Michael McKenney - SVP and CFO Jon Painter - President and CEO.

Walter Liptak - Seaport Global Dan Jacome - Sidoti & Company.

Good day, ladies and gentlemen, and welcome to the Second Quarter 2017 Kadant Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time.

[Operator Instructions] I would now like to turn the call over to Senior Vice President and CFO, Mr. Michael McKenney. Please go ahead..

Thank you, Andrew. Good afternoon everyone, and welcome to Kadant's second quarter 2017 earnings call. With me on the call today is Jon Painter, our President and Chief Executive Officer. Before we begin, let me read our Safe Harbor statement.

Various remarks that we may make today about Kadant's future expectations, plans and prospects are forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Our actual results may differ materially from these forward-looking statements as a result of various important factors, including those outlined at the beginning of our slide presentation and those discussed under the heading Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and subsequent filings with the Securities and Exchange Commission.

Our Form 10-K is on file with the SEC and is also available in Investor section of our Web site 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 second quarter earnings press release issued today, which is available in the Investors section of our Web site 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. Hello, everyone. Thank you for joining us this afternoon to review our second quarter results, and discuss our outlook for the second half of the year. Overall, we had another terrific quarter with record bookings, record adjusted EBITDA, and record adjusted earnings per share. I'll begin with the financial highlights.

To tell you the truth, the second quarter is one of those quarters with so many highlights it's hard to know where to start. But since it's at the top of the slide, I'll start with bookings. We had record bookings of $120 million, which beat the previous record set last quarter.

This was driven in large part by continued strong capital bookings in China and Europe. Other highlights include, gross margin, at 48%, was the third best in our history, and was due largely to a high percentage of parts and consumables at 64% of revenue. Adjusted EBITDA was a record $19 million or 17% of revenue.

We generated $0.72 of GAAP diluted earnings per share, but more important to us, our adjusted earnings per share which excludes the acquisition costs for NII was a record $1.04. Generating over a dollar share is an important milestone for us, and we're very proud of it. Cash flow is also outstanding, at $24 million.

And net cash at the end of Q2 was $22 million. Soon after the quarter closed however we happily eliminated our net cash position with the acquisition of NII. We're currently working on the integration of NII, which is going well. This is an important acquisition for us, and so far we're feeling great about it.

The markets for their products are quite strong, and their management team has done a great job with the transition. Mike will give you the details of the impact that will have on us this year. But, with a spoiler alert, I can tell you it's off to a fantastic start.

As you can see on slide six, foreign currency translation was a modest headwind again in the second quarter, while there was no impact from acquisitions. Our internal revenue growth for the second quarter excluding FX was 1%, while internal growth in adjusted earnings per share was up 25%. Internal growth in bookings was 26%.

I'm also pleased to report that our internal revenue growth for parts and consumables in Q2 was 3%, while bookings were up 8%. On slide seven, you can see a nice trend in bookings over the last three quarters, culminating in record bookings of $120 million in the second quarter.

All our product lines were up double digits over Q2 of last year, except forward handling, which was still up a solid 8%. Leading the strong bookings performance was our stock prep Stock-Prep and Wood-Processing product lines, which were both up over 30%. Q2 revenue was essentially flat at $110 million, compared to a record Q2 of 2016.

That said, this is our third consecutive quarter with a book-to-bill ratio greater than one, so we feel confident that revenue will continue to trend up this year. The first half of this year has been excellent in terms of parts and consumables business, with record revenues in Q1, and near record revenue in Q2.

Revenue from parts and consumables in the second quarter increased 1% compared to the same period last year, to $70 million, and represented 64% of our total Q2 revenue. Parts and consumables bookings were up 6% to $68 million. All major regions contributed to this increase with the strongest contributor being China.

Bookings for parts and consumables however were down 9% on a sequential basis from a record Q1 due to particularly strong bookings for our wood-processing parts in Q1. And additional seasonal influences in North America impacted the decline as Q1 is historically a strong quarter for parts as mills prepare for spring maintenance outages.

Next, I'd like to review our performance in the major geographic regions where we operate. Let me start with North America. The pulp and paper market in North America is solid and stable. Prices are being sustained or increased across many grades, and operating rates for U.S.

containerboard machines are in the upper-90%, while inventories remain fairly low. The housing market in North America is also quite strong, and has led to continued growth in our Wood-Processing product line. Industry analysts are forecasting approximately 1.25 million housing starts in 2017, which is the highest level since 2007.

