Kadant Inc (KAI) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 Kadant Inc. earnings conference call. My name is Sheena and I will be your coordinator for today.

At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today, Mr. Thomas O'Brien, Chief Financial Officer of Kadant. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Kadant's first-quarter 2011 earnings call. With me on the call today is John Painter, our President and Chief Executive Officer.

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 outlined at the beginning of our slide presentation and those discussed in our annual report on Form 10-K for the fiscal year ended January 1, 2011, which is on file with the SEC and is also available in the Investors section of our website at www.Kadant.com under the heading SEC filings.

In addition, any forward-looking statements we make during this webcast 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, and you should not rely on these forward-looking statements as representing our views on any date after today.

During this webcast we may 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 first-quarter earnings press release issued yesterday, which is available in the Investors section of our website at www.Kadant.com under the heading Investor News.

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

Thanks, Tom. Hello, everyone. It's my pleasure to update you on our first-quarter results and our expectations for the year ahead. We did receive positive feedback from you on this new format, so we are again providing a webcast presentation of our results as we did last quarter.

Couple of housekeeping items. If you are viewing our webcast presentation, you should have a slide titled Business Review with my picture on your computer screen. If you don't have the presentation on your computer, you can find it on our website in the Investors section. The slides will automatically advance as we present.

If you would like to listen via telephone while watching the webcast, please go to the Investors section of our website and click on the webcast and the listen live option. You can use your phone line to ask questions at the end of the presentation. If you are viewing only the webcast, you will also have an opportunity to ask questions as prior to the Q&A session we will provide you a call-in number for questions.

If you are reading a transcript of the call, as I know many of you do, I do suggest you print out a copy of the slides as well as there is a lot of information in the slides that may not be presented verbally.

Turning to our 2011 financial highlights, it's certainly an understatement to say we had an excellent quarter. We had a 17% increase in revenues from a fairly good first quarter, although down slightly from Q4. We had great diversity in the increases with all of our product lines showing increases from Q1 of last year, led by our stock prep group which was up 31%.

You will note in this slide and throughout both Tom and my presentations we will be using the word doctoring rather than accessories to describe the product line that we call our doctoring equipment line. This is a term used in the industry and I actually think it's a little more descriptive of the product line.

As a reminder, our Doctoring pipeline in includes blades, blade holders, and systems. And they are used to clean or, as many of you would say, doctor the rolls to keep them functioning properly.

Other financial highlights, certainly one of the most pleasant surprises in the quarter and I would say one of the headlines for the quarter is the increase in our gross margins from 44% to 48%. Many of you may remember that both Tom and I in the past have been kind of saying that we expected some declines in our gross margins as the large Stock-Prep systems that we booked in previous quarters moved through into revenues.

Clearly, this downward pressure did not occur in Q1. In fact, we had a sharp increase in our margins from last year.

In looking at our reasons for the strong gross margin performance, pricing of our products has improved. This is particularly the case in China. We also, I would say, in general had very good execution by our operating divisions.

Looking a little closer at China and maybe comparing to a few years ago, in the past our Stock-Prep orders in particular in China were sold to very large producers who were bidding sometimes, let's say, 6 stock-prep systems at a time. This is not a good environment for pricing. Now we have a much more diverse customer base.

We also are selling typically single systems, not multiple systems at a time, and we have more individual capital. So it's a much better environment from a pricing point of view.

With respect to our operations, our Stock-Prep margins have benefited from improved manufacturing efficiencies, particularly at our Stock-Prep facility in China. In addition, you may recall that we merged our Water-Management and our Doctoring product lines in the United States and Mexico. We are seeing the benefits of increased efficiencies at those facilities, which is impacting our Doctoring and Water-Management margins.

Knowing I have very little credibility on the subject at this point, I do still think that we will see some declines in our margins going into [two 11], particularly in the second half as these large Stock-Prep orders turn into revenue. But given the head start we have and the performance of many of our divisions, I do think the average margins for the year will likely to be similar to last year for the full year as opposed to down as we projected before.

Other highlights, certainly our earnings per share, which was an increase of 62% over first quarter last year, and our EBITDA margins increased to 14% from 10% last year. So we are certainly a more profitable business than we were a year ago.

