Good day, ladies and gentlemen, and welcome to the Q4 2019 Kadant, Inc. Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your host, Mr. Michael McKenney, Executive Vice President and Chief Financial Officer. Sir, please go ahead..

Thank you, Katrina. Good morning, everyone, and welcome to Kadant's fourth quarter and full year 2019 earnings call. With me on the call today is Jeff Powell, 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 plans and expectations, financial and operating results and prospects are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to 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 29, 2018, and subsequent filings with the Securities and exchange Commission.

In addition, any forward-looking statements we make during this webcast represent our views and estimates 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 views or estimates change.

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 non-GAAP financial measures to the most directly comparable GAAP measures is contained in our fourth quarter and full year earnings press release and the slides presented on the webcast and discussed in the conference call, which are available in the Investors Section of our website at www.kadant.com.

Finally, I wanted to note that when we refer to GAAP earnings per share or EPS and adjusted EPS on this call, we are referring to each of these measures as calculated on a diluted basis. With that, I'll turn the call over to Jeff Powell, who will give you an update on Kadant's business and future prospects.

Following Jeff's remarks, I'll give an overview of our financial results for the quarter, and we will then have a Q&A session.

Jeff?.

Thanks, Mike. Hello, everyone. Thank you for joining us this morning to review our fourth quarter and full year results and discuss our business outlook for 2020. The fourth quarter was a solid finish to another record-setting year. We had record full year results in bookings, revenue, adjusted EBITDA, adjusted EPS and operating and free cash flow.

We also fully integrated our Material Handling acquisition into our business and are pleased with the performance of this acquisition and its contribution to our business. I'll begin my review with the financial highlights of the quarter. As you can see on Slide 5, bookings were up 9% to $160 million, and revenue was up 11% to $183 million.

Our gross margin was 41% and adjusted EBITDA was $32 million. GAAP EPS exceeded our guidance at $0.76. On an adjusted basis, EPS was $1.32, down 20% from the record achieved in Q4 of 2018. Cash flow from operations was a very strong $39 million and nearly 4x the prior year period.

Net debt at the end of the fourth quarter was $233 million, and our leverage ratio was 2.03. Our full year 2019 financial performance exceeded our 2018 performance as a result of strong contributions from our acquisition and progress on our growth initiatives. Bookings for the full year of 2019 were up 3%, and revenue was up 11% to $705 million.

Gross margin was 42%, and adjusted EBITDA was a record $127 million with an adjusted EBITDA margin of 18%. GAAP EPS for the full year was above our expectations at $4.54, and adjusted EPS was a record $5.36.

Global demand for industrial products continue to wane into the fourth quarter, leading to a 1% organic revenue decline and a 6% organic bookings decline. Foreign currency translation also had a moderately negative impact on our revenue and bookings in the fourth quarter of approximately 1%.

Organic growth in Parts & Consumables revenue and bookings, on the other hand, were up 4% and 6%, respectively, in the fourth quarter. For the full year 2019, we saw modest organic growth in revenue, while organic bookings experienced a decline of nearly 8% due to softness in demand, particularly for capital projects.

That said, organic growth in Parts & Consumables revenue and bookings for the full year was up 3% and 2%, respectively. And finally, I am pleased to note, this was our third consecutive year of internal growth -- revenue growth, which helped us achieve record operating results, including adjusted EPS and free cash flow.

On Slide 8, you can see our quarterly bookings and revenue trends over the last 4 years. Our fourth quarter bookings were up 9% due to contributions from our Material Handling acquisition and our Stock-Prep product line, which offset declines in our other major product lines.

Q4 revenue was also up compared to the fourth quarter of 2018 due to our acquisition. For the full year, we benefited from our Material Handling acquisition, which offset FX headwinds and softer demand in our other segments. Parts & Consumables revenue and bookings in the fourth quarter were both up compared to the prior year period.

Most notably, fourth quarter Parts & Consumables bookings were 70% of total Q4 bookings. Encouragingly, bookings were up in every region, including China. For the full year 2019, Parts & Consumables revenue was up 18% to a record $441 million and represented 63% of total revenue compared to 59% in 2018.

Bookings were also an all-time high, up 17% compared to the record Parts & Consumables booking last year. This positive momentum is especially notable as sustained growth in our Parts & Consumables business is a key strategic initiative for us. I'm pleased to see the strong performance.

