Kadant Inc (KAI) 2003 Q1 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the Kadant earnings conference call. At this time all participants have been placed on a listen-only mode. The floor will be open for questions and comments following the presentation. It is now my pleasure to hand the floor over to your host, Mr. Thomas O'Brien, Chief Financial Officer. Sir, you may begin.

Thank you Operator. Good morning everyone. Welcome to Kadant's first quarter 2003 earnings conference call. With us on the call today are Bill Rainville, our Chairman and Chief Executive Officer; and Jon Painter, an Executive Vice-President of Kadant and the head of our composites and fiber-based product segment.

Before we begin, let me read the safe harbor statement. Various remarks that we may make today about Kadant's future expectations, plans, and prospects are forward looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from these forward looking statements as a result of various important factors including those discussed the our annual report on form 10K for the fiscal year ended December 28, 2002, which is on file with the SEC. In addition, any forward-looking statements we make on this call represent our views only as of today. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. You should not rely on these forward looking statements as representing our views on any date after today. During this call we will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our earnings press release issued yesterday, which is available in the investor's section of our website at www.kadant.com under the heading news releases.

With that I will turn the call over to Bill Rainville who will give you an update on Kadant's business and future business prospects. Following Bill's remarks I will give an overview of our financial results for the quarter. We will then have a Q&A session. Bill.

Alright, thank you Tom. Good morning everyone. Welcome to our meeting. I've been looking forward to this earnings call. We have a lot of good news to report for the first quarter of 2003. The business environment still poses quite a few challenges, but we made a number of changes last year to our operating and financial structure that are helping us now. We've also continued to invest in technology and market development. Some of that is paying off as well.

Let's get right to the results, which were better than we expected. GAAP earnings were 22 cents for the quarter, two cents better than the high end of our guidance. If you compare this with our adjusted EPS number for 2002, which is seven cents, we had more than a threefold increase in our EPS performance. Revenues increased 19 percent to 51.4 million. Even without the 2.1 million FX benefit, revenues grew 14 percent. That is all internal growth. I'll talk a bit more about where that growth came from in a minute. Also important to note is that our operating income more than doubled to $4.6 million compared with adjusted operating income of $2.2 million a year ago. Finally, we were very pleased with our first quarter bookings, which at $61.1 million, was the best bookings quarter we've had in three years. Total bookings were up 25 percent versus the same quarter last year, even excluding a favorable FX effect. The bookings growth came entirely from our paper making equipment segment.

Looking ahead to the second quarter, because of the strong bookings, we expect to earn from 24 to 26 cents on revenues of $53 million to $55 million. Those are GAAP numbers. For the full year we are raising our guidance slightly to account for what we believe will be a strong first half, but factoring in continuing uncertainty in the economy, the net effect being lower sequential earnings in Q3 and higher results in Q4. We now expect to earn from 84 to 92 cents for 2003 on revenues of $190 million to $200 million.

Let me talk a little bit now about what we're seeing in each of our business segments, paper-making equipment and composites, and how their performance has contributed to these results and our future expectations. The paper-making equipment segment was the major contributor to our strong performance this quarter. By no means do we want to leave the impression that the pulp paper industry is in recovery. Many large paper producers are still reporting weak results. But, there are certainly pockets of opportunity. One of them is China. Most of our revenue increase this quarter was due to strong demand in China for our stock preparation systems. This product line made up a large part of our first quarter bookings and nearly 16 million of that came from customers in China. Our persistent efforts to expand our presence in China's growing markets have filled our stock prep pipeline with a backlog of major orders resulting from new expansions in greenfield projects. We are primarily supplying recycling systems that are used to recover and prepare waste fiber for the production of various types of container board used in packaging from white liner board to brown corrugated material. The SARS epidemic, which appears to have originated in China, is making headlines. Because we have such a large order backlog from China at this point, we don't expect this health crisis to make an impact on our business in 2003. We have, however, taken appropriate precautions to protect our workforce and continue to monitor the situation. We've temporarily halted travel to Asia for our North America and European employees and have limited travel for the 20 people in our Beijing office.

In terms of the stock prep assembly facility we are establishing near Beijing, we don't expect the current situation to significantly delay our progress. We are now engaged in permitting and site design and are moving forward with the project. Our goal is to have this facility up and running by early next year, somewhat later than we had originally planned. In addition to providing a means for outsourcing and assembling system components more cost-effectively, we expect this facility to offer important after-market support initially for stock prep systems and eventually for water management and accessory products as well.

