Good day, ladies and gentlemen and welcome to the Q3 2013 Kadant Inc. Earnings Conference Call. My name is Jasmine and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Thomas O’Brien, Chief Financial Officer, Kadant. Please proceed, sir. Thomas O’Brien: Thank you, operator and good morning everyone and welcome to Kadant’s third quarter 2013 earnings call. With me on the call today is Jon Painter, our President and Chief Executive Officer. Let me begin by encouraging all participants in our business review today to participate via our webcast. You may access the live webcast by going to www.kadant.com, select the Investors tab and then select the listen live option for the webcast. To participate in the question-and-answer session at the end of our prepared remarks, you will need to dial into the teleconference. The dial-in number is available in our press release issued yesterday. It will also be shown at the end of our presentation. Let me now remind everyone of our Safe Harbor statement. Various remarks that we may make today about Kadant’s future expectations, plans and prospects, our forward-looking statements, the 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 report on Form 10-Q for the fiscal quarter ended June 29, 2013. Our Form 10-Q 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 represents 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. And 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 will give an overview of our financial results for the quarter and we will then have a Q&A session. Jon?

Thanks, Tom. Hello, everyone. It’s my pleasure to brief you on our third quarter results. Overall, we had a solid quarter with strong cash flows, gross margin and better than expected earnings per share performance. I will begin today’s review with the financial – a review of the financial highlights of the quarter. We finished the third quarter with revenues of $91 million, which were up 5% compared to the third quarter of 2012 and 11% sequentially. Gross margins in the third quarter remained strong at 44%. We generated GAAP diluted earnings per share of $0.57, down 14% compared to the same period last year due to higher tax rates. This exceeded our guidance of $0.47 to $0.49 which included $0.01 of restructuring costs. Our Q3 2013 earnings per share also included $0.05 of acquisition expenses. Operating income was $10 million in both the third quarter of 2012 and 2013. Our bookings in the third quarter increased 18% to $82 million compared to the same period last year. Cash flows continue to be strong at $13 million and allowed us to end the quarter in a net cash position of $59 million. We generated over $30 million of operating cash flow over the last nine months. And finally, I am happy to announce that after the quarter closed, we signed an agreement to acquire Carmanah Design and Manufacturing, a leading supplier of process equipment for the production of oriented strand board, or OSB. I will be talking about, more about this company later in my remarks. You can see from Slide 6, our revenues which include $7 million from acquisition were up 5% compared to Q3 of last year. Our bookings of $82 million were up 18% compared to a relatively weak Q3 of last year. Our bookings of $82…

(Operator Instructions). And your first question comes from the line of Walter Liptak from Global Hunter. Please proceed.

Hey Walt?

Mr. Liptak, would you please check your mute feature on our phone? Walter Liptak – Global Hunter Securities: Hi. Yes, thanks. Good morning guys.

Hey, Walt. Thomas O’Brien: Good morning Walt. Walter Liptak – Global Hunter Securities: Hi good morning. Congratulations on the acquisition and nice quarter. I want to ask first about the booking that was pushed out and just see if we can get a little bit more color on it, was this a new customer, what dates are you getting on the timing of the financing etcetera?

It’s a customer in Russia who we have run business with before. We booked today with third or fourth – yes, towards the end of 2012. We have got a deposit in, but it’s been long delays in getting the sort of interim payment. And he is having – he was having trouble getting a letter of credit from the banks in Russia. And I was kind of like said in my remarks, this is – we have seen this in a number of – with a number of customers, I mean, in Russia where financing is an issue. So he has got enough skin on the game, he has got other expenditures besides expenditures on us, but I suspect that they will try to find a way to get it done, but we really can’t say for certain when that will happen. So we have to – the thing to do was take it out of our backlog. Walter Liptak – Global Hunter Securities: Okay. Yes. We have seen this kind of thing before in other parts of the world and talked about it on these calls, but is there anything different about this one, because typically it’s just like a one quarter or two quarter push-out?

