Kadant Inc. (KAI) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q1 2015 Kadant Inc. earnings conference call. My name is Devon, and I will be your operator for today. [Operator instructions] I would now like to turn the conference over to your host for today, Mr. Thomas O'Brien, Chief Financial Officer of Kadant. Please proceed.

Thank you, operator. Good morning, everyone, and welcome to Kadant's first quarter 2015 earnings call. With me on the call today is Jon Painter, our President and Chief Executive Officer; and Mike McKenney, our Vice President, Finance and Chief Accounting Officer. As we previously announced that Mike will succeed me as Chief Financial Officer on June 30. 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 January 3, 2015. 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 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 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 first quarter results as well as our outlook for the remainder of the year. Overall, we had a solid quarter with excellent gross margin and better than expected earnings per share performance. I'll begin today's business review with the financial highlights of the quarter. We finished the first quarter with revenue of $92 million, which was down 1% compared with the first quarter of 2014. Foreign currency translation had a significant impact on revenues, and excluding the effect of FX and acquisitions, our internal growth was up a strong 5%. Gross margin in the first quarter was excellent and near record at 48%. Our adjusted EBITDA was $13 million or 15% of sales, up 6% compared to Q1 of last year. Our GAAP diluted earnings per share of $0.62 in the first quarter exceeded the top-end of our guidance by $0.03 and was up 38% compared to Q1 of 2014. Our adjusted earnings per share was up 5% to $0.63. Our bookings of $108 million were the third highest in our history, but were down 6% compared to Q1 of last year, which was the second highest in our history. Excluding FX, our bookings were up 2% compared to last year. And our backlog at the end of Q1 2015 was a record $136 million, up 15% from Q1 of 2014. And finally, we set new record for parts and consumables bookings and revenue, which were up 4% and 8% respectively in Q1 compared to last year. We received a lot of positive comments about the slide we presented in the Q4 call, showing the impact of FX translation and acquisitions on some of our key metric. Since the U.S. dollars continue to strengthen against most major currencies in Q1, we thought it would be helpful to update that slide here in the Q1 FX rates. As you can see, the continued strengthening of the dollar, particularly against the euro, had significant impact on our Q1 results. We only did one small acquisition in Q4 of 2014, so the impact from acquisitions is relatively small. Finally, on the bottom row of the chart, we're showing you our internal growth, excluding the impact of FX, translation and acquisitions. You can see that our internal growth for Q1 was down slightly for bookings against a very strong Q1 of '14, and up 5% for revenues. Despite the headwinds on the strong dollar, we saw solid revenue and bookings performance in the first quarter. Our first quarter of $92 million was down 1% year-over-year, entirely due to FX translation. Excluding the impact from FX and acquisitions, our internal growth is 5% compared to the same period last year. Also, our revenue was below our guidance of $94 million to $96 million, entirely due to the effect of FX. Our bookings of $108 million in Q1 were down 6% from the first quarter of last year, which was the second highest in history. Excluding the impact of FX, our Q1 bookings were up 2% compared to the first quarter of '14. Our revenue for our parts and consumables in the first quarter increased 8% from a strong Q1 of 2014, and set a new record at $65 million. Parts and consumables revenue represented an unusually high 71% of our total Q1 revenue. And incidentally, I don't think 71% parts revenues is the new normal for us. And I expect this percentage will return to more typical levels as the year goes on. Excluding the impact of FX and acquisitions, our internal growth was 14%, driven by our Stock-Prep and Wood Processing product lines in North America. We also set a new record for parts and consumables bookings, which were up 4% over Q1 of last year to $68 million. Excluding the impact of FX and acquisitions, our internal growth was 10%. Five years ago, we identified growing our parts and consumables business as a major strategic objective. Over