Although revenues were down in our water management and accessory product lines, we are pleased to report strong bookings in Q1, a combined increase of 14 percent over last year. We've seen some renewed activity from customers in North America and Europe. We attribute this to a couple of factors. First, paper producers have so greatly scaled back their capital investments in the past few years, that some equipment is beginning to wear out. Because Kadant has such an extensive base of installations worldwide, we are now in an excellent position to capitalize on the need for machines upgrades and replacement parts in all three of our paper-making product lines.

Second, also select markets within the paper industry, such as tissue, are showing steady growth. We have directly targeted these as we invest in technology development. Our pro crape blade for tissue production, for example, is now in use by all three of the world's major tissue producers. Bookings of this unique product doubled those of last year. We continue to gain acceptance as the productivity and quality improvements pro crape offers continue to be demonstrated mill after mill.

Now, onto the composites business, one of our most successful internal growth initiatives. We had set a goal a year ago to reach profitability in this business by the first quarter of 2003. I am pleased to report that we achieved that goal with operating income of approximately $80,000. Sales of composite building products, mainly our decking materials, were $4.3 million in the quarter more than four times the $1 million in sales we had in the 2002 quarter. Much of this increase followed the record bookings we reported in Q4 of last year, which were largely due to our winter-buy program. Strong first quarter shipments coupled with an unusually long winter resulted in reduced first quarter bookings. Bad weather throughout the eastern half of the US has delayed the start of the building season. Now that spring has finally arrived, our distributors are working off the inventory that built up in the past few months. Bookings have picked up in April. We should see stronger bookings by the end of the second quarter as our customers inventory levels are depleted. One of our priorities this year is to add distribution on the West Coast, which is a less seasonal market for these products.

In terms of profitability, we made great progress in streamlining our production process at the Green Bay plant. We're pleased to have achieved this milestone during the quarter. Unfortunately the price of plastic used in our boards, our largest production cost, has increased dramatically in recent months. This increase will have a significant impact on our profitability in the second quarter and all of 2003. We are working hard to reduce the effect of plastic prices on our bottom line and are seeking other sources for our raw materials. Most industry observers view this price spike as temporary resulting from the high cost of natural gas this winter as well as uncertainty over the war. Gas prices have come down a great deal. Plastic prices are beginning to follow, although they are still higher than the first quarter average. These factors considered, we think it best to lower our guidance for the composite business in 2003. We had projected operating income of $1 million to $1.5 million for the year on revenues of $14 million to $16 million. We are now expecting operating income of $300,000 to $600,000 on revenues of $13 million to $15 million. This lower income is almost entirely due to increased plastic pricing.

We have made great progress in this business during the past year and are keeping the positive momentum going. We are working to broaden distribution of our decking products, especially on the West Coast. We are moving ahead with plans to increase production most likely by expanding the Green Bay plant. We are also looking at new applications for our decking materials including marine use such as docks. The decking market alone in the US is expected to grow to nearly $5 billion by 2005. Composite products are expected to take a 10 percent share. Although we are a relatively new supplier in this industry and we still have challenges to overcome, we are armed in the marketplace with a superior product. Builders all over the country are taking notice. Since we are now operating composites at a profit, it should no longer have a negative impact on overall bottom line performance. This, combined with the improvements we're seeing in the paper-making side of our business, will greatly benefit Kadant going forward.

Now I'll turn the call over to Tom to go through the financials. Tom.

Thank you Bill. I am going to start with some details on our P&L performance in the first quarter. Then I'll make some comments on our balance sheet and cash flows.

Revenues. Consolidated revenues were 51.4 million in the first quarter of 2003, up 19 percent from last year. Excluding the favorable effect of foreign currency translation of 2.1 million, revenues were 14 percent higher than the first quarter of 2002. The euro has appreciated approximately 18 percent versus the dollar since the first quarter of last year. Most of the revenue translation gains occurred in our euro-based businesses. I'll have more to say later on the impact of foreign exchange on our operating results. Our revenue performance slightly exceeded the guidance of 48 million to 50 million that we gave during our last earnings conference call in February 2003. Revenues were higher than last year in both of our reporting segments. Let's turn to those now in some more detail.