Turning to our bookings, I would say another very good performance was our bookings. We did know we had a tough act to follow after the really extraordinary for $100 million booking performance we had last quarter, but we were very pleased to generate $84 million of bookings in Q1, which was a 20% increase over Q1 of last year.

As was the case with revenues, we had very nice breadth in the increase in bookings. All of our product lines increased over Q1 of last year and 4 of 5 of the product lines increased by double-digit percentages. So it's nice to see that.

Kind of looking a little more detail at our bookings and looking in the context of quarters over the last two years, this slide of course is our quarterly -- is our quarterly bookings. You can see that Q1 at $84 million is really one of the strongest quarters that we have had in the last three years.

As you can see that while our bookings and our Stock-Prep product line where the main driver of Q4, the bookings were more evenly spread across the product lines in Q1. Our Stock-Prep product line had the highest bookings at $30 million and was closely followed by Fluid-Handling at $27 million.

Again, we had good diversity in our bookings with increases from Q1. Our Stock-Prep product line was up 37%, our Fluid-Handling and our Water-Management product lines were each up 15%, and our Doctoring product line was up 4%. In addition, bookings in all major geographic regions, other than Europe, grew compared to Q1 of last year with China having the strongest booking performance with being more than double last year.

Looking at it sequentially, overall bookings were down 16% sequentially from that very strong Q4. However, all of our product lines, other than Stock-Prep, saw sequential booking increases. Fluid-Handling was up 23%, Water-Management up 11%, and Doctoring up 3%.

Stock-Prep, of course, was down 44% from an extremely strong Q4, as you can see there. But it's still -- if you look back over the last three years the performance in Q1, even for the Stock-Prep product line alone, was one of our better performances recently.

Kind of looking at our capital bookings, I think the thing to note on this slide is that in Q4 you can seek capital was a large contributor to our overall bookings performance and it's somewhat less of a contributor in the mix in Q1. In Q4 capital was 57% of our total bookings, while in Q1 it made up 42% of the total. Despite the drop in bookings from Q4, I would say we still had an excellent capital bookings quarter, particularly for Stock-Prep and Fluid-Handling product lines which increased 78% and 16%, respectively, from Q1 of 2010.

Switching now to our parts and consumables bookings. This chart is a little different than the chart we have shown in the past. This shows our parts and consumable bookings for all of our product lines, including our Fiber-based Granules business.

You may remember that our Fiber-based Products are biodegradable granules that are used in the agricultural and home lawn and garden business. These are obviously 100% consumables. I think it gives a more accurate picture of our spare Parts and Consumables business to use this chart going forward instead of the charts we have shown in the past.

In the past we only showed our Papermaking equipment business. For the record, on the Parts and Consumables bookings for our Papermaking segment was -- also had an excellent quarter, which was up 8% to $45 million.

I would say in general that bookings for Parts and Consumables is another one of the takeaways from our quarterly results. Overall, our spares and consumables were $49 million, which is a 9% increase from a pretty strong Q1 of last year and a 14% sequential improvement over Q4. All of our product lines increased their Parts and Consumables bookings over Q1 and Q4 led by our Fluid-Handling product line which increased 15% over Q1 of last year and 17%, sequentially.

Similarly all geographic regions had bookings increases in Parts and Consumables, both compared to Q1 of last year and Q4. So quite strong results in Parts and Consumables.

I should mention that in kind of typical economic times, i.e., not economic crisis and so forth, Q1 does tend to be a bit stronger than other quarters as maintenance budgets are approved and established at the beginning of the year and spending on projects often kicks up in those quarters. Also, our Fiber-based Products business is a seasonal business with much stronger bookings in Q1 and Q2. This does have some impact on the level of bookings that we see in Q1.

I am going to now kind of cover the various markets that we operate in, give a couple of overview comments, and then talk about how we did there.

Starting with North America; not a big change in the conditions in North America from last quarter. I would say the paper industry in North America is doing very well. Containerboard operating rates are in the mid-90%s which really is pretty much full-speed ahead. We may see a little bit of weaker demand in some printing and writing grades, and that is probably still impacted by high white-collar unemployment as well as probably some structural pressure from electronic media, that kind of thing.

