• Kadant Reports Second Quarter 2023 Results

    Source: Nasdaq GlobeNewswire / 01 Aug 2023 15:21:27   America/Chicago

    WESTFORD, Mass., Aug. 01, 2023 (GLOBE NEWSWIRE) -- Kadant Inc. (NYSE: KAI) reported its financial results for the second quarter ended July 1, 2023.

    Second Quarter Financial Highlights  

    • Revenue increased 11% to a record $245 million
    • Bookings decreased 19% to $215 million
    • Operating cash flow increased 20% to $22 million
    • Net income increased 14% to $30 million
    • GAAP EPS increased 13% to $2.54
    • Adjusted EPS increased 13% to a record $2.54
    • Adjusted EBITDA increased 12% to a record $52 million and represented 21.0% of revenue
    • Backlog was $363 million

    Note: Percent changes above are based on comparison to the prior year period. All references to EPS are to our EPS as calculated on a diluted basis. Adjusted EPS, adjusted EBITDA, adjusted EBITDA margin, and changes in organic revenue are non-GAAP financial measures that exclude certain items as detailed later in this press release under the heading “Use of Non-GAAP Financial Measures.”

    Management Commentary
    “We had another well-executed quarter with record revenue, record adjusted EBITDA, and record adjusted EPS,” said Jeffrey L. Powell, president and chief executive officer of Kadant Inc. “Record aftermarket revenue combined with strong capital business made for an excellent quarter.

    “Our operations teams around the globe continued to deliver exceptional value for our customers and executed well, as shown by our improved operating leverage. Despite the macroeconomic headwinds and general slowdown in industrial activity, we achieved excellent results in the second quarter.”

    Second Quarter 2023 Compared to 2022
    Revenue increased 11 percent to a record $245.1 million compared to $221.6 million in 2022. Organic revenue increased 12 percent, which excludes a one percent decrease from the unfavorable effect of foreign currency translation. Gross profit margin increased to 43.5 percent compared to 43.3 percent in 2022.

    GAAP and adjusted EPS both increased 13 percent to $2.54 in 2023 compared to $2.24 in 2022. Net income was $29.7 million in 2023, increasing 14 percent compared to $26.2 million in 2022. Adjusted EBITDA increased 12 percent to a record $51.6 million and represented 21.0 percent of revenue compared to $46.0 million and 20.7 percent in the prior year. Operating cash flow increased 20 percent to $22.5 million compared to $18.8 million in 2022.

    Bookings decreased 19 percent to $215.2 million compared to $265.9 million in 2022. Organic bookings decreased 18 percent, which excludes a one percent decrease from the unfavorable effect of foreign currency translation.

    Summary and Outlook
    “We expect industrial demand to continue at current levels and with our excellent start to the year and strong backlog, we are well positioned for record performance in 2023,” Mr. Powell continued. “We are raising our revenue and earnings guidance for the full year and now expect revenue of $925 to $940 million in 2023, revised from our previous guidance of $910 to $935 million, and GAAP EPS of $9.11 to $9.31, revised from our previous guidance of $8.82 to $9.07. The 2023 guidance includes pre-tax relocation costs of $0.6 million, or $0.04 per diluted share, related to the relocation of one of our Chinese facilities. Excluding this expense, we now expect adjusted EPS of $9.15 to $9.35 in 2023, revised from our previous guidance of $8.90 to $9.15. For the third quarter of 2023, we expect revenue of $229 to $236 million, GAAP EPS of $2.15 to $2.25 and, excluding $0.04 per diluted share of relocation costs, adjusted EPS of $2.19 to $2.29.”

    Conference Call
    Kadant will hold a webcast with a slide presentation for investors on Wednesday, August 2, 2023, at 11:00 a.m. eastern time to discuss its second quarter performance, as well as future expectations. To listen to the call live and view the webcast, go to the “Investors” section of the Company’s website at www.kadant.com. Participants interested in joining the call’s live question and answer session are required to register by clicking here or selecting the Q&A link on our website to receive a dial-in number and unique PIN. It is recommended that you join the call 10 minutes prior to the start of the event. A replay of the webcast presentation will be available on our website through September 1, 2023.

    Prior to the call, our earnings release and the slides used in the webcast presentation will be filed with the Securities and Exchange Commission and will be available at www.sec.gov. After the webcast, Kadant will post its updated general investor presentation incorporating the second quarter results on its website at www.kadant.com under the “Investors” section.