More importantly, there are signs that the millennials are entering the market after sitting on the sidelines for over a decade. Millennials are now the largest segment of potential homebuyers, and they're starting to buy single-family homes. As this generation increases its homeownership we expect demand for housing to remain healthy.

This is good news for us as the recent acquisition of NII makes the housing sector even more important to us. As you can see on slide nine, revenue increased for the third consecutive quarter to $52 million, but was down 4% compared to the second quarter of 2016, due largely to softer demand for our Stock-Prep product line.

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

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

Before leaving North America, I want to provide an update on our efforts to expand PAAL's presence in the North American market. As we announced earlier this year, we obtained an order for our first PAAL baler in Monterey, California, in January. In May, we debuted a full-sized baler at North America's largest waste and recycling trade show.

The show was a huge success for us in terms of meetings new prospects and generating strong interest in our balers. In fact, before the show was over we had secured an order for our second North American baler from a major waste management company. Slide 10 shows our bookings and revenue performance in Europe, which were both records.

After years of relatively weak market conditions, Europe has showed surprising strength this year. Second quarter revenue was up 3% from Q2 of 2016, and up 4% sequentially. Bookings in Europe were up 23% sequentially from the relatively strong performance in Q1, led by our Doctoring, Cleaning, & Filtration and Stock-Prep product lines.

We also saw strong performance in our Fluid-Handling product line in Europe, primarily from industrial markets in Spain, Italy, and France. In addition to the solid market conditions in Western Europe, Russia continues to be active in capital projects. During the quarter, we booked an order for stock-prep system in Russia for approximately $4 million.

And finally, our recent acquisition of NII, which has a significant presence in Europe as well as North America, will positively impact our revenue in bookings in these regions beginning in the third quarter. The market is Asia, which is dominated by China, continues to be quite strong for both capital and parts and consumables.

In addition, China recently notified the World Trade Organization that by year-end it will ban the import of unsorted paper, since unsorted or mixed paper is often combined with old corrugated containers or OCC in the production of recycled linerboard to reduce fiber costs. The ban is expected to put upward pressure on the cost of OCC.

This should be a positive for us as our equipment helps producers increase the yield from processing OCC into recycled linerboard. Our revenue in Asia was up 18% from last year due largely to shipments of large capital orders booked in the previous two quarters.

As I noted in our call in May, the strong bookings performance from China in Q4 of 2016 and Q1 of 2017 are having a positive impact on revenues in China this year. The high level of capital bookings that we had in the two prior quarters continued into the second quarter of 2017, with bookings double from the same period last year.

All of our major product lines had significant growth in bookings. In China, we continue to see strong bookings in our Stock-Prep product line.

In addition to the early Q2 capital order for two OCC systems valued at $6 million that I mentioned in the previous call, we booked two additional orders for recycling systems, and a multi-machine order for our fabric cleaning system with a value of $10 million.

Although we know the capital equipment market in China can be volatile, we continue to have a fairly active pipeline of projects in the works which looks promising for the remainder of 2017.

Finally, a few comments on the rest-of-the-world results; as you could tell from my remarks, we're seeing very good market conditions in most regions of the world. The exception is South America, and in particular Brazil.

Our revenue in the rest of the world, which is largely South America and Brazil, was $8 million in Q2, down 26% compared to a relatively strong Q2 and 2016, and relatively flat on a sequential basis.

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

I should note by the way that our performance in Brazil despite the poor market conditions is a validation of our approach to focusing on and building a strong and stable spare parts and consumables business in all of our operations throughout the world.

Despite very little capital sales, our operation in Brazil continues to make a modest profit due to its strong parts of consumables business. When the capital business does return we will be well positioned to take advantage of it. I'd like to conclude my remarks with a few comments on our guidance for Q3 and the full year 2017.

We're pleased by the healthy bookings trend we've seen over the past few quarters and the strong first half of 2017. Based on our Q2 results, our improved outlook for the remainder of 2017 and the inclusion of the results of our recent acquisition of NII we are significantly raising our full year revenue in adjusted earnings per share guidance.

We're also raising our GAAP revenue and earnings per share guidance for the second half of the year. For 2017, we now expect to achieve GAAP diluted earnings per share of $3.18 to $3.26 and revenues of $488 million to $494 million.

