8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 6, 2017 (March 1, 2017)

MOCON, INC.

(Exact name of registrant as specified in its charter)

Minnesota	000-09273	41-0903312
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification Number)

7500 Mendelssohn Avenue North Minneapolis, MN	55428
(Address of Principal Executive Offices)	(Zip Code)

(763) 493-6370

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Section 2 – Financial Information

Item 2.02     Results of Operations and Financial Condition.

On March 1, 2017, MOCON, Inc. issued a press release announcing its results of operations and financial condition for its fourth quarter ended December 31, 2016. A copy of this press release is attached hereto as Exhibit 99.1.

The script of MOCON, Inc.’s Chief Executive Officer, Robert L. Demorest and Chief Financial Officer, Elissa Lindsoe related to the telephone conference held on March 1, 2017 is furnished with this Form 8-K as Exhibit 99.2.

The information contained in this Item 2.02 and the exhibit to this report shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any filings made by MOCON, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, except as may be expressly set forth by specific reference in such filing.

Section 9 – Financial Statements and Exhibits

Item 9.01     Financial Statements and Exhibits.

(d)     Exhibits.

Exhibit No.	Description
99.1	Press Release issued March 1, 2017
99.2	Script of Robert L. Demorest and Elissa Lindsoe for telephone conference call held March 1, 2017

2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		MOCON, INC.
Dated: March 6, 2017	By:	/s/Elissa Lindsoe
		Elissa Lindsoe
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

3

MOCON, INC.

CURRENT REPORT ON FORM 8-K

INDEX TO EXHIBITS

Exhibit No.	Description	Method of Filing
99.1	Press Release issued March 1, 2017	Furnished herewith
99.2	Script of Robert L. Demorest and Elissa Lindsoe of telephone conference call held March 1, 2017	Furnished herewith

4

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

March 1, 2017

MOCON Reports Fourth Quarter and Annual 2016 Results

MINNEAPOLIS, MN, March 1, 2017 – MOCON, Inc. (NASDAQ: MOCO), today reported financial results for the fourth quarter and year ended December 31, 2016.

Fourth Quarter 2016 Highlights:

● Double digit revenue growth year-over-year

o Package Testing Segment increased 21 percent

o Permeation Segment declined by nine percent

o Industrial Analyzers and Other Segment increased 37 percent

● Gross profit was 57 percent of revenue; a two-percentage point improvement year-over-year

● Net income was $1.8 million, or $0.30 per diluted share, compared to $0.3 million, or $0.05 per diluted share in the fourth quarter of 2015

● Adjusted EBITDA was $2.9 million, or 17 percent of revenue compared to $2.1 million, or 13 percent of revenue in the year-ago quarter

Commenting on the company’s solid fourth quarter performance, MOCON’s president and chief executive officer, Robert L. Demorest said, “We are very pleased with our financial performance in the fourth quarter of 2016. $16.9 million in revenue matches our prior quarterly record that was set in the fourth quarter of 2014. At that time, the euro was much stronger than it is today. We have continued to improve our product cost and operating expense profile which has resulted in a significant improvement in our bottom line results. Our adjusted EBITDA increased for both the fourth quarter and full year to 17 percent of revenue from 13 percent and 14 percent in the respective prior year periods”.

2016 Revenue and Earnings Summary

Fourth quarter 2016 results compared to fourth quarter 2015:

● Revenue increased ten percent

● Revenue from foreign customers accounted for 65 percent for both 2016 and 2015

● Operating income was $2.1 million, or 12 percent of revenue compared to $0.5 million, or four percent of revenue

● Net income was $1.8 million, or $0.30 per diluted share, compared to a net income of $0.3 million, or $0.05 per diluted share

● Adjusted EBITDA was $2.9 million, or 17 percent of revenue, compared to $2.1 million, or 13 percent of revenue (See reconciliation to non-GAAP information below)

Full year 2016 results compared to full year 2015:

● Revenue increased four percent

● Revenue from foreign customers accounted for 66 percent for both 2016 and 2015

● Operating income was $6.3 million, or ten percent of revenue compared to $4.4 million, or seven percent of revenue

● Net income grew 68 percent and was $5.0 million, or $0.86 per diluted share, compared to a net income of $3.0 million, or $0.51 per diluted share.