    Use of Non-GAAP Financial Measures
    In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including increases or decreases in revenue excluding the effect of acquisitions and foreign currency translation (organic revenue), adjusted operating income, adjusted net income, adjusted EPS, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin, and free cash flow.

    We use organic revenue to understand our trends and to forecast and evaluate our financial performance and compare revenue to prior periods. Organic revenue excludes revenue from acquisitions for the four quarterly reporting periods following the date of the acquisition and the effect of foreign currency translation. Revenue included an unfavorable foreign currency translation effect of $2.3 million in the second quarter of 2023 and $9.7 million in the first six months of 2023. Our other non-GAAP financial measures exclude impairment costs, acquisition costs, amortization expense related to acquired profit in inventory and backlog, and certain gains or losses, as indicated. Collectively, these items are excluded as they are not indicative of our core operating results and are not comparable to other periods, which have differing levels of incremental costs, expenditures or income, or none at all. Additionally, we use free cash flow in order to provide insight on our ability to generate cash for acquisitions and debt repayments, as well as for other investing and financing activities.

    We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our core business, operating results, or future outlook. We believe that the inclusion of such measures helps investors gain an understanding of our underlying operating performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making and for compensation purposes. We also believe this information is responsive to investors' requests and gives them an additional measure of our performance.

    The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for the results of operations prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.

    Second Quarter

    Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude:

    • Pre-tax indemnification asset reversal of $0.2 million in 2023.
    • Pre-tax relocation costs of $0.1 million in 2023.

    Adjusted net income and adjusted EPS exclude:

    • After-tax relocation costs of $0.1 million in 2023.

    Free cash flow is calculated as operating cash flow less:

    • Capital expenditures of $8.8 million in 2023 and $6.9 million in 2022.

    First Six Months

    Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude:

    • Pre-tax gain on the sale of a facility of $20.2 million in 2022.
    • Pre-tax acquisition costs of $0.1 million in 2022.
    • Pre-tax indemnification asset reversal of $0.2 million in 2023 and $0.6 million in 2022.
    • Pre-tax relocation costs of $0.1 million in 2023 and pre-tax impairment costs of $0.2 million in 2022.
    • Pre-tax expense related to amortization of acquired profit in inventory and backlog of $0.5 million in 2022.

    Adjusted net income and adjusted EPS exclude:

    • After-tax gain on the sale of a facility of $15.1 million ($20.2 million net of tax of $5.1 million) in 2022.
    • After-tax acquisition costs of $0.1 million in 2022.
    • After-tax relocation costs of $0.1 million in 2023 and after-tax impairment costs of $0.1 million ($0.2 million net of tax of $0.1 million) in 2022.
    • After-tax expense related to amortization of acquired profit in inventory and backlog of $0.4 million ($0.5 million net of tax of $0.1 million) in 2022.

    Free cash flow is calculated as operating cash flow less:

    • Capital expenditures of $13.2 million in 2023 and $9.8 million in 2022.

    Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in this press release.

    Financial Highlights (unaudited)        
    (In thousands, except per share amounts and percentages)  
               
        Three Months Ended Six Months Ended
    Consolidated Statement of Income July 1,
    2023    		 July 2,
    2022    		 July 1,
    2023    		 July 2,
    2022
    Revenue $245,053  $221,649  $474,811  $448,129 
    Costs and Operating Expenses:        
     Cost of revenue 138,503   125,611   266,215   253,880 
     Selling, general, and administrative expenses 59,990   55,319   118,552   114,487 
     Research and development expenses 3,408   3,251   6,778   6,329 
     Gain on sale and other costs, net (b) 74   —   74   (20,008)
        201,975   184,181   391,619   354,688 
    Operating Income  43,078   37,468   83,192   93,441 
    Interest Income  316   277   615   379 
    Interest Expense  (2,245)  (1,366)  (4,615)  (2,600)
    Other Expense, Net  (21)  (19)  (42)  (41)
    Income Before Provision for Income Taxes  41,128   36,360   79,150   91,179 
    Provision for Income Taxes  11,182   9,951   20,945   23,329 
    Net Income  29,946   26,409   58,205   67,850 
    Net Income Attributable to Noncontrolling Interest  (212)  (239)  (396)  (488)
    Net Income Attributable to Kadant $29,734  $26,170  $57,809  $67,362 
               
    Earnings per Share Attributable to Kadant:        
      Basic $2.54  $2.24  $4.94  $5.78 
      Diluted $2.54  $2.24  $4.94  $5.77 
               