Next, I'd like to review our performance in the major geographic regions where we operate. I'll begin with North America, where Q4 revenue increased 21% to $95 million. This growth was led by our material handling product line. Excluding the impact of FX and the acquisition, revenue was down 3%.

Bookings in North America were $94 million, up 26% compared to Q4 of last year. Our acquisition made a significant contribution to this increase, which helped to offset declines in our other segments. Excluding the impact of FX and the acquisition, bookings were down 4%. Slide 11 shows our revenue and bookings performance in Europe.

Fourth quarter revenue was up 13% to $49 million. Excluding the negative impact of FX, revenue was up 16%. All our product lines, except for Fluid-Handling, were up in Q4. Bookings on the other hand were down 22% compared to a strong prior year to $38 million.

The weakness in Europe's manufacturing sector and the slowdown in global trade continues to impact the region. As a result, we saw softer demand for our products and less project activity in the latter part of 2019, and we expect the start of 2020 to be similar to 2019.

The market in Asia, which is dominated by China, saw a modest increase in Q4 bookings compared to a weak Q4 of 2018. While trade relations between China and the U.S. are improving, uncertainty in future demand for packaging as well as fiber shortages continues to impact new capacity additions.

That said, our Parts & Consumables bookings in China saw strong demand in Q4. Organic bookings were up 21% compared to the prior year period. Our Q4 revenue in Asia was consistent with the previous two quarters but down significantly from a very strong Q4 of 2018 when we benefited from large capital order shipments.

Before leaving Asia, I wanted to comment on the coronavirus and its potential impact on our business. For a number of reasons, it is too soon to accurately predict what effects the conditions will have on our business in China.

We have 2 major manufacturing facilities in China, which have been closed since the Lunar New Year holiday in compliance with government-mandated closures. I'm pleased to report these facilities received permission to reopen earlier this week, though at a significantly reduced capacity.

The uncertainties related to the duration of the outbreak, travel restrictions and business closures makes this a highly fluid situation. We are in regular contact with our team in China and monitoring it closely, particularly as it relates to the safety of our employees and the impact on our supply chain.

And finally, a few comments on the rest of the world results. As you can see on Slide 13, our revenue in the rest of the world had a nice bump in Q4, up 40% to a record $15 million led by our wood processing product line. Excluding our acquisition and FX, revenue increased 37% compared to Q4 of 2018.

Rest of the world bookings were up significantly from the weak Q4 of 2018. We continue to see the largest economies in this region, specifically Brazil, struggling to gain positive momentum with expectations of only modest growth in 2020. I'd like to conclude my remarks with a few comments on our guidance for Q1 and full year 2020.

Our guidance is impacted by caution as we enter 2020. The outbreak of the coronavirus has introduced uncertainty in the near term. We expect to achieve full year 2020 GAAP EPS of $4.98 to $5.08 on a revenue of $690 million to $700 million and an adjusted EPS of $5 to $5.10.

For the first quarter of 2020, we project GAAP EPS of $0.80 to $1.08 on revenue of $153 million to $163 million. This wide guidance range is due to the uncertainty around the impact of the coronavirus in China and the government-mandated business closures and travel restrictions I mentioned earlier.

If this outbreak is short-lived, we expect some negative impact in Q1, but minimal effect on our full year financial results. As this unfolds in the coming weeks, we expect to better understand the impact this virus could have on our operations and its broader impact on the supply chain inside and outside of China.

I will now pass the call over to Mike for additional details on our financial performance.

Mike?.

We paid $177.8 million for our Material Handling acquisition; we paid down debt by $55.4 million; we paid $10 million for capital expenditures and $10.2 million for dividends. In addition, we paid $2.7 million for taxes related to the vesting of equity awards. Slide 26 shows our free cash flows for the past 8 years.

Free cash flows for 2019 were a record $87.5 million, up 88% from $46.4 million in 2018. Looking forward, we anticipate free cash flows in 2020 will be in the low $80 million range assuming working capital requirements are neutral.

I would note that our first quarter free cash flows have historically been the weakest of the year due in part to the payment of annual management incentives. Let's now look at our key working capital metrics on Slide 27.

Overall, our days in receivables and payables have remained fairly consistent from the fourth quarter of '18 through the fourth quarter of '19. We had a nice improvement in days in inventory in the fourth quarter, which is now at 88 days, down from 99 days at the end of the third quarter of '19.

