division continues to invest in initiatives to drive long term organic growth and we are confident these investments will result in incremental growth and leverage of these costs over time.
During the fourth quarter of fiscal 2018, the division settled two outstanding legal matters on a confidential basis, including the Capstan Ag patent infringement litigation. We do not expect any ongoing or future costs associated with either of these matters that were resolved.
Although we are not able to be as transparent on Applied Technology margins as we'd like to be, given the confidential nature of the settlement agreements, broadly speaking, excluding one-time costs of which I would include legal settlements, margins for applied technology in the fourth quarter and fiscal year increased year-over-year and we expect continued improvement in margins as we go forward. Turning to engineered films, net sales for engineered films were $55.6 million, up 61% year-over-year.
The increase in sales was driven by continued organic growth in the industrial and geomembrane markets, sales of recovery film to support hurricane relief efforts and the acquisition of Colorado Lining. During the fourth quarter, hurricane recovery deliveries and the Colorado Lining acquisition contributed sales of $15.8 million and $7.9 million respectively.
Operating income in the fourth quarter of fiscal 2018 was $11.9 million, up $6.6 million or 125% versus the fourth quarter of last year. Regarding Aerostar, net sales for the division in the fourth quarter of 2018 were $9.8 million, up $1 million or 12% versus the fourth quarter of last year.
The year-over-year increase in sales was primarily driven by growth in the stratospheric balloon platform. Division profit was down slightly, primarily due to unfavorable mix and contract timing.
We would expect Aerostar's future quarterly division profit contributions to be more consistent with the first three quarters of fiscal '18 than representative of the fourth quarter's performance. On a consolidated basis, net sales for the fourth quarter of fiscal '18 were $95.8 million, up 39% versus the fourth quarter of fiscal 2017, with each division achieving double digit sales growth.
Operating income for the fourth quarter of fiscal '18 was $11.4 million versus operating income of $6.3 million in the fourth quarter of last year, increasing 82% year-over-year. Operating margin increased 280 basis points year-over-year from 9.1% of net sales to 11.9% of net sales.
The significant improvement in profitability was principally driven by engineered films' improved margins and leverage of corporate expenses over significantly higher sales. Net income for the fourth quarter of fiscal '18 was $8.4 million or $0.23 per diluted share versus net income of $4.4 million or $0.12 per diluted share in last year's fourth quarter.
The increase in earnings per share was driven primarily by the improved operating performance within engineered films. Included in its year's fourth quarter financial results were costs related to the company's Project Atlas initiative of $600,000 or approximately $0.01 per diluted share.
During the fourth quarter, Congress passed the US Tax Cuts and Jobs Act. This reduced the company's fiscal 2018 US federal statutory tax rate by approximately 1.2 percentage points and benefited fiscal year '18 net income by approximately $700,000.
We expect our fiscal 2019 effective tax rate to be approximately 21%, excluding discrete items. To quantify the significant benefit we expect to garner from this new legislation, using fiscal year 2018 that we just completed as an example, if you were to apply this new rate for the entire fiscal year, our net income would have been approximately $5 million higher than our reported results.
This is equivalent to an additional $0.14 in diluted earnings per share. We expect to reinvest this tax savings back into the business to fund long-term growth initiatives and to train and develop our team members.
Regarding our balance sheet and cash flow position, our metrics continued to improve in the fourth quarter. Cash and cash equivalents were $40.5 million, up $3.7 million versus the prior quarter.
Net working capital1 as a percentage of annualized net sales decreased 160 basis points year-over-year from 27.9% in the fourth quarter of last year to 26.3% in this year's fourth quarter. To put this into broader perspective, in the last two years, we have reduced our net working capital requirement by 10 percentage points, equivalent to approximately $30 million.
Our approach has been team based and all-encompassing to improve our terms with customers and suppliers and to significantly reduce our inventory levels across all three divisions. Turning to the outlook, as we look ahead, we are cautiously optimistic for end market conditions to continue to improve, albeit at a moderate pace.
