Kadant Inc (KAI) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2017 Kadant Inc. Earnings Conference Call. (Operator Instructions) I would now like to turn the call over to Senior Vice President and CFO, Mr. Michael McKenney. Please go ahead, sir.

Thank you, Andrew. Good afternoon, everyone, and welcome to Kadant's Second Quarter 2017 Earnings Call. With me on the call today is Jon Painter, our President and Chief Executive Officer.

Before we begin, let me read our 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 under the heading Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2016, and subsequent filings with the Securities and Exchange Commission.

Our Form 10-K 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'll 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 second quarter earnings press release issued today, which is available in the Investors section of our website at www.kadant.com, under the heading Investor News.

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

Thanks, Mike. Hello, everyone. Thank you for joining us this afternoon to review our second quarter results and discuss our outlook for the second half of the year. Overall, we had another terrific quarter with record bookings, record adjusted EBITDA and record adjusted earnings per share. I'll begin with the financial highlights.

To tell you the truth, the second quarter is one of those quarters with so many highlights, it's hard to know where to start. But since it's at the top of the slide, I'll start with bookings. We had record bookings of $120 million, which beat the previous record set last quarter. This was driven in large part by continued strong capital bookings in China and Europe. Other highlights include, gross margin at 48% was the third best in our history and was due largely to a high percentage of parts and consumables at 64% of revenue.

Adjusted EBITDA was a record $19 million or 17% of revenue. We generated $0.72 of GAAP diluted earnings per share. But more important to us, our adjusted earnings per share, which excludes the acquisition cost for NII was a record $1.04. Generating over $1 share is an important milestone for us, and we're very proud of it.

Cash flows also outstanding at $24 million, and net cash at the end of Q2 was $22 million. Soon after the quarter close, however, we happily eliminated our net cash position with the acquisition of NII. We're currently working on the integration of NII, which is going well. This is an important acquisition for us and so far, we're feeling great about it. The markets for their products are quite strong, and their management team has done a great job with the transition. Mike will give you the details of the impact that it'll have on us this year, but with -- at a -- with a spoiler alert, I can tell you it's off to a fantastic start.

As you can see on Slide 6, foreign currency translation was a modest headwind again in the second quarter, while there is no impact from acquisitions. Our internal revenue growth in the second quarter, excluding FX, was 1%, while internal growth in adjusted earnings per share was up 25%.

Internal growth in bookings was 26%. I'm also pleased to report that our internal revenue growth of parts and consumables in Q2 was 3%, while bookings were up 8%.

On Slide 7, you can see a nice trend in bookings over the last 3 quarters, culminating in record bookings of $120 million in the second quarter. All our product lines were up double digits over Q2 of last year, except Fluid Handling, which was still up a solid 8%. Leading the strong bookings performance was our Stock-Prep and Wood Processing product lines, which are both up over 30%.

Q2 revenue was essentially flat at $110 million compared to a record Q2 of 2016. That said, this is our third consecutive quarter with a book-to-bill ratio of greater than 1, so we feel confident that revenue will continue to trend up this year.

The first half of this year has been excellent in terms of parts and consumables business with record revenues in Q1 and near record revenue in Q2. Revenue from parts and consumables in the second quarter increased 1% compared to the same period last year to $70 million and represented 64% of our total Q2 revenue.

Parts and consumables bookings were up 6% to $68 million. All major regions contributed to this increase with the strongest contributor being China. Bookings for parts and consumables, however, were down 9% on a sequential basis from a record Q1 due to particularly strong bookings for our Wood Processing parts in Q1. In additional, seasonal influences in North America impacted the decline as Q1 is historically a strong quarter for parts as mills prepare for spring maintenance outages.

Next, I'd like to review our performance in the major geographic regions where we operate. Let me start with North America. The pulp and paper market in North America is solid and stable. Prices are being sustained during increases across many grades, and operating rates for U.S. containerboard machines are in the upper 90%, while inventories remain fairly low.

The housing market in North America is also quite strong and has led to continued growth in our Wood Processing product line. Industry analysts are forecasting approximately 1.25 million housing starts in 2017, which is the highest level since 2007. More importantly, there are signs that the millennials are entering the market after sitting on the sidelines for over a decade. Millennials are now the largest segment of potential homebuyers, and they're starting to buy single-family homes.

As this generation increases its homeownership, we expect demand for housing to remain healthy. This is good news for us as the recent acquisition of NII makes the housing sector even more important to us.