● Adjusted EBITDA was $10.5 million, or 17 percent of revenue, compared to $8.5 million, or 14 percent of revenue (See reconciliation to non-GAAP information below)

Revenue and Gross Margin by Segment ($ in thousands)

	Three Months Ended December 31,
	Revenue							Gross Margin as a % of Revenue
	2016		2015		Growth %			2016			2015
Package Testing	$	8,354	$	6,899		21	%		56	%		54	%
Permeation		5,929		6,519		-9	%		63	%		59	%
Industrial Analyzers and Other		2,607		1,905		37	%		45	%		42	%
Total Revenue	$	16,890	$	15,323		10	%		57	%		55	%

	Year Ended December 31,
	Revenue							Gross Margin as a % of Revenue
	2016		2015		Growth %			2016			2015
Package Testing	$	30,257	$	26,583		14	%		57	%		54	%
Permeation		23,039		24,599		-6	%		60	%		59	%
Industrial Analyzers and Other		10,015		9,572		5	%		45	%		46	%
Total Revenue	$	63,311	$	60,754		4	%		56	%		55	%

Revenue from the Package Testing segment for the fourth quarter and year ended December 31, 2016 increased 21 percent and 14 percent, respectively, compared to the year-ago periods due to strong demand for headspace analyzers, leak detection equipment and related services across the globe. As discussed in the previous quarter results, Europe is experiencing significant growth with increased demand for convenience and sustainable food packaging. In addition, the growth that the U.S. is experiencing in modified atmosphere packaging technologies is being driven through overall market expansion as food production lines are upgraded.

Revenue from the Permeation segment for the fourth quarter and year ended December 31, 2016 declined by nine and six percent compared to the year-ago periods, respectively. The decline is attributable to reduced US shipments primarily driven by orders that were received too late within the quarter to be shipped before December 31, 2016 as evidenced by an $800,000 increase in the company’s Permeation backlog during the fourth quarter of 2016. In addition, approximately $0.3 million and $0.6 million of the year-over-year decline for the quarter and the year respectively, was attributable to the sale of our odor and aroma consulting business.

The Industrial Analyzers and Other segment increased by 37 percent and five percent year-over-year for the fourth quarter and year ended December 31, 2016, respectively. Sensor revenue sold primarily to OEM customers in the U.S. grew year-over-year by 27 percent and 36 percent in the fourth quarter and full year ended December 31, 2016. The growth in analyzer sales is driven by increased demand in environmental monitoring and worker safety markets.

Gross Profit, Operating Income and Operating Expense Commentary

For the three-months ended December 31, 2016 and 2015, gross profit was 57 percent and 55 percent of revenue, and operating income was 12 percent and four percent of revenue, respectively. For the year ended December 31, 2016 and 2015, gross profit was 56 percent and 55 percent of revenue, and operating income was 10 percent and seven percent of revenue, respectively.

The fourth quarter 2016 gross profit rate in the Package Testing segment was 56 percent, a two-percentage point increase when compared to the year-ago quarter. As the company had experienced throughout the first nine months of 2016, the fourth quarter increase was driven by revenue growth and process improvement initiatives.

Despite the fact that revenue declined by nine percent, the Permeation segment’s fourth quarter gross profit rate increased by four percentage points year-over-year to 63 percent of revenue. The increase was driven by the mix between product, services and consulting. In the fourth quarter of 2016, product revenue, which generates the highest gross margins in this segment, comprised 81 percent of this segment’s revenue compared to 70 percent in the fourth quarter of 2015.

The Industrial Analyzers and Other segment gross profit rate for the current quarter increased by three percentage points to 45 percent compared to 42 percent in the prior year quarter due to a reduction in the cost to deliver services.

Selling, general and administrative (SG&A) expenses were 37 percent and 38 percent of revenue in the fourth quarters of 2016 and 2015, respectively. The company’s management expects that SG&A expenses will modestly increase as several open positions are filled. Research and development expenses were seven percent and eight percent of revenue in the fourth quarters of 2016 and 2015, respectively, which is in line with the company’s commitment to continued innovation.

Balance Sheet and Cash Flow Summary

● Cash and cash equivalents increased to $8.3 million at December 31, 2016 compared to $6.3 million at December 31, 2015

● Days sales outstanding were 57 in the fourth quarter of 2016 compared to 51 in the third quarter of 2016, primarily driven by a $0.9 million sequential increase in revenue that was shipped toward the end of the fourth quarter

● Total debt was $0.2 million at December 31, 2016 compared to $3.0 million at December 31, 2015

About MOCON

MOCON is a leading provider of detectors, instruments, systems and consulting services to research laboratories, production facilities, and quality control and safety departments in the medical, pharmaceutical, food and beverage, packaging, environmental, oil and gas and other industries worldwide. See www.mocon.com for more information.