that time, we have increased our business by over 50% to $249 million for the fiscal year 2014, representing 62% of our revenue. We accomplished this through several focused internal growth initiatives as well as targeted acquisitions. I believe this has fundamentally changed our business both by improving our overall gross margins and reducing the volatility of our revenue. Next, I'll take a few minutes to provide an overview of our business activities and performance for each of the major geographic regions of the world. Let me start with North America. The North America market is our largest and continues to be our strongest in the world for us. Our revenue in North America was up 7% compared to the first quarter of 2014 to a record $57 million. Our Stock-Prep product line led the growth in this region, up 43%, driven by strong demand for our virgin fiber processing equipment. Our doctor, cleaning and filtration product line was also up, while our other papermaking equipment product lines saw modest revenue declines compared to a relatively strong Q1 of '14. While we have seen a step-down for the record setting bookings we had in the first quarter of 2014, the overall market condition is still quite good. Bookings in North America were $57 million, down 19% compared to Q1 of last year. As a reminder, in Q1 of 2014, we booked an $11 million order for Stock-Prep system for a tissue producer in Mexico. We saw good level of activity in the first quarter of 2015, including a large order for virgin pulping system. And looking forward, we continue to see a healthy environment, although the level of capital activity in the paper industry is slowing a bit, activity in the Wood Processing industry is quite strong, and we're working on several large projects we hope to secure this year. Finally, the market condition for spare parts and consumables continues to be very strong. In Europe, we had a moderate first quarter and this region continues to be one of our weakest. Our Q1 revenue in Europe was $16 million down 21% from Q1 of last year, primarily due to reduced capital sales across all product lines. FX played a significant role in the decline, and when excluding the impact of FX, our Q1 revenue was only down 2%. Q1 bookings of $19 million were also down 21% compared to Q1 of last year, but were up 4% sequentially. Excluding the impact of FX, our bookings were down 2% over last year. While overall market conditions in Europe continue to be somewhat weak, we are seeing some encouraging signs of increased project activity in the areas that have been some of the weakest in Europe, such as Spain, Italy and France. Going forward, we expect the weaker euro and up to a lesser extent ECB's monetary policies will lead to improved market conditions. In summary, I would say we're feeling a little bit better about Europe than we did this time last year. Next, let's take a look at Asia. As countries in Asia, other than China, begin to represent a growing portion of our revenue and business activities, we thought it would be helpful to present a slide that shows all of Asia rather than just China alone. The revenues and booking shown on this slide includes China, Japan, India and Southeast Asia, but most of us typically refer to as Asia. I should note, however, that the Middle Eastern countries are excluded from this region and are included in our rest-of-the-world category that I'll discuss in the next slide. As China makes up the largest single country in the region, my comments will be primarily focused on China. As many of you know, the situation in China is complex. On the one hand, we have a slowing economy and continued overcapacity. On the other hand, we're benefiting from the central government's continued policy of closing smaller high polluting mills, which in general did not represent our customer base. Last month, for example, the government announced plan to close 57 mills in Guangdong Province in Southern China. In addition, we are still seeing good project activity in Central and Western China, where there is regional undercapacity. Our Q1 bookings in Asia were strong at $23 million, up nearly double compared to the same period last year. The bookings performance was led by our Stock-Prep product line, where we booked several large OCC orders with combined value of nearly $9 million. One of which came from a major container board producer in Taiwan and two others for OCC projects in Central China. We also saw bookings in our doctoring, cleaning, and filtration product line more than double in Q1 compared to Q1 of last year, as