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Kadant Reports Fourth Quarter and Fiscal Year 2019 Results

Kadant Reports Fourth Quarter and Fiscal Year 2019 Results

Record Revenue, Bookings and Operating Cash Flows in FY 2019

WESTFORD, Mass., Feb. 12, 2020 (GLOBE NEWSWIRE) -- Kadant Inc. (KAI) reported its financial results for the fourth quarter and fiscal year ended December 28, 2019.

Fourth Quarter Financial Highlights

  • Revenue increased 11% to $183 million
  • GAAP diluted EPS decreased to $0.76 compared to $1.61 in 2018
  • Adjusted diluted EPS decreased 20% to $1.32
  • Net income decreased to $8.7 million compared to $18.4 million in 2018
  • Adjusted EBITDA increased 1% to $32 million
  • Bookings increased 9% to $160 million
  • Cash flows from operations were a record $39 million

Fiscal Year Financial Highlights

  • Revenue increased 11% to $705 million
  • GAAP diluted EPS decreased 14% to $4.54
  • Adjusted diluted EPS was $5.36
  • Net income decreased 14% to $52 million
  • Adjusted EBITDA increased 10% to $127 million
  • Bookings increased 3% to $688 million
  • Cash flows from operations increased 55% to a record $97 million
  • Free cash flow increased 88% to a record $87 million

Note: Adjusted diluted EPS, adjusted EBITDA, and free cash flow 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”. The term “organic” in this press release is a non-GAAP financial measure, which excludes the impact of an acquisition and the effect of foreign currency translation.

Management Commentary
“The fourth quarter was a solid finish to another record-setting year,” said Jeffrey L. Powell, president and chief executive officer. “Kadant’s full-year organic revenue increased for the third consecutive year and contributed to strong performance in a number of key financial metrics, including adjusted diluted EPS and adjusted EBITDA. We were particularly pleased with our record cash flows from operations for the year of $97 million, up 55 percent from 2018, and record free cash flows of $87 million, up 88 percent from 2018.

“A strong backlog entering 2019 and favorable market conditions during the first half of the year coupled with excellent operating execution led to our highest level of revenue and bookings despite the weakness in global demand that emerged in the second half of 2019.

“Parts and consumables revenue increased 18 percent to a record $441 million for the year and represented 63 percent of our total revenue compared to 59 percent in 2018. Parts and consumables demand was strong in the fourth quarter comprising 70 percent of our total fourth quarter bookings. For the full-year, parts and consumables bookings increased 17 percent compared to 2018.”

Fourth Quarter 2019 compared to 2018
Revenue increased 11 percent to $182.7 million compared to $163.9 million in 2018. Organic revenue was down one percent, which excludes a 14 percent increase from an acquisition and a two percent decrease from the unfavorable effect of foreign currency translation. Gross margin was 40.9 percent compared to 43.3 percent in 2018.

GAAP diluted EPS was $0.76 compared to $1.61 in 2018. Adjusted diluted EPS decreased 20 percent to $1.32 compared to $1.66 in 2018. Adjusted diluted EPS in 2019 excludes a $0.55 charge to terminate a defined benefit plan at one of our U.S. operations, a $0.17 impairment and restructuring charge, and a $0.16 discrete tax benefit. Adjusted diluted EPS in 2018 excludes a $0.14 discrete tax benefit, $0.10 of acquisition costs, and a $0.09 charge associated with the termination of defined benefit plans at one of our U.S. operations.

Adjusted EBITDA increased one percent to $32.2 million compared to $32.0 million in 2018. Cash flows from operations increased to a record $39.2 million compared to $10.4 million in 2018.

Bookings increased nine percent to $159.8 million compared to $147.1 million in 2018. Organic bookings were down six percent, which excludes a 16 percent increase from an acquisition and a one percent decrease from the unfavorable effect of foreign currency translation.

Fiscal Year 2019 compared to 2018
Revenue increased 11 percent to $704.6 million compared to $633.8 million in 2018. Organic revenue growth was one percent, which excludes a 13 percent increase from an acquisition and a three percent decrease from the unfavorable effect of foreign currency translation. Gross margin was 41.7 percent compared to 43.9 percent in 2018.

GAAP diluted EPS decreased 14 percent to $4.54 compared to $5.30 in 2018. Adjusted diluted EPS increased to $5.36 compared to $5.34 in 2018. Adjusted diluted EPS in 2019 excludes a $0.55 charge to terminate a defined benefit plan at one of our U.S. operations, $0.38 of acquisition-related costs, a $0.29 discrete tax benefit, and a $0.17 impairment and restructuring charge. Adjusted diluted EPS in 2018 excludes a $0.29 discrete tax benefit, $0.12 of acquisition-related costs, $0.11 of restructuring costs, and a $0.09 charge associated with the termination of defined benefit plans at one of our U.S. operations.

