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Kadant Reports Third Quarter 2021 Results and Record Bookings

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  • KAI

WESTFORD, Mass., Nov. 02, 2021 (GLOBE NEWSWIRE) -- Kadant Inc. (NYSE: KAI) reported its financial results for the third quarter ended October 2, 2021.

Third Quarter Financial Highlights

  • Bookings increased 71% to a record $245 million.

  • Revenue increased 29% to a record $200 million.

  • Operating cash flow increased 56% to $38 million.

  • Free cash flow increased 53% to $35 million.

  • Net income increased 38% to $20 million.

  • GAAP diluted EPS increased 37% to $1.75.

  • Adjusted diluted EPS increased 50% to $1.97.

  • Adjusted EBITDA increased 36% to $41 million and represented 20.5% of revenue.

  • Backlog was a record $299 million.

Note: Percent changes above are based on comparison to the prior year period. Free cash flow, adjusted diluted 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
“Record revenue combined with excellent execution by our operations teams led to another quarter of strong performance,” said Jeffrey L. Powell, president and chief executive officer of Kadant Inc. “End-market demand was exceptional in the third quarter with record parts demand and robust capital order activity, particularly in our Industrial Processing segment. These results contributed to solid margin performance and improved operating leverage across all our segments.

“Despite an increasingly challenging operating environment resulting from supply chain constraints and inflationary pressures, our global workforce performed extremely well in fulfilling our customer commitments and delivering value. Our end markets continue to show signs of strength as we enter the final quarter of the year and we are well positioned for a strong finish to 2021.”

Third Quarter 2021 compared to 2020
Revenue increased 29 percent to a record $199.8 million compared to $154.6 million in 2020. Organic revenue increased 18 percent, which excludes an eight percent increase from acquisitions and a three percent increase from the favorable effect of foreign currency translation. Gross margin was 41.9 percent, which included a negative 110 basis point impact from the amortization of acquired profit in inventory, compared to 44.2 percent in 2020, which included a positive 110 basis point impact from the receipt of government assistance benefits related to the pandemic.

GAAP diluted earnings per share (EPS) increased 37 percent to a $1.75 compared to $1.28 in 2020. Adjusted diluted EPS increased 50 percent to $1.97 compared to $1.31 in 2020. Adjusted diluted EPS excludes $0.17 of amortization expense from acquired profit in inventory and backlog and $0.05 of acquisition costs in 2021 and $0.03 of restructuring costs, $0.03 of acquisition-related costs, and a $0.03 discrete tax benefit in 2020. Net income increased 38 percent to $20.5 million compared to $14.9 million in 2020. Adjusted EBITDA increased 36 percent to $40.9 million and 20.5 percent of revenue compared to $30.0 million and 19.4 percent of revenue in the prior year quarter. Operating cash flow increased 56 percent to $37.9 million compared to $24.4 million in 2020.

Bookings increased 71 percent to a record $244.7 million compared to $143.3 million in 2020. Organic bookings increased 57 percent, which excludes a ten percent increase from acquisitions and a four percent increase from the favorable effect of foreign currency translation.

Summary and Outlook
“The strong momentum built up during the first three quarters of 2021 has led to record backlog, and we expect a solid finish to the year," Mr. Powell continued. “While we continue to see strong demand for our products, supply chain constraints, delays in shipments, and the timing of capital orders are moderating our outlook for the fourth quarter. As a result, we are decreasing our revenue expectation to $778 to $783 million for 2021 from our previous range of $783 to $793 million.”

Conference Call
Kadant will hold a webcast with a slide presentation for investors on Wednesday, November 3, 2021, at 11:00 a.m. eastern time to discuss its third quarter 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 +1-704-385-4884 outside the U.S. and reference participant passcode 9476904. 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. An archive of the webcast presentation will be available on our website until December 3, 2021.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the third 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 diluted EPS, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin, and free cash flow.

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.

Revenue in the third quarter of 2021 included $12.8 million from acquisitions and a $4.6 million favorable foreign currency translation effect. Revenue in the first nine months of 2021 included a $22.2 million favorable foreign currency translation effect and $13.3 million from acquisitions. We present increases or decreases in organic revenue, which excludes the effect of acquisitions and foreign currency translation, to provide investors insight into underlying revenue trends.

Our non-GAAP financial measures exclude restructuring costs, acquisition costs, amortization expense related to acquired profit in inventory and backlog, and discrete tax items. 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 or income, or none at all. Free cash flow presents cash flow from operations excluding capital expenditures.

Third Quarter

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

  • Pre-tax expense related to amortization of acquired profit in inventory of $2.2 million in 2021.

  • Pre-tax acquisition costs of $0.7 million in 2021 and $0.1 million in 2020.

  • Pre-tax expense related to amortization of acquired backlog of $0.6 million in 2021 and $0.3 million in 2020.