If you are listening to the earnings conference calls of the paper industry and reading stuff in the literature, as well as talking to our sales guys, one of the main concerns of paper producers in North America is the margin pressure that they are under from increasing input costs, particularly energy and fiber. Prices of recovered paper, particularly OCC, they have dropped a bit recently due to a little bit less Chinese buying but they are still very high by really any historical standards.

Our sales people and the industry all say that some of their capital spending, or a good part of it, is going to be directed towards reducing these input costs. I will say this is good for us because several of our products are focused on reducing input costs, like fiber and energy.

Looking at our own performance in North America, you can see we were very pleased with our bookings in North America. We had good activity in all of our product lines and continue to have good activity in all of our product lines, which really bodes well for the rest of the year. I would say we see the most quoting and project activity in the packaging grades, while maybe a little bit slower in the printing and writing grids. But even those are still quite strong.

Overall, our bookings in North America were up about 16% from Q1 of last year led by our Stock -Prep bookings were up 36% and Water-Management which was up 15%. Sequentially we were also up about 10% from, as you can see, a fairly strong Q4 of 2010. I would say we also had an excellent booking quarter for Spare Parts and Consumables in North America with increases of 11% over Q1 of last year and 16% over Q4. So very good results in North America.

We also had, I would say, good capital activity in North America. For example, a mill ordering an OCC system upgrade to improve the fiber quality. We also had business in Canada that booked a steam system rebuild from a packaging producer in Ontario.

As I mentioned earlier, demand and profitability for containerboard has been quite good and there is project activity in this grade, both to reduce operating costs as well as really increase production and capacity. And that is a nice change for this market from what it has been over the last several years.

Sales of products also into the non-paper markets, such as steel, food processing, corrugated machine tools, and that type of thing, have also seen very nice recoveries in North America.

Flipping now to Europe. Europe really continues to be our weakest market, but it is fairly stable. As was the case with North America, the packaging grades are seeing the strongest demand and again, as was the case with North America, input costs, higher input costs for energy, fiber, chemicals are probably one of the major concerns for mills in the region.

Overall inventories are fairly low by historical standards and pricing for most grades has been fairly strong. I would say there is two kind of overhangs in the market. One is overall concerns about the strong euro and the impact it will have on exports and as a result linerboard. Also, of course, there is concerns about the budget deficits in the peripheral countries with some of the impact that it might have on anything from consumer spending to business investment.

So I would say there is some things to worry about in Europe, but where we stand right now the market looks pretty good.

Looking at our bookings in Europe, our bookings were really relatively weak with the noticeable exception of our Fluid-Handling business. Our Fluid-Handling business increased bookings 18% from Q1 of last year and 32% from Q4.

I would say our Fluid-Handling business has two things going for it in Europe. First, it has excellent market position in the stronger German and Scandinavian markets and, second, it's really well positioned in the better performing -- in the packaging grades.

Our other product lines actually saw declines on both an annual and a sequential basis. Our Stock-Prep product line in particular saw declines of 35% from a relatively good Q1 of last year and 25% from Q4. I should point out that our Stock-Prep business has a larger percentage of large capital systems, so timing of orders can impact the comparisons. We do see project activity in our European Stock-Prep business so I am not terribly worried about that business at this point.

Overall, European bookings in all of our product lines were down 9% from a fairly strong Q1 of last year and flat compared to Q4. The picture is brighter for Spare Parts. Our Spare Parts business was up 7% from Q1 of last year and 9% from Q4. Once again our Fluid-Handling business was a big contributor to this result.

Despite the general weakness in Europe, we did have some notable orders from our European businesses. We have got an order for scraping blade holders for 6 tissue machine orders from a European-based OEM, as well as 2 drying system rebuilds on board machines in Finland and the Ukraine.

Flipping now to China. And of course, the situation in China is quite different than North America and Europe. The government there is really struggling with a potentially overheating economy and resulting inflationary pressures.

Looking at pricing of paper grades in China, it's a bit of a mixed bag. There has been some reduced pricing for linerboard of printing and writing grades while newsprint and corrugated medium prices are up. The price declines in linerboard in printing and writing that we have seen in the last month were most likely driven by new supply coming onto the market. And that has resulted in some projects being delayed by a few months, particularly in the printing and writing grades.