Adjusted EBITDA increased 10 percent to $127.1 million compared to $115.2 million in 2018. Cash flows from operations increased 55 percent to a record $97.4 million in 2019 compared to $63.0 million in 2018.

Bookings increased three percent to $688.3 million compared to $670.4 million in 2018. Organic bookings were down eight percent, which excludes a 13 percent increase from an acquisition and a two percent decrease from the unfavorable effect of foreign currency translation.

Summary and Outlook
“Overall, our healthy balance sheet and strong operating cash flows position us well for what looks to be a somewhat challenging environment for industrial markets in 2020,” Mr. Powell continued. “We expect to report full year GAAP diluted EPS of $4.98 to $5.08 in 2020 on revenue of $690 to $700 million. The 2020 guidance includes pre-tax amortization expense associated with acquired backlog of $0.4 million, or $0.02 per diluted share, and excluding this item, we expect adjusted diluted EPS of $5.00 to $5.10. For the first quarter of 2020, we expect GAAP diluted EPS of $0.80 to $1.08 on revenue of $153 to $163 million. The wide guidance range for the quarter is due to the uncertainty surrounding the impact of the coronavirus in China and the government-mandated business closures, which have impacted employees of our subsidiaries in China. Our subsidiaries received permission to re-open with significant restrictions earlier this week; however, if these restrictions are extended or if there is a broader impact on our customers or suppliers, such impact could affect the timing of shipments and our financial results in the first quarter of 2020.”

Conference Call
Kadant will hold a webcast with a slide presentation for investors on Thursday, February 13, 2020, at 11:00 a.m. eastern time to discuss its fourth quarter and full-year performance, as well as future expectations. To access the webcast, including the slideshow and accompanying audio, go to www.kadant.com and click on “Investors.” To listen to the webcast via teleconference, call 888-326-8410 within the U.S., or 704-385-4884 outside the U.S. and reference participant passcode 7473987. 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. A replay of the webcast will be available on our website through March 13, 2020.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the fourth quarter and fiscal year results on our 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 diluted earnings per share (EPS), adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA), adjusted EBITDA margin, and free cash flow. 

We believe that 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 to 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.

Revenue included $22.3 million from an acquisition and a $2.4 million unfavorable foreign currency translation effect in the fourth quarter of 2019. Revenue included $83.4 million from an acquisition and an $18.6 million unfavorable foreign currency translation effect in 2019. We present increases or decreases in revenue excluding the effect of acquisitions and foreign currency translation to provide investors insight into underlying revenue trends.                    

Adjusted operating income, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and adjusted diluted EPS exclude acquisition costs, impairment costs, restructuring costs, and amortization expense related to acquired profit in inventory and backlog. Adjusted net income and adjusted diluted EPS also exclude settlement and curtailment losses and discrete tax items. Free cash flow excludes capital expenditures from cash flow from operations. All 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.

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

  • Pre-tax impairment and restructuring cost of $2.5 million in 2019.
  • Pre-tax acquisition costs of $1.3 million in 2018.

Adjusted net income and adjusted diluted EPS exclude:

  • After-tax settlement loss of $6.4 million ($5.9 million pre-tax and tax expense of $0.5 million) in 2019 and an after-tax curtailment loss of $1.1 million ($1.4 million net of tax of $0.3 million) in 2018 associated with the termination of defined benefits plans at one of our U.S. operations.
  • After-tax impairment and restructuring cost of $1.9 million ($2.5 million net of tax of $0.6 million) in 2019.
  • After-tax acquisition costs of $1.1 million ($1.3 million net of tax of $0.2 million) in 2018.
  • A discrete tax benefit of $1.8 million in 2019 and $1.6 million in 2018.

Free cash flow excludes:

  • Capital expenditures of $3.7 million in both 2019 and 2018.

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

  • Pre-tax impairment and restructuring cost of $2.5 million in 2019.
  • Pre-tax restructuring cost of $1.7 million in 2018.
  • Pre-tax acquisition costs of $0.8 million in 2019 and $1.3 million in 2018.
  • Pre-tax expense related to acquired profit in inventory and backlog of $4.9 million in 2019 and $0.3 million in 2018.