  • Pre-tax restructuring costs of $0.5 million in 2020.

Adjusted net income and adjusted diluted EPS exclude:

  • After-tax expense related to amortization of acquired profit in inventory of $1.5 million ($2.2 million net of tax of $0.7 million) in 2021.

  • After-tax acquisition costs of $0.6 million in 2021 ($0.7 million net of tax of $0.1 million) in 2021 and $0.1 million in 2020.

  • After-tax expense related to amortization of acquired backlog of $0.4 million ($0.6 million net of tax of $0.2 million) in 2021 and $0.2 million ($0.3 million net of tax of $0.1 million) in 2020.

  • After-tax restructuring costs of $0.3 million ($0.5 million net of tax of $0.2 million) in 2020.

  • A discrete tax benefit of $0.3 million in 2020.

Free cash flow is calculated as cash flow from operations less:

  • Capital expenditures of $3.4 million in 2021 and $1.8 million in 2020.

First Nine Months

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

  • Pre-tax acquisition costs of $2.6 million in 2021 and $0.5 million in 2020.

  • Pre-tax expense related to acquired profit in inventory of $2.2 million in 2021.

  • Pre-tax expense related to amortization of acquired backlog of $0.7 million in 2021 and $0.4 million in 2020.

  • Pre-tax restructuring costs of $0.9 million in 2020.

Adjusted net income and adjusted diluted EPS exclude:

  • After-tax acquisition costs of $2.3 million ($2.6 million net of tax of $0.3 million) in 2021 and $0.4 million ($0.5 million net of tax of $0.1 million) in 2020.

  • After-tax expense related to acquired profit in inventory of $1.5 million ($2.2 million net of tax of $0.7 million) in 2021.

  • After-tax expense related to acquired backlog of $0.5 million ($0.7 million net of tax of $0.2 million) in 2021 and $0.3 million ($0.4 million net of tax of $0.1 million) in 2020.

  • After-tax restructuring costs of $0.7 million ($0.9 million net of tax of $0.2 million) in 2020.

  • A discrete tax benefit of $0.3 million in 2020.

Free cash flow is calculated as cash flow from operations less:

  • Capital expenditures of $7.7 million in 2021 and $5.4 million in 2020.

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

Nine Months Ended

Consolidated Statement of Income

October 2,
2021

September 26,
2020

October 2,
2021

September 26,
2020

Revenue

$

199,789

$

154,610

$

568,063

$

466,597

Costs and Operating Expenses:

Cost of revenue

116,096

86,294

323,337

263,510

Selling, general, and administrative expenses

52,316

43,853

151,014

134,518

Research and development expenses

2,649

2,658

8,547

8,532

Restructuring costs

470

926

171,061

133,275

482,898

407,486

Operating Income

28,728

21,335

85,165

59,111

Interest Income

55

52

176

140

Interest Expense

(1,320

)

(1,670

)

(3,497

)

(6,060

)

Other Expense, Net

(23

)

(32

)

(71

)

(95

)

Income Before Provision for Income Taxes

27,440

19,685

81,773

53,096

Provision for Income Taxes

6,742

4,705

21,252

13,738

Net Income

20,698

14,980

60,521

39,358

Net Income Attributable to Noncontrolling Interest

(237

)

(129

)

(635

)

(369

)

Net Income Attributable to Kadant

$

20,461

$

14,851

$

59,886

$

38,989

Earnings per Share Attributable to Kadant:

Basic

$

1.77

$

1.29

$

5.18

$

3.40

Diluted

$

1.75

$

1.28

$

5.14

$

3.38

Weighted Average Shares:

Basic

11,580

11,504

11,571

11,472

Diluted

11,668

11,589

11,644

11,550


Three Months Ended

Three Months Ended

Adjusted Net Income and Adjusted Diluted EPS (a)

October 2,
2021

October 2,
2021

September 26,
2020

September 26,
2020

Net Income and Diluted EPS Attributable to Kadant, as Reported

$

20,461

$

1.75

$

14,851

$

1.28

Adjustments for the Following:

Restructuring Costs, Net of Tax

335

0.03

Acquisition Costs, Net of Tax (b)

595

0.05

58

0.01

Acquired Backlog Amortization, Net of Tax (c)

429

0.04

249

0.02

Acquired Profit in Inventory, Net of Tax (d)

1,549

0.13

Discrete Tax Items

(338

)

(0.03

)

Adjusted Net Income and Adjusted Diluted EPS (a)

$

23,034

$

1.97

$

15,155

$

1.31


Nine Months Ended

Nine Months Ended

October 2,
2021

October 2,
2021

September 26,
2020

September 26,
2020

Net Income and Diluted EPS Attributable to Kadant, as Reported

$

59,886

$

5.14

$

38,989

$

3.38

Adjustments for the Following:

Restructuring Costs, Net of Tax

667

0.06

Acquisition Costs, Net of Tax (b)

2,325

0.20

355

0.03

Acquired Backlog Amortization, Net of Tax (c)

494

0.04

275

0.02

Acquired Profit in Inventory, Net of Tax (d)

1,549

0.13

Discrete Tax Items

(338

)

(0.03

)

Adjusted Net Income and Adjusted Diluted EPS (a)

$

64,254

$

5.52

$

39,948

$

3.46






Three Months Ended

Increase
Excluding
Acquisitions
and FX (a,e)

Revenue by Segment

October 2,
2021

September 26,
2020

Increase

Flow Control

$

76,253

$

56,815

$

19,438

$

8,193

Industrial Processing

81,620

62,086

19,534

16,687

Material Handling

41,916

35,709

6,207

2,943

$

199,789

$

154,610

$

45,179

$

27,823

Percentage of Parts and Consumables Revenue

66

%

66

%

Nine Months Ended

Increase

Increase
Excluding
Acquisitions
and FX (a,e)

October 2,
2021

September 26,
2020

Flow Control

$

210,769

$

165,329

$

45,440

$

28,778

Industrial Processing

233,455

192,468

40,987

28,391

Material Handling

123,839

108,800

15,039

8,846

$

568,063

$

466,597

$

101,466

$

66,015

Percentage of Parts and Consumables Revenue

66

%

65

%

Three Months Ended

Increase

Increase
Excluding
Acquisitions
and FX (e)

Bookings by Segment

October 2,
2021

September 26,
2020

Flow Control

$

76,661

$

49,608

$

27,053

$

15,721

Industrial Processing

118,896

59,903

58,993

55,681

Material Handling

49,137

33,838

15,299

9,793

$

244,694

$

143,349

$

101,345

$

81,195

Percentage of Parts and Consumables Bookings

53

%

67

%

Nine Months Ended

Increase

Increase
Excluding
Acquisitions
and FX (e)

October 2,
2021

September 26,
2020

Flow Control

$

224,479

$

166,713

$

57,766

$

40,454

Industrial Processing

307,401

178,885

128,516

112,345

Material Handling

130,468

106,344

24,124

15,361

$

662,348

$

451,942

$

210,406

$

168,160

Percentage of Parts and Consumables Bookings

59

%

67

%


Three Months Ended

Nine Months Ended

Business Segment Information

October 2,
2021

September 26,
2020

October 2,
2021

September 26,
2020

Gross Margin:

Flow Control

49.7

%

52.9

%

51.8

%

53.1

%

Industrial Processing

39.7

%

43.7

%

40.1

%

41.0

%

Material Handling

31.9

%

31.1

%

33.8

%

33.5

%

41.9

%

44.2

%

43.1

%

43.5

%



Operating Income:

Flow Control

$

17,129

$

13,770

$

51,899

$

37,360

Industrial Processing

16,095

12,072

44,449

32,147

Material Handling

3,491

2,614

12,941

10,341

Corporate

(7,987

)

(7,121

)

(24,124

)

(20,737

)

$

28,728

$

21,335

$

85,165

$

59,111

Adjusted Operating Income (a,f):

Flow Control

$

19,835

$

14,035

$

55,841

$

38,081

Industrial Processing

16,128

12,438

44,622

32,948

Material Handling

4,290

2,862

14,352

10,597

Corporate

(7,987

)

(7,121

)

(24,124

)

(20,737

)

$

32,266

$

22,214

$

90,691

$

60,889

Capital Expenditures:

Flow Control

$

1,128

$

509

$

1,830

$

1,667

Industrial Processing

1,725

785

4,720

2,460

Material Handling

505

486

1,121

1,167

Corporate

12

42

17

125

$

3,370

$

1,822

$

7,688

$

5,419

Three Months Ended

Nine Months Ended

Cash Flow and Other Data

October 2,
2021

September 26,
2020

October 2,
2021

September 26,
2020

Operating Cash Flow

$

37,932

$

24,393

$

101,410

$

52,601

Less: Capital Expenditures

(3,370

)

(1,822

)

(7,688

)

(5,419

)

Free Cash Flow (a)

$

34,562

$

22,571

$

93,722

$

47,182

Depreciation and Amortization Expense

$

9,195

$

8,086

$

24,597

$

23,260


Balance Sheet Data

October 2,
2021

January 2,
2021

Assets

Cash, Cash Equivalents, and Restricted Cash

$

83,664

$

66,640

Accounts Receivable, net

120,496

91,540

Inventories

135,476

106,814

Unbilled Revenue

7,915

7,576

Property, Plant, and Equipment, net

110,088

84,642

Intangible Assets

205,328

160,965

Goodwill

398,907

351,753

Other Assets

71,254

57,641

$

1,133,128

$

927,571

Liabilities and Stockholders' Equity

Accounts Payable

$

53,476

$

32,264

Debt Obligations

309,389

227,963

Other Borrowings

5,107

5,511

Other Liabilities

221,770

164,928

Total Liabilities

589,742

430,666

Stockholders' Equity

543,386

496,905

$

1,133,128

$

927,571


Three Months Ended

Nine Months Ended

Adjusted Operating Income and Adjusted EBITDA Reconciliation (a)

