Kadant Inc (KAI) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Kadant Inc. Third Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Mr. Mike McKenney, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Andrew. Good morning, everyone, and welcome to Kadant's Third 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 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 third 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 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. Happy Halloween, everyone, and thanks for joining us on our third quarter call. If you've read the press release, I think you'll agree that we have plenty of treats to talk about today and no tricks. I tell you, without question, the third quarter was one of the best quarters in our history. It was one of those quarters when everything that could go right went right and then some. Our results were driven primarily by a combination of excellent performance by our newly acquired Wood Processing business as well as double-digit internal growth and outstanding execution from our existing businesses.

Let me start with the financial highlights of the quarter. Q3 was a quarter of records for Kadant. In fact, I think we had a record number of records in the quarter. Bookings were a record, up 43%. Revenue was a record, up 45%. Adjusted operating income was a record, up 91% or 16% of sales. Adjusted EBITDA was a record $30 million or 20% of revenue, which was also a record. GAAP diluted earnings per share was a record and up 43%. Our adjusted earnings per share, which excludes acquisition-related costs, was also a record $1.49, up 84%. As expected, our gross margins at 42% was below our historical average due to the impact of purchase accounting and the high percentage of capital revenues during the quarter. Excluding purchase accounting expenses, our gross margin was 45%. Cash flow from operations of $7 million was also below our typical run rate, due to the acquisition expenses we incurred during the quarter and the high level of capital shipments in the quarter. Mike will provide details on this during his remarks. Net debt at the end of the quarter was $187 million.

As you can see on Slide 6, acquisitions made a strong contribution to our revenues, bookings and adjusted earnings per share. In addition, the impact from the weaker dollar had a modest favorable impact on our foreign currency translation. While a big part of the story for the third quarter was the contributions from our Wood Processing acquisition, internal growth and excellent operating performance of our existing businesses played a big role as well. Our internal revenue growth, excluding FX and acquisitions, was up nearly 15%. Internal growth and adjusted earnings per share was up 36%, while internal growth in bookings was up 19%. I'm also pleased to report our internal revenue growth for parts and consumables was up 13%, while bookings were up 3%.

On Slide 7, you can see a nice trend in bookings over the last 4 quarters, culminating in bookings of $135 million. Leading the strong bookings performance was our Fluid-Handling and Stock-Prep product lines, which were up 39% and 37%, respectively, compared to Q3 of last year. The recent acquisitions contributed $20 million to Q3 bookings. Q3 revenue was a record $153 million, up 45% compared to Q3 of 2016.

While our strong revenue upswing was driven in large part by our acquisitions, most of our product lines were up double digits compared to Q3 of last year. Of particular note was the revenue performance in Asia, which was up 52% sequentially and 37% compared to the third quarter of last year.

Parts and consumables revenue in the third quarter continued the momentum from the first half, with revenue up 36% and bookings up 27% compared to Q3 of 2016. Capital shipments were exceptionally strong in the third quarter, and this reduced the portion of parts and consumables revenue to 55%.

Acquisitions were a major contributor to our parts and consumables growth in the third quarter, contributing $13 million and $14 million, respectively, to revenue and bookings.

During the third quarter, we completed the acquisition of the assets of Unaflex, a leading industrial supplier of expansion joints and flexible connectors used in industrial piping systems. The Unaflex product line consists of high-impact components that fill a critical need in piping systems used in process industries. Unaflex is well positioned in the power generation, chemical and water treatment segments and serves a number of other industrial segments as well. It is the leading supplier in the U.S. of rubber expansion joints. Because of its strong market position, the critical nature of its products and the high percentage of spare parts revenue, the business is very profitable, with normalized EBITDA margins between 15% and 20% -- I'm sorry, between 20% and 25%. The addition of this business expands our product portfolio and fits nicely with our Fluid-Handling product line. Unaflex's high-impact products, history of stable earnings, large parts and consumables business and strong market position makes this an attractive business for us. We paid about $31 million for the business or approximately 7x EBITDA.

Since our closing in mid-August, we're making excellent progress on the business integration, and the management team is doing a great job working through all of the challenges associated with being acquired by a public company. I'm pleased with the accomplishments the team has already made during their short time with us.