    Weighted Average Shares:        
      Basic  11,704   11,660   11,693   11,645 
      Diluted  11,723   11,689   11,709   11,672 
               


        Three Months Ended Three Months Ended
    Adjusted Net Income and Adjusted Diluted EPS (a)July 1,
    2023    		 July 1,
    2023    		 July 2,
    2022    		 July 2,
    2022
    Net Income and Diluted EPS Attributable to Kadant, as Reported $29,734 $2.54 $26,170  $2.24 
    Adjustment for the Following, Net of Tax:        
     Other Costs  56  —  —   — 
    Adjusted Net Income and Adjusted Diluted EPS (a) $29,790 $2.54 $26,170  $2.24 
               
        Six Months Ended Six Months Ended
        July 1,
    2023    		 July 1,
    2023    		 July 2,
    2022    		 July 2,
    2022
    Net Income and Diluted EPS Attributable to Kadant, as Reported $57,809 $4.94 $67,362  $5.77 
    Adjustments for the Following, Net of Tax:        
     Gain on Sale (b)   —  —  (15,143)  (1.30)
     Acquisition Costs  —  —  59   0.01 
     Other Costs  56  —  135   0.01 
     Acquired Profit in Inventory and Backlog Amortization (c,d)  —  —  387   0.03 
    Adjusted Net Income and Adjusted Diluted EPS (a) $57,865 $4.94 $52,800  $4.52 


        Three Months Ended   Increase
    Excluding FX (a,e)
    Revenue by Segment  July 1,
    2023    		 July 2,
    2022    		 Increase 
    Flow Control $95,729  $85,220  $10,509  $10,756 
    Industrial Processing  89,967   84,402   5,565   7,888 
    Material Handling  59,357   52,027   7,330   7,092 
        $245,053  $221,649  $23,404  $25,736 
               
    Percentage of Parts and Consumables Revenue  62%  66%    
               
        Six Months Ended Increase (Decrease)
    		 Increase
    Excluding FX (a,e)
      July 1,
    2023    		 July 2,
    2022    		  
    Flow Control $185,250  $171,046  $14,204  $17,006 
    Industrial Processing  173,509   177,487   (3,978)  2,168 
    Material Handling  116,052   99,596   16,456   17,232 
        $474,811  $448,129  $26,682  $36,406 
               
    Percentage of Parts and Consumables Revenue  64%  65%    
               
        Three Months Ended Decrease
    		 Decrease Excluding FX (e)
    Bookings by Segment July 1,
    2023    		 July 2,
    2022    		  
    Flow Control $88,301  $97,347  $(9,046) $(9,019)
    Industrial Processing  79,291   109,883   (30,592)  (28,753)
    Material Handling  47,635   58,675   (11,040)  (11,261)
        $215,227  $265,905  $(50,678) $(49,033)
               
    Percentage of Parts and Consumables Bookings  69%  59%    
                 
        Six Months Ended Increase
    (Decrease)
    		 

    Increase (Decrease) Excluding FX (e)
      July 1,
    2023    		 July 2,
    2022    		  
    Flow Control $192,857  $197,458  $(4,601) $(1,463)
    Industrial Processing  175,565   216,227   (40,662)  (33,935)
    Material Handling  121,324   118,315   3,009   4,002 
        $489,746  $532,000  $(42,254) $(31,396)
               
    Percentage of Parts and Consumables Bookings  64%  59%    


        Three Months Ended Six Months Ended
    Business Segment Information July 1,
    2023    		 July 2,
    2022    		 July 1,
    2023    		 July 2,
    2022
    Gross Profit Margin:        
      Flow Control  51.4%  52.8%  52.3%  52.6%
      Industrial Processing  39.5%  38.4%  40.0%  38.5%
      Material Handling  36.8%  35.9%  36.4%  36.1%
      Consolidated  43.5%  43.3%  43.9%  43.3%
               
    Operating Income:        
      Flow Control $25,821  $22,707  $50,010  $44,432 
      Industrial Processing (b)  16,978   15,285   32,945   53,444 
      Material Handling  10,374   8,701   19,661   14,545 
      Corporate  (10,095)  (9,225)  (19,424)  (18,980)
        $43,078  $37,468  $83,192  $93,441 
               