Adjusted net income and adjusted diluted EPS exclude:

  • After-tax settlement loss of $6.4 million ($5.9 million pre-tax and tax expense of $0.5 million) in 2019 and an after-tax curtailment loss of $1.1 million ($1.4 million net of tax of $0.3 million) in 2018 associated with the termination of defined benefits plans at one of our U.S. operations.
  • After-tax impairment and restructuring costs of $1.9 million ($2.5 million net of tax of $0.6 million) in 2019.
  • After-tax restructuring cost of $1.3 million ($1.7 million net of tax of $0.4 million) in 2018.
  • After-tax acquisition costs of $0.7 million ($0.8 million net of tax of $0.1 million) in 2019 and $1.1 million ($1.3 million net of tax of $0.2 million) in 2018.
  • After-tax expense related to acquired profit in inventory and backlog of $3.7 million ($4.9 million net of tax of $1.2 million) and $0.2 million ($0.3 million net of tax of $0.1 million) in 2018.
  • A discrete tax benefit of $3.3 million in 2019 and $3.2 million in 2018.

Free cash flow excludes:

  • Capital expenditures of $10.0 million in 2019 and $16.6 million in 2018.

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


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  Financial Highlights (unaudited)                
  (In thousands, except per share amounts and percentages)                
                       
        Three Months Ended   Twelve Months Ended  
  Consolidated Statement of Income Dec. 28, 2019   Dec. 29, 2018   Dec. 28, 2019   Dec. 29, 2018  
                       
  Revenues $ 182,659     $ 163,935     $ 704,644     $ 633,786    
                       
  Costs and Operating Expenses:                
    Cost of revenues   108,032       92,990       410,884       355,505    
    Selling, general, and administrative expenses   47,642       43,618       192,525       177,414    
    Research and development expenses   2,904       2,503       10,884       10,552    
    Impairment and restructuring costs (c)   2,528       -       2,528       1,717    
        161,106       139,111       616,821       545,188    
                       
  Operating Income   21,553       24,824       87,823       88,598    
  Interest Income   55       44       213       379    
  Interest Expense   (2,612 )     (1,712 )     (12,755 )     (7,032 )  
  Other Expense, Net (b)   (6,063 )     (1,681 )     (6,359 )     (2,417 )  
                       
  Income Before Provision for Income Taxes   12,933       21,475       68,922       79,528    
  Provision for Income Taxes   4,048       2,907       16,358       18,482    
                       
  Net Income   8,885       18,568       52,564       61,046    
                       
  Net Income Attributable to Noncontrolling Interest   (136 )     (146 )     (496 )     (633 )  
                       
  Net Income Attributable to Kadant $ 8,749     $ 18,422     $ 52,068     $ 60,413    
                       
  Earnings per Share Attributable to Kadant:                
      Basic $ 0.77     $ 1.66     $ 4.63     $ 5.45    
                       
      Diluted $ 0.76     $ 1.61     $ 4.54     $ 5.30    
                       
  Weighted Average Shares:                
      Basic   11,344       11,107       11,235       11,086    
                       
      Diluted   11,525       11,436       11,457       11,400    
                       
        Three Months Ended   Three Months Ended  
  Adjusted Net Income and Adjusted Diluted EPS (a) Dec. 28, 2019   Dec. 28, 2019   Dec. 29, 2018   Dec. 29, 2018  
                       
  Net Income and Diluted EPS Attributable to Kadant, as Reported $ 8,749     $ 0.76     $ 18,422     $ 1.61    
  Adjustments for the Following:                
    Settlement and Curtailment Losses, Net of Tax (b)   6,352       0.55       1,078       0.09    
    Impairment and Restructuring Costs, Net of Tax (c)   1,905       0.17       -       -    
    Acquisition Costs, Net of Tax   -       -       1,096       0.10    
    Amortization of Acquired Backlog, Net of Tax (d)   15       -       -       -    
    Discrete Tax Items (e)   (1,839 )     (0.16 )     (1,577 )     (0.14 )  
                       
  Adjusted Net Income and Adjusted Diluted EPS (a) $ 15,182     $ 1.32     $ 19,019     $ 1.66    
                       
        Twelve Months Ended   Twelve Months Ended  
        Dec. 28, 2019   Dec. 28, 2019   Dec. 29, 2018   Dec. 29, 2018  
                       
  Net Income and Diluted EPS Attributable to Kadant, as Reported $ 52,068     $ 4.54     $ 60,413     $ 5.30    
  Adjustments for the Following:                
    Settlement and Curtailment Losses, Net of Tax (b)   6,352       0.55       1,078       0.09    
    Impairment and Restructuring Costs, Net of Tax (c)   1,905       0.17       1,308       0.11    
    Acquisition Costs, Net of Tax   699       0.06       1,096       0.10    
    Amortization of Acquired Profit in Inventory and Backlog, Net of Tax (d,i)   3,702       0.32       189       0.02    
    Discrete Tax Items (e)   (3,338 )     (0.29 )     (3,249 )     (0.29 )  
                       
  Adjusted Net Income and Adjusted Diluted EPS (a) $ 61,388     $ 5.36     $ 60,835     $ 5.34    
                       