Looking at our overall working capital position, our cash conversion days measure, calculated by taking days in receivables plus days in inventory subtracting days in accounts payable, was 104 at the end of the fourth quarter of '19, down from 110 in the fourth quarter of '18.

Working capital as a percentage of revenue was 12.2% in the fourth quarter of '19 compared to 12.5% in the fourth quarter of '18. Net debt, that is debt less cash at the end of 2019, was $232.8 million compared to $129.7 million at the end of 2018.

Our net debt increased to $303.7 million at the end of the first quarter of 2019 compared to -- due to our Material Handling acquisition, and we were able to lower our net debt by $70.9 million through the end of '19 due to the excellent free cash flows realized in '19.

Our interest expense increased to $12.8 million in 2019 compared to $7 million in 2018 due to the additional debt incurred to finance the Material Handling acquisition at the beginning of the first quarter of '19.

We forecast our net interest expense for 2020 to be approximately $10 million to $10.5 million, with forecasted weighted average interest rates of approximately 3.55%.

As you can see on Slide 30, our leverage ratio, calculated as defined in our credit facility, was 2.03 at the end of the fourth quarter of '19, down from 2.33 in the first quarter of '19 as we continue to make excellent progress on paying down debt.

Under our amended credit facility, this ratio was required to be less than 4 through the fourth quarter of '19, at which point the ratio requirement steps down to less than 3.75. Before I conclude my remarks, I'd like to give you a little more color on the EPS guidance that Jeff gave for 2020.

Looking at our quarterly EPS performance in 2020, we expect the first quarter will be the weakest quarter of the year. Our diluted EPS guidance for the first quarter of 2020 is $0.80 to $1.08. Our adjusted diluted EPS guidance of $5 to $5.10 for the year excludes $0.02 of adjustments related to the amortization of acquired backlog.

I should caution here, there could be some choppiness and variability in our quarterly results due to several factors, including the variability of order flow and capital shipments.

The wide guidance range for the first quarter of 2020 is due to the uncertainty surrounding the impact of the coronavirus in China and the government-mandated work restrictions which have impacted our subsidiaries in China.

Any further work restrictions could impact our guidance as the timing of shipments in the quarter and the associated revenue recognition could be delayed.

To reiterate the guidance noted earlier, we anticipate gross margins of approximately 42.5% to 43.5%, SG&A at approximately 27% to 28% of revenue, and net interest expense of approximately $10 million to $10.5 million, and we expect our recurring tax rate to be approximately 27.5% to 28.5% in 2020.

Our recurring tax rate in the first quarter of 2020 may be lower than the remaining quarters as we anticipate receiving a tax benefit from the vesting of equity awards. We anticipate CapEx spending in 2020 will be approximately $12 million to $14 million or 1.7% to 2% of revenue.

In addition, we expect depreciation and amortization will be approximately $31 million to $32 million in 2020, which includes $0.3 million associated with the amortization of acquired backlog. That concludes my review of the financials, and I will now turn the call back over to the operator for our Q&A session.

Operator?.

[Operator Instructions]. Sir, for the first question, we have Chris Howe from Barrington..

First, I wanted to just touch on the cash flow generation characteristics that you showed in 2019 and your outlook for 2020 given the current macroeconomic backdrop that we're cautious on in 2020.

How does that affect your capital allocation, whether it be organically or inorganically as you look at the current state of the business?.

Well, I think it's -- for us, it's status quo in terms of capital allocation. We believe the issue here in China will be short-lived. So we're really not modifying our approach to capital allocation at this point in time..

Okay. And then as it relates to China and the coronavirus, the impact here in Q1.

Assuming the impact in Q1, how do we see a recapturing of the lost revenue or the delay in shipments? Will that all come back this year? Or should we wait until Q1 and the following year? Or how should I assess the recapture?.

I think, Chris, the issue, of course, is that most of China is shut down, including our customers. Now when they start back up and get to full capacity, there will be some increased demand that they'll try to supply, and we'll do the same. But right now, of course, we're paying all of our employees to stay home. Some of them came back this week.

But many of them are still home. You can't travel into the region if you were outside the region for the Chinese New Year holiday, they won't let you back in. So we're covering a lot of fixed cost that we won't be able to recover. We will be able to probably recover our production shortfall through overtime and added hours.

But it will -- I think the production will catch up, but we will be a little less efficient. We'll have higher production costs because of the downtime. So I think we'll see that, kind of, throughout the year. But assuming this thing is short-lived, I think by the latter half of the year, it should be behind us..