MOCON, Inc. Company Contacts:

Elissa Lindsoe, CFO

763-493-6370 /www.mocon.com

Or

Steven Hooser, Investor Relations

Three Part Advisors, LLC

(214) 872-2710

Use of Non-GAAP Financial Measures

MOCON supplements its financial statements to provide investors with earnings before interest, taxes, depreciation and amortization (“EBITDA”) and EBITDA plus share-based compensation, gain on sale of business, realignment expenses, and foreign currency transactional losses (“Adjusted EBITDA”), which are not calculated in accordance with general accepted accounting principles (“GAAP”) in the United States of America.

MOCON believes that these non-GAAP measures provide useful information to the company’s Board of Directors, management and investors regarding certain trends relating to its financial condition and operating performance. MOCON’s management uses these non-GAAP measures to compare the company's performance to that of prior periods for trend analyses and planning purposes

The method MOCON uses to produce non-GAAP results is not computed according to GAAP, is likely to differ from the methods used by other companies and should not be regarded as a replacement for corresponding GAAP measures. MOCON urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures that are included in this press release.

Safe Harbor

This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements that can be identified by words such as “will,” “may,” “expect,” “believe,” “anticipate,” “estimate,” “continue,” “planned”, or other similar expressions. All forward-looking statements speak only as of the date of this press release. MOCON undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. In addition to the risks and uncertainties of ordinary business operations and conditions in the general economy and the markets in which the company competes, there are important factors that could cause actual results to differ materially from those anticipated by the forward-looking statements made in this press release. These factors include, but are not limited to, the company’s ability to realize the cost savings associated with the realignment plan implemented in 2015, fluctuations in foreign currency exchange rates, the terms of MOCON’s credit agreement including financial covenants included therein, dependence on certain key industries, pricing and lack of availability of raw materials, crude oil pricing impact on oil exploration activities, and other factors set forth in the company’s Annual Report on Form 10-K for the year ended December 31, 2015 and other documents MOCON files with or furnishes to the Securities and Exchange Commission.

MOCON's shares are traded on the NASDAQ Global Market System under the symbol MOCO.

MOCON is a registered trademark of MOCON, Inc.; other trademarks are those of their respective holders.

MOCON, INC.

SUMMARY CONSOLIDATED FINANCIAL DATA

(in Thousands, Except Per Share Data)

STATEMENT OF OPERATIONS DATA: (unaudited)

	Quarters Ended December 31,				Year Ended December 31,
	2016		2015		2016			*2015
Revenue
Products	$	13,176	$	11,860	$	49,506	$	47,832
Services		3,296		2,618		11,674		9,956
Consulting		418		845		2,131		2,966
Total revenue		16,890		15,323		63,311		60,754
Cost of revenue
Products		5,726		5,289		21,198		21,308
Services		1,248		1,131		4,793		4,205
Consulting		332		502		1,663		2,017
Total cost of revenue		7,306		6,922		27,654		27,530
Gross profit		9,584		8,401		35,657		33,224
Selling, general and administrative expenses		6,275		5,871		23,615		23,468
Research and development expenses		1,210		1,260		4,844		4,341
Realignment expenses		-		731		903		1,049
Operating income		2,099		539		6,295		4,366
Other income, net		135		3		371		93
Income before income taxes		2,234		542		6,666		4,459
Income tax expense		475		276		1,666		1,487
Net income	$	1,759	$	266	$	5,000	$	2,972
Net income per common share:
Basic	$	0.30	$	0.05	$	0.86	$	0.52
Diluted	$	0.30	$	0.05	$	0.86	$	0.51
Weighted average common shares outstanding:
Basic		5,818		5,767		5,802		5,753
Diluted		5,894		5,806		5,835		5,818

* Our Statement of Operations for the year ended December 31, 2015 has been revised to correct a $470,000 overstatement of revenue and cost of revenue which impacted our Permeation Products and Services reporting segment. This immaterial revision had no impact to our reported gross profit, operating income or net income per common share.

