Good day, ladies and gentlemen, and welcome to the Q3 2012 Kadant Inc. Earnings Conference Call. My name is Sue and I am your Event Manager. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Thomas O’Brien, CFO. Please proceed, sir.

Thank you, operator, and good morning, everyone and welcome to Kadant’s third quarter 2012 earnings call. With me on the call today is Jon Painter, our President and Chief Executive Officer. Let me begin by encouraging all participants in our business review today to participate via our webcast. You may access the live webcast by going to www.kadant.com, select the Investors tab, and then select the listen live option for the webcast. To participate in the question-and-answer session at the end of our prepared remarks, you will need to dial in to the teleconference. The dial-in number is available in our press release issued yesterday. It will also be shown at the end of our presentation. Let me now remind everyone of our Safe Harbor statement. Various remarks that we may make today about Kadant’s future expectations, plans, and prospects 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 report on Form 10-Q for the fiscal quarter ended June 30, 2012. Our Form 10-Q is on file with the SEC. It 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 third quarter earnings press release issued yesterday, which is available in the Investors section of our website at www.kadant.com under the heading Investor News. So with that, I will turn the call over to Jon Painter, who will give you an update on Kadant’s business and future prospects. Following Jon’s remarks, I will give an overview of our financial results for the quarter and we will then have a Q&A session. Jon?

Thanks, Tom. Hello, everyone. It’s my pleasure to brief you on our third quarter results from a weather weary East Coast. Overall, we had an outstanding quarter highlighted by record adjusted diluted earnings per share and particularly proud of our results as they were accomplished in an increasingly challenging macro environment. I’ll begin my remarks with an overview of our financial performance in Q3. We finished the third quarter with revenues of $87 million, up 3% compared to the same period last year, despite a 4% unfavorable FX impact. Our gross margins were 43% in the quarter and demonstrate the sustainability of the productivity and efficiency gains that we’ve implemented. Most importantly, we generated adjusted diluted earnings per share of $0.66 in the third quarter, which was a 40% increase from Q3 of last year and the highest adjusted quarterly earnings per share in our history. Our EPS performance benefited from higher than expected revenues as well as a lower than expected tax rate, which Tom will discuss in his remarks. Our adjusted EBITDA for the third quarter was $12.1 million or 14% of revenue. Finally, our cash flow for operations was quite good at $13 million and our cash less net debt at the end of the quarter was $42 million. In summary, I think it’s fair to say that our operations are executing extremely well. Beginning this quarter, we’ve combined our Doctoring, Water Management and Other product lines into a single product line for financial report and purposes, and we now refer to these products under the catchy name of Doctoring, Cleaning, and Filtration product line. I think it’s a sensible way to look at our revenue as these products typically operate as a single business. Taking a look at our revenue performance by product line on slide…

Thank you, Jon. I’ll start with a review of our gross margin performance. Consolidated product gross margins were 43.4% in the third quarter of 2012 up 70 basis points compared to 42.7% in the third quarter of 2011. Margins were notably stronger than last year in the Stock Prep product line largely due to better margins of several large systems projects in both North America and China. Product mix had a small unfavorable effect on consolidated gross margins in the third quarter of 2012 compared to the third quarter of 2011. On that point although capital gross margins were markedly higher than the last years’ third quarter, they represented a higher proportion of revenues and therefore have the affect of decreasing the consolidated gross margin results. Looking ahead, we expect the consolidated gross margins will be approximately 44% for the full year 2012 or slightly higher than last year. Now let’s turn to slide 18, and our SG&A expenses. SG&A expenses were $26.2 million in the third quarter of 2012, essentially the same as last years’ $26.1 million and included a favorable affect of $1 million or 4% from foreign exchange. As you can see on the chart, SG&A expenses have been relatively flat for the past several quarters. Operating leverage improved, with SG&A expenses as a percentage of revenues declining from 30.9% a year ago to 30.2% in the third quarter of 2012. Looking forward, we continue to expect that SG&A expenses will be approximately 31% of revenues for the full year 2012. Let me turn to our EPS results for the quarter on slide 19. Diluted EPS from continuing operations was $0.66 in the third quarter of 2012, and was a record high when compared to prior quarters on an adjusted basis. As we analyze EPS, let’s start…

[Operator Instructions] Your first question comes from the line of Joe Bess, ROTH Capital.

Jon, I was curious, could you talk a little bit about maybe - talk about what sort of end markets you’re seeing strengthen in right now when you look at it versus last year, is it then paper or tissue versus containerboard or have you seen any sort of trends with end markets?

Yes, I would say, overall, and this quarter being no exception, the stronger quarters are containerboard and tissue, and the weaker quarters are printing and writing and newsprint. So that is the structural trend that will continue for the next several years. There may be little blips up and down, but more or less you’ve got good stability in containerboard and tissue, and some structural weakness in printing and writing and newsprint, due to the digital iPads that kind of stuff.

