Kadant Reports Second Quarter 2023 Results

Kadant Inc

Reports Record Revenue and Raises Earnings Guidance

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