I would say overall, though, the economy is still quite strong and new capacity additions continue to be announced.

The government in China has been very supportive of growth in the paper industry, particularly recycling. The new -- I think it's the 11th -- e-year plan has a big environmental focus which both encourages the use of recycled paper and mandates the closure of older, higher polluting mills. This, of course, is good for us on both counts.

In general, I believe that China will continue to be our main growth market for years to come but the growth will be choppy. This is going to be particularly the case as new capacity comes on to the market and has to be absorbed.

Looking next at our bookings in China, we didn't have the dramatic Stock-Prep booking performance we had in Q4. But overall bookings in China were still quite good led by our Stock-Prep business, which was triple the level of Q1 of last year but of course less than half the level of Q4.

Of note, our Fluid-Handling product line also had a very nice increase of 20% over Q1 of last year and 24% over Q4. On the other product lines the absolute dollar bookings for Doctoring and Water-Management, of course, is relatively low as we are new to that market, but we are seeing good growth. Our Doctoring business was up nearly 50% over Q1 and our Water-Management business more than tripled.

As I commented in the past, growing our market share for these products in this quite important growth market continues to be a focus of ours. And it's nice to see we are making some progress.

Overall our Spare Parts business in China showed some modest growth of 3% over Q1 of last year and 15%, sequentially. As is the case with our Doctoring and Water-Management business, growing our Spare Parts business in China is also a priority. We need to build a steady, high-margin parts business; one because it's high margin and two because it will somewhat moderate the volatile capital business.

Looking at our bookings in China, clearly China is a very strong capital market for us. We did book 8 Stock-Prep systems in China in the first quarter and 1, including an approach flow, for a total value of $11 million.

In addition, we do continue to make progress expanding our newer product lines in China. We got an order for drying and showering equipment to be installed in 5 new paper machines for a combined value of approximately $600,000 in the quarter. We also received an order for 13 doctoring systems from a boxboard producer.

Looking forward to the year, our very strong bookings that continued into Q1 as well as our improved gross margin has really led us to increase our estimates for the year. We now expect to generate full-year earnings per share of $2.15 to $2.25 on revenues of $315 million to $325 million. For the second quarter we expect to generate $0.54 to $0.56 of diluted earnings per share on revenues of $78 million to $80 million.

That concludes my remarks and I will now pass the call over to Tom for additional details on our financial performance. Tom?

Thank you, John. I will start with a review of our revenue performance. Consolidated revenues were $71.7 million in the first quarter of 2011, 17% higher than last year, and included a 1% favorable effect from foreign currency translation.

The revenue results were within the range of our guidance for the quarter, which was $71 million to $73 million. And somewhat higher revenues than we expected in our Doctoring, Fiber-based Products, and Fluid-Handling product lines were offset by slightly lower than planned revenues in Stock-Prep and Water-Management.

Revenues in all our product lines increased significantly compared to last year's first quarter and included double-digit increases in Stock-Prep 31%, Fiber-based Products 14%, as well as 13% increases in both Fluid-Handling and Doctoring.

From a macro viewpoint, we believe that some of this increased activity across our product lines can be attributed to continued high mill operating rates. Anecdotal evidence suggests that many paper mills, which had curtailed spending for so long, are now going forward with a backlog of both equipment and maintenance upgrades, particularly now that their balance sheets and cash flows have improved.

With those general comments as background, let's now turn for a moment to our sequential revenue performance by product line. As you can see here on slide 26, we recorded single-digit percentage increases in most of our major product lines compared to the fourth quarter of 2010. The notable exceptions here were in our Fiber-based Products business, which more than doubled revenues to a record $4.2 million in the first quarter of 2011, and our Stock-Prep product line which decreased 19% in the fourth quarter of 2010.

The Stock-Prep sequential decline partly suffered from a difficult comparison to a strong performance in the fourth quarter of 2010. Within Stock-Prep revenues were lower in both China and Europe, while North America recorded a 3% sequential increase largely due to higher Parts and Consumable revenue.