Revenues in our paper-making equipment segment were 45.6 million, 12 percent higher than the first quarter of 2002. Excluding the favorable foreign exchange effect of 2.1 million, all of which occurred in this segment, revenues were seven percent higher than last year. Our stock prep product line revenues were particularly strong in the quarter, up 32 percent over the first quarter of 2002 or 25 percent higher, excluding the favorable foreign currency effect. Revenues in this product line were up significantly in Asia and essentially flat in Europe. They were down and remained quite weak in North America.

Our other two product lines in this reporting segment, the accessories and the water-management product lines were down two percent and eight percent respectively compared to the first quarter of 2002. Excluding the favorable effect of foreign exchange these product lines were down eight percent and ten percent respectively. Despite the lower revenues, we are very encouraged with the booking levels in the first quarter in these product lines, which are more heavily weighted towards higher-margin parts and consumable products.

Now turning to our other reporting segment, the composite fiber-based product segment, revenues in this reporting segment were at an all-time quarterly high of 5.8 million in the first quarter of 2003, more than double last year's 2.8 million. This increase in revenues is entirely due to our composite building products business, which also had a record quarter. Revenues in the composite building products business were 4.3 million in the first quarter of 2003 compared to last year's one million. These results were due to the strong bookings performance in the fourth quarter of 2002. I should also note that revenues in our composite building products business were within the range we had given as guidance, which was four million to five million.

I'll turn to our product gross margins for a moment. Our consolidated product gross margins for the quarter were 37.3 percent in both 2003 and 2002. Before I go further, let me make a quick comment on the effect of foreign exchange on our product gross margins. Kadant has always been an international company with a significant percentage of our business coming from outside the US. Our international subsidiaries generate half of our revenues, having incurred costs in their local functional currencies since for the most part they manufacturer and source components locally as well. When the dollar weakens, these stronger local functional currencies translate into more revenues on a consolidated dollar basis, but they also translate into higher costs. The impact on our product gross margin percentages, therefore, is small. I wanted to make sure that was clear, especially given the rather significant revenue impacts this quarter from foreign exchange.

Let's look at the product gross margins in our two reporting segments for a moment. Product gross margins in the paper-making equipment segment were 38.2 percent, down slightly-50 basis points from the first quarter of 2002. We did see an increase in margins in our parts and consumables business within this reporting segment. These improvements, however, were offset by lower product gross margins in our capital business and more importantly, by an unfavorable mix of relatively lower-margin capital business to total revenues in the first quarter of 2003 compared to 2002. We are continuing our efforts on several fronts to improve product gross margins despite the challenging industry environment. Product gross margins were significantly higher in our composite and fiber-based product segment, doubling to 32 percent in the first quarter of '03 from 16 percent in the first quarter of '02. Margins were higher in both product lines in this segment. We are pleased with the steady progress we continue to see in increasing gross margins in the composite building products business, especially in light of higher raw material prices in the first quarter.

Now I'd like to make a few comments on our operating income results before turning to the EPS performance. If you refer to the press release you'll see that we've reported two sets of operating income results. These are shown in the chart entitled, Business Segment Information. The first set shows our GAAP operating income performance and the second excludes restructuring and unusual costs for the 2002 period only. Note that there are no adjustments between the GAAP and the adjusted operating income results for the 2003 period. Also note the effects of the adjustments we're making to increase the reported GAAP results 2002 in order to provide a better understanding of the operating performance from period to period. On a GAAP basis, consolidated operating income was 4.6 million in the first quarter of 2003 compared to an operating loss of 1.5 million last year. Excluding the restructuring and unusual costs we incurred in the first quarter of '02 of 3.6 million, as shown in the second set of operating income numbers on the chart, our comparison is now 4.6 million in the first quarter of 2003-no change, compared to adjusted operating income of 2.2 million in the first quarter of 2002. As a percentage of sales, adjusted operating income profitability improved 400 basis points quarter-over-quarter from five percent in the first quarter of '02 to nine percent in the first quarter of 2003.