We now expect our adjusted diluted EPS which excludes the transaction expenses and purchase accounting adjustments associated with the NII acquisition to be $3.99 to $4.07.

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

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

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

Mike?.

Thank you, Jon. I'll start with our gross margin performance. Consolidated gross margins were 47.9% in the second quarter of 2017 up 300 basis points compared to 44.9% in the second quarter of 2016.

The increase in gross margins from last year's second quarter was principally due to higher margins achieved in both our capital and parts in consumables business. Our parts and consumables revenue represented 64% of total revenue in the second quarter of 2017 compared to 62% in the second quarter of 2016.

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

We anticipate quarterly gross margins will be lower in the second half of the year than the first half due to a significant increase in the shipment of capital orders which will change our overall product mix and amortization expense associated with the acquired profit and inventory. Now let's turn to slide 16 in our quarterly SG&A expenses.

SG&A expenses were $39.2 million in the second quarter of 2017, up $3.1 million from the second quarter of 2016. The second quarter of 2017 included $4.1 million of acquisition related costs and a favorable foreign currency translation effect of $0.7 million.

SG&A expenses in the second quarter of 2016 included $1.7 million of backlog amortization expense and acquisition costs associated with the PAAL acquisition, excluding acquisition cost, backlog amortization expense and the foreign currency translation effect, SG&A expenses were up $1.5 million.

SG&A expense as a percentage of revenue was 35.5% in the second quarter of 2017 compared to 32.3% in the second quarter of 2016. Excluding the acquisition cost and favorable foreign currency translation effect, SG&A as a percentage of revenue was 32.5% in the second quarter of 2017. Let me turn next to our EPS results for the quarter.

In the second quarter of 2017, GAAP diluted earnings per share was $0.72 and our adjusted diluted EPS was a record $1.04. The $0.32 difference relates to acquisition related costs associated with our recent acquisition of NII. In the second quarter of 2016, GAAP diluted EPS was $0.75 and our adjusted diluted EPS was $0.88.

The $0.13 difference relates to acquisition costs and amortization of acquired profit and inventory and backlog.

The $0.16 increase in adjusted diluted EPS in the second quarter of 2017 compared to the second quarter of 2016 consist of the following, $0.18 due to higher gross margin percentages and $0.10 due to lower effective tax rate, these increases were partially offset by $0.06 due to higher operating expenses, $0.05 due to lower revenue and $0.01 due to higher weighted average shares outstanding.

Collectively included all the categories, I just mentioned was an unfavorable foreign currency translation effect of $0.07 in the second quarter of 2017 compared to last year's quarter due to the strengthening of the U.S. dollar.

Let me also take a moment to compare our diluted EPS results in the second quarter to the guidance we issued during our May 2017 earnings call. Our GAAP diluted EPS guidance for the second quarter of 2017 was $0.87 to $0.91. The second quarter guidance did not include acquisition costs.

We reported GAAP diluted earnings per share of $0.72 in the second quarter of 2017 including $0.32 of acquisition related costs. Excluding these acquisition costs, our adjusted diluted EPS was $0.13 over the high end of our guidance range. This was principally a result of better gross profit margins from our stock preparation product line.

Also contributing to the better performance was a lower effective tax rate due to a more favorable geographic distribution of earnings anticipated for 2017. Now let's turn to our cash flows and working capital metrics starting on slide 18.

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

As you can see on the chart, the major factor contributing to this performance in the second quarter of 2017 was an inflow of $9.3 million related to working capital. Primarily due to cash received from costumer deposits and accounts receivable. We had several notable non-operating uses of cash in the second quarter of 2017.

We repaid $6.6 million debt obligations paid a dividend of $2.3 million and expanded $1.7 million for capital expenditures. Let's now look at our key working capital metrics on Slide 19. Days in receivable decreased to 62 days from 67 days at the end of the first quarter of 2017.

Inventory days are up to 97 as we build inventory to fulfill shipments in the second half of 2017 and our days in payables have remained fairly consistent from the second quarter of 2016 through the second quarter of 2017.

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

Working capitals as a percentage of revenue was axed on at a 11.6% in the second quarter of 2017 compared to 14.1% in the first quarter of 2017 and 12.7% in the second quarter of 2016. Net cash that is cash less debt at the end of the second quarter of 2017 was $22.2 million up from $2.5 million in the first quarter of 2017.