I would say that that you are right. And over the years we have talked about financing in various regions being an issue, but this seems a little more widespread the situation in Russia, I would say. I am not saying it’s permanent or anything like that, but it does seem like it’s more pervasive. Walter Liptak – Global Hunter Securities: Okay. Does that mean that we may see other orders that come out of Russia that come up with the same problem?

No, I didn’t say that. I mean, not every customer need financing and so forth, but immediately possible. Thomas O’Brien: Yes, you said on that well, but I don’t think there are any other orders in the backlog that you are concerned about recycling, Jon is there other orders being delayed for financing or pending orders. We haven’t actually booked. So fairly unusual for us to take an order out of the backlog and I think we did it this time, because of the extended delays associated with this one, but there are no other booked orders in the backlog of any significance that we are aware of that, that are in this situation, but there are some pending orders throughout some other operations, especially in Europe where we do business from Russia that we are awaiting financing. Well, we haven’t actually booked those orders yet.

We might have a signed contract, but we don’t book it, so we get a deposit and we may have been involved in finance. Walter Liptak – Global Hunter Securities: Okay, good. And if we can switch over to the Carmanah acquisition and yes, congratulations it’s a very good acquisition. Just want to clarify a couple of things, one, so your 2014 accretion number I think you said it was $0.25, is that right?

Yes, I would say, Walt, the operating word being in the ballpark. There is a lot of purchase accounting in that kind of thing and valuations. So we really don’t have a good hand on exactly on what it’s going to be, but I did want to give people some kind of a sense. I don’t know if you look into that as well. Thomas O’Brien: No, I think that’s exactly right. I think we are trying to give a sense of 2014. The EBITDA here is very high. So it implies good cash flows in this acquisition. But the first full year 2014 we will have a lot of a purchase accounting adjustments going through the P&L. Now having said that, in 2015 a lot of that will go away, not all, but we will still have some significant amortization of intangible, but a lot of this will go away. And I think to see all the things being equal, much more accretion in ‘15 than in ‘14 from this acquisition.

I think that’s a good point about the cash flow. I think it’s going to be a case even for 10 years, where the cash flow is going to be much more impactful even after we flush through the purchase account, because of this intangible amortization, the impact on earnings per share will be less than the cash to cash impact? Walter Liptak – Global Hunter Securities: Okay. I wonder if I could just ask the steps like you mentioned that gets you out of traditional markets, is there something that we should imply by that, in that, you don’t think there aren’t as many acquisitions in core markets of paper and packaging or you are just being opportunistic here?

So, kind of Walter as we said in the past, we love doing acquisitions in pulp and paper if we can find the right company, because frankly we have better opportunity for synergies, but in this case that there isn’t a tremendous wealth of companies like us particularly we are going to be saying, hey, we want to have a nice parts business, we wanted to have technology. And as you remember even following us a while we often describe if we were to get outside of pulp and paper what would the acquisition look like. And we would say it would probably be in an adjacent space, I would say, Carmanah fits a very good management, because we know – we don’t know that market very well. Carmanah has excellent management and a nice parts business, something to give it some stability and Carmanah has that for sure. So it really met all the characteristics that we are looking for in a business, in a move outside of our core markets. And I would say a business it’s in the market it’s growing close to 10% is a real plus too. Walter Liptak – Global Hunter Securities: Yes, okay, great. I will just ask one more and I get back in queue. On Carmanah, are there margin improvement opportunities if you look over the next couple of years? And I wonder if you could talk about the competition in OSB?