That's good to hear. And one last question, if I may. Just an update on where you are outside of China as far as facilities there. I'm assuming the virus hasn't yet flown to those facilities.

But where are we with that in terms of production?.

Yes. So no really -- Chris, no issues outside of China. Of course, we do use China as a supplier of components for some of the facilities. So there is a little bit of a ripple effect. But in terms of overall, the other facilities, of course, no issues.

Just hoping that the upset in the supply chain from the sister divisions out of China won't be too impactful..

I do think -- as you know, we've been building a lot of plants in Southeast Asia to supply fiber into China. And we currently have, I think, 11 of those operating and another 6 or 7 to be started up in the future. Those, of course, are not able to ship fiber into China right now because there's no transportation going in or out.

So certainly, in addition to China, Southeast Asia has been impacted by this quarantine and essentially the shutdown of the country..

For the next question, we have John Franzreb from Sidoti & Company..

A couple of questions. Just sticking with Southeast Asia, some of those new capital projects.

Have any of those been delayed because of what's going on in China, the timing of them starting up?.

Well, as you know, this has really hit just in the last 3 weeks. And so right now, it's a little hard to determine the length of delays. But certainly, we've been down for 3 weeks now. So there will be some -- if this was to clear up quickly, there would still be some minor delays with us being shut down.

The real question, I think, is how quickly our customers get up and running and need the fiber. That's the real issue and that -- as you can imagine, these very large companies are shut down completely. There's no trucking going in and out. They can't bring fiber in and they can't get product out. And so it's quite a challenge for them right now.

So there will be a delay. I think it's just -- right now, it's a little too early to know exactly the full delay and impact to that..

Got it. And the 11 facilities that are already up and were supplying prior to the shutdown, I know you kind of expressed that there was some logistics issues. Everyone has to be certain before they were more aggressive in the supply chain.

Can you kind of talk to how good the supply chain and logistics were prior to everything happening? Was everything, like, successful?.

Yes. I mean, I think -- you're exactly right. We've talked in the past about the logistics of getting this processed fiber to the mainland into the system before it starts to biodegrade. And they appear to be successful in doing that.

They're aggressively -- I looked this morning, they're aggressively buying fiber, having them shipped into Southeast Asia as we speak to try to make up for the shortfall that's occurring in Mainland China.

So I think there -- they seem to be quite successful in doing this, and I think they plan to continue to increase their operations capability and capacity there..

Great. Good news. And here in North America, can you kind of give us an update on your thoughts about the recycling market? With the lack of profitability right now, we're seeing closures.

What's the net effect? How do you kind of think about how 2020 plays out here in the States?.

So I think it's still a little bit of chaos, as you might imagine. But you're slowly starting to see the fiber go into other areas outside of China and be processed and then shipped into China. I tend to think of this as a closed box system. If you think of it globally, there's a certain amount of fiber that is needed in the world.

And so the fact that China has now put this import ban or this partial import ban in place, it's forcing the fiber and production capability to come up in other parts of the world. And that's kind of the period we're in right now. But at the end of the day, I think this thing will find an equilibrium.

As I said, there's a certain amount of -- I mean, the demand for packaging continues to grow globally so that fiber's got to be -- it has to be sourced somewhere. So I think it looks like Southeast Asia is going to be a major source. I think there's Chinese companies that are moving in the U.S. and buying up idle capacity here and bringing it online.

So that's continuing to progress, notwithstanding the kind of the last three weeks and the shock to the system that we're experiencing now that's continued to progress. I think from the United States recycling standpoint, the economics are changing. And so I think some of the waste will be worth more, for instance.

If you're thinking about OCC that's coming off of dedicated, say, fulfillment centers and warehouses that has no other contamination in it, we're seeing the price of that go up. Of course, the stuff that is mixed and is more difficult to meet the cleanliness standards, that product of course, that price is coming down.

And communities might have to pay more to have the recycling or receive less compensation for their waste material. And again, that's -- I would say we're in the middle of that getting sorted out. It will eventually find some equilibrium point where the economics work for both the communities and the collectors, but we're not quite there yet.

The alternative is you landfill it or you burn it. And neither of those are really great long-term alternatives because there is value in this fiber. And so I do think that it will eventually find its equilibrium point, we're just kind of still in the middle of the process..