As you can see on Slide 9, revenue increased for the third consider quarter to $52 million, but was down 4% compared to the second quarter of 2016, due largely to softer demand for our Stock-Prep product line.

Bookings in North America were $48 million, up 4% compared to Q2 of last year. Increases in bookings from our Wood Processing product line offset reductions in our Doctoring, Cleaning, & Filtration and Stock-Prep product lines.

The 15% drop in bookings from Q1 to Q2 was largely due to the strong performance of our Fiber-based and Wood Processing product lines in Q1, but also due to a drop in orders for our other product lines as a result of somewhat softer demand from our paper customers in North America.

Before leaving North America, I want to provide an update on our efforts to expand PAAL's presence in the North American market. As we announced earlier this year, we obtained an order for our first PAAL baler in Monterey, California in January. In May, we debuted a full-sized baler at North America's largest waste and recycling trade show. The show was a huge success for us in terms of meeting new prospects and generating strong interest in our balers. In fact, before the show was over, we had secured an order for our second North American baler from a major waste management company.

Slide 10 shows our bookings and revenue performance in Europe, which were both records. After years of relatively weak market conditions, Europe has showed surprising strength this year. Second quarter revenue was up 3% from Q2 of 2016 and up 4% sequentially.

Bookings in Europe were up 23% sequentially from the relatively strong performance in Q1, led by our Doctoring, Cleaning, & Filtration and Stock-Prep product lines. We also saw strong performance in our Fluid Handling product line in Europe, primarily from industrial markets in Spain, Italy and France.

In addition to the solid market conditions in Western Europe, Russia continues to be an active in capital projects. During the quarter, we booked an order for our Stock-Prep system in Russia for approximately $4 million.

And finally, our recent acquisition of NII, which has a significant presence in Europe as well as North America, will positively impact our revenue and bookings in those -- these regions beginning in the third quarter.

The market in Asia, which is dominated by China, continues to be quite strong for both capital and parts and consumables. In addition, China recently notified the World Trade Organization that by year-end, it will ban the import of unsorted paper since unsorted or mixed paper is often combined with old corrugated containers or OCC in the production of recycled linerboard to reduce fiber cost. The ban is expected to put upward pressure on the cost of OCC. This should be a positive for us as our equipment helps producers increase the yield from processing OCC in the recycled linerboard.

Our revenue in Asia was up 18% from last year due largely to shipments of large capital orders booked in the previous 2 quarters. As I noted in our call in May, the strong bookings performance from China in Q4 of 2016 and Q1 of 2017 are having a positive impact on revenues in China this year.

The high level of capital bookings that we had in the 2 prior quarters continued into the second quarter of 2017, with bookings double from the same period last year. All of our major product lines had significant growth in bookings.

In China, we continue to see strong bookings in our Stock-Prep product line. In addition to the early Q2 capital order for 2 OCC systems valued at $6 million that I mentioned in previous call, we booked 2 additional orders for recycling systems and a multi-machine order for our fabric cleaning system with a value of $10 million. Although, we know the capital equipment market in China can be volatile, we continue to have a fairly active pipeline of projects in the works, which looks promising for the remainder of 2017.

Finally, a few comments on the rest of the world results. As you could tell from my remarks, we're seeing very good market conditions in most regions of the world. The exception is South America and in particular, Brazil. Our revenue in the rest of the world, which is largely South America and Brazil, was $8 million in Q2, down 26% compared to our relatively strong Q2 in 2016 and relatively flat on a sequential basis.

Bookings were also down sequentially and year-over-year due to the ongoing economic recession in Brazil, which has been exacerbated by the political situation. At some point, this should resolve itself and that will free up some pent-up demand.

I should note, by the way, that our performance in Brazil, despite the poor market conditions, is a validation of our approach to focusing on and building a strong and stable spare parts and consumables business in all of our operations throughout the world. Despite very little capital sales, our operation in Brazil continues to make a modest profit due to its strong parts and consumables business. When the capital business does return, we will be well positioned to take advantage of it.

I'd like to conclude my remarks with a few comments on our guidance for Q3 and the full year 2017. We're pleased by the healthy bookings trend we've seen over the past few quarters and the strong first half of 2017.

Based on our Q2 results, our improved outlook for the remainder of 2017 and the inclusion of the results of our recent acquisition of NII, we are significantly raising our full year revenue and adjusted earnings per share guidance. We're also raising our GAAP revenue and earnings per share guidance for the second half of the year.