In May we amended our $200 million credit agreement increasing the commitment to $300 million. After quarter end we borrowed approximately $170 million in connection with our acquisition of NII. This includes U.S. dollar denominated debt of $46 million euro denominated debt of €55 million and Canadian dollar denominated debt of C$83 million.

Looking forward we now forecast our net interest expense for the second half of 2017 to be approximately $2.4 million with forecasted weighted average interest rates of approximately 1.8% for the third quarter and 2.2% for the fourth quarter.

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

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

Before concluding my remarks I'd like to give you a little more color on the guidance that John gave you for 2017 which now includes our recent acquisition of NII which will be part of our wood processing product line. In regards to NII revenues, we anticipate revenues of approximately $44 million to $46 million in the second half of 2017.

With the split between parts and consumables and capital being roughly even. The addition of NII as well as increased capital project shipments in the second half of the year from our existing business will result in lower gross profit margins in the second half of the year.

As I mentioned earlier we anticipated that our overall full year 2017 consolidated product gross margins will be approximately 45%. Product gross margins will be negatively impacted by approximately 260 and 160 basis points in the third and fourth quarters respectively as we recognize amortization expense associated with acquired profit inventory.

This expense is recognized in the quarter that the inventory ships and we anticipate that most of the expense we recognized by the end of 2017. In regards to our S&A expenses with the inclusion of NII we expect SG&A spending in 2017 as a percentage of revenue will be approximately 32%.

I would note that this includes the transaction costs and backlog amortization related to the NII acquisition. Excluding these items SG&A expanding would be approximately 31%.

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

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

A few comments on the increasing of our revenue and adjusted diluted EPS guidance for 2017, we increased our revenue guidance range to $488 million to $494 million from our previous guidance range of $427 million to $437 million. Approximately 75% is increase or $44 million to $46 million is related to our acquisition of NII.

And the revenue from this is more heavily weighted to the third quarter. The remaining revenue increase is from our existing business and the revenue increase here is relatively evenly split between cores. In regards to our EPS guidance we increased our adjusted diluted EPS guidance to $3.99 to $4.07 from our previous guidance of $3.27 to $3.37.

Of the $0.70 increase, from the top-end of both our guidance ranges, a little more than half is from improvement in our existing business which would include the $0.13 B in the second quarter. And the remainder is from our acquisition of NII. And as with the revenue guidance, this is more heavily weighted to the third quarter.

In regards to our tax rate, we now expect our effective tax rate will be approximately 26% in 2017, compared to our 2016 tax rate that came in slightly over 27%. We expect depreciation and amortization will be approximately $18 million in 2017, which includes approximately $5 million from NII. That concludes my review of financials.

And I will now turn the call back over to the operator for our Q&A session.

Operator?.

Thank you. [Operator Instructions] And our first question comes from the line of Walter Liptak with Seaport Global. Your line is now open..

Hi, good afternoon guys..

Hi, Walt..

So, great quarter, and I guess the first question is on the gross margin, and I understand parts was the big part of the gross margin expansion.

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

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

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

Okay, great. And I think in your prepared remarks you talked about the gross margin for Stock-Prep was good.

Was that related to parts as well or was that something else?.

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

Okay, what geographic region was that in?.

I would say that was primarily out of China..

Out of China, okay great. Okay, and then, I guess, moving over to China then, you mentioned the WTO changes to the mix paper, and that's putting OCC costs higher.

I wonder if the productivity gains from your equipment is going to be enough to offset the OCC costs, or how should we look at that if some of your customers are seeing margins come down, will that slow investment in China?.

Sure. So, I mean, it's speculation on how much it will impact the price of OCC. It's just that the OCC is going to have to fill the demand that that mixed office waste or waste paper was filling up before. I would say that I doubt our equipment -- people buying our equipment will offset the increase of OCC.

So they'll probably have higher fiber costs and higher overall operating costs, and they'll probably pass those on to their customers, or certainly try to. But my point really was is that our stuff; particularly on the stock-prep side is often sold on a return on investment on fiber savings.

And when the fiber is more expensive that return on investment is a better calculation. That said, you don't want OCC so high that virgin looks attractive. We probably have a bias towards recycling. But I think we're probably safe in that regard. These things have a way of balancing themselves out..

Okay, great. And good work on the guidance for accretion from the NII deal.

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

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

Okay..

And Michael….