We made good progress in operating income in both of our reporting segments in the first quarter of 2003. Operating income in the paper-making equipment segment was 5.2 million in the first quarter of 2003 compared to 2002 adjusted results of 3.9 million. Operating income profitability in the first quarter of '03 was 11.5 percent in this segment compared to 10 percent on an adjusted basis for 2002. Operating income in our composite and fiber-based product segment was 400,000 in the first quarter of 2003 compared to an adjusted operating loss of 800,000 last year. These segment results include, for the first time, positive operating income from our composite building products business. Operating income was 84,000 in the first quarter of 2003 compared to an adjusted operating loss of 1.1 million in the first quarter of 2002. I should also note that the composite building products operating income for the first quarter of 2003 met the guidance we had given during our February 2003 conference call.

Let's turn to the first quarter diluted EPS results. I want to start by reiterating the point I made earlier that there are no adjustments required in understanding the 2003 results. We reported EPS of 22 cents in the first quarter of 2003 compared to a loss of $2.79 in the first quarter of 2002. The loss last year included the FAS-142 cumulative goodwill adjustment of $2.68 and restructuring and unusual costs of 18 cents. Excluding these costs in the first quarter of 2002, the comparison now becomes 22 cents in 2003 versus seven cents in 2002 or an increase in EPS of 15 cents. Four cents of the 15-cent increase in EPS is due to the shift from net interest expense in 2002 to net interest income in 2003. That is due to the repurchase and the redemption of our convertible debentures in 2002 and 14 cents is due to improved operating results in 2003 over 2002. These combined improvements of 18 cents were offset slightly by EPS dilution of three cents due to an increase in shares outstanding arising from our June 2002 public stock offering.

Two last points on our EPS results. The composite building products business had no material effect on our consolidated EPS in first quarter of 2003 compared to a loss of five cents in the first quarter of 2002. Finally, there was no material impact on EPS due to foreign exchange for the reasons I noted earlier with respect to our product gross margins and due to relatively lower local currency income in euro-based businesses in the first quarter of 2003.

Let me make a few quick remarks on the balance sheet. Our balance sheet remains strong and provides us with a solid foundation to execute our growth plans in both of our reporting segments. We ended the quarter with 45 million in cash and one million in total debt for a net cash position of 44 million. This compares to net cash of 43 million at the end of 2002 and net debt of 200,000 at the end of the first quarter 2002. Over the past 12 months we have improved our net cash position by over 44 million and, since our spin-off from Thermo Electron in August 2001, by almost 50 million. Seventeen million of this 50 million improvement was generated from our public offering in June 2002. Although our cash position went up slightly from yearend 2002, our cash flow from operations was a negative one million in the first quarter of 2003. You may quite rightly ask yourself how did that happen. The major reason for the net increase in cash despite the negative cash flow from operations is due to the favorable impact of foreign exchange on our cash balances of 2.4 million as the stronger foreign currencies now translate into more US dollars at quarter end. The first quarter is typically our weakest quarter for cash flows due to tax and certain other type payments that we typically make in higher amounts in the first quarter of the year. Also it is not unusual for cash flows to decline significantly in a quarter immediately following an exceptionally strong cash flow quarter such as we had in the fourth quarter of 2002. Nevertheless, the first quarter of 2003 results were weaker than last year's positive operating cash flows of 3.2 million. We do expect stronger cash flows going forward in 2003.

Our working capital management remains solid. Working capital as a percentage of revenues improved slightly to 19 percent in the first quarter of 2003 from 20 percent a year ago. Also our day sales and receivables declined 10 days from the year-ago period and our inventory turns increased to four times in the first quarter of 2003 from 3.7 times last year.

That concludes my review of the financials. I will now turn the conference back to the Operator for our Q&A session. Operator.

Thank you. The floor is now open for questions. If you do have a question or a comment, you can press one followed by four on your touch-tone phone at this time. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Once again ladies and gentlemen, that is one followed by four on your touch-tone phone. Our first question comes from Michael Hutchinson of Barrington Research.

Hi, thanks. Congratulations on the quarter. In terms of capital spending by your customers in the near term, what is the breakdown in terms of new capacity, upgrading old equipment, and then how much is because of regulatory?

A good question, Mike. In North America primarily it's modifying and improving existing capacity. There is no real new capacity being put on. From time-to-time there may be a new tissue machine being put in, but that is about the extent of it. It is primarily on retooling in North America. Regulatory issues-that always takes some amount of their cap ex. One of the things that's interesting is that the number of the mills have announced, even though they are not doing that well financially, that they are increasing cap ex and some of them as they relate to depreciation. For example, IP was one simply because there is a need right now. They have been throttled down so long there is a need to replace some of the equipment they have. Where we see the capacity expansion is primarily in areas like China. Eastern Europe is starting to get some activity for us as well. That is one advantage we do have in being global.

