News Release

Reports Record Revenue and Diluted EPS

WESTFORD, Mass., Oct. 29, 2018 (GLOBE NEWSWIRE) -- Kadant Inc. (NYSE: KAI) reported its financial results for the third quarter ended September 29, 2018.

Third Quarter 2018 Highlights

• Revenue increased 8% to a record $166 million
• GAAP diluted EPS increased 40% to a record $1.64
• Adjusted diluted EPS increased 3% to a record $1.53
• Net income increased 41% to $19 million
• Adjusted EBITDA increased 11% to a record $34 million and represented 20% of revenue
• Gross margin was 44.1%
• Bookings increased 22% to $165 million
• Backlog was $192 million
• Cash flow from operations was $17 million

Note: Adjusted diluted EPS, adjusted EBITDA, and adjusted EBITDA margin 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
“The record-setting pace we set in the first half of 2018 continued into the third quarter,” said Jonathan Painter, president and chief executive officer. “Strong internal growth and excellent execution led to record revenue and diluted EPS. Capacity build-outs at mills in Asia and strong demand in North America, particularly for our Fluid-Handling and Stock-Preparation product lines, led this growth. Our bookings increased 22 percent due almost entirely to internal growth, contributing to our near-record backlog of $192 million at the end of the third quarter. Our operating units executed extremely well this quarter resulting in record adjusted EBITDA, representing 20 percent of revenue.”

Third Quarter 2018 Results
Revenue increased eight percent to a record $165.7 million compared to the third quarter of 2017, including $0.9 million from an acquisition and a $3.8 million decrease from the unfavorable effect of foreign currency translation. Excluding the impact of the acquisition and foreign currency translation, revenue increased 10 percent compared to the third quarter of 2017. Gross margin was 44.1 percent. Net income increased 41 percent to $18.8 million, or $1.64 per diluted share, compared to $13.3 million, or $1.17 per diluted share, in the third quarter of 2017. Adjusted diluted EPS increased three percent to $1.53 compared to $1.49 in the third quarter of 2017. Adjusted diluted EPS excludes a $0.14 discrete tax benefit and $0.03 of restructuring costs in the third quarter of 2018 and $0.32 of acquisition-related costs in the third quarter of 2017.

Adjusted EBITDA increased 11 percent to a record $33.5 million compared to $30.1 million in the third quarter of 2017. Adjusted EBITDA excludes $0.4 million of restructuring costs in the third quarter of 2018 and $4.9 million of acquisition-related costs in the third quarter of 2017. Cash flows from operations increased 144 percent to $17.0 million compared to $7.0 million in the third quarter of 2017. Bookings increased 22 percent to $165.0 million compared to $135.5 million in the third quarter of 2017, including $1.2 million from an acquisition and a $3.8 million decrease from the unfavorable effect of foreign currency translation. Excluding the impact of the acquisition and foreign currency translation, bookings increased 24 percent compared to the third quarter of 2017.

Summary and Outlook
“Our strong performance in the first three quarters of 2018 has positioned us for another record year of financial performance,” Mr. Painter continued. “However, the timing of capital bookings and shipments as well as some modest currency headwinds have caused us to revise our previous guidance.

“For 2018, we now expect to report full year revenue of $628 to $632 million, revised from our previous guidance of $630 to $638 million. We expect to achieve GAAP diluted EPS of $4.93 to $4.98 in 2018, revised from our previous guidance of $4.89 to $4.99. The revised 2018 guidance includes a pre-tax curtailment loss of $1.4 million, or $0.09 per diluted share, related to the termination of defined benefit plans at one of our U.S. operations. The revised 2018 guidance also includes pre-tax restructuring costs of $1.7 million, or $0.11 per diluted share, pre-tax amortization expense associated with acquired backlog of $0.3 million, or $0.02 per diluted share, and a discrete tax benefit of $1.7 million, or $0.15 per diluted share. Excluding these items, we expect adjusted diluted EPS of $5.00 to $5.05 for 2018, revised from our previous guidance of $5.00 to $5.10.

“For the fourth quarter of 2018, we expect GAAP diluted EPS of $1.24 to $1.29 on revenue of $158 to $162 million. The fourth quarter guidance includes the pre-tax curtailment loss of $1.4 million, or $0.09 per diluted share. Excluding the curtailment loss, we expect adjusted diluted EPS of $1.33 to $1.38 in the fourth quarter of 2018.”

Conference Call
Kadant will hold a webcast with a slide presentation for investors on Tuesday, October 30, 2018, 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 8097465. 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 November 30, 2018.

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, adjusted operating income, adjusted net income, adjusted diluted earnings per share (EPS), earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, and adjusted EBITDA margin. 

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 included $0.9 million and $64.6 million from acquisitions in the third quarter and first nine months of 2018, respectively. Revenue also included $3.8 million of unfavorable and $7.6 million of favorable foreign currency translation effect in the third quarter and first nine months of 2018, respectively. We present increases or decreases in revenue excluding 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 backlog and profit in inventory and a discrete tax benefit. 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.

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

• Pre-tax restructuring costs of $0.4 million in 2018.
• Pre-tax acquisition costs of $0.6 million in 2017.
• Pre-tax expense related to acquired profit in inventory and backlog of $4.3 million in 2017.