Great. And one last question, if I may. Just on the gross margin outlook for the current year, 2020. What's the step-up that's driving it from the fourth quarter? It seems kind of sizable, especially given to an anticipated weak start.

What's the delta there?.

Well, really, John, the fourth quarter, as I mentioned, was weighed down by the mix of capital business. So I don't think I would use that as the marker. I kind of more revert to looking at where we landed for the year. And if you back out the inventory write-up from Material Handling acquisition, you come to 42.2%.

And we do anticipate that we're going to improve margins in 2020, I would say anywhere from, kind of -- I gave a range of the 42.5% to 43.5%. So if you go to the middle of that, we'll be up about 80 basis points from 2019..

And what's driving that 80 basis point?.

I think, better performance on the capital side of the business is the principal driver for that..

Next question is from Walter Liptak from Seaport..

I wanted to ask a couple of follow-ons on the China business.

I think you guys said in your press release that China is most of Asia, is that right? Or I guess, the question is, how big is China in terms of revenue?.

Walt, if you go to the earnings release, you'll see that Asia, for the year, came in at about $85 million of revenue. And the majority of that is China, I would say probably 90%-ish..

Okay.

And in your guidance for 2020, given the disruptions from coronavirus, are you expecting that Asia -- China will be flat, up, down? What are you expecting on them for 2020?.

Yes. We expect China will take another step down in 2020. That's -- we've got all our product lines there. The Stock-Prep product line is the biggest one, and that's where we're being most impacted. The Fluid-Handling and Doctor and Cleaning & Filtration product lines performance has actually been quite good.

But you can -- it's kind of 2/3, 1/3 of the business split there. So it's heavily weighted to the Stock-Prep side. And we do anticipate that, that will take a step down..

Okay. And if I can ask one about Material Handling.

Where do you expect to get the operating margins on that business? And thinking about the order trends, what are order trends looking like? And what are you expecting in 2020?.

Well, I'll comment on at least where they've been. Their bookings in '18 were a little under $85 million, $84.7 million in '18. And this year, they came in at $88.3 million. So we're up a little over 4% going '18 to '19. Conversely, on the revenue side, we had said that for full year '18, they had come in at $86 million.

You can see this year, they came in at $83.4 million, so down a little bit. But given the bookings performance in '18 and what we see in front of us, we anticipate that Material Handling will be up nicely in 2020..

Great, okay. Okay.

And then the margin expectations, where do you think you can get the margins on Material Handling?.

Well, right now, we're in the -- EBITDA margins are roughly 20%. And we, of course, would like to improve on that. But it will be -- it -- the 2020 improvement, I think, will -- that site is one of the sites that's in our 80/20 exercise for 2020. So we'll probably see improvement, but it might be 2021 before we see that.

And on the gross margin front wall, that is -- its product line that is in the low 30s. And I think that will continue to be the case..

[Operator Instructions]. For the next question, we have Kurt Yinger from D.A. Davidson..

I just wanted to start by digging into the revenue guide a bit with 2 things. First, does the outlook incorporate some level of FX headwind? And second, given the first quarter outlook, the assumption seems to be that you'll return to maybe low single-digit organic growth over the balance of the year.

I mean, does that assume a pickup in capital equipment bookings over the next couple of months? Or what kind of visibility do you have there?.

Well, Kurt, I would say on the FX front, 2020 is neutral at this point. So no meaningful FX impact in our guidance. And looking out across the segments, really, the guidance range of $690 million to $700 million. So if you went to the midpoint on that, say, in '19, we're at $705 million.

And the midpoint of our guidance range for 2020 is $695 million, so $10 million delta there. And really, there's 2 principal contributors to that. We do anticipate that the wood business will have lower revenues in 2020. The operating performance will still be fantastic.

But as -- if you've done a lot of research and listen to our calls, we had a significant amount of capital orders late '17 and throughout '18. And as a result, we were still shipping those in '19. So the comparison from '18 to '19 looks quite good.

But you can see, from the earnings release, that the bookings were down in aggregate in that segment, about $37 million. So that -- we're going to experience a decrease in revenue attributed to the lower bookings levels achieved in '19.

In addition to that, as you heard me mention, we do anticipate China will be a little bit softer principally to the -- on the Stock-Prep side. Other than that, though, as I said, the Material Handling, we expect a nice increase in revenues. If you look at paper, that would be neutral to down modestly, and the reason for that is China..