We expect the ag market to begin recovering in calendar year 2018. We expect the geomembrane market to be relatively stable, but could be favorably impacted if oil prices remain in that current range.
Our stratospheric balloon market is expected to expand as well based on our strong technology offering and the interest in our capabilities continues to be very high. There are several items that are going to impact our year-over-year performance in fiscal 2019.
Although we don't normally go into this level of detail, we believe it will be helpful for comparison purposes to provide this information to you. First, Project Atlas, as we discussed in last quarterly conference call, expenses for Project Atlas will be up approximately $3 million year-over-year in fiscal '19, which is equivalent to approximately $0.06 per diluted share in impact for fiscal '19.
Hurricane recovery film sales are expected to be down approximately $15 million year-over-year. The facing of hurricane recovery sales will create challenging comparisons in the second half of fiscal '19 as a result of this path.
As a reminder, hurricane recovery film sales were as follows in fiscal '18; zero in quarters one and two, $8.4 million in quarter three and $15.8 million in quarter four. In fiscal year '19, we expect approximately $9 million of hurricane recovery film sales and for all of that to fall in the first quarter of the year.
As I just mentioned, our tax expense is expected to be down significantly in 2019, and using 2018 results as a proxy, tax expense will be $5 million lower in '19 relative to '18. Regarding the impact from acquisitions, we expect the full year benefit from the Colorado Lining acquisition to add an incremental $0.04 per share in earnings in fiscal '19.
And with regard to ATD legal related expenses, we expect those to decline in fiscal '19 as we have put certain of those matters behind us here in the fourth quarter of the year. Lastly, we do expect to continue our organic growth investments in Applied Technology.
These investments include R&D and selling investments as well as the geographic expansion into Latin America and the launch of our new headquarters in Brazil. Altogether, there are several pluses and minuses, but it's important to note that our expectation for the business has not changed.
Over the long term, we continue to expect sales and profits to grow to approximately 10% on a compound annual basis excluding unusual items. With that, I'll turn the call back to Dan for some closing comments.
Dan Rykhus
Thanks, Steven. We had a tremendous year last year and we really are pleased with those results.
What matters most though are the long term results and our preparedness to meet our futures with purpose and resolve and this I feel very good about. Once again, like I told shareholders last year, I believe the Raven businesses are well positioned as we enter FY19.
We also have the advantages of a team sharply focused, a proven business model and positive momentum across the company. My outlook and expectation is for another solid year of progress in each of the underlying businesses and growth in line with our long term expectations.
Before we open up the call for questions, I want to thank the Raven team who continues to set us apart from our competition. I'm tremendously grateful for the hard work, passion and success of each Raven team member.
And with that, I'll turn the call back to the operator.
Operator
[Operator Instructions] And our first question is from the line of Jason Freuchtel with SunTrust.
Jason Freuchtel
I understands this may be a little sensitive, but can you quantify the impact of your one-time legal expenses during the quarter and do you have any other legal issues outstanding going forward?
Dan Rykhus
Yeah. Understand Jason, so for competitive reasons and due to the confidential nature of the settlement agreements, we're unable to give specifics about the settlements in the fourth quarter.
But I want to just reiterate, if you do back out the one-time expenses that the division incurred in fiscal '18, and in the fourth quarter, applied technology's margins were up year-over-year, both in the quarter and the fiscal year and we would expect continued improvement in margins forward here into fiscal '19. Obviously, as a publicly traded company, in the spaces that we are, we always have ongoing legal matters, but generally speaking, we don't discuss specifics, but we don't expect an adverse negative impact from any of the ongoing matters that we're facing today.
Jason Freuchtel
And I think in the release, you commented that you're continuing to support acquisitions to deploy your net cash position on, how committed are you on completing the acquisition in the future and with that, how has the deal pipeline trended over the last three to six months? And how multiples trended as well?
Thanks.
Dan Rykhus
You bet. So our focus has been unwavering on pursuing acquisitions.
I would say, if you take a look at our pipeline today, it's more robust than it has been in the last six months. We have added additional resources internally to put a full court press on pursuing acquisitions, primarily within applied technology and I'm very pleased with the progress we've been making and we continue to evaluate a number of opportunities.