For 2017, we now expect to achieve GAAP diluted earnings per share of $3.18 to $3.26 on revenues of $488 million to $494 million. We now expect our adjusted diluted EPS, which excludes the transaction expenses and purchase accounting adjustments associated with the NII acquisition, to be $3.99 to $4.07.

Our improved adjusted -- our revenue and adjusted earnings per share guidance is the result of both strong performance from our existing businesses in North America, Europe and Asia as well as the positive impact of the inclusion of NII. Mike will give you a breakdown of the expected impact of each on our GAAP and adjusted earnings per share forecast.

For the third quarter of 2017, we expect to achieve GAAP diluted earnings per share of $0.83 to $0.87 on revenue of $139 million to $142 million. On an adjusted basis, we expect diluted earnings per share of $1.12 to $1.16. Our adjusted results include the results of NII, which is expected to have an exceptionally strong third quarter.

I'll now pass the call over to Mike for additional details on our financial performance in Q2 and our guidance for the rest of the year. Mike?

Thank you, Jon. I'll start with our gross margin performance. Consolidated gross margins were 47.9% in the second quarter of 2017, up 300 basis points compared to 44.9% in the second quarter of 2016. The increase in gross margins from last year's second quarter was principally due to higher margins achieved in both our capital and parts and consumables business.

Our parts and consumables revenue represented 64% of total revenue in the second quarter of 2017 compared to 62% in the second quarter of 2016.

Looking ahead, with the inclusion of NII, we expect full year 2017 consolidated product gross margins will be approximately 45%.

We anticipate quarterly gross margins will be lower in the second half of the year and the first half, due to a significant increase in the shipment of capital orders, which will change our overall product mix and amortization expense associated with the acquired profit in inventory.

Now let's turn to Slide 16 and our quarterly SG&A expense. SG&A expenses were $39.2 million in the second quarter of 2017, up $3.1 million from the second quarter of 2016. The second quarter of 2017 included $4.1 million of acquisition-related costs and a favorable foreign currency translation effect of $0.7 million.

SG&A expenses in the second quarter of 2016, included $1.7 million of backlog amortization expense and acquisition costs associated with the PAAL acquisition. Excluding acquisition cost, backlog amortization expense and the foreign currency translation effect, SG&A expenses were up to $1.5 million. SG&A expense as a percentage of revenue was 35.5% in the second quarter of 2017 compared to 32.3% in the second quarter of 2016.

Excluding the acquisition costs and favorable foreign currency translation effect, SG&A as a percentage of revenue was 32.5% in the second quarter of 2017.

Let me turn next to our EPS results for the quarter. In the second quarter of 2017, GAAP diluted earnings per share was $0.72, and our adjusted diluted EPS was a record $1.04. The $0.32 difference relates to acquisition-related cost associated with our recent acquisition of NII.

In the second quarter of 2016, GAAP diluted EPS was $0.75, and our adjusted diluted EPS was $0.88. The $0.13 difference relates to acquisition costs and amortization of acquired profit in inventory backlog. The $0.16 increase in adjusted diluted EPS in the second quarter of 2017 compared to the second quarter of 2016 consists of the following: $0.18 due to higher gross margin percentages; and $0.10 due to a lower effective tax rate. These increases were partially offset by $0.06 due to higher operating expenses, $0.05 due to lower revenue and $0.01 due to higher weighted average shares outstanding. Collectively, included in all the categories I just mentioned, was an unfavorable foreign currency translation effect of $0.07 in the second quarter of 2017 compared to last year's quarter due to the strengthening of the U.S. dollar.

Let me also take a moment to compare our diluted EPS result in the second quarter to the guidance we issued during our May 2017 earnings call. Our GAAP diluted EPS guidance for the second quarter of 2017 was $0.87 to $0.91. The second quarter guidance did not include acquisition costs. We reported GAAP diluted earnings per share of $0.72 in the second quarter of 2017, including $0.32 of acquisition-related costs. Excluding these acquisition costs, our adjusted diluted EPS was $0.13 over the high end of our guidance range. This was principally a result of better gross profit margins from our Stock-Preparation product line. Also contributing to the better performance was a lower effective tax rate due to a more favorable geographic distribution of our earnings anticipated for 2017.

Now let's turn to our cash flows and working capital metrics, starting on Slide 18.