CONDENSED BALANCE SHEET DATA: (unaudited)

	December 31, 2016		December 31, 2015
Assets:
Cash and marketable securities	$	8,313	$	6,344
Accounts receivable, net		10,726		8,786
Inventories		6,728		7,790
Other current assets		1,395		1,782
Total current assets		27,162		24,702
Property, plant and equipment, net		5,457		5,995
Goodwill, intangibles and other assets		15,829		16,722
Total assets	$	48,448	$	47,419
Liabilities and Shareholders’ Equity:
Notes payable, current		83		65
Other current liabilities		10,632		9,534
Total noncurrent liabilities		1,282		4,348
Shareholders’ equity		36,451		33,472
Total liabilities and shareholders’ equity	$	48,448	$	47,419

CONDENSED CASH FLOW DATA: (unaudited)	December 31, 2016			December 31, 2015
Net cash provided by operations	$	7,283		$	6,372
Net cash used in investing activities		(343	)		(1,683	)
Net cash used in financing activities		(4,875	)		(4,002	)
Effect of exchange rate changes		(96	)		(675	)
Net increase in cash		1,969			12
Cash beginning of year		6,344			6,332
Cash end of year	$	8,313		$	6,344

MOCON, INC.

NON-GAAP RECONCILIATION

(in Thousands, Except Share Data)

	Quarter Ended December 31,						Year Ended December 31,
	2016			2015			2016			2015
Net income	$	1,759		$	266		$	5,000		$	2,972
Interest expense, net		7			20			53			118
Income tax expense		475			276			1,666			1,487
Depreciation and amortization		634			627			2,551			2,460
EBITDA		2,875			1,189			9,270			7,037
Share-based compensation		189			153			750			642
Gain on sale of business		(201	)		-			(553	)		-
Realignment expenses		-			731			903			1,049
Foreign currency transaction loss (gain)		56			(23	)		116			(209	)
Adjusted EBITDA	$	2,919		$	2,050		$	10,486		$	8,519

EX-99.2

Exhibit 99.2

MOCON, Inc.

Fourth Quarter 2016 Conference Call Script

March 1, 2017

Delivered by:      Robert Demorest - MOCO

  Elissa Lindsoe– MOCO

 Steve Hooser – Three Part Advisors

Operator (if necessary):

Good day, everyone, my name is Christine and I’m the operator. Welcome to MOCON’s Fourth Quarter 2016 Earnings Conference Call. Today's conference is being recorded. I would now like to turn the call over to Steven Hooser, MOCON’s investor relations representative. Please go ahead Steven.

Steven Hooser:

Thank you Christine and thank you for joining us today to discuss our fourth quarter 2016 financial results. With me on the call today are Bob Demorest, Chief Executive Officer, and Elissa Lindsoe, Chief Financial Officer. We will open up to the audience for a Q&A session after we complete our prepared remarks. Please note that we are also webcasting this call. Both the earnings press release that was issued earlier and the webcast link can be accessed on our Investor Relations website at mocon.com. Before I turn the call over to management, I'd like to remind everyone that during today’s call, including the Q&A session, we may make forward-looking statements regarding expected revenue, earnings, future plans, opportunities, and other expectations of the Company. These estimates and plans and other forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied on the call. These risks include those that are detailed in our most recent Annual Report on Form 10-K and in today’s earnings press release and may be amended or supplemented by subsequent quarterly reports on Form 10-Q, or other reports filed with the Securities and Exchange Commission. The statements made during this conference call are based upon information known to MOCON as of the date and time of this call. We assume no obligation to update the information presented in today’s call.

During today’s call we will also discuss non-GAAP financial measures, including, Adjusted EBITDA. These measures, when used in combination with GAAP results, provide us with useful information to better understand our business and we believe investors may want to consider this impact on our performance as well. A reconciliation of GAAP to non-GAAP measures can be found in today’s earnings release.

With that, I’d like to turn the call over to Bob Demorest, MOCON’s President and Chief Executive Officer.

Bob Demorest

Thanks Steven; and thanks to all of you on the line for participating in our earnings call and we appreciate your time and continued interest in MOCON.

At this time last year, I was lamenting our FY 2015 financial performance:

• Our annual revenue in 2015 ended down 6% from 2014 on a GAAP basis.

• Round 1 of our realignment plan became necessary in the second half of 2015, in order to right the ship in light of the external headwinds we were facing with the falling euro and oil prices.