    Adjusted Operating Income (a,f):        
      Flow Control $25,821  $22,707  $50,010  $44,276 
      Industrial Processing  17,052   15,285   33,019   34,011 
      Material Handling  10,551   8,701   19,838   15,262 
      Corporate  (10,095)  (9,225)  (19,424)  (18,980)
        $43,329  $37,468  $83,443  $74,569 
               
    Capital Expenditures:        
      Flow Control $1,290  $1,031  $2,694  $1,556 
      Industrial Processing (h)  6,129   5,073   8,708   7,025 
      Material Handling  1,358   843   1,820   1,227 
      Corporate  —   —   24   7 
        $8,777  $6,947  $13,246  $9,815 
               
        Three Months Ended Six Months Ended
    Cash Flow and Other Data July 1,
    2023    		 July 2,
    2022    		 July 1,
    2023    		 July 2,
    2022
    Operating Cash Flow $22,478  $18,797  $59,344  $42,565 
    Less: Capital Expenditures (h)  (8,777)  (6,947)  (13,246)  (9,815)
    Free Cash Flow (a) $13,701  $11,850  $46,098  $32,750 
               
    Depreciation and Amortization Expense $8,237  $8,486  $16,683  $17,931 
             


    Balance Sheet Data     July 1,
    2023    		 December 31,
    2022
    Assets        
    Cash, Cash Equivalents, and Restricted Cash     $70,195 $79,725
    Accounts Receivable, net      135,633  130,297
    Inventories      176,380  163,672
    Contract Assets      11,986  14,898
    Property, Plant, and Equipment, net      125,875  118,855
    Intangible Assets      167,327  175,645
    Goodwill      388,802  385,455
    Other Assets      85,224  81,334
            $1,161,422 $1,149,881
    Liabilities and Stockholders' Equity        
    Accounts Payable     $48,911 $58,060
    Debt Obligations      155,116  199,219
    Other Borrowings      1,757  1,942
    Other Liabilities      242,613  235,089
     Total Liabilities      448,397  494,310
     Stockholders' Equity      713,025  655,571
            $1,161,422 $1,149,881


      Three Months Ended Six Months Ended
    Adjusted Operating Income and Adjusted EBITDA Reconciliation (a)  July 1,
    2023    		 July 2,
    2022    		 July 1,
    2023    		 July 2,
    2022
    Consolidated        
      Net Income Attributable to Kadant $29,734  $26,170  $57,809  $67,362 
      Net Income Attributable to Noncontrolling Interest  212   239   396   488 
      Provision for Income Taxes  11,182   9,951   20,945   23,329 
      Interest Expense, Net  1,929   1,089   4,000   2,221 
      Other Expense, Net  21   19   42   41 
      Operating Income  43,078   37,468   83,192   93,441 
      Gain on Sale (b)  —   —   —   (20,190)
      Acquisition Costs  —   —   —   76 
      Indemnification Asset Reversals (g)  177   —   177   575 
      Other Costs  74   —   74   182 
      Acquired Backlog Amortization (c)  —   —   —   703 
      Acquired Profit in Inventory Amortization (d)  —   —   —   (218)
      Adjusted Operating Income (a)  43,329   37,468   83,443   74,569 
      Depreciation and Amortization  8,237   8,486   16,683   17,228 
      Adjusted EBITDA (a) $51,566  $45,954  $100,126  $91,797 
      Adjusted EBITDA Margin (a,i)  21.0%  20.7%  21.1%  20.5%
               
    Flow Control        
      Operating Income $25,821  $22,707  $50,010  $44,432 
      Acquisition Costs  —   —   —   62 
      Acquired Profit in Inventory Amortization (d)  —   —   —   (218)
      Adjusted Operating Income (a)  25,821   22,707   50,010   44,276 
      Depreciation and Amortization  2,229   2,297   4,508   4,644 
      Adjusted EBITDA (a) $28,050  $25,004  $54,518  $48,920 
      Adjusted EBITDA Margin (a,i)  29.3%  29.3%  29.4%  28.6%
               
    Industrial Processing        
      Operating Income $16,978  $15,285  $32,945  $53,444 
      Gain on Sale (b)  —   —   —   (20,190)
      Indemnification Asset Reversal (g)  —   —   —   575 
      Other Costs  74   —   74   182 
      Adjusted Operating Income (a)  17,052   15,285   33,019   34,011 
      Depreciation and Amortization  2,945   3,080   5,917   6,354 
      Adjusted EBITDA (a) $19,997  $18,365  $38,936  $40,365 
      Adjusted EBITDA Margin (a,i)  22.2%  21.8%  22.4%  22.7%
               