Could I ask one other question? This would be for Jon. You see the recent entries in TV advertising from Trex. What does that do to your competitive position in composite building products?

That's a good question as well. Trex has started to market more heavily to the consumers. I think that helps us. They do increase consumer awareness that composites are out there in general. We market to the builder. Very often when the consumer says I want a composite deck or even a Trex deck, they may end up talking to a builder who says, why don't you a try this other product - Geodeck. I've used it. I'm familiar with it. Take a look at it. I think we in the whole composite category are benefited by Trex advertising at the consumer level.

OK, thanks.

Thank you. Our next question comes from Claudia Shank of J.P. Morgan.

Hi. I have a couple questions. One is on the composite side. You talked a lot about costs. Could you talk about pricing for the decking product and what you are seeing.

Sure. We, and I think a number of people in the industry put in a price increase this year. I believe most of the players in the industry are putting in-do put in a yearly price increase. Our increase this year was 3.5 percent. That went into effect in mid-February.

The other question I had - could you give a little color on your decision to list on the NYSC?

I think that is going to give us much more visibility in the financial markets. A number of our customers are listed on the New York Stock Exchange. Being an international company, that gives us much more prominence internationally as well. I think it's going to give us better visibility.

That happens in May?

Yes, May 14.

That's it. Thanks.

Thank you. Once again, as a reminder, if you do have a question or a comment you can press one followed by four on your touch-tone phone at this time. Our next question comes from Allan Fornier of Penny Capital.

Good morning. Great job on the quarter. I'm glad to see things starting to pick up a bit. I don't know if you just answered this question. I apologize. I was interrupted off the call for a second. Pricing in the composite decking area. Did you just discuss that or was that pricing somewhere else?

Yes we did. We said that we did impose a price increase-an annual one, which I think most of the suppliers in this industry do. Ours was 3.5 percent effective February.

OK. I've heard from other players trying to get into this business that they are using pricing as a method of opening up distribution. You haven't seen that kind of negative pricing trends?

It's not at all unusual, when you are starting a new distributor, that they will get somewhat of a discount off list price. They need to go and get stocking dealers. They will-very often the first deliveries are discounted in the five-percent range. That is business, I'd say, as usual. I don't think that is anything that has changed particularly.

OK, great. Second question is on use of cash. We've talked about share repurchase in the past. The balance sheet obviously looks fantastic. What are your thoughts going forward particularly given that the outlook looks like it is improving on buying back shares?

I'll answer part of that. We intend on putting that cash to work either through certainly internal investment where we see opportunities for internal growth or through acquisitions whether they be in the paper industry or in-now that we're getting much more competence in the building products line, perhaps something in that area as well. Outside of that we also always look at buyback of stock. That is another option for us. This is one that we watch as well very carefully. We do have authorization from the board as well.

I realize that. I also see that you haven't bought any. How will you evaluate an acquisition versus share repurchase?

We do have models that we run-that Tom runs. We try to find out at the time which would be the best investment. This is what we target against as we look at whether it's buy back stock or an acquisition - which one is going to give us the best return.

I assume when you look at buying back stock, you normalize your earnings for a normal part of the cycle as opposed to a trough part of the cycle?

I think we have competing interests for the cash, as Bill said. We are looking to do two things. We want to increase shareholder returns. We want to invest for the long term for the business. We are constantly looking at alternatives for where the best use of our cash is. I would also want to clarify one thing. That is at the moment our authorization to purchase stock has expired. We will be looking going forward. Those decisions will be made by our board in terms of whether or not we renew that authorization going forward. At the moment it has expired. We're always looking at different alternatives, different acquisition possibilities, internal growth possibilities for the best use of our cash. The overall intent is that we want to increase our shareholder returns and we want to build this business for the longer term. We are constantly looking at those different objectives.

Right. I understand. Certainly if there is an attractive acquisition, that would be welcome. I'd like to see the company be very disciplined looking at an acquisition relative to your own shares particularly given that you're significantly under-earning your potential full cycle.