• We ended up increasing our fully diluted earnings per share from $0.27 in 2014 to $0.51 in 2015, which was certainly good, but the revenue softness was an overhanging cloud.

• We were able to reduce our debt and we held our cash steady.

Sitting before you just one year later, I am excited to report the following:

● Our 2016 annual revenue was up 4% from 2015, on a GAAP basis. The year did not start out as strong as we hoped and because the first half was flat, we triggered Round 2 of our realignment plan. I am happy to say that it did make a difference.

• We pushed the “One MOCON” theme very hard, resulting in a flatter matrixed organization – and as part of this initiative, in April, we will be changing the name of Dansensor to MOCON Europe A/S.

• Our third quarter of 2016 revenue was up by 7% over the third quarter of 2015, and our fourth quarter was up by 10% year-over-year, matching our best shipment quarter ever.

• Net Income was up substantially, we paid off our entire credit line, and we increased our cash position resulting in a strong balance sheet. Our adjusted EBITDA was 17 percent of revenue compared to 14 percent in 2015.

• Fully diluted earnings per share in 2016 was $0.86, compared to $0.51 in 2015, a 69 percent increase for the year.

In other news, please join me in welcoming Maurice Janssen, our new Sr. Vice President of Global Sales & Marketing to our team. He joined MOCON mid-January and is based out of our Minneapolis headquarters. He reports directly to me and is responsible for leading our sales and marketing teams across all segments. Maurice has over 20 years of sales and marketing experience in similar industries to ours. He was most recently vice president of sales and marketing, Latin America, for FOSS, a Danish-based supplier of analytical instruments for the food, beverage and agriculture sectors. Maurice is a great addition to our team and we are delighted to have him.

I will now turn the call over to Elissa to run through the operating results and will return with my closing remarks after she is done.

Elissa Lindsoe

Thank you Bob and good afternoon everyone. Revenue for the fourth quarter of 2016 was $16.9 million, up 10 percent from the $15.3 million reported in the same period of 2015. This performance matches our prior quarterly record that was set in the fourth quarter of 2014 and at that time, the euro was much stronger than it is today. Full year 2016 revenue was $63.3 million, an increase of 4 percent from the $60.8 million reported in 2015.

Gross margin was 57 percent of revenue in our fourth quarter of 2016 which is an increase of 2 percentage points from the 55 percent reported in the year-ago quarter.

SG&A expenses were 37 percent of revenue in the fourth quarter of 2016 compared to 38 percent of revenue in the fourth quarter of 2015. Research and development expenses were 7 percent of revenue in Q4 2016 compared to 8 percent in Q4 2015. This spending level continues to be in line with our ongoing commitment to invest in existing offerings as well as advanced sensor technologies.

Our fourth quarter 2016 operating income of $2.1 million, or 12 percent of revenue. is a nice improvement from 4 percent of revenue in the year-ago quarter. Our MOCON realignment initiatives have contributed to these positive results.

I will go into more detail by business segment momentarily but I’ll cover the remainder of our income statement before doing so.

Our effective tax rate was 21percent in Q4 2016 compared to 51 percent in the year-ago quarter. The reduction was driven by the use of foreign tax credits and the effect of foreign operations that have lower tax rates. Net income for the fourth quarter of 2016 was $1.8 million, or $0.30 per diluted share, compared to net income of $0.3 million, or $0.05 per diluted share in the fourth quarter of 2015.

Adjusted EBITDA for the fourth quarter of 2016 was $2.9 million, or 17 percent of revenue, compared to $2.1 million, or 13 percent of revenue in the third quarter of 2016.

Moving to the details in our business segments:

Package Testing was once again our largest segment, comprising 49 percent of overall revenue, at $8.4 million, up from $6.9 million in Q4 of 2015. 72 percent of revenue in Q4 of 2016 was from sales outside of the U.S. compared to 75 percent in Q4 of 2015. Package Testing gross margin was 56 percent of revenue in Q4 2016, up 2 percentage points from Q4 2015. The continued improvement was driven by revenue growth and process improvement initiatives that we have made. Operating expenses were 41 percent of revenue in Q4 2016 and 48 percent in the year-ago quarter, resulting in Q4 operating margins that were 15 percent of revenue in 2016 and 11 percent of revenue in 2015.