Jason Freuchtel
And if I could one last question on the Aerostar, you indicated there was a mix contract related issue driving maybe a little weakness in the quarter. Can you expand on that comment?
What exactly was the mix/contract issue and can you also remind us of the impact of your contract with NASA that I believe was delayed last year. What did you guys supposedly hit in fiscal year 2018 and when did it hit fiscal year 2019 and any other color in terms of the percent of the overall revenue that was driven by the NASA contract would be helpful?
Dan Rykhus
Sure. So just looking at the timing and mix of revenues, Aerostar has a lot of contract based revenues.
And so we had lower radar sales in the fourth quarter relative to earlier quarters in the year and timing of deliveries resulted in the results we had. We also had very little aerostat sales in the fourth quarter and we would expect that to be more robust in fiscal '19 as a result of the contract win we had earlier this year.
Regarding NASA, I mean our relationship with NASA is strong. We continue to provide them super pressure balloons for the research and the timing of the super pressure balloon delivery was in February of '18 of this last year.
And that was about a little over $1 million.
Operator
And the next question is from the line of Craig Bibb with CJS Securities.
Craig Bibb
At applied technologies, continue to outperform the overall industry by a wide margin. I'm assuming the product drivers were Hawkeye and sidekick or were there other new products.
In the last call, you mentioned that you had some - you would likely have some new product introductions, although that maybe that's next quarter.
Dan Rykhus
Yeah. We saw tremendous growth within applied technology this year relative to the end market conditions that we faced and a lot of that has to continue to do with the strength of our new product portfolio in particular the Hawkeye Nozzle control system, our new rate control module as well as continued strength within direct injection were all favorable for us in the year and we're very happy with the performance of our new products.
It continues to result in increased market share for us as we're growing our share of wallet with key OEM partners.
Craig Bibb
Okay. I had thought on the last call, you said you would have new product introductions in the first half.
Are they around the corner and you can share any details around that with us?
Dan Rykhus
Well, we continue to develop new products and we're on pace to have two to three new products introduced into the marketplace in fiscal year '19. And as we get closer to the launch of those, we'll provide more details but we're excited about the pipeline of products in our - that are being developed right now and the launch is coming up.
But for competitive reasons, obviously, we don't get it - can't get into specifics at this point in time, but it is a continued emphasis of ours to continue to invest in research and development within applied technology. We invest quite heavily as a percentage of sales.
We see significant returns on the new products that we've introduced in the past and we expect continued strong returns from the new products we're going to introduce this year. So stay tuned.
We will be more specific here in the quarters ahead.
Craig Bibb
Okay. And engineered films, if you back out hurricane and CLI, you're still growing faster than the rate count, where is your incremental demand or market share coming from?
Dan Rykhus
We're in a very strong position in Texas and as you recall earlier in fiscal '18, we acquired a facility in Pleasanton, Texas to further address the Eagle Ford basis. So we've seen strong synergies from that.
We've seen strong synergies with the CLI transaction in utilizing that facility further and we've got - we've just got a very strong product portfolio and we're seeing market share gains, continued development of our services side of the business.
Craig Bibb
And the last one, Aerostar, you referenced new capabilities and new applications. Could you give us some more detail around that?
Dan Rykhus
Well, we continue to develop our stratospheric capabilities. We have spent a considerable amount of time partnering with Google over the last five years and we are taking the learnings from our collaboration with them and bringing those services to alternative markets and primarily through with the US government.
And there's a lot of interest in the capabilities that we have there.
Craig Bibb
And can you talk about just a little more specifically of what the applications are?
Dan Rykhus
So broadly speaking, getting things into the stratosphere is a very inexpensive relative to getting things into space and so there is a lot of interest from a telecommunications standpoint, from a research standpoint, from a sales standpoint in that area.
Operator
Our next question comes from the line of Jon Fisher with Dougherty & Company.