Yes, I wanted to say, well, we're giving some good color on what we expect here in the second half, but just for full disclosure, we haven't completed the valuations yet. So those could move. But to your point, we do expect the kind of one-time.

So the inventory right [off] [ph] the backlog amortization, we expect to be essentially through that in 2017..

Okay.

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

Yes, that's correct..

I guess the other thing I would just say, we've kind of said a few times is the third quarter for NII is pretty strong. They have that every once in a while. Their forth quarter last year was pretty strong. But I wouldn't just take our second half and double it for next year either.

It's probably -- touch wood, maybe I'll come true, but we're not expecting it to be that good in 2018 necessarily..

Okay, and one last one for me and then I'll get back in queue and let someone else go. In Europe bookings, you mentioned that they were strong, including in Russia.

And why do you think the bookings are picking up there? Is it a pent up demand from underinvestment, especially in Russia?.

Well, in Russia, no question, the weak ruble is helping them. Any mill in Russia that's exporting, and a lot of them are exporting to China, is making a lot of money, and the same thing goes true for lumber. They're selling a lot of lumber to China. And when your costs are in rubles and your revenue are in dollars or even renminbi, that's great.

So that's sort of, I would say, the driving force behind Russia. Europe, I think it's exactly what you say. It's sort of pent up demand. You see Spain picking up, Italy, these countries that really had been on their knees for quite a while are -- seems turning the corner..

Okay, great. Okay, thank you..

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

Hi guys, how are doing?.

Hi, Dan..

Hi, Dan..

Okay, nice job.

Just two quick questions, first then on the WTO, why are they putting that ban into places, so I have a better background understanding of it?.

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

Okay, so the idea is, as you said, OCC is going to pick up the slack if that goes into place? What sort of timeline on that? I know you don't have a crystal ball, but when exactly would that happen?.

They said by the end of the year they're going to impose this thing. They just announced this, by the way, like two weeks ago. So it's….

Okay, yes, I missed it obviously. So I'll go have to Google that..

Pretty fresh news..

Okay..

And not everyone blends in mixed office waste to OCC. What I don't have is a handle on how impactful it'll be. I'm not sure anyone does..

Great, no, I appreciate it. I missed that, so we'll be tracking that. And then on the NII acquisition, obviously you're still very bullish on, I guess, lumber demand and the housing cycle exposure which you have. But what about that timber harvesting equipment, do you still have an update on that.

You still feel positive about it or -- I was just curious?.

Yes. I mean, to be candid with you, we were much more excited about the debarking equipment versus the timber harvesting. But the timber harvesting has done extremely well. They're sold out for the rest of the year. Yes, we are production-limited right now..

Right..

And we're going to have to look at what we do about that..

Yes, well you got to get the saw logs from somewhere, so that's how that's going to impact that business, right with….

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

Okay.

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

I was kind of making a general comment. Linerboard is biggest one..

Right..

But it's a nice healthy stable environment. They're put through a $50 price increase at the end of last year; they put another in this spring. The mills are doing well. They have rising input costs, particularly OCC. But it's a relatively tight supply market, and they're, I would say, pretty healthy..

Right. Yes, we know linerboard is doing well, but what about uncoated free sheet.

I know your exposure to that has been going down drastically over the years that -- there was one company that made a major capacity adjustment just two days ago, so I'm just wondering if you're seeing any impact there, if you even have any high-level comments for me, which are always appreciated?.

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

You have to get in smaller….

Yes….

Yes, exactly. All right, well, nice job on the first half. You've set the bar pretty high for yourselves for the rest of the year, but thanks a lot..

Okay, then..

Thanks, Dan..

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

Okay, thank you Andrew. Before I go, let me summarize what I think are the key takeaways for the quarter. One, we had record adjusted earnings per share of $1.04. Two, we had record bookings of $120 million. Three, we completed the acquisition of NII in early July, and the integration is going well.

And finally, four, we're raising our full-year revenue guidance by $51 million to $61 million, and our full-year adjusted earnings per share guidance by $0.70 to $0.72, leading to an expected record year in 2017.

I tell you, after a quarter like this one, I want to take a moment before I let you go to publicly acknowledge the folks in our operating units whose hard work has produced the results that it's been my please to share with you today.

I also want to give a shout-out to the team at our corporate office and at NII who've worked nights and weekends for months on the acquisition and integration of those businesses. So your dedication is really an inspiration. So thanks very much for listening in, and I look forward to updating you next quarter..

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