                    Increase  
                    (Decrease)  
                    Excluding  
        Three Months Ended   Increase (Decrease)   Acquisition  
  Revenue by Segment Dec. 28, 2019   Dec. 29, 2018     and FX (a,f)  
                       
  Stock-Preparation $ 56,098     $ 57,091     $ (993 )   $ 9    
  Fluid-Handling   32,300       33,330       (1,030 )     (440 )  
  Doctoring, Cleaning, & Filtration   29,247       28,667       580       1,045    
                       
    Papermaking Systems   117,645       119,088       (1,443 )     614    
    Wood Processing Systems   38,538       42,031       (3,493 )     (3,210 )  
    Material Handling Systems   22,301       -       22,301       -    
    Fiber-Based Products   4,175       2,816       1,359       1,359    
                       
        $ 182,659     $ 163,935     $ 18,724     $ (1,237 )  
                       
                    Increase  
                    (Decrease)  
                    Excluding  
        Twelve Months Ended   Increase (Decrease)   Acquisition  
        Dec. 28, 2019   Dec. 29, 2018     and FX (a,f)  
                       
  Stock-Preparation $ 215,091     $ 221,933     $ (6,842 )   $ 341    
  Fluid-Handling   132,501       131,830       671       4,488    
  Doctoring, Cleaning, & Filtration   117,838       116,136       1,702       4,946    
                       
    Papermaking Systems   465,430       469,899       (4,469 )     9,775    
    Wood Processing Systems   143,187       151,366       (8,179 )     (3,816 )  
    Material Handling Systems   83,364       -       83,364       -    
    Fiber-Based Products   12,663       12,521       142       142    
                       
        $ 704,644     $ 633,786     $ 70,858     $ 6,101    
                       
                    Increase  
                    (Decrease)  
                    Excluding  
        Three Months Ended   Increase (Decrease)   Acquisition  
  Revenue by Geography (g) Dec. 28, 2019   Dec. 29, 2018     and FX (a,f)  
                       
  North America $ 95,368     $ 78,538     $ 16,830     $ (2,607 )  
  Europe   48,944       43,244       5,700       7,041    
  Asia   22,960       31,151       (8,191 )     (9,744 )  
  Rest of World   15,387       11,002       4,385       4,073    
                       
        $ 182,659     $ 163,935     $ 18,724     $ (1,237 )  
                       
                    Increase  
                    (Decrease)  
                    Excluding  
        Twelve Months Ended   Increase (Decrease)   Acquisition  
        Dec. 28, 2019   Dec. 29, 2018     and FX (a,f)  
                       
  North America $ 386,952     $ 305,618     $ 81,334     $ 8,086    
  Europe   180,888       174,681       6,207       15,686    
  Asia   84,705       109,688       (24,983 )     (25,414 )  
  Rest of World   52,099       43,799       8,300       7,743    
                       
        $ 704,644     $ 633,786     $ 70,858     $ 6,101    
                       
                    Increase  
                    (Decrease)  
                    Excluding  
        Three Months Ended   Increase (Decrease)   Acquisition  
  Bookings by Segment Dec. 28, 2019   Dec. 29, 2018     and FX (f)  
                       
  Stock-Preparation $ 43,934     $ 41,371     $ 2,563     $ 3,172    
  Fluid-Handling   28,339       30,867       (2,528 )     (1,970 )  
  Doctoring, Cleaning, & Filtration   28,635       32,938       (4,303 )     (3,926 )  
                       
    Papermaking Systems   100,908       105,176       (4,268 )     (2,724 )  
    Wood Processing Systems   30,923       38,971       (8,048 )     (7,789 )  
    Material Handling Systems   23,460       -       23,460       -    
    Fiber-Based Products   4,492       2,940       1,552       1,552    
                       
        $ 159,783     $ 147,087     $ 12,696     $ (8,961 )  
                       
                    Increase  
                    (Decrease)  
                    Excluding  
        Twelve Months Ended   Increase (Decrease)   Acquisition  
        Dec. 28, 2019   Dec. 29, 2018     and FX (f)  
                       
  Stock-Preparation $ 215,948     $ 228,444     $ (12,496 )   $ (4,947 )  
  Fluid-Handling   129,125       138,230       (9,105 )     (5,050 )  
  Doctoring, Cleaning, & Filtration   112,095       119,541       (7,446 )     (4,432 )  
                       
    Papermaking Systems   457,168       486,215       (29,047 )     (14,429 )  
    Wood Processing Systems   129,865       172,184       (42,319 )     (37,944 )  
    Material Handling Systems   88,123       -       88,123       -    
    Fiber-Based Products   13,129       12,028       1,101       1,101    
                       
        $ 688,285     $ 670,427