While we're talking about acquisitions, I should note the integration of NII is proceeding nicely. As we mentioned on our last earnings call, we forecasted an unusually strong quarter for NII due to the timing of capital shipments. They exceeded even our heightened forecast, which is a nice start for them. That said, Q3 was unusually good, and we do not expect them to perform at this level every quarter.

Our recent acquisitions have significantly changed our customer base from our traditional pulp and paper end markets. The chart on Slide 10 shows the breakdown of our business by end markets for the third quarter alone. As you can see, nearly half of our revenue in Q3 was outside of the traditional pulp and paper market, and the troubled grades of printing, writing and newsprint represented only 10% of our business. The 2 largest end markets for us, packaging and Wood Processing, which represent over 60% of our revenue in Q3, have good growth prospects due to strong demand for housing and rapidly growing e-commerce-related packaging. I think we're well positioned as a company to enjoy some nice internal revenue growth in our end markets going forward.

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 remains quite healthy. Prices are being sustained or increased across many grades, and operating rates for U.S. containerboard machines are in the upper 90s while inventories remain low. The packaging industry is starting to see a meaningful impact from e-commerce, which now represents about 9% of retail sales and is growing at 10% to 15% per year. This is a driver of packaging growth as good ship to households consume 3 to 8x more cardboard per unit than goods sold through traditional brick-and-mortar stores. The continued strength in the U.S. housing market has led to strong growth in our Wood Processing product lines. As I noted on our last earnings call, housing starts remain at the highest level since 2007, and the increasing homeownership rate by millennials bodes well for demand for single-family housing. Industry analysts are projecting housing starts to grow by 8% per year for the next 3 years, which supports our assumption of 3% growth in lumber demand in North America.

As you can see on Slide 11, increases for the -- revenue increased for the fourth consecutive quarter to a record $68 million, up 45% compared to Q3 of last year. Excluding the impact from our acquisitions and FX, revenue was up 8% compared to the same period last year. Bookings in North America were $60 million, up 28% compared to Q3 last year. Increases in bookings for our Wood Processing, Fluid-Handling and Stock-Prep product line were partially offset by reductions in our Doctoring, Cleaning, & Filtration product line. Overall, we believe the North American market will continue to be a major contributor to our business, and we're well positioned to capitalize on the positive economic trends and favorable market conditions.

Slide 12 shows our revenue and bookings performance in Europe, which were both records. After years of relatively weak market conditions, Europe has continued to show strength this year. In general, our operations in Europe are seeing solid market conditions in the lumber, industrial and packaging segments. Third quarter revenue was up 47% to a record $46 million from Q3 of last year and up 37% sequentially, due largely to our acquisition of the NII business. We also saw strong performance on our Stock-Prep product line in Europe, which was up 12% over the third quarter last year. Excluding acquisitions and FX, revenue was up 17% in Europe. Bookings in Europe were flat sequentially from the record Q2 performance and up 29% compared to the third quarter of last year.

During the quarter, we booked 3 large OEM orders for Fluid-Handling equipment for a combined value of nearly $2 million and had very strong machinery order activity for our PAAL balers and related equipment.

The market in Asia, which is dominated by China, continues to be extremely strong for capital as well as parts and consumables. The government continues to shut down smaller inefficient mills, and the large mills are running at good operating rates with high levels of profitability.

Our revenue in Asia was up 37% from last year, due largely to shipments of large capital orders booked in the previous 2 quarters. While not a record revenue performance, it's one of the highest in our history and was driven by our Stock-Prep and Doctoring, Cleaning, & Filtration product lines. Acquisitions had minimal impact on revenue and bookings in Asia in Q3. The high level of capital bookings we had in the prior 2 quarters continued in the third quarter, with bookings more than doubling from a weak Q3 of 2016. All of our major product lines had double or triple-digit growth in bookings in Q3.

During the quarter, we booked a number of large capital projects in our Stock-Prep product line, including 4 large OCC systems, with a combined value of more than $8 million. And in our Doctoring, Cleaning, & Filtration product line, we booked an order for doctoring and showering products for our -- for 4 tissue machines with a value of approximately $1 million. Although we know the capital equipment market in China is at elevated levels, we continue to have an active pipeline of projects, which looks promising for the remainder of 2017 and into 2018.