Jon Fisher
Good revenue quarter. Just thinking in terms of long term, we're sticking with kind of the focus of the call, can you just describe kind of the return on investment from a quantification standpoint of the stepped up R&D and G&A spending that's been ongoing here fiscal '18 and obviously something is going to occur in fiscal '19?
Dan Rykhus
Yes. Jon, so as you look back, as we look back over the past R&D projects that we funded within the company, specifically looking within applied technology, our returns on invested capital are far in excess of our cost of capital, order of magnitude greater.
We've got very strong margin profiles on our new products and it's allowing us to grow our base business with our customers and so returns on invested capital in that division are the highest within the company. And so it's a very good place for us to invest our resources and our cash for driving organic growth and we've seen the fruits of that with the introduction of Hawkeyes, we've talked about the new rate control module and we've got a number of other products that we are working on today to drive future organic growth and market share gains.
Jon Fisher
And with the near term stepped up in spending for longer term returns, would the 30 plus percent margin targets for ATD, are those pushed off into the future or is that still attainable and when you look out fiscal 2019, or fiscal 2020?
Dan Rykhus
That is for sure attainable. We continue to expect long term margins for Applied Technology to be in the 30% plus range.
And as you look at our revenue base, getting to revenues of a $140 million to $145 million would put us in that range of 30% plus margins within applied technology.
Jon Fisher
And then just given the level that R&D spending stepped up to here this quarter, should we kind of think about that as kind of the new run rate spending you mentioned in the press release that with the benefits from the lower tax rate, you're going to invest back into the business further. So I guess I'm just wondering is fourth quarter the right run rate to think of R&D spending or will the spend rate for SG&A and R&D be even greater next year and 2020 because of the tax rate benefits, because when I look back at SG&A, even as a percent of revenues, going all the way back to fiscal 2012, this is the highest percent of revenues that SG&A even was as a percent of revenues.
So just trying to get a feel for how aggressively you're willing to spend back into the business?
Steven Brazones
Sure. So I'd say as you look at R&D, I would think the fourth quarter run rate more or less is what we would expect going forward.
With that said, I would expect the growth in R&D investment to be less than the growth in sales over time. As we talked about getting to that $140 million revenue mark and back to 30% plus margins, we'd expect to leverage the R&D investment that we're making today.
The same would go on to selling and G&A side. The one thing that you need to be careful of is we are investing in the next three years $8 million to $10 million for Project Atlas, which is kind of a one-time major project to replace our enterprise resource planning platform.
But we would expect leverage on our corporate expenses and selling and R&D to occur as we grow. From a dollar basis, the run rate in the fourth quarter from a dollar basis would be consistent.
Jon Fisher
For R&D or R&D and SG&A?
Steven Brazones
Well, you have to adjust for.
Jon Fisher
That's fair.
Steven Brazones
And Atlas is going to ramp up. This last year, we spent $1 million.
In fiscal '19, it's going to be $4 million of spend.
Operator
[Operator Instructions] And we have a follow up from the line of Jason Freuchtel with SunTrust.
Jason Freuchtel
First, I guess just following up on the last question, in terms of your R&D investments, I think you did indicate that the highest returns are in ATD. Is it appropriate to think that a significant majority of the R&D was spent in ATD and maybe could you provide a little more detail in terms of a percentage breakdown over the course of the year, how much was in each segment?
And I guess also, so, I guess, we'll just stick with those questions for now.
Dan Rykhus
Sure. So just broadly speaking, if you step back and look at our total R&D spend, let's say about 75% of it is going into applied technology with the balance being split pretty evenly between Aero and engineered films.
Although we have seen some success as well in investments we've made in R&D within films recently in allowing us to gain market share in the flexitank market, so investments in both of those areas will continue and our stratospheric balloon platform obviously is a key focus for us within Aerostar. We've been able to demonstrate significant improvement and capabilities of the stratospheric balloons and our services around those and I would expect that to continue.
Jason Freuchtel
And then in terms of engineered films, it looks like the rig count has increased significantly over the last six months and has continued to increase since the end of your fiscal quarter, can you discuss how a high rig count should impact your oil field offering in a typical environment. You typically see revenue growth prior to rig count expansion.