So the principle margin opportunities are really related to – are doing some manufacturing for them in China. And as I said in my remarks, 70% of their – the work that they do is outsourced primarily in the Vancouver area. So I think we are going to take a hard look at whether we can increase their margins or by manufacturing something for them in China. From a competitive point of view, there is not a lot of players. There is another Germany player that competes with them throughout the globe. Carmanah does extremely well in North America in particular, I would say, the competitor does a little bit better in Europe. And but North American market is much bigger part of the world market. So Carmanah’s market share was probably in the 70% world market share range. The other thing I would say is that one of the things that Carmanah is doing in terms of internationally is a lot of times, a customer particularly abroad or in a developing country, where they will kind of do a – they will work with a supplier of the whole OSB now. So we actually have a marketing business relationship with the largest producer of the press, which is kind of the center of that OSB system. And so they have a preference for using Carmanah standards and vice-versa. So we are hoping that, that relationship was going to bear some good fruit going forward. Well, did that answered your question? Walter Liptak – Global Hunter Securities: Yes, it does. Thank you.

Alright.

(Operator Instructions) And I do see where Mr. Liptak has queued for another follow-up question from Global Hunter. Please proceed. Walter Liptak – Global Hunter Securities: (Technical Difficulty)

Hey, Walt, you are going to have to – we are having a little trouble, moved towards the window or something, we can’t hear you. Walter Liptak – Global Hunter Securities: (Technical Difficulty)

Walter, I am sorry to say we have no clue what you are talking about, we can’t hear you at all. Walter Liptak – Global Hunter Securities: (Technical Difficulty)

Okay. I will take it offline. Alright, well operator any other questions?

Yes. Your next question comes from the line of Lawrence Stavitski from Sidoti & Company. Please proceed. Lawrence Stavitski – Sidoti & Company: Hi, good morning guys. Thanks for taking my question. You gave your gross margin guidance for ‘13 as you mentioned is kind of fluctuated a little bit in the last couple of quarters, what do you think are sustainable margins looking past ‘13? Thomas O’Brien: Well, it’s a very interesting question. Jon and I sometimes think back and forth, but I think this year we once again exceeded what we thought we could do. We thought we will be over 45% as I mentioned, which is quite remarkable. And I think going forward we have to factor into our calculus the fact that we will probably have better parts and consumables percentages in the total of the – of the total revenues, particularly with the Carmanah acquisition with 70% of the business isn’t fierce [ph] and we also added the Noss acquisition, a few months ago. And then they are very heavily dominated series as well. So we are continually exceeding what we thought we could do, I think on the margin side. And I would say – I would say we are somewhere in the 45% range, but frankly where we – the mix of business that we have right now, that will fluctuate quarter-to-quarter, because as you know we will get a large systems order or several of them and they go out at lot lower percentages, still good margin dollars with lower percentages. So it will fluctuate, but we seem to have been settling in, in this 44%, 45% plus range. And I think as you look forward, most of the factors I see would be favorable on that front. And the unfavorable factors would be competitors coming in or owing to that nature. Lawrence Stavitski – Sidoti & Company: Or big capital orders? Thomas O’Brien: Or a big capital order, but we seem to be in and around that 45% range. That’s what I would say the sustainable level is at the moment. Lawrence Stavitski – Sidoti & Company: Okay, great. Thank you. I guess, building on Walt’s question in terms of the Russian project, is that basically the primary – the sole reason for lowering the fourth quarter guidance, EPS guidance?

No, it’s not it was one of the factors. In every quarter, there are sort of puts and takes, but it was certainly one of largest reasons. Lawrence Stavitski – Sidoti & Company: Can you amplify on any other reasons or is it means, I guess the question remain the orders fluctuation of orders that you are seeing or is there another component that you could…

I don’t know if I could – you can put your finger on any specific thing. But forecast change all the time and particularly the timing of where revenues fall between forecasts happens regularly. So I would say, the Russian order is a little unusual in the sense when you expected to ship that entire order more or less in Q4, but you always have a little move and customer wanting to delay this or you didn’t get better order or got something you didn’t expect is quite common. Lawrence Stavitski – Sidoti & Company: Okay, got you. I guess shifting gears to the Carmanah acquisition, can you actually breakdown, I guess the revenues by geography or I mean, I guess kind of give us a ballpark estimate of North America versus the world?

Well, I guess what I would say is the North American is by far the bulk of their revenue. OSB is tied to housing made of wood. So Europe is not a big market. They don’t have typically wood houses. From an international point of view going forward, there is a lot of talk about Russia even though we have – this is our financing, but they have a lot of treat and the government has announced some sort of impetus to build new housing made of wood obviously and using OSB. China is another market. Even though they don’t have wood houses, they do, do things like betting, the poor betting for shipping containers things like that. They would have need for panels. And another one of the nice things about OSB kind of unlike plywood is it can actually use the smaller trees. And the other big market which is not a big market for Carmanah for wood housing is Japan and that is primarily a plywood market, not an OSB market. I can’t predict whether that would change over to OSB or not, whereas North America, OSB is probably 70%, 80% of the panel market versus plywood. Lawrence Stavitski – Sidoti & Company: Okay, got you. Yes, I was kind of doing a little bit reading up on the divide between plywood and OSB, you kind of alluded to some of the other uses for OSB, but I guess what’s the remaining 30% of some of the uses for it outside I guess outside of homebuilding?

Yes. So it’s homebuilding and then remodeling which is different than homebuilding and not quite as different to have their cycle that their homebuilding has, but other uses are there is actually a – they are doing a very interesting kind of a new project using it for furniture making kind of a very, very thin strand for a major – for a European furniture maker and that would use in furniture, a little place is I would say, industrial uses, things like that. Lawrence Stavitski – Sidoti & Company: Okay, great. Is there a way to quantify the synergies or I guess what would be the synergies between with the acquisition between you guys?

Well, we haven’t really quantified it. I would say the synergies as I mentioned that, the biggest one is probably are manufacturing some of the products that they outsourced in China. Another area which is a little softer is much of the future growth of OSB – new OSB mills that’s probably going to be outside of North America, because in North America there is actually quite a number of idle mills just from the pre-crisis there as you know. So you can expect that those mills will start up in the next several years, but they won’t necessarily building new mills, at least until 2017, 2018. Lawrence Stavitski – Sidoti & Company: Okay.

Offshore, internationally, well we are not going to have sales from Carmanah as big customers rising like that. We can offer some infrastructure, Carmanah specifically located in North America and we can maybe help them be a little more European or a little more South American or a little more Chinese just really with infrastructure as opposed to sales in (indiscernible). Lawrence Stavitski – Sidoti & Company: Okay, okay, got you. And I guess the last one, but for you return on the horizon you guys close on or will close on two or three acquisitions in the year looking forward has that – I guess what will be the priorities for capital going forward, any further expectations on the forefront or have you guys kind of called off for a while?

Our thinking on capital allocation is very much the same. We are always compared with buying, we had a dividend of course and we will compare buying our stock back to doing acquisition and what’s going to benefit the shareholders in the long run. It’s been a fairly active year, if we complete Carmanah it will certainly be a fairly active year for us in acquisitions. I wouldn’t say we are signaling some new big strong push to do more and more acquisitions or anything like that. That said, there is still several in the pipeline and it’s not like we are going (indiscernible) either. Lawrence Stavitski – Sidoti & Company: Got you, okay. Thanks a lot guys, I appreciate it.

Thanks a lot.

There are no remaining questions at this time. Now I would like to turn the call back over to Mr. Jon Painter for final remarks. Please proceed.

Thanks operator. Let me conclude today’s call with what I think there are three takeaway points. First, we had a solid EPS performance of $0.57 versus our guidance of $0.47 to $0.49. Second, our cash flows remain strong at $13 million in the third quarter and $31 million in the first nine months of 2013 leaving us a net cash position of $59 million at the end of Q3. And finally the addition of Carmanah to the Kadant family once completed is expected to adjust our aftermarket revenues strategy, while getting us into faster growth market. I look forward to updating in next quarter on our progress. Thank you very much.

This concludes today’s conference. Thank you for your participation. You may now disconnect. So you all have a great day.