On a consolidated basis, sequential revenues were down 2%, including an increase of 10% in Parts and Consumables and a decrease of 19% in the capital portion of the business. The decline in capital revenues was not unexpected given the lumpiness of this business and the strong Stock-Prep capital revenues in the fourth quarter of 2010.

The higher Parts and Consumables revenues were partially due to a seasonally strong first quarter in the Fiber-based Products business. At the same time, we did see strong Parts and Consumables growth in most product lines and in most geographic territories, and I will have more to say on this portion of our business in a moment.

Before I leave the discussion of our sequential revenues, however, I do want to take note of the 5% increase in Fluid-Handling revenues when compared to the fourth quarter of 2010. Revenues here were $22.6 million in the first quarter of 2011, their highest level since the third quarter of 2008.

Now let's look at our revenues in the Papermaking Systems segment by major geographic territories.

You can see on slide 27 that most of the growth in revenues in the first quarter of 2011 compared to the first quarter of last year occurred in both North America and China. We also saw significant percentage increases in South America and Australia, but the absolute amounts there were relatively small in proportion to the total segment performance.

Europe, on the other hand, which is a large and important market for us, was essentially flat compared to last year and was down on a sequential basis. In fact, the only major geographic territory which grew sequentially was North America. Driving this growth in North America was a 14% increase in Parts and Consumables revenues.

That is a nice segue to the next slide where we can see our revenue performance from the perspective of Parts and Consumables compared to capital.

Here on slide number 28 you will note that Parts and Consumables represented 66% of our consolidated revenues in the first quarter of 2011, up 7 percentage points from the fourth quarter of 2010 and identical to the percentage in the first quarter of 2010. Parts and Consumables revenues were up 18% compared to the first quarter of 2010 and included increases of 16% in North America, 10% in Europe, and, importantly, 72% in China.

You may recall that we are making a substantial effort to build the aftermarket business in China since we believe that at some point over the next several years the capital business there will probably cycle down as supply catches up with demand.

Let's turn to our product gross margins and slide 29. Consolidated product gross margins were a record 47.6% in the first quarter of 2011, increasing 360 basis points over last year and 520 basis points over the fourth quarter of 2010.

In our Papermaking Systems segment record quarterly gross margins of 47.4% were up 390 basis points over last year, increased 500 basis points compared to the fourth quarter of 2010 due to solid increases in all the product lines in this segment. The sequential increase was partly due to a better mix, improved pricing in certain of our markets, and higher manufacturing efficiencies associated with the consolidation of our US Water-Management business and to our manufacturing facilities in the US and Mexico.

Going forward, we do expect that several large, relatively lower margin Stock-Prep systems will be delivered in the second half of the year, decreasing product gross margins somewhat from these first-quarter levels. Taking this and, of course, the first-quarter performance into account, we now expect that consolidated gross margins for the year will be between 43% and 44%.

Now let's turn to slide number 30 and our SG&A expenses. SG&A expenses were $24.5 million in the first quarter of 2011, up $3.4 million or 16% from last year, including an increase of $300,000 from the effect of foreign exchange translation. Slightly under half of the increase in SG&A compared to last year was due to higher incentives, commission, and travel expenses, much of which in turn is associated with the higher revenues and improved results over the 2010 period.

Operating leverage was slightly better than last year as SG&A expenses compared to revenues were 34.1% in the first quarter of 2011, down from last year's 34.6%. For the full year we now expect SG&A expenses of between $97 million and $99 million or approximately 30% of revenues.

Now let me turn to our EPS results for the quarter and slide 31. We reported GAAP diluted earnings per share from continuing operations of $0.47 in the first quarter of 2011 compared to $0.29 in the first quarter of 2010, an improvement of $0.18.

This increase of $0.18 in diluted EPS consists of the following -- increases of $0.31 associated with higher volumes in the first quarter of 2011 compared to the first quarter of 2010, $0.17 from higher gross margin percentages, and $0.01 for the lower net interest expense. These increases were partly offset by decreases $0.22 due to higher operating expenses, $0.02 due to a gain on the sale of real estate in the 2010 period, and $0.07 due to a higher effective tax rate.

On the subject of the tax rate, our effective tax rate was approximately 28% in the first quarter of 2011, which was exactly what we had guided to in our February 2011 earnings call. And we now expect an effective tax rate of approximately 26% in each of the remaining quarters of 2011.