Finally, a few comments on the rest of the world results. As you can 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 revenues in the rest of the world saw a nice jump to $13 million in Q3, up 52% compared to Q3 of 2016, due entirely to contributions from our Wood Processing acquisition. Excluding the acquisitions and FX, revenue decreased 7%. Likewise, bookings were up sequentially year-over-year, due largely to our Wood Processing acquisition. South America, and in particular Brazil, continues to face economic headwinds. I was in Brazil earlier this month, visiting our operations outside Sao Paulo, and although the current economic conditions are weak, there is a growing optimism by our local management team and in the market about a brighter outlook for 2018.

Let me conclude my remarks with a few comments on our guidance for Q4 and the full year 2017. We're very encouraged by the booking trends we've seen for the first 3 quarters of the year. Based on our better-than-expected Q3 results and the inclusion of our newest acquisition, we're raising our full year revenue and earnings per share guidance. For 2017, we expect to achieve GAAP diluted earnings per share of $3.56 to $3.60 on revenues of $509 million to $512 million. We now expect our adjusted diluted earnings per share, which excludes the transaction expenses and purchase accounting adjustments associated with the recent acquisitions, to be $437 million to $441 million. Our revenue and earnings per share guidance is the result of both strong performance of our existing business in North America, Europe and Asia as well as the positive impact of the inclusion of our acquisitions. For the fourth quarter of 2017, we expect to achieve GAAP diluted earnings per share of $0.87 to $0.91 on revenue of $143 million to $146 million. On an adjusted basis, we expect diluted earnings per share of $1.02 to $1.06.

I'll now pass the call over to Mike for some additional details on our financial performance in Q3. Mike?

Thank you, Jon. I'll start with our gross margin performance. Consolidated gross margins were 42.3% in the third quarter of 2017, down 330 basis points compared to 45.6% in the third quarter of 2016. The consolidated gross margins in the third quarter of 2017 were negatively affected by the amortization of acquired profit in inventory related to our recent acquisitions, which lowered consolidated gross margins by 220 basis points.

Excluding the impact of the amortization of profit in inventory, consolidated gross margins in the third quarter of 2017 were 44.5%, down 110 basis points compared to last year's third quarter. As we had indicated in our last earnings call, we anticipated lower gross margins in the second half of the year due to the increase in capital shipments. Our parts and consumables revenue represented 55% of total revenue in the third quarter of 2017 compared to 58% in the third quarter of 2016.

Our recently acquired Wood Processing business had a very strong quarter for capital revenues, which contributed to the high overall percentage of capital revenue to total revenue. We continue to expect that full year 2017 consolidated product gross margins will be approximately 45%. We anticipate that product gross margins in the fourth quarter will be negatively impacted by approximately 120 basis points as we recognize amortization expense associated with the acquired profit in inventory. We expect this amortization expense to be largely completed by the end of the fourth quarter.

Now let's turn to Slide 18 and our quarterly SG&A expenses. SG&A expenses were $42.5 million in the third quarter of 2017, up $9 million from the third quarter of 2016, including $6.8 million SG&A expenses from our recent acquisitions, which includes approximately $1 million in acquired backlog amortization. In addition, during the quarter, we incurred $0.6 million in acquisition costs, and there was an unfavorable foreign currency translation effect of $0.6 million. SG&A expense as a percent of revenue was 27.8% in the third quarter of 2017 compared to 31.8% in the third quarter of 2016.

Let me turn to our EPS results for the quarter. In the third quarter of 2017, GAAP diluted earnings per share was a record $1.17, and our adjusted diluted EPS was a record $1.49. The $0.32 difference includes acquisition-related costs associated with our recent acquisitions of NII and Unaflex. In the third quarter of 2016, GAAP diluted EPS was $0.82, and our adjusted diluted EPS was $0.81. The $0.01 difference relates to a benefit from discrete tax items net of acquisition costs.

The increase of $0.68 in adjusted diluted EPS in the third quarter of 2017 compared to the third quarter of 2016 consists of the following: $0.53 due to higher revenue; $0.35 from the operating results of our acquisitions, excluding borrowing and acquisition-related costs; and $0.01 due to a lower effective tax rate. These increases were partially offset by $0.12 due to higher operating expenses; $0.06 due to higher interest expense; $0.02 due to higher weighted average shares outstanding; and $0.01 due to lower gross margin percentages.