Moving on to Permeation, this segment contributed 35 percent to overall revenue, or $5.9 million in Q4 2016, down 9 percent from $6.5 million in Q4 2015. 67 percent of this segment’s Q4 2016 revenue was from sales outside of the United States compared to 58 percent in the same quarter of 2015. The decline in US shipments was primarily driven by orders that were received too late in the quarter to be shipped before December 31, 2016 as evidenced by the $800,000 sequential increase in our Permeation backlog during Q4 2016. In addition, approximately $300 thousand and $600 thousand of the year-over-year decline for the quarter and the year respectively, was attributable to the sale of our odor and aroma consulting business. Q4 2016 gross margin in the Permeation segment was 63 percent compared to 59 percent in Q4 of 2015. The increase was driven by the mix between product, services and consulting. In the fourth quarter of 2016, product revenue, which generates the highest gross margins in this segment, comprised 81 percent of this segment’s revenue compared to 70 percent in the fourth quarter of 2015.

Q4 2016 operating expenses in our Permeation segment were 43 percent of revenue which is up from 38 percent in the year-ago quarter, and that resulted in Q4 operating margins of 20 percent in 2016 compared to 21 percent in Q4 of 2015.

Our Industrial Analyzers and Other segment comprised 15 percent of our Q4 2016 revenue which was $2.6 million, up 37 percent from the $1.9 million reported in Q4 of 2015. 36 percent of this segment’s revenue was from sales to foreign markets in Q4 2016 compared to 49 percent in the fourth quarter of 2015. The change in geographical mix was driven by increased volume to domestic customers while foreign volume remained consistent with the prior year. Q4 2016 gross margin for this segment was 45 percent of revenue, an increase of 3 percentage points when compared to 42 percent of revenue in Q4 of 2015. The increased gross margin is attributable to the year-over-year revenue growth.

Our operating expenses in the Industrial Analyzers and Other segment were 57 percent of revenue in Q4 2016 compared to 64 percent of revenue in Q4 2015. The operating loss in this segment for Q4 2016 was 12 percent of revenue compared to an operating loss of 18 percent in Q4 2015. The improvement was driven by reduced expenses as a result of the realignment plan.

Additionally, effective in 2017, we have changed the way we are managing our business segments. As we realigned our business around the one MOCON strategy, our ability to segregate our operating expenses has become more difficult. For example, we used to have a separate P & L manager over each segment; and now today, Maurice Janssen leads global sales and marketing, Mike Barto leads all the global manufacturing and R&D teams and I lead the global back office teams. We still need to complete our segment analysis, but effective with our January internal reporting, we are no longer allocating operating expenses to each segment and anticipate that we will no longer report our segment performance through operating income but anticipate providing revenue and gross margin by segment.

Moving on to our cash flow and balance sheet:

We continue to see a strengthening in our balance sheet. Since the beginning of 2016, cash and cash equivalents have grown by $2.0 million to $8.3 million on December 31, 2016 and in the same timeframe, we paid off our revolving line of credit and reported only $163 thousand in debt, all of which relates to capital leases compared to $3 million of total debt on December 31, 2015.

Accounts receivable were $10.7 million on December 31, 2016 which represents days sales outstanding of 57, up from 51 days reported in the third quarter of this year. Inventory was $6.7 million, down 14 percent since the beginning of the year.

Net cash provided by operations was $7.3 million in the year ended December 31, 2016 compared to $6.4 million in all of 2015, which is a 14 percent increase. The improvement is driven primarily by the increase in net income.

This wraps up my prepared remarks on the financials and now I will turn the call back over to Bob for his closing remarks.

BOB DEMOREST

Thank you Elissa. I remain encouraged with our strong second half resulting in a good year and a healthy backlog position going into 2017. The work we started in late 2015 to improve our product cost and operating expense profile is starting to pay dividends as evidenced by this performance.

This turnaround was the result of an incredible amount of work by our team, led by our top management group, of whom I am very proud. Now, with the addition of Maurice Janssen, we have an experienced and highly capable group of visionary executives in the wheelhouse, and in my opinion, the best “C-suite” MOCON has had in years. I am optimistic about 2017 and beyond, and want to also thank our Board for their valuable support and engagement in MOCON’s business.

With that, let me open up the call for your questions. Christine, please instruct our listeners on how to queue up.

After the Q&A:

Robert Demorest

Thank you again for joining us on today’s call. We look forward to discussing our Q1 results with you sometime in early May. Have a great evening!