October 2,
2021

September 26,
2020

October 2,
2021

September 26,
2020

Consolidated

Net Income Attributable to Kadant

$

20,461

$

14,851

$

59,886

$

38,989

Net Income Attributable to Noncontrolling Interest

237

129

635

369

Provision for Income Taxes

6,742

4,705

21,252

13,738

Interest Expense, Net

1,265

1,618

3,321

5,920

Other Expense, Net

23

32

71

95

Operating Income

28,728

21,335

85,165

59,111

Restructuring Costs

470

926

Acquisition Costs (b)

718

78

2,619

485

Acquired Backlog Amortization (c)

604

331

691

367

Acquired Profit in Inventory (d)

2,216

2,216

Adjusted Operating Income (a)

32,266

22,214

90,691

60,889

Depreciation and Amortization

8,591

7,755

23,906

22,893

Adjusted EBITDA (a)

$

40,857

$

29,969

$

114,597

$

83,782

Adjusted EBITDA Margin (a,g)

20.5

%

19.4

%

20.2

%

18.0

%

Flow Control

Operating Income

$

17,129

$

13,770

$

51,899

$

37,360

Restructuring Costs

265

721

Acquisition Costs (b)

507

1,743

Acquired Backlog Amortization (c)

353

353

Acquired Profit in Inventory (d)

1,846

1,846

Adjusted Operating Income (a)

19,835

14,035

55,841

38,081

Depreciation and Amortization

2,333

1,564

5,473

4,729

Adjusted EBITDA (a)

$

22,168

$

15,599

$

61,314

$

42,810

Adjusted EBITDA Margin (a,g)

29.1

%

27.5

%

29.1

%

25.9

%

Industrial Processing

Operating Income

$

16,095

$

12,072

$

44,449

$

32,147

Restructuring Costs

205

205

Acquisition Costs (b)

33

78

113

485

Acquired Backlog Amortization (c)

83

60

111

Adjusted Operating Income (a)

16,128

12,438

44,622

32,948

Depreciation and Amortization

3,341

3,311

10,082

9,598

Adjusted EBITDA (a)

$

19,469

$

15,749

$

54,704

$

42,546

Adjusted EBITDA Margin (a,g)

23.9

%

25.4

%

23.4

%

22.1

%

Material Handling

Operating Income

$

3,491

$

2,614

$

12,941

$

10,341

Acquisition Costs (b)

178

763

Acquired Backlog Amortization (c)

251

248

278

256

Acquired Profit in Inventory (d)

370

370

Adjusted Operating Income (a)

4,290

2,862

14,352

10,597

Depreciation and Amortization

2,885

2,824

8,253

8,416

Adjusted EBITDA (a)

$

7,175

$

5,686

$

22,605

$

19,013

Adjusted EBITDA Margin (a,g)

17.1

%

15.9

%

18.3

%

17.5

%

Corporate

Operating Loss

$

(7,987

)

$

(7,121

)

$

(24,124

)

$

(20,737

)

Depreciation and Amortization

32

56

98

150

EBITDA (a)

$

(7,955

)

$

(7,065

)

$

(24,026

)

$

(20,587

)


(a)

Represents a non-GAAP financial measure.

(b)

Represents transaction costs associated with our acquisitions. Operating income by segment has been recast in the first six months of 2021 to include acquisition costs of $585 and $80 in our Material Handling and Industrial Processing segments, respectively, which were previously included in Corporate.

(c)

Represents intangible amortization expense associated with acquired backlog.

(d)

Represents expense within the cost of revenue associated with amortization of acquired profit in inventory.

(e)

Represents the increase resulting from the exclusion of acquisitions and 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)

Calculated as adjusted EBITDA divided by revenue in each period.

About Kadant
Kadant Inc. is a global supplier of high-value, critical components and engineered systems used in process industries worldwide. The Company’s products, technologies, and services play an integral role in enhancing process efficiency, optimizing energy utilization, and maximizing productivity in resource-intensive industries. Kadant is based in Westford, Massachusetts, with approximately 2,900 employees in 21 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 January 2, 2021 and subsequent filings with the Securities and Exchange Commission. These include risks and uncertainties relating to the impact of the COVID-19 pandemic on our operating and financial results; 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; 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; price increases or shortages of 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; economic conditions and regulatory changes caused by the United Kingdom’s exit from the European Union; 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; substitution of an alternative index for LIBOR; 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