Exactly This is what we do. This is why we have not made an acquisition yet. We have been very disciplined on it. We're not going to violate any models or anything we have. We have a very valuable franchise, we believe. We don't want to impact that in a negative way.

Great. Thank you.

Thank you. Our next question comes from Peter Park of Park West Asset Management. Your line is live.

Great quarter. A couple quick ones. Number one, there were no charges this quarter. Is there anything expected for the balance of the year?

In terms of restructuring charges, we're always looking at improving our operating costs and our management costs. We may do some small actions during the year. They would be nothing to the extent of last year. We don't expect anything along those lines. There won't be anything significant.

In fact if anything, Peter, we expect to get a -- this is contributing to our contribution-what we did last year. We expect to get a gain from that. We don't see any need for anything like to that extent this year.

It doesn't look like you're seeing an impact of SARS yet in China. My question is, your company is probably the only one that I follow that says that your profitability is going to be front-end loaded instead of backend. Is there anything specific aside from being a conservative management team that causes you do to this? Is there something that we're missing?

Concerning China?

Yes - or generally.

In general I think without doubt we have probably one of the best management teams in the field-in the industry - very close to customers. We understand them very well. I think we've targeted and focused our thrust on after-market on more mature markets. In areas like China we've looked at where they are going to be adding capacity. In that case, we have about 20 people who are Chinese in the Beijing office. That also provides us-and they have been there for a couple decades. That gives us a huge advantage on install base. Today our competitors have pulled their people back. This gives us a real advantage-to have people on the ground in areas like China.

Great. Maybe one last one. Is there a market share number that you could talk about in China? The growth is obviously phenomenal there.

I know for a fact that we have the leading market share in recycling systems. Data that we have received is somewhere between 60 and 80 percent. We've got a very strong install base on new equipment.

Thanks a lot.

Thank you. Our next question is a follow-up coming from Michael Hutchinson of Barrington Research.

You had talked about expanding manufacturing capacity in the composites business. If you weren't going to do it in Green Bay, where would you have an interest in doing that? Assuming you are going to do this, when do you want to do this?

That's a good question. We watch this very carefully as an investment. Right now we're going to focus and try to expand in our Green Bay facility simply because a larger facility is going to generate certain benefits on economies of scale and margins. Outside of that we would then look and continue to look at where we would put our next facility. That would probably be somewhere out west.

We're looking at the western states other than California, but all around California primarily.

OK, thanks.

Once again ladies and gentlemen as a reminder, if you do have a question or a comment you can press one followed by four on your touch-tone phone. Our next question comes from Ran Jasing (ph) of David J. Reed.

Hi. I have some composite questions. Can you give us a feel for the dealer level for the spring versus what we had last year?

It's up substantially from last year. Last year, just to give a sense, we only-from edge of the year with about three distributors. They might have had just a handful of dealers underneath them. Now we've got in the mid-20s in terms of distributors. I don't have a good feel. It would be hundreds of dealers under them. It is substantially broader than it was last year.

OK. What about the capacity this year versus last year?

Last year-I would say it's in the range of-our capacity right now is around $20 million. Last year it was probably not even half that. A lot of that has to do with increasing the efficiency of the equipment we have on the ground as well as we did add a couple of lines.

OK. The recipe as it relates to Trex. I guess I had thought there was significantly less plastic in your recipe. Is that right?

We have less weight per foot than Trex. We do have less plastic because of that. Trex is more vertically integrated. They have some advantages in terms of their pricing for their plastic. That, to some extent, makes up for that for them.

OK.

I should add we're taking a lot of steps to reduce our plastic expense in terms of sourcing, in terms of adding blending capacity and that sort of thing.

Right. OK, thanks.

I am showing no further questions at this time.

If there are no further questions at this time, I'd like to thank everyone for listening in. Just to wrap up, I would say that we're very pleased with our performance this quarter and the strong momentum we have going into the year. We're a much more productive company than we were a year ago. For that I have to thank all the efforts of our employees. We continue to invest throughout the business to capitalize on what we believe are solid prospects for growth. Also we hope to increase Kadant's visibility in the financial markets by listing on the New York Stock Exchange on May 14. Just yesterday we received word that they have authorized our listing. With that, I'd like to thank all of you for joining us. We look forward to reporting on our progress next quarter. Thank you.

Thank you. Ladies and gentlemen this does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.