Collectively, included in all the categories I just mentioned was a favorable foreign currency translation effect of $0.04 in the third quarter of 2017 compared to last year's quarter due to the weakening of the U.S. dollar.

Given the magnitude of our EPS beat this quarter, I thought I'd take a moment to compare our adjusted diluted EPS results in the third quarter to the guidance we issued during our August 2017 earnings call. Our adjusted diluted EPS guidance for the third quarter of 2017 was $1.12 to $1.16. We reported adjusted diluted earnings per share of $1.49 in the third quarter of 2017, which was $0.33 over the high end of our guidance range. This was principally the result of higher revenues and better gross profit margins, driven by stronger performances in our DCF and Fluid-Handling product lines in Europe and our Stock-Prep product line in China. The higher revenue was the result of higher-than-expected capital shipments, including some shipments that were expected to occur in the fourth quarter that ended up shipping in the third quarter. The higher-than-expected gross profit was a result of a better mix of capital shipments. Some lower-margin capital projects that were originally scheduled to ship in the third quarter were deferred to the fourth quarter and some higher-margin shipments that we expected in the fourth quarter ended up shipping in the third quarter.

Also contributing to the better-than-expected performance was our recently acquired Wood Processing business. As you may remember in our last call, we expected that NII would have a strong third quarter, and they ended up doing significantly better than we had forecast. To be honest, part of this was because we were intentionally conservative in our forecasting because they are new to us.

Now let's turn to our cash flows and working capital metrics, starting on Slide 20. Cash flow from operations was $7 million in the third quarter of 2017, down from $15.4 million in the third quarter of 2016. This decrease was primarily due to a $15.7 million increase in accounts receivable, driven by strong revenue growth in the quarter, especially from our Stock-Prep product line. In addition, our operating cash flows were impacted by the payment of $6.6 million of acquisition-related costs in the third quarter of 2017, including $2.7 million of costs which were reimbursed by the seller after quarter end.

We had several notable nonoperating uses of cash in the third quarter of 2017. We paid a total of $204 million for the acquisitions of NII and Unaflex, net of cash acquired; $5.3 million for capital expenditures; and $2.3 million for our quarterly dividend. We also borrowed $205 million during the quarter, primarily to fund the recent acquisitions.

Let's now look at our key working capital metrics on Slide 21. Days in receivables decreased to 59 days from 62 days at the end of the second quarter of 2017. Inventory days were down to 79 from 97 in the second quarter of 2017. And our days in payable were 36 at the end of the quarter. The decrease in inventory days is due to our recent acquisitions. If we adjust the calculation and include the opening balance sheet inventory related to the acquisitions, the adjusted inventory days for the third quarter is 93.

Looking at our overall working capital position. Our cash conversion days measure, calculated by taking days in receivables plus days in inventory and subtracting days in accounts payable was 102 at the end of the third quarter of 2017, down from 113 days in the second quarter of 2017. If we use the adjusted inventory days, then cash conversion days would be 116.

Working capital, as a percentage of revenue, increased to 18% in the third quarter of 2017 compared to 11.6% in the second quarter of 2017 and third quarter of 2016. The sequential and year-over-year increase was due to our recent acquisitions, which are only contributing a partial year of revenue, and the increase in working capital and also the increase in working capital driven by the accounts receivable increase related to strong shipments in the quarter.

Net debt, that is debt less cash at the end of the third quarter of 2017, was $187.4 million compared to net cash of $22.2 million in the second quarter of 2017. We borrowed approximately $170 million in connection with our acquisition of NII. This was a mixture of Canadian, euro and U.S. dollar denominated debt. We borrowed approximately $31 million related to our acquisition of the assets of Unaflex. Our interest expense increased to $1.3 million in the third quarter of 2017 compared to $0.3 million in the third quarter of 2016, and we forecast our net interest expense for the fourth quarter to be approximately $1.6 million, with forecasted weighted average interest rates of approximately 2.2% for the fourth quarter.

As you can see on Slide 24, our leverage ratio, calculated as defined in our credit facility, increased as a result of our recent borrowings to 2.45 at the end of the third quarter of 2017. Under the credit facility, this ratio must be less than 3.5.

A few comments on the increase in our revenue and adjusted diluted EPS guidance for 2017. We increased our revenue guidance range to $509 million to $512 million from our previous guidance range of $488 million to $494 million. Approximately $7 million of the increase is related to our acquisition of Unaflex. The remainder of the increase is due to the third quarter revenue beat.