Cash flow from operations was $23.7 million in the second quarter of 2017, up from $13.7 million in the second quarter of 2016, and represents the second highest quarterly cash flow achieved in the company's history.

As you can see on the chart, the major factor contributing to this performance in the second quarter of 2017 was an inflow of $9.3 million related to working capital, primarily due to cash received from customer deposits and accounts receivable.

We had several notable nonoperating uses of cash in the second quarter of 2017. We repaid $6.6 million in debt obligations, paid a dividend of $2.3 million and expended $1.7 million for capital expenditures.

Let's now look at our key working capital metrics on Slide 19. Days and receivable decreased to 62 days from 67 days at the end of the first quarter of 2017. Inventory days are up to 97 as we build inventory to fulfill shipments in the second half of 2017, and our days and payables have remained fairly consistent from the second quarter of 2016 through the second quarter of 2017.

Looking at our overall working capital position, our cash conversion days measure, calculated by taking days and receivables plus days and inventory and subtracting days and accounts payable, was 113 at the end of the second quarter of 2017, down from 120 days in the first quarter of 2017 due in large part to a decrease in receivable days.

Working capital as a percentage of revenue was excellent at 11.6% in the second quarter of 2017 compared to 14.1% in the first quarter of 2017 and 12.7% in the second quarter of 2016.

Net cash, that is cash less debt at the end of the second quarter of 2017, was $22.2 million, up from $2.5 million in the first quarter of 2017.

In May, we amended our $200 million credit agreement, increasing the commitment to $300 million. After quarter end, we borrowed approximately $170 million in connection with our acquisition of NII. This includes U.S. dollar denominated debt of $46 million, euro-denominated debt of EUR 55 million and Canadian dollar denominated debt of CAD 83 million. Looking forward, we now forecast our net interest expense for the second half of 2017 to be approximately $2.4 million, with forecasted weighted average interest rates of approximately 1.8% for the third quarter and 2.2% for the fourth quarter.

As you can see on Slide 22, our leverage ratio, calculated as defined in our credit facility, was 0.46 at the end of the second quarter of 2017. Under the credit facility, this ratio must be less than 3.5.

If we had included the $170 million of debt related to the recent NII acquisition and pro forma EBITDA from the acquisition in our current debt covenant calculation as of the end of the second quarter 2017, we would have a leverage ratio of approximately 2.3%.

Before concluding my remarks, I'd like to give you a little more color on the guidance that Jon gave you for 2017, which now includes our recent acquisition of NII, which will be part of our Wood Processing product line.

In regards to NII revenues, we anticipate revenues of approximately $44 million to $46 million in the second half of 2017, with the split between parts and consumables and capital being roughly even. The addition of NII as well as increased capital project shipments in the second half of the year from our existing business will result in lower gross profit margins in the second half of the year.

As I mentioned earlier, we anticipate that our overall full year 2017 consolidated product gross margins will be approximately 45%. Product gross margins will be negatively impacted by approximately 260 and 160 basis points in the third and fourth quarters, respectively, as we recognize amortization expense associated with acquired profit in inventory. This expense is recognized in the quarter that the inventory ships, and we anticipate that most of this expense will be recognized by the end of 2017.

In regards to our SG&A expense, with the inclusion of NII, we expect the SG&A spending in 2017 as a percentage of revenue will be approximately 32%. I would note that this includes the transaction costs and backlog amortization related to the NII acquisition. Excluding these items, SG&A spending would be approximately 31%.

As we mentioned on our last call, we expect the acquisition of NII will be dilutive in 2017 on a GAAP basis as we have already incurred $0.34 of acquisition costs related to the transaction and anticipate an additional $0.47 of acquisition-related cost in the second half of 2017.

The second half costs are principally the amortization expense related to acquired profit in inventory and backlog and a small amount of remaining acquisition costs.

A few comments on the increase in our revenue and adjusted diluted EPS guidance for 2017. We increased our revenue guidance range to $488 million to $494 million from our previous guidance range of $427 million to $437 million. Approximately 75% of this increase or $44 million to $46 million is related to our acquisition of NII, and the revenue from this is more heavily weighted to the third quarter. The remaining revenue increase is from our existing business, and the revenue increase here is relatively evenly split between quarters.