And then, can you give us an update on what you guys are seeing in the M&A pipeline, is there any opportunity there for you guys at this point?

We continue to actively look. I would say we’re -as I think I might have mentioned in one of the earlier calls, we’re probably focusing more on product line extension tuck-in type acquisitions as opposed to larger ones, but we’re seeing some stuff that could be interesting.

And your next call comes from the line of Walter Liptak, Barrington Research.

I wanted to ask about, a little bit more color on the trend in China because we did see a pick up there, but that runs a little counter to, I think, some of the things that we’ve been seeing. Is it - do you think it’ll sustain - you mentioned a few things about maybe some projects and some expansion that could happen. What do you think needs to be happen for those - those projects to get led?

Well, I mean, the - yes, if you look at - maybe put up slide 13, can we, if you look at China, yes, it started quite weak in the year and it strengthened every quarter this year. That said, one thing I know about China is it won’t be a nice neat stair step in any particular direction. It’s got more volatility. We’re - I would say most of the activity we’re seeing is in linerboard and it’s - it does run a little counter to the overcapacity that they have. I think that it will probably take them a period of time to absorb that completely, and then we’ll probably see a stronger set of bookings, but for right now it’s nice to see them sort of steadily strengthening I guess.

Okay. And are you thinking that we’ll continue to see the stair step up through the end of this year or is it in 2013, where we get that to improve?

I just - if you look at the history, it doesn’t have anything that’s neat stair step style. It will be - there will be some volatility. So I - just because you see a trend of three quarters, I wouldn’t necessarily assume the fourth quarter will be stronger per se, but I would say - I tend to look over a longer period of time that economy is growing, they’re going to absorb that capacity and they’re going to need more. So whether it happens next quarter or the quarter after or mid-2013, I don’t know exactly, but as far as our plans, we can - we know that economy continues to have some big structural advantages and should sort of steadily grow at that 6% to 8% rate over time.

Okay. Okay good. And if I could switch over to North America, I wondered, if you could talk about the mix here, is it more aftermarket? And I think you mentioned less in capital projects, and one thought that that we had was with natural gas prices being down, does that impact some of the energy efficiency spending?

Okay. Sure. So if you could have slide 11 up there, so you can see kind of on that slide is actually opposite of China, and I would say as an overall observation if comparing now to the beginning of the year, you have China strengthening from a very weak start and the U.S. weakening somewhat from a very strong start in Q1. I would say that there is a couple of factors going on in that. One is this that I would say there is general, somewhat slower project activity from again a very strong Q1. The other thing, particularly when you look at the change from really from Q1 to Q2 to Q3, the Parts business in North America is a big factor there. We said before that Q1 tends to be our strongest quarter for Parts, because people are - and Q2 the second and Q3 the worst, and that has a little bit to do with the seasonal nature of vacations and stuff like that in North America and Europe as well as customers buy parts for the shutdowns that come in the summer and the spring. So if you look the drop from Q2 to Q3 was about $4.3 million. Of that about $2.6 million was Parts, so Parts is more than half of the drop. And frankly our granules business, our fiber-based product business, which is very seasonal that’s tied to the agricultural cycle, that was a $1.5 million of that $2.5 million drop. So I would say that there is a big aspect of seasonality in the Parts decline in Q2 to Q3 and that’s the bulk of the sequential drop. That said, I would say, it’s not as strong - the U.S. is not as strong as it was in the beginning of the year.

Okay. But it sounds like there is nothing structural - structurally wrong, just concern over the general macro, the fiscal cliff...

Yes.

And maybe some of these things starting to turn and getting a good bookings period in the first quarter next year?

Yes. If I was to speculate a little bit, I would say the Parts business will resume its seasonal nature and will be fine. And the capital business, you never know what’s going on with projects, but when people hear about fiscal cliffs and elections and all that kind of stuff, change in tax laws, it tends to affect capital much more than it does Parts and it tends to affect big capital projects types even more.

Thank you. You have no questions at this time. [Operator Instructions] If there are no further questions waiting. I would now like to turn the call over to Jon Painter for closing remarks.

Okay. Thank you, operator. Let me conclude with just what I view as a couple of key takeaways for the quarter. First, we had an excellent quarter and achieved record adjusted earnings per share. We certainly don’t want to forget that. Secondly, well some of Walt’s question kind of highlighted, there is some uncertainty in the global economy and that’s definitely had impacted our Q3 bookings, but I would say that the timing of capital orders also played a role. And finally, we are raising our full year guidance, and we now project to beat last year’s record diluted earnings per share. I look forward to updating you on our fourth quarter and full year results on our next call. Thank you very much for listening. Bye-bye.

Thank you. Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.