a result of our efforts to promote our spare parts and consumables in China. One example of this is our doctor's holder, which had extremely strong bookings in Q1. The doctor holder is a perfect part for us to sell as it is a critical component of the doctor assembly, which ensures constant pressure and maintains the proper angle of the doctor blade across the length of the role. It's highly impactful on the performance of both the doctor and the paper machine itself. These are exactly the type of parts we like to sell to our customers. As we did with China and Asia, we though it would be helpful for our discussion to extend our discussion beyond South America, to include activities in area such as Africa, Australia and the Middle East. With this change and the inclusion of all of Asia with China, the regional sales in these quarterly update slides will cover all of our global sales. Our revenue in the rest of the world was $6 million in Q1, down 37% compared to the same period last year and down 35% sequentially, driven mainly by declines in South America. The market in South America and in particular Brazil, continues to suffer from weak growth, high inflation and increasing unemployment, all serving to create a strong drag on the economic recovery in the near-term. That said, I do continue to believe that the longer-term outlook for Brazil is good, driven by growing middle class and rising standard of living. Rest of the world bookings were up 10% to $9 million in Q1, due in large part to a $2.4 million Stock-Prep order received from a paper producer in South Africa, offset by declines in South America, which were down 30% compared to last year. Similar to other regions, FX has had a major impact on these results. Excluding FX, revenue was down 26% and bookings were up 31%. I'd like to close my remarks with a few comments on our guidance for Q2 and the full year 2015. In the second quarter, we expect to generate $0.69 to $0.71 of GAAP diluted earnings per share and revenues of $95 million to $97 million, followed by sequentially improving quarters for the remainder of the year. For the full year, we still expect to generate $3.05 to $3.15 of GAAP diluted earnings per share, which was our guidance provided in the last call. We have lowered our revenue guidance, however, to $403 million $410 million from $413 million to $423 million, due entirely to the impact of foreign currency. Although, the continued strength of the dollar also negatively impacted our outlook for earnings per share for the remainder of 2015 by $0.09, we expect that this will be offset by increased profitability resulting from improved gross margins. If we achieve our updated guidance for 2015, we'll grow our revenue by 0% to 2% and our adjusted earnings per share by 10% to 14%, despite an unfavorable impact from currency. Excluding the negative currency impact, we expect to grow our revenue 8% to 10% and our adjusted earnings per share 19% to 22% over 2014, and almost all of that increase will be from internal growth. I talked a lot about FX in my remarks today, and I want to emphasize how FX impacts us versus how it may affect other companies. As a reminder, we have operations all over the world, which for the most part have revenues and costs denominated in same currency. This reduces the impact of changes in currency on the financial result of our domestic and foreign subsidiaries, although we do have translation exposure associated with converting revenue and profit of those subsidiaries in the U.S. dollars for reporting purposes. It is far better to have a business that's doing well and growing in local currency, even if it translates into less U.S. dollars due to FX than to have a business that's declining in local currency or having its margin squeezed by FX, because costs and revenues are in different currencies. This concludes my remarks. But before I turn the call over to Tom, I want to point out to our listeners that this will be Tom's 55th consecutive, never missed one, quarterly conference call and also his last. Over the last 24 years, or as Tom would say, 98 quarters, Tom has been a major contributor to Kadant, and he is largely responsible for the excellent financial team that he's built and we have the benefit of. So we wish him well in his retirement. Incidentally, Mike McKenney has assured me that he has every intention of beating Tom's record. And starting with the Q2 call, we'll have his first, what's certain to be 56th consecutive earnings conference call under the McKenney era. With that, I'll turn the call over to Tom.