In regards to our EPS guidance, we increased our adjusted diluted EPS guidance to $3.99 to $4.07 from our previous guidance of $3.27 to $3.37. Of the $0.70 increase from the top end of both our guidance ranges, a little more than half is from improvement in our existing business, which would include the $0.13 beat in the second quarter. And the remainder is from our acquisition of NII. And as with the revenue guidance, this is more heavily weighted to the third quarter.

In regards to our tax rate, we now expect our effective tax rate will be approximately 26% in 2017 compared to our 2016 tax rate that came in slightly over 27%. We expect depreciation and amortization will be approximately $18 million in 2017, which includes approximately $5 million from NII. That concludes my review of the financials, and I will now turn the call back over to the operator for a Q&A session. Operator?

(Operator Instructions) And our first question comes from the line of Walter Liptak with Seaport Global.

And I guess, the first question is on the gross margin. And I understand parts was a big part of the gross margin expansion. I wonder if you could just repeat again, what the percentage of revenue was from parts? I didn't catch that. And if there was something that you guys did differently to get that level of parts, is it selling efforts, is it anything strategic and maybe we can start there on the gross margin?

Yes. Walt, the split was 64% parts and consumables. If you recall, last year, we came in at 62% in total. So it was a little -- the mix was a little higher to the favorable side on parts and consumables. Jon, if you want to add?

Yes. The other -- I would say that our margins actually for both capital and parts were good in themselves. I would say, particularly in China. That factory is running full out, and overhead is being absorbed. So that has a good impact on all the margins. And we had some particularly good jobs in there, I would say.

Okay, great. And I think in your prepared remarks, you talked about the gross margin for Stock-Prep was good. Was that related to parts as well or is that -- or was that something else?

It was both, Walt. It was both parts and consumables and capital. The execution on the capital jobs in the quarter was quite good.

Okay. What geographic region was that in?

I would say, that was primarily out of China.

Oh, out of China. Okay, great. Okay. And then just, I guess in moving over to China then. You mentioned the WTO changes to the mixed paper and that's putting OCC costs higher. I wonder if the productivity gains from your equipment is going to be enough to offset the OCC costs? Or how should we look at that as some of your customers are seeing margins come down, will that slow investment in China?

Sure. So I mean, it's speculation on how much it will impact the price of OCC. It's just that the OCC is going to fill the demand that, that mixed office waste or waste paper was filling up before. I would say that, it's -- I doubt our equipment -- people buying our equipment will offset the increase of OCC. So they'll probably have higher fiber cost and higher overall operating cost, and they'll probably pass those on to their customers or certainly try to. But my point what really was is that our stuff, particularly on the Stock-Prep side is often sold on a return on investment on fiber savings. And when the fiber is more expensive, that return on investment is a better calculation. That said, you don't want OCC so high that, that Virgin looks attractive. We probably have a bias towards recycling, but I think we're probably safe in that regard. These things have a way of balancing themselves out.

Okay, great. And good work on the guidance for accretion from the NII deal. I wonder if we could take a step further, and if you have thought at all about what the accretion is going to be for 2018? And I imagine the purchase accounting will be done by the time you get into 2018.

Yes, I'll make a few wild comments, so Michael correct it. But if we haven't done anything in 2018, Michael wanted me to say that. I would say if I were sitting in your shoes, I would go back to the comments we made when we bought the company that this is a business with an EBITDA of around $20 million, $21 million and then calculate what that is. And Michael?

I also want to say, well, we're giving some good color on what we expect here in the second half, but just for full disclosure, we haven't completed the valuations yet. So those could move. But to your point, we do expect the kind of onetime. So the inventory [write off] the backlog amortization, we expect to be essentially through that in 2017.

Okay. And just to be clear, the adjusted EPS for the third quarter, the $1.12 to $1.16, that excludes any purchase accounting, any deal-related cost that the operating -- incremental operating income before any of those special items?

Yes, that's correct.

I guess, the other thing I would just say, we've kind of said a few times that the third quarter for NII is pretty strong. They have that, every once in a while, the fourth quarter last year was pretty strong. But I wouldn't just take our second half and double it for next year either. It's probably a little -- it's probably -- touch wood, maybe it'll come true, but it's -- we're not expecting it to be that good in 2018 necessarily.

Okay. And one last one from me, and then I'll get back in queue and let someone else go. With Europe bookings, you mentioned that they were strong, including in Russia. And what -- why do you think the bookings are picking up there? Is it pent-up demand from underinvestment, especially in Russia?