    Material Handling        
      Operating Income $10,374  $8,701  $19,661  $14,545 
      Acquisition Costs  —   —   —   14 
      Indemnification Asset Reversal (g)  177   —   177   — 
      Acquired Backlog Amortization (c)  —   —   —   703 
      Adjusted Operating Income (a)  10,551   8,701   19,838   15,262 
      Depreciation and Amortization  3,044   3,083   6,220   6,179 
      Adjusted EBITDA (a) $13,595  $11,784  $26,058  $21,441 
      Adjusted EBITDA Margin (a,i)  22.9%  22.6%  22.5%  21.5%
               
    Corporate        
      Operating Loss $(10,095) $(9,225) $(19,424) $(18,980)
      Depreciation and Amortization  19   26   38   51 
      EBITDA (a) $(10,076) $(9,199) $(19,386) $(18,929)
               
    (a)Represents a non-GAAP financial measure.
               
    (b)Includes a $20.2 million pre-tax gain on the sale of a manufacturing facility in China in the six months ended July 2, 2022 in our Industrial Processing segment pursuant to a relocation plan.
               
    (c)Represents intangible amortization expense associated with acquired backlog.
               
    (d)Represents income within cost of revenue associated with amortization of acquired profit in inventory.
               
    (e)Represents the increase (decrease) resulting from the conversion of current period amounts reported in local currencies into U.S. dollars at the exchange rate of the prior period compared to the U.S. dollar amount reported in the prior period.
               
    (f)See reconciliation to the most directly comparable GAAP financial measure under "Adjusted Operating Income and Adjusted EBITDA Reconciliation."
      
    (g)Represents indemnification asset reversals related to the release of tax reserves associated with uncertain tax positions.
               
    (h)Includes $3.1 million and $3.3 million in the three and six months ended July 1, 2023, respectively, and $3.1 million and $3.2 million in the three and six months ended July 2, 2022, respectively, related to the construction of a new manufacturing facility in China.
               
    (i)Calculated as adjusted EBITDA divided by revenue in each period.
               

    About Kadant
    Kadant Inc. is a global supplier of technologies and engineered systems that drive Sustainable Industrial Processing. The Company’s products and services play an integral role in enhancing efficiency, optimizing energy utilization, and maximizing productivity in process industries. Kadant is based in Westford, Massachusetts, with approximately 3,100 employees in 20 countries worldwide. For more information, visit www.kadant.com. 

    Safe Harbor Statement
    The following constitutes a “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements that involve a number of risks and uncertainties, including forward-looking statements about our future financial and operating performance, demand for our products, and economic and industry outlook. These forward-looking statements represent our expectations as of the date of this press release. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. 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 set forth under the heading "Risk Factors" in Kadant’s annual report on Form 10-K for the fiscal year ended December 31, 2022 and subsequent filings with the Securities and Exchange Commission. These include risks and uncertainties relating to adverse changes in global and local economic conditions; the variability and difficulty in accurately predicting revenues from large capital equipment and systems projects; health epidemics and pandemics; our acquisition strategy; levels of residential construction activity; reductions by our wood processing customers of their capital spending or production of oriented strand board; changes to the global timber supply; development and use of digital media; cyclical economic conditions affecting the global mining industry; demand for coal, including economic and environmental risks associated with coal; failure of our information systems or breaches of data security and cybertheft; implementation of our internal growth strategy; supply chain constraints, inflationary pressure, price increases and shortages in raw materials; competition; changes in our tax provision or exposure to additional tax liabilities; our ability to successfully manage our manufacturing operations; disruption in production; future restructurings; loss of key personnel and effective succession planning; protection of intellectual property; climate change; adequacy of our insurance coverage; global operations; policies of the Chinese government; the variability and uncertainties in sales of capital equipment in China; currency fluctuations; changes to government regulations and policies around the world; compliance with government regulations and policies and compliance with laws; environmental laws and regulations; environmental, health and safety laws and regulations impacting the mining industry; our debt obligations; restrictions in our credit agreement and note purchase agreement; soundness of financial institutions; fluctuations in our share price; and anti-takeover provisions.

    Contacts
    Investor Contact Information:
    Michael McKenney, 978-776-2000
    IR@kadant.com 
    or
    Media Contact Information:
    Wes Martz, 269-278-1715
    media@kadant.com 


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