Or is there a lag and how has that demand - how has your demand trended recently post the quarter?
Dan Rykhus
Generally speaking, there's a strong correlation between rig counts in the Permian Basin and our geomembrane market sales. So we'd expect as rig counts go up that we would see an improvement in our sales into that market.
And so we monitor that closely. About 80% of the revenues we generate in that space - in the energy space, which is a submarket of geomembrane are in the Permian basis.
Jason Freuchtel
And I guess lastly, have you seen any incremental weakness in the ag market in North America recently. Are lower expectations in North America driving your desire to expand more significantly in Latin America and how long it will take to realize the benefits of expanding in Latin America where you see some nice growth in fiscal year 2019?
Dan Rykhus
Yeah. I would say the decision to invest in Brazil was independent of what's happening in North America and in the United States.
I think we would expect the market to start improving domestically this calendar year. And as we look at - regarding Brazil, we see a tremendous amount of potential down there.
It's a very large agricultural market, a market where we've had a small presence in the past, but where we see a significant amount of upside and we want to make a sizable investment in Brazil and we would expect by the end of this fiscal year to be on a good run rate and ramping significantly with our revenues in that region.
Operator
Our next question is a follow-up from Jon Fisher from Dougherty & Company.
Jon Fisher
Just from a growth investment standpoint in markets outside the US, is it just focused on Latin America or are you looking at growing your presence and are you investing in growth opportunities in Europe and Asia also? And then if you can give any breakdown of revenues, contributions from outside the US, would be interested in that.
Steven Brazones
Yes. So right now, our investment into Brazil is a little bit unique.
But at the same time, I would say we're continuing to look at opportunities to further invest in Eastern Europe, Australia. Those are markets that are very appealing to us.
I would say, we're quite less likely to go into Asia at this point in time. I think we've got a number of opportunities to see higher returns in the geographies I mentioned relative to Asia Pacific.
Just looking at our sales overall for applied technology from a regional basis, we have about 25% of our revenues are outside the United States with, I would say, Latin America, Europe and Canada being the largest portions of that.
Jon Fisher
And then just since you mentioned it in the prepared comments, it sounds like you're going to be introducing Hawkeye into Brazil/Latin America this fiscal year. I just want to make sure I understood that correctly.
And if that is the case, kind of how long would you expect it to take for there to be uptake and meaningful contribution of Hawkeye in Brazil and Latin America, given the introduction or the push with that product there?
Dan Rykhus
Yeah. We expect to launch Hawkeye in Brazil in April and we've had a - there's been a significant amount of interest in that technology and so we're going to be working with our new employees down there.
We're launching our office down there as we speak and expect there to be traction within the Hawkeye platform this year.
Operator
And we have a follow up from the line of Craig Bibb from CJS Securities.
Craig Bibb
Just a quick follow up on CLI. You've owned it for a couple of quarters now and what have been the key benefits, both for Raven and for CLI since you guys have combined and any surprises in any direction post-merger?
Dan Rykhus
Yeah. I would say all in all, we've been extremely happy with the CLI acquisition.
I would say both companies have similar cultures and so the integration has gone better than expected. Synergy realization is better than we expected.
We've uncovered since the time - since we announced the acquisition, the teams have uncovered additional cost energies that we've been able to garner and we're really excited about the additional capabilities that CLI brings to Raven and to engineered films, particularly within the geomembrane market and servicing that market. So, we've been pleasantly surprised it's gone very, very well.
Integration is going well and accretion is going to be exceeding our expectations.
Operator
Thank you. And I'm not showing any further questions in the queue.
I would like to turn the call back to Mr. Dan Rykhus for his final remarks.
Dan Rykhus
Thank you. And thanks for all the great questions today.
Thanks to Steven and Bo for giving all those detailed answers. We look forward to continuing to have a great year.
We're off to a really strong start and we have high expectations for this year and we look forward to updating you in May.
Operator
And with that ladies and gentlemen, we thank you for participating in today's conference. This concludes the program and you may all disconnect.
Have a wonderful day.