Well, Russia, no question, the weak ruble is helping them. Anyone who is -- any mill in Russia that's exporting and a lot of them are exporting to China, is making a lot of money, and the same thing goes true for lumber. They're selling a lot of lumber to China. And when your costs are in rubles and your revenue are in dollars or even renminbi, that's great. So that's sort of, I would say, the driving force behind Russia. Europe, I think is exactly what you say, it's sort of pent-up demand, you see Spain picking up, Italy, these countries that really have been on their knees for quite a while are -- seems turning the corner.

And our next question comes from the line of Dan Jacome with Sidoti & Company.

Just 2 quick questions. First, staying on the WTO, why are they putting that ban into place? Just so I have a better background understanding of it?

What they are saying is, is that this -- they feel like they're importing garbage from the world, and it kind of ends up in their environment, in their waste -- in their landfills and in their streams and rivers. So that's really what they're saying.

Okay. So the idea is that you said OCC is going to pick up the slack if that goes into place. What's their line on that? I know it's kind of -- you don't have a crystal ball, but when exactly would that happen?

Well, they said by the end of the year they're going to pose this thing. They just announced this, by the way, like 2 weeks ago. So it's pretty fresh...

Oh, Okay. Yes, I missed it obviously, so I'll have to Google that.

Pretty fresh news. And not everyone blends in mixed office waste to OCC. I don't -- what I don't have is the handle on what -- how impactful it'll be. I'm not sure anyone does.

Great. No, I appreciate it, Jon, I missed that, so will be tracking that. And then on the NII acquisition, obviously you're still very bullish on, I guess, lumber demand and housing cycle exposure which you have. But what about that timber harvesting equipment? Do you still have any -- an update on that, you still feel positive about it? I was just curious.

Yes. I mean, to be candid with you, we are much more excited about the debarking equipment versus the timber harvesting. But the timber harvesting has been extremely well, they're sold out for the rest of the year. Yes, we are production-limited right now, and we're going to have to look at what we do about that.

Yes. Well, you got to get the sawlogs from somewhere, so that's where -- that how that's going to impact that business, right?

Yes, yes, but the -- this was a business that was up towards $100 million 10 or 15 years ago. So we're having requests from customers who say, "Hey, can you introduce this model, can you introduce that model?" And it's sort of more than we can handle right now. So we're kind of working through that.

Okay. And then lastly, I think you mentioned something about North America paper, were you talking about uncoated freesheet or what were you mentioning there?

I was kind of making a general comment, linerboard is the biggest one, but it's a nice healthy stable environment. They're putting through -- they've put through a $50 price increase at the end of last year, they put another one in the spring. The mills are doing well. They have rising input costs, particularly OCC, but there -- it's a relatively tight supply market in there, I would say pretty healthy.

Right. Yes, we know linerboard is doing well, but what about uncoated freesheet? I know your exposure to that has been going down drastically over the years. There was one company that made a major capacity adjustment just 2 days ago. So I'm just wondering if that's -- if you're seeing any impact there? Or if you even have any high level comments from you, which is always appreciated.

I'd tell you, Dan, I look at it over a longer term, I think they -- uncoated freesheet, not as bad as newsprint, but they have a tough hand, they will be shrinking all the time. And it'll be a kind of a steady, steady decline, it's a relatively small percentage of our business. I think printing and writing is kind of 8% of our sales last year, and it will be less this year.

It's getting smaller and smaller. Yes, exactly.

And I'm showing no further questions at this time. So with that, I'd like to turn the call back over to President and CEO, Mr. Jonathan Painter.

Okay. Thank you, Andrew. Before I go, let me summarize what I think are the key takeaways for the quarter: One, we had record adjusted earnings per share of $1.04, two, we had record bookings of $120 million, three, we completed the acquisition of NII in early July and the integration is going well, and finally, four, we're raising our full year revenue guidance by $51 million to $61 million, and our full year adjusted earnings per share guidance by $0.70 to $0.72, leading to an expected record year in 2017. I'd tell you, after a quarter like this, well, I want to take a moment before I let you go to publicly acknowledge the folks in our operating units whose hard work has produced the results that it's been my pleasure to share with you today. I also want to give out a shout out to the team at the corporate office and at NII, who've worked nights and weekends for months on the acquisition and integration of those businesses. So your dedication is really an inspiration. So thanks very much for listening in, and I look forward to updating you next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Everyone have a wonderful day.