Now let me conclude my remarks by turning to our cash flows, working capital, and debt leverage -- all of which start on slide number 32.

Operating cash flows were $400,000 for the first quarter of 2011, an increase of $1 million compared to negative operating cash flows of $600,000 in the first quarter of 2010. As you can see on slide 32, we had an increase of $8.7 million in working capital in the first quarter of 2011, most of which was associated with a buildup in inventories as we have begun manufacturing the large Stock-Prep systems which I mentioned earlier and which are scheduled to ship later in the year.

Our key working capital metrics illustrate the impact that the inventory increase had on our base inventory, which increased 10 days over last year and 22 days over the fourth quarter of 2010. DSO was also up, albeit more modestly compared to both periods.

On a more positive note, working capital as a percentage of the last 12 months revenues was a very respectable 12%, up from the fourth quarter of 2010's 9.1% but still lower than last year's 13.1%. Working capital here is defined as current assets plus current liabilities, excluding cash, debt, and the discontinued operations.

Our net cash position, that is cash less debt, at the end of the first quarter of 2011 was $40 million, an increase of $900,000 compared to the fourth quarter of 2010 and an improvement of $19.5 million compared to the net cash position at the end of the first quarter of 2010.

Finally, on slide 35, you can see that our leverage ratio was 0.4 at the end of the first quarter of 2011 and it has now decreased for the fifth consecutive quarter. This ratio represents our total indebtedness divided by our consolidated EBITDA as defined in our credit agreement.

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

(Operator Instructions) Eric Glover, Canaccord Genuity.

Good morning. I am afraid I missed the very first part of the call, so if you answered this in the prepared remarks I am sorry. But in China is the new equipment that you are supplying there for new capacity that has come online or are those idle plants that are being restarted?

It's pretty much new capacity coming online. Of course we have a parts business and we have people upgrading stuff, but when I talk about Stock-Prep systems or the orders we had for Doctoring that is going on new machines.

Okay, great. Then can you talk a little bit more about Europe and why that seems to be a lagging geographic region for you. I know that prices -- at least paper prices there have been on the increase pretty steadily.

I think it's as much as anything that I would say North America is doing quite well. Europe I would say is stable. As I said earlier, our results there, I think, are somewhat impacted by our Stock -Prep business in which timing of orders is a factor. But I would characterize that market as not really as strong as the US at this point.

Okay, thank you.

(Operator Instructions) Rick Hoss, ROTH Capital Partners.

Good morning. This is Joe filling in for Rick. I had a quick question on the SG&A. It seems that -- if you are guiding at $97 million to $99 million in SG&A with your new revenue guidance, it seems as though you are bringing down SG&A as a percentage of sales pretty dramatically from where it was this quarter. Can you just talk a little bit more about that?

Well, Joe, I think the percentage this quarter was 34%. You are right, we are bringing it down. It's going to be a function of the revenues in the second half, again which are higher and will be impacted by those large system orders we talked about.

So I think the absolute amount of SG&A will probably be kind of in the same range, maybe a little bit lower, but will have higher revenues in the second half.

Okay. And then based on the current cost structure and a stable SG&A, what do you think you could do in earnings with a $350 million revenue scenario?

Well, we actually just started to give you a $320 million scenario.

Just looking out a little further.

It's obviously a tricky thing because it depends on the capital and the spares mix. We are really, I would say, not in a position to do that. Kind of all kidding aside, it's not that -- $325 million versus $350 million that is not the hugest difference in revenues.

Okay, great. Thank you, guys.

There are no other questions in queue. I would like to turn it over to management for a closing statement.

All right. Thanks very much, operator, and thanks for your attention. I guess in closing, to me there is three takeaways from our results in Q1.

First, obviously our gross margins have improved significantly, up into the range we had last year, as we expect for the year. Really making us a more profitable business. Secondly, our Parts and Consumables bookings have had nice growth this quarter in really all regions and all product lines. And sort of a last but not least, our outlook for the year an increasing the medium of our guidance by $0.50 is certainly an important takeaway.

So I look forward to updating you on our results as the year moves on and thank you very much for listening. Bye-bye.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.