Well, thank you, Jon. I'll start with our gross margin performance. Consolidated product gross margins were 48.1% in the first quarter of 2015, up 290 basis points compared to the first quarter of 2014, and were the second highest level achieved in our company's history. The increase in gross margins from last year's first quarter was due to lower amortization associated of acquired profit in inventory, as well as a favorable product mix. Our higher margin parts and consumable revenue represented 71% of total revenue in the first quarter of 2015 compared to 65% in the first quarter of 2014. Looking ahead, we expect our full year 2015 consolidated product gross margins will be approximately 44.5% to 45.5% or 50 basis points higher than we had guided to during our previous earnings call in February. Now, let's turn to Slide 17 in our quarterly SG&A expenses. SG&A expenses were $32.2 million in the first quarter of 2015, down $300,000 from last year's first quarter and included a favorable foreign currency translation effect of $2.4 million. Excluding the translation effect of $2.4 million and the SG&A from acquisitions, as well as the transaction expenses of acquisitions, SG&A expenses were up $1.7 million or 5%. SG&A expense as a percentage of revenue was 34.9% in the first quarter of 2015 compared to 34.8% in last year's first quarter. Looking forward, we expect the SG&A spending in 2015 as a percentage of revenue will be approximately 30% to 31%. Let me now turn to our EPS results for the quarter. We reported GAAP diluted earnings per share from continuing operations of $0.62 in the first quarter of 2015 compared to $0.45 in the first quarter of 2014 or an increase of $0.17. This increase of $0.17 in diluted EPS consists of the following: $0.19 due to higher gross margin percentages; $0.06 due to lower operating expenses; $0.01 associated with acquisition costs and acquisition operating results; and $0.01 due to lower weighted average shares outstanding. These increases were partially offset by decreases of $0.08 from lower revenue and $0.02 due to our higher effective tax rate. Collectively included in all the categories, I just mentioned, was an unfavorable foreign exchange translation effect of $0.04 in the first quarter of 2015 compared to last year, due to the strengthening of the U.S. dollar. Now, let's turn to our cash flows, working capital, and debt leverage starting on Slide 19. Operating cash flows from continuing operations were negative $4.5 million in the first quarter of 2015 compared to positive cash flows of $6.2 million in the first quarter of 2014. As you can see on the chart, the major factor contributing to this performance in the first quarter of 2015 was a $14.3 million use in working capital primarily due to a $7.7 million increase in inventory and a $5.2 million increase in accounts receivable. The inventory increase is related to projects that are scheduled for delivery later this year, and we expect the cash flows will be positively affected in future quarters as we complete and ship these projects. The receivables increase was principally driven by shipments in the last month of the first quarter, which is still in accounts receivable. I should add that historically, the first quarter has been a weak quarter for operating cash flows, partly due to incentive compensation payments. We had a few notable non-operating uses of cash during the first quarter of 2015. We expended $1.2 million in CapEx and paid a dividend of $1.6 million. We did not repurchase any shares during the quarter. Let's now look at our key working capital metrics on Slide 20. Although, we had a sequential deterioration in our days and inventory and days and receivables measures for the reasons I mentioned, both measures were still favorable to last year. Looking at the 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 122 at the end of the first quarter of 2015, up 22 days in the fourth quarter of 2014, by down 10 days from the first quarter of 2014. Working capital as a percentage of revenue was 15.4% in the first quarter of 2015, and this was equal to last year's performance albeit up from the fourth quarter of 2014. I would add that despite the increases in inventory and accounts receivable, the 15.4% performance in overall working capital management is still quite good. The negative operating cash results led to a decrease in our net cash position of $7.4 million in the first quarter of 2015 compared to the fourth quarter of 2014. Net cash that is cash less debt at the end of the first quarter of 2015 was $12.5 million compared to $19.9 million in the fourth quarter of 2014, and $14.3 million in the first quarter of 2014. And as you can see on Slide number 23, our leverage ratio calculated as defined in our credit facility was 0.43 at the end of the first quarter of 2015, up slightly from 0.37 in the fourth quarter of 2014. Under the credit facility, this ratio must be less than 3.5. So before I turn over for Q&A, I just want to have a few comments. I'll make it very brief. This is, as Jon mentioned, my 55th consecutive quarterly earnings call. My 98th with the company and over that time, I have been privileged to represent the 1,800 men and women in the company, who really make the company work. And I haven't done that on any of these calls before, but I would like to thank those 1,800 people for the value that they've built and gained for shareholders and for making this such a great company. It takes all kinds of skill sets to make this company work. You need people to design and procure, and build and ship, and collect, but a special thanks goes out to the men and women in our sales force, who do something that I know I'd be terrible at, and that is sitting in front of a customer and closing the order. So all those people out there that get on airplanes, fly coach, middle-class, middle seat, sit in front of a windshield for eight hours to get to far foreign places in the globe, thank you very much for bringing in, what over my 24.5 years, has been billions of dollars of orders, and I hope you bring in billions more. Hopefully, billions in a year would be nice. So thanks for the ride, Kadant, it's been great. That's the way it is. And I'll turn that back over to the operator for our Q&A. Operator?