Got it. That's very helpful.

And just sticking with that paper business, I mean, could you maybe just give us a walk around the world, whether it's by geography or product line? And kind of where you're seeing optimism and maybe where you think might be a little bit weaker outside of China, of course?.

Yes, sure. So I'll start with North America, which we think is going to be somewhat flat with last year. That's kind of the forecast. I think they're projecting maybe 1% increase in packaging shipments this year, but essentially kind of flat to maybe slightly up. Europe had been quite strong.

If you looked at the bookings in the first half of last year, they were record levels. And then they dropped off a fair amount in the second half of the year. So -- but still at a -- we still have a reasonable business activity there, especially kind of what we call kind of new Europe, which is Eastern Europe, Russia, places like that.

So we think it's going to be okay. And then, of course, China has the big drop off. So that's really the issue, flat in North America, softening in Europe.

But really, the story is China, where we've had -- even before the virus, they were still sorting through this import ban that was being phased in, and then it's only been compounded by the virus, the uncertainty that's been..

Right. Okay. That makes sense. And then just circling back to the wood side. I mean, obviously, some capacity coming out here in North America, SPM lumber. But I'm curious whether you're seeing any benefit from some Canadian producers looking to add capacity in the U.S.

south, or whether that's just kind of offset by the strength we saw in 2017 and 2018, and it's not really showing through..

Well, so what happened, as you know in the upper Southwest, they had the -- all the challenges that we've discussed, the beetle infestation, the fires and then the high stumpage rate that the Canadian government sets. And so there was an awful lot of the Canadian companies that have moved into the south.

And many of our orders that we received in '18 were associated with that move. And so those are kind of coming online now and being kind of optimized. And so the actual operating rates of the mills is solid. Our aftermarket, our Parts & Consumables, tends to be a pretty solid indicator of the operating rates and how the things are going.

And our spare parts business actually is quite good in that business right now. It's been fairly solid, in particular, this year. So we think that the operating rates are solid. Prices have rebounded. Prices bottomed out in May of last year. The lumber composite hit about $300, and it's up in January to $450. So it's up about 50% on the lumber.

On the framing side, OSB is actually up, also not quite as much, but it's certainly up solidly. So we think that the general health of the business is not bad. You probably saw the housing starts were 1.6 million in December, which was very high, probably an anomaly. We've not seen the January numbers yet.

But most of the forecasts have housing being up again this year. The demand is quite high. It's really an issue of lot availability, availability of land and workers to build the homes. That's the problem. The demand is there. We're still underbuilding the gap between demand and supply continues to widen.

So we like the near and long-term market drivers for that particular business. But they had -- they went on such a buying spree of capital equipment in '17 and '18 that it just takes some time to get it installed and up and running and fully optimized. And that's really what we think we're experiencing right now..

Great. That's helpful color. And then just lastly on capital allocation. You've done a nice job deleveraging this year. It seems like 2020 should be another year of solid free cash generation.

Could you just talk about your priorities in terms of deploying capital in 2020? And in general, what you're seeing from kind of an acquisition perspective?.

Yes. So obviously, we take the allocation of our capital as priority #1 for us. And right now, we're principally focused on paying down the debt. That's the best use for it right now. That being said, at any given time, we're looking at -- we always have a funnel of acquisition opportunities that we're looking at.

And if we find the right opportunity that meets our criteria, we will not hesitate to deploy the capital to acquire somebody.

So I think those are our two principal focuses is paying down debt with all available cash and continuing to focus hard on acquisitions and hopefully, finding those that meet our criteria and that are a good strategic fit for the business. And if and when we do, we will absolutely use our cash flow to do that..

[Operator Instructions]. I am showing no further questions at this time. I would now like to turn the conference back to Mr. Jeffrey Powell, CEO and President..

Thank you, Operator. Before I let you go this morning, I thought I would just summarize what I think are the key takeaways. We had a strong financial and operating performance in 2019, with a number of financial records across a range of key financial metrics.

Cash flow from operations and free cash flow were records in both the fourth quarter and the full year. Revenue, bookings, adjusted EPS and adjusted EBITDA were also at all-time highs for the year. Organic growth in our Parts & Consumables business remains solid.

And finally, we start 2020 with some challenging times and increasing uncertainty, primarily related to coronavirus and the near-term impact that's going to have on our business in China. I want to thank you for joining us today, and we look forward to updating you next quarter..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect..