Good day ladies and gentlemen and welcome to the Fourth Quarter 2015 Kadant Incorporated Earnings Conference Call. My name is Tuwanda and I will be your coordinator for today. [Operator Instructions]. I would now like to turn the conference over to Mike McKenney, Senior Vice President and CFO, please proceed.

Thank you, operator. Good morning, everyone, and welcome to Kadant's fourth quarter and fiscal year 2015 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 January 3, 2015 and for 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 fourth quarter and full year 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 Mike. Hello everyone. It's my pleasure to brief you on our fourth quarter and full year 2015 results as well as our outlook for 2016. Although while we had a fantastic finish to the year and achieved new quarterly records for revenue and adjusted earnings per share despite the economic headwinds and a strong dollar. Our full year performance resulted in record gross margins, record operating income, record adjusted EBITDA and most importantly record earnings per share. I’ll begin today’s business review with Q4 financial highlights. We finished the fourth quarter with record revenue of $108 million which was up 2% compared to the previous record in the fourth quarter of 2014. Foreign currency translation once again had a large impact on our revenue and when excluding the impact of FX our revenue was up 10%. Gross margins in the fourth quarter remained strong at 43%. Our adjusted diluted earnings per share of $0.95 was also a new record and up 17% compared to Q4 of 2014. Our Q4 bookings of $76 million included new orders of $92 million and a booking reversal of $16 million due to uncertainty regarding financing for a project in China which was originally booked in 2014. Excluding the booking reversal and the impact of FX our Q4 bookings were a solid $99 million, although down 4% compared to a strong Q4 of last year which included several large projects from North America and China. Our adjusted EBITDA increased 16% to a record $17 million and with 16% of revenue. And finally our cash flow was $12 million and we ended the year with net cash of $36 million. During the quarter we repurchased 25,000 shares of our common stock for approximately $1 million at an average price of 39.45. Looking at the full…

Thank you, John. I’ll start with our gross margin performance. Consolidated product gross margins were 43.1% in the fourth quarter of 2015, down 160 basis points compared to the fourth quarter of 2014. The decrease in gross margins from last year’s fourth quarter was primarily due to an unfavorable product mix and to a lesser extent lower margin in our capital business, which included a high level of large stock prep systems in China this quarter. Our higher margin parts and consumables revenue represented 54% of total revenue in the fourth quarter of 2015 compared to 59% in the fourth quarter of 2014. For the full year 2015 product gross margins of 46.2% were the highest level achieved in the Company’s history and 180 basis points higher than the gross margins achieved in 2014. I should note that the margins in 2014 were decreased 55 basis points due to the amortization of acquired profit inventory. Looking ahead we expect that full year 2016 consolidated product gross margins will be approximately equal to 2015. As is normally the case, there is likely to be some variability by quarter due in part to product mix as well as the timing and profitability of large system orders. Now let’s turn to Slide 22 and our quarterly SG&A expenses. SG&A expenses were $30.3 million in the fourth quarter of 2015 down $3.1 million from last year’s fourth quarter and included a favorable foreign currency translation effect of 2.2 million. Excluding the translation effect SG&A expenses were down 900,000 or 2.8% compared to the fourth quarter of 2014. SG&A expense as a percentage of revenue was 28.2% in the fourth quarter of 2015 compared to 31.7% in last year's fourth quarter, a decrease of 350 basis points. For the full year 2015 SG&A expenses were…

Thank you. [Operator Instructions] Your first question comes from the line of Rudy Hokanson with Barrington, please proceed.

Could you tell us a little bit about what you're seeing in terms of the OSV market right now?

It’s been quite strong, continues to be strong, the pricing is holding up just fine you know for OSV itself and we're actually seeing some project activity in -- also in Europe and Asia, which is encouraging. So I would say, generally speaking good news for OSV in the world and I am particularly encouraged that it’s certainly heavy North America but the fact that we're seeing pretty healthy activity in Europe and Asia is encouraging.

Okay thank you and then on the markets in China right now and your activity in China can you maybe flush that out a little bit more, do you see there being -- you know with the slowing of the overall economy, a lot of that as I understood it had to do with the industrial side and export markets, but that the focus was going to be on your consumer markets which I would think could help your sales, to the higher end paper companies in terms of their utilization rates. But it sounds like it's hitting everything as far your end markets go. I don’t know if I said that right, but if you could maybe talk about a little bit more?

Sure, I'll give a -- I guess a couple of general comments about China. As you know they worked -- they built up over capacity over the last four or five years. That's mitigated a little bit by these governments mandated closures. On the encouraging side I would say that they have decent amount -- I'm talking particularly about liner boards here, they have a decent amount of market concentration, of some big players with a reasonable market shares and not unlike the U.S. you've got them taking I would say some leadership and cutting back production to keep operating rates pretty good. So the pricing environment and the operating rates for liner board are actually pretty good I would say and they're making decent money, that’s all quite encouraging. Printing and writing is of course relatively weak, newsprint is relatively weak and they're adding tissue at a rapid rate, but also have good demand. I think going forward you're right Rudy, in the sense that as they shift from a more of an investment based manufacturing type economic to a more consumer driven economy things will change a little bit and they're also increasing their service aspects of their economy. So the immediate effect is there is less -- for every percent of GDP there is less liner board as it shifts to more services, but as the consumer economy grows their per capita use of paper will definitely increase. The other thing I think to watch in China is exports of paper products. You might see them exporting to other parts of Asia or even North America or Europe, there their products.

And then I think you were talking about this but I was having a hard time seeing some of the slides, could you talk a little bit more about your expectations on the consumable and parts business and what you expect for that in 2016 compared to '15? And you know again given your gross margin assumptions what the mix is going to be in order to derive those gross margins?

You’re talking in general or about China in specifics?

No, in general.

So in general we don’t typically give guidance, that this is what we think the mix will be next year. But I think you can glean a few things, I mean, what we are saying is that we’re going to hold -- we expect to hold both our gross -- those gross margins, and the mix is a big part of that. So, I think the fact that we’re projecting that we’ll company to have strong gross margins indicates that we’ll continue to have a pretty high percentage of parts and consumables and I think it indicates that some of the performance levels on a gross margin basis that we’re seeing in China, we expect to have a lot of that hold up next year.

Your next question comes from the line of Dan Jacome with Sidoti & Company. Please proceed.

Just wanted to say on the topic of Europe tissue and I appreciate the new end customer breakdown that you provided this quarter. I am just wondering bigger picture why is tissue becoming a smaller part of your business especially with the comments you just made on Europe. I think a couple of years ago it was like 13% and now it looks like you’re down to 10%. Maybe if you can give us some flavor there?

The comments that I was making about tissue are largely in China and our two strongest product lines in China in terms of market share our stock prep product line which is heavy recycle and also our fluid handling product line. So in China those are by far the ones with large market shares from China. The nature of tissue, there isn’t a lot of fluid handling products on the tissue machine and the nature of tissue in China, they don’t by law recycle tissues, so we don’t play very much in that in the growth of tissue in China. So, that’s one factor. The other factor is it's not so much a tissue -- a big part of it is that our packaging business, particularly liner board, stock prep business both in North America and China which was very strong in 2015 really moved to the packaging percentage up a lot. So it took a little away from everybody if you will.

That make some sense. And Jon on the new significant breakdown, I guess other non-papers, is that where the dissolving pulp, is that where you said where you’re going to place it?

Dissolving pulp is another non-paper [ph].

I am glad you asked about other non-paper because it’s kind of worth talking about and I don’t -- one of the things, as you look at other non-paper, I think it's important to look at it, that is this different than paper. You can imagine that if you’re making gypsum board for wall -- making a drywall board that’s not the typical growth driver that you think about for paper, that’s housing, 100% housing. So think about that growth rate, when you think about growth rate for dissolving pulp, a big hunk of that goes into those quick-drying Nike, Under Armour shirts that kind of stuff. That particular piece of apparel is growing quite rapidly. So, I think it's a mistake to lump that in with paper.

Yes I agree. Do you know, I could do my homework on this, but do you what sort of capacity growth is for that dissolving pulp that you just mentioned that wasn’t athletics?

I should tell you what I’ve heard about it and I am really not an expert. So, over the years the market for those Under Armour type shirts has been growing double digit rates. They are very popular particularly in Asia. There has been a big growth and by the way we play -- we have a very high market share in the dissolving pulp projects, but there has been a big burst of growth, I would say. So, a lot of capacity for that has recently come on.

For dissolving pulp.

So they may have a situation where they have to work up a bit of capacity, but that market is quite encouraging. I think the end drivers in that market are really strong.

Okay, so if I got you correct, capacity might be coming online at a double-digit --.

There is a lot of capacity that has recently come online.

Yes definitely.

Okay, I’ll look more into that, I think it's interesting. And last, staying on your Asia base business, can you breakdown how much of that business is consumables versus capital equipment, did I missed that?

We don’t as a general rule break that down I think --.

Is it near [ph] your corporate average of like mid-60s?

It tends to be heavier, it tends to be heavier capital of course. I will say the China is moving as it matures and as we look to 2016 we see less capital and we’re mitigating the effects of less capital by paying much more attention to spare parts and helping our customers there improve the assets that they have, lower their input costs.

If you did that, wouldn’t that lower the risk of having more booking reversals? Isn't that kind of the plan?

I'm sorry, what was that again?

If you move more of that business to spare parts and consumables, you would have less, kind of a risk of like a booking reversal having such a major impact on your numbers, right?

Yes I mean, as most people follow us, we love parts. I mean we love them because they're stable and we love them because they're generally higher margin than capital. So, you know absolutely. You might remember on the last earnings call we said about 58% of our sales in China was consumables for the prior quarter '15.

Okay great, appreciate it. I admit that, thanks. And then lastly how much is left on your buyback again? Your authorization as of now?

12 million.

12 million?

Yes.

Okay is there any --.

As per the general rule, when we started to run low the buyback we just re-up it, if you follow us there's really -- it's never the case we don’t have a buyback in place. Whether we exercise or not is a different story but we're -- if we need more we just get more.

Okay. But again your guidance it doesn’t assume any level of incremental repurchases, right?

No our guidance does not assume any -- it assumes we're sort of, no buybacks.

Alright Jon, really appreciate it. Thank you guys.

Alright thanks, Dan.

[Operator Instructions] And at this time there are no further questions in the queue. I would now like to hand the conference over to Jon Painter for closing remarks.

Thanks operator. In closing, I want to thank our 1,800 employees around the world for making 2015 an outstanding year with record gross margins, operating income, adjusted EBITDA and adjusted diluted earnings per share. I have every confident that this timely group of individuals will deliver another solid performance in 2016. And I look forward to updating you next quarter on our progress. Thanks very much.

Thank you joining today's conference. That concludes the presentation, you may now disconnect. Have a great day.