[Operator Instructions] Your first question comes from the line of Dan Jacome from Sidoti.

Tom, best of luck in your future endeavors, and appreciate all the color on the currency. I was just wondering a little bit more on, you said, paper capital equipment trends have been down, I was just wondering if you can give us a little bit of color on that? I think you have pretty good exposure to containerboard, and it appears that they will be adding a lot of capacity in 2015 and '16. Any color there would be great?

Sure. I was largely talking about North America. So just to put it in perspective, we've had a tremendous booking period for capital orders, both for recycling, but especially for virgin. So well, I'd say, it's coming off of that high, it's still a healthy market. On the other side, I was talking about on our Wood Processing side, it's actually, I would say, building. And we're chasing a number of pretty interesting projects in North America.

And then on the substantial gross margin upside this quarter, obviously, impressive, but it sounds like the spare part penetration into mix at 71% is a little bit abnormal. Can you just give us a little bit more details on that as well? I mean, are we not going to see 71% again for several quarters, or years, or how should we think about that?

Well, kind of, as I said my main remarks, yes, 71% kind of popped a little high. It's going to drop not so much, because the parts business drops, but because if we had some bigger capital shipments later in the year, that's going to really offset -- that's what's going to drive the mix down. When we think of our parts business, we think of growing it as strongly as we can, I think it's absolutely critical to our business. But I don't really think about a ratio, in particular, because obviously we have a lot of initiatives growing our capital business as well.

And then last, just on your OSB facing business, I guess the first quarter was a bit of speed bump for a lot of the home builders, construction given the weather. I was just kind of wondering if you saw any impact there or what exactly is happening? We don't have a lot of insight into this, because you only had the business for a little over a year I think, so any color there would be good?

I mean the OSB producers not unlike the paper producers. They take a very long-term view. When you're going to set up, spend a hundreds of millions of dollar setting up an OSB mill, you're looking well beyond a housing starts for any particular month, quarter, or even year. They're looking over a long period of time. And the fundamental basic thought underlying all of this activity is that we've had under building in the housing market in the U.S. for really since 2007, 2008. So I think that's what's driving them, as opposed to the short-term housing starts going up and down and weather and so forth.

And then just one last one, and then I'll hop back into the line here. You mentioned, you're seeing some success with your spare parts business in China, I believe. I was just wondering, you said that was for the doctoring holders. Just wondering how that's happening? Is it because of, you have better technology, or maybe some pricing concessions? How should we think about that?

So in China, in parts, many times we're competing with the local competitors who have substantially lower prices than us. So we really have to demonstrate the value of our products through the technology, and the return on investments that the customer gets by using those parts. So that doctor holder is a good example. It's very impactful on the performance of the paper machine. So he'll pay extra, because he can run faster, have less machine break, web breaks, and things like that. One of the benefits that's happened over the last couple of years when much of the paper producers on the coast in China have, sort of, shifted from building as fast as they can to actually high levels of performance is they are focusing very much on the efficiency of their paper machines, and we're helping them do that. We're helping them run our equipment better, which means in many cases using our parts.

Your next question comes from the line of Walter Liptak representing Global Hunter.

Congratulations, Tom, good work through the years, and I hope you have a good time in the retirement. Wanted to ask about the guidance, and if you have any comments on the timing of shipments that are coming out of backlog? And it really looks like with the second quarter guidance, you're more back-half loaded. And just asking, I guess, why that is? And how confident you are in those shipments?

I'll maybe take a first shot and then maybe Tom will want to add a little bit. But yes, I kind of said in my remarks that we expected the quarters to build through the year, and what is going to build the revenue side of that is some more capital, I would say, shipping towards the second half. That had lot to do with just timing of shipments, it's just when the customers want them. And as we do that, it will probably negatively impact our gross margins in those later course, but we'll have better operating leverage, so it will net-net be better. I covered it all.

But just to add, if it were not for FX, our backlog would have been over $140 million at the end of the quarter. So we have a pretty strong backlog going into the remaining three quarters here, which I think is encouraging. I think, parts business was strong as well. So I think that gives some more validity in the second half of year projections.

Let me try one on parts. The higher mix, it sounds like it just happened. They are always pushing. But I wonder if you can provide some color about what geographic regions surprise you, the kind of products that surprise you? And then maybe importantly, is the higher part sales because of efforts to grow that business, or is it some kind of an indication that capital investment from your customers is going to be lower going forward, and they're just doing more on parts and maintenance?