Regarding our EPS guidance, we increased our adjusted diluted EPS guidance to $4.37 to $4.41 from our previous guidance of $3.99 to $4.07. The $0.34 increase to the top end of our guidance range is almost entirely due to our third quarter beat. We expect the acquisition of Unaflex -- the Unaflex business to be essentially breakeven on a GAAP diluted EPS basis and modestly accretive on adjusted diluted EPS basis for 2017.

A few comments on our fourth quarter guidance. Our fourth quarter adjusted diluted EPS guidance remains consistent with the guidance we gave in August. There are a few significant factors contributing to the sequential decrease in adjusted diluted EPS between the third quarter results and the fourth quarter forecast. One is, as expected, the newly acquired Wood Processing business' fourth quarter is substantially below their spectacular third quarter result. The second is, the cadence in existing business revenues also exceeded expectations in the third quarter, in part due to capital shipments. And as a result, there will be a sequential decrease in capital shipments when compared to the fourth quarter. And finally, gross margins for capital revenue in the fourth quarter is forecast to be lower in the third quarter results.

We knew we had some lower-margin jobs shipping in the second half of 2017, and we expected the majority of these lower-margin capital projects would ship in the third quarter. As it turns out, most of these lower-margin capital projects will now ship in the fourth quarter.

In regards to SG&A, with the inclusion of Unaflex, we expect that SG&A spending for the full year of 2017 as a percentage of revenue will be approximately 31%. I would note that this includes the transaction costs and backlog amortization related to both NII and Unaflex. Excluding these items, SG&A spending would be approximately 30% of revenue.

Regarding our tax rate, we continue to expect our effective tax rate will be approximately 26% in 2017 compared to our 2016 tax rate that came in slightly over 27%. We now expect depreciation and amortization will be approximately $19 million in 2017, which includes approximately $6 million from the recently acquired NII and Unaflex businesses. Excluding onetime items, the quarterly D&A run rate will be approximately $6 million.

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

(Operator Instructions) Our first question comes from Walter Liptak with Seaport Global.

I wanted to ask first, for 2017, are you looking forward to a record for the full year, too?

Oh, yes.

Yes. I think if we stopped now, we might have a record.

All right. Well, I wanted to ask maybe, first, just about some of the amortization costs that are running through SG&A. Of the -- for example, the backlog amortization of $1 million, does that run off after this quarter or next quarter? Or is that an ongoing expense?

No. That's going to -- that's both the inventory, Wal, and the backlog are ones that will run off in the short term. So the backlog, we anticipate, will run off in the fourth quarter here.

Okay. Yes, and I wanted to ask about that inventory that's in gross margin, too. How much was that in millions of dollars?

It was about $3.4 million in the third, and we're looking at about $1.8 million in the fourth, and then we should be at the end of it. It might trickle into '18 a little bit, but we should...

Not [very much].

Yes, not much left on that.

Okay. Well, you had great EPS this quarter, but it sounds like if you exclude those 2 things, it would have been even significantly higher. So it will be an easy comp next year.

Well -- so that's what we're doing to get you to the adjusted, right? So the GAAP numbers include those costs, and the adjusted numbers, we exclude those.

The purchase accounting amortization, the stuff that's transient, I would say, is going to be over within a couple of quarters, last quarter and the fourth.

Yes. So if you're looking at the third quarter, Wal, the -- those were quite large. The 2 of those combined, the profit in inventory amortization, the backlog amortization, those 2 combined were about $0.28.

Okay. All right. I thought the 42.3% gross margin was part of the adjusted number. So that -- it looks to me like it also included some inventory.

Yes. So the 42.3% is all in, so you have the inventory in there, and then I noted in my comments that the impact was 220 basis points related to amortizing the acquired profit in inventory. So you can add that back to the 42.3%. And then we come up to about 44.5%.

Oh, okay. And the 44.5% is what gets you to the $1.49 or the -- part of the number in the $1.49.

I mean, you can kind of think of the 42.3% as a GAAP-type gross margin. The 44.5% is more adjusted.

I think the important point is, both of those, the acquired profit in inventory and backlog, those get amortized very quickly, and they'll be behind us here going into '18.

Okay, great. I wanted to ask too about the NII growth rate and the out-performance. Was that an outperformance of the housing market? Was it a market share gain? Or was it just sort of an in line based on what you saw from the marketplace?

So it's a couple of things. So overall, the market, particularly in North American, is extremely strong. But as Mike kind of alluded to, there was an element of it that they came in and gave us kind of a blockbuster third quarter number that we, I would say, were a little concerned about just passing that on to the investment community, and we were somewhat conservative in what we did with that. Well, son of a gun, they did better than even they said that they would do. So that element is just to do really with the timing of capital orders. It's not a sort of steady state growth rate. When we talked about -- at the time we bought them, we said that, globally, you can expect that their markets would grow like 2.5%, a little higher in North America. We were just at a conference a couple of weeks ago, and it was very upbeat on North American housing. But it still comes down to about maybe 3% growth in North America for lumber, which is about what we had.

Okay, great. Okay. And then just from a high level, just looking at your organic growth on the paper and packaging side, it looks like outsized organic growth compared to what this industry does long term. What do you attribute the -- you called out e-commerce and a few other things. I guess, what do you attribute the strength in the organic revenue on the paper and packaging side?

Sure. So part of it, no question, is driven by the very strong growth in China right now. So that's -- globally, that's a big part of it. But I kind of went through the other markets. It's pretty strong everywhere. I will say that packaging for us, which is by far the biggest part of our pulp and paper revenue, is definitely getting a kick from this e-commerce. I mean, as you think about it, you go to Walmart and buy a toaster, that box is shipped to Walmart with 87 other toasters, and you maybe use up 1/2 a foot of cardboard, but you have a toaster shipped to your individual house, and you use 5 feet of cardboard. So it's an order of magnitude difference as e-commerce grows as a percentage of retail. And so now we're talking about growth rates for the packaging in the developed world of Europe and North America more in the 3% range, which is -- that's significantly better than what I've been talking about in the past. And I think that's -- I feel great about that. To me, that's a permanent kind of structural tailwind, if you will, that we'll enjoy for a while.

Okay, good. And I wonder if I could just ask a last one about cash flow. The -- we understand about the weaker cash flow in the third quarter. But I wondered, is there a question with some of those receivables in the fourth? What are you expecting from cash flow in the fourth quarter?

Yes. I would expect that we'll see a good portion of those receivables come in as cash in the fourth. Wal, as is sometimes the case for us, our back end of our quarter had meaningful capital shipments. So hence, we end up with those still in receivables. And as I noted, it was a little over $15 million, $15.7 million in receivable growth. But yes, that'll come back through as cash.

(Operator Instructions) I'm showing no further questions -- we do have a follow-up from Walter Liptak with Seaport Global.

I'm back. I'd like to ask one about Unaflex. Expansion joints, I think for a while, you've had an initiative to grow that part of your business organically, and I wonder if that is what led to this acquisition and what you see kind of with your core expansion joint business and how Unaflex will maybe find synergies with them.

So our -- the real fit is with our rotary joint business. So they're both, in a way, joints. But what I -- what we loved about Unaflex is they are the leading provider of these rubber expansion joints. So they have a very strong market position that's kind of hard to grow into in these conservative process industries. When you have a critical component, it's hard to increase your market share organically when you're not the #1 player. So it's definitely a case of it's better to buy the #1 player than try to grow there organically. So it's a nice little -- it's a nice sort of little to medium-sized business that was a good fit for that.

Okay. Are there synergies with rotary joint as their channel strategy?

Yes, yes, yes. There are synergies with rotary joints for sure. It's kind of a natural extension of the product portfolio. It's really another kind of joint for cases where there's thermal expansion or vibration, all that kind of stuff.

I'm showing no further questions. I would now like to turn the call back to Jonathan Painter for any further remarks.

Okay. Thank you, Andrew. Before I let everyone go this morning, let me just summarize what I think are the key takeaways from the quarter. Number one, we had a fantastic quarter with record earnings per share -- adjusted earnings per share of $1.49. Number two, we had strong internal revenue and bookings growth of 15% and 19%, respectively. Number three, we completed the acquisitions of the NII and Unaflex businesses, and the integrations are going well. And finally, for the third time this year, we're raising our full year revenue and earnings per share guidance, and we expect a record year in 2017. I look forward to updating you next quarter. Thanks very much.

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