The real start, I would say, in parts sales is three. The two biggest or probably our Stock-Prep group and our Wood Processing group in North America. One of the real drivers on the Wood Processing side is they've come up with a disposable knife to replace the traditional knives that these machines, where you take these big heavy knives out and grind them and put them back. These are knives that you can weigh very little, and they can switch in and out very quickly. And they had great, great success with transferring customers from using these sort of grind your own knife to using these disposable knives, so that I would say is one driver. Also in the U.S. on the Stock-Prep side, we did a couple of acquisitions, both of that cleaner business and the screen basket business, and those sometimes take a little bit of time to get traction, and they continue to build as they do. So we've seen some success there. And then the final area, I would talk about is China, as I talked about with Dan. We've done a nice job really partnering with our customers in China to grow our -- to help them running their machines more efficiently, but it also very much has helped our parts business in China.

The only thing I would also add to that maybe would be our blade business as well. We have an exciting project going on with expanding our presence in the ceramic blade business. And there is an opportunity to increase our parts business even more down the road.

Yes, it's a very exciting effort. I think it's going to have more impact in 2016 than 2015, but I think in the long run we have high hopes for that ceramic blade effort.

So it sounds like its independent of capital investment. I wondered if you'd comment on, just kind of --

I don't think people say, okay, we're going to buy more shares, because we're buying less capital. That's not really -- that wouldn't come.

And want to ask about share repurchase. Your stock is down today. I wonder what your thoughts are on using capital for that.

We didn't buy any stock last quarter and people may kind of wonder why. As you know well we're very opportunistic buyers. I mean, when we've kind of shift our buyer head on, we want to buy it at the cheapest price we can. So one of the nature of the first quarter is, we're not allowed to buy stock until after we file the 10-Q. So the window is pretty small and we really didn't see an opportunity to buy it during that time. And as well, if the stock is making a big move up as we've seen it do over the years, we would rather stay out of the way of that, than add to it with our own purchasing. We really don't buy to support the stock. We buy the stock to increase every shareholder's ownership of the company. And we want them do it at the cheapest price possible. Obviously, with the stock dropping, as it did today it's more attractive than it was in Q1.

And going back to the second quarter guidance, I mean is that kind of the number that you thought you're heading for earlier in the year, and we just didn't understand the magnitude of how back-loaded it was? Or did you see some shipments that were supposed to be out of backlog that pushed into the second half?

Well, it was no big surprise to us particularly. I mean, I think in the first quarter call, we made the same comments that I did this time. I think it was in Tom's remark last time that we expected each successive quarter to be stronger than the other. I mean, I know that's not much help to you guys to try to figure out exactly where it's going to be, but this quarter would fit into it steadily increasing our quarterly performance.

Your next question comes from the line of Dan Jacome representing Sidoti.

Just following-up on the question on repurchase. I think historically your 10-Q comes out about seven to nine days after the earnings release. Is there anything that would prevent that trend occurring this year?

I'm not sure what do you mean by prevent that?

Should we expect the 10-Q to come out as it normally does about seven days after your earnings release?

Yes, basically. I wouldn't say this quarter is any different.

And then on the M&A side. Have you seen anything open up incrementally, since we last spoke, maybe something on the technology side or something else in the housing facing industries?

I would say we're actively looking at M&A. I would say we have a number of things we're kind of pursuing. Always the chances against any one of those happening is low. I will also add that that's always competing with stock buybacks of course for capital, but we do see some stuff that looks pretty interesting to us.

There are no further questions in queue. I would now like to turn the call over to Mr. Painter. End of Q&A

Thanks operator. Let me conclude today's call with, what's to me are the, key takeaway points. First, despite the strong FX headwinds, we had another solid quarter with near record gross margins. Second, when adjusting for FX and acquisitions, we had very strong internal growth of 5%. Third, we continue to grow our parts and consumables business, which saw revenues increased 17% when excluding FX, setting a new record. And finally, we expect improvements and profitability to offset the negative impact of FX on our earnings per share in 2015. I look forward to updating you on our progress on future calls. Thanks very much for listening.

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