Adjusted net income and adjusted diluted EPS exclude:

• After-tax restructuring costs of $0.3 million ($0.4 million net of tax of $0.1 million) in 2018.
• A discrete tax benefit of $1.5 million in 2018 related to the reversal of tax reserves associated with uncertain tax positions covering multiple tax years.
• After-tax acquisition costs of $0.4 million ($0.6 million net of tax of $0.2 million) in 2017.
• After-tax expense related to acquired profit in inventory and backlog of $3.2 million ($4.3 million net of tax of $1.1 million) in 2017.

First Nine Months
Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude:

• Pre-tax restructuring costs of $1.7 million in 2018.
• Pre-tax expense related to acquired backlog of $0.3 million in 2018.
• Pre-tax acquisition costs of $5.0 million in 2017.
• Pre-tax expense related to acquired profit in inventory and backlog of $4.3 million in 2017.

Adjusted net income and adjusted diluted EPS exclude:

• After-tax restructuring costs of $1.3 million ($1.7 million net of tax of $0.4 million) in 2018.
• After-tax expense related to acquired backlog of $0.2 million ($0.3 million net of tax of $0.1 million) in 2018.
• A discrete tax benefit of $1.7 million in 2018.
• After-tax acquisition costs of $4.3 million ($5.0 million net of tax of $0.7 million) in 2017.
• After-tax expense related to acquired profit in inventory and backlog of $3.2 million ($4.3 million net of tax of $1.1 million) in 2017.

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 (a)			Sept. 29, 2018				Sept. 30, 2017				Sept. 29, 2018				Sept. 30, 2017
	Revenues			$	165,745			$	152,794			$	469,851			$	365,893
	Costs and Operating Expenses:
		Cost of revenues			92,652				88,139				262,515				199,369
		Selling, general, and administrative expenses			42,888				42,346				133,796				115,936
		Research and development expenses			2,452				2,635				8,049				7,004
		Restructuring costs			378				-				1,717				-
					138,370				133,120				406,077				322,309
	Operating Income				27,375				19,674				63,774				43,584
	Interest Income				30				94				335				300
	Interest Expense				(1,738	)			(1,282	)			(5,320	)			(2,022	)
	Other Expense, Net				(245	)			(216	)			(736	)			(637	)
	Income Before Provision for Income Taxes				25,422				18,270				58,053				41,225
	Provision for Income Taxes				6,443				4,860				15,575				10,550
	Net Income				18,979				13,410				42,478				30,675
	Net Income Attributable to Noncontrolling Interest				(195	)			(125	)			(487	)			(343	)
	Net Income Attributable to Kadant			$	18,784			$	13,285			$	41,991			$	30,332
	Earnings per Share Attributable to Kadant:
			Basic	$	1.69			$	1.21			$	3.79			$	2.76
			Diluted	$	1.64			$	1.17			$	3.69			$	2.69
	Weighted Average Shares:
			Basic		11,101				11,004				11,078				10,986
			Diluted		11,421				11,344				11,388				11,282
				Three Months Ended								Three Months Ended
	Adjusted Net Income and Adjusted Diluted EPS (b)			Sept. 29, 2018				Sept. 29, 2018				Sept. 30, 2017				Sept. 30, 2017
	Net Income and Diluted EPS Attributable to Kadant, as Reported			$	18,784			$	1.64			$	13,285			$	1.17
	Adjustments for the Following:
		Restructuring Costs, Net of Tax			287				0.03				-				-
		Acquisition Costs, Net of Tax			-				-				441				0.04
		Amortization of Acquired Profit in Inventory and Backlog, Net of Tax			-				-				3,191				0.28
		Discrete Tax Items			(1,542	)			(0.14	)			-				-
	Adjusted Net Income and Adjusted Diluted EPS			$	17,529			$	1.53			$	16,917			$	1.49
				Nine Months Ended								Nine Months Ended
				Sept. 29, 2018				Sept. 29, 2018				Sept. 30, 2017				Sept. 30, 2017
	Net Income and Diluted EPS Attributable to Kadant, as Reported			$	41,991			$	3.69			$	30,332			$	2.69
	Adjustments for the Following:
		Restructuring Costs, Net of Tax			1,308				0.11				-				-
		Acquisition Costs, Net of Tax			-				-				4,274				0.38
		Amortization of Acquired Profit in Inventory and Backlog, Net of Tax			189				0.02				3,191				0.28
		Discrete Tax Items			(1,672	)			(0.15	)			-				-
	Adjusted Net Income and Adjusted Diluted EPS			$	41,816			$	3.67			$	37,797			$	3.35
																Increase
																(Decrease)
																Excluding
				Three Months Ended								Increase (Decrease)				Acquisitions
	Revenues by Product Line			Sept. 29, 2018				Sept. 30, 2017								and FX (b,c)
	Stock-Preparation			$	62,983			$	52,065			$	10,918			$	11,603
	Fluid-Handling				33,083				28,532				4,551				4,451
	Doctoring, Cleaning, & Filtration				30,704				30,538				166				1,059
		Papermaking Systems			126,770				111,135				15,635				17,113
		Wood Processing Systems			37,042				39,714				(2,672	)			(1,295	)
		Fiber-Based Products			1,933				1,945				(12	)			(12	)
				$	165,745			$	152,794			$	12,951			$	15,806
																Increase
																(Decrease)
																Excluding
				Nine Months Ended								Increase				Acquisitions
				Sept. 29, 2018				Sept. 30, 2017								and FX (b,c)
	Stock-Preparation			$	164,842			$	139,396			$	25,446			$	19,732
	Fluid-Handling				98,500				73,099				25,401				11,614
	Doctoring, Cleaning, & Filtration				87,469				82,921				4,548				3,679
		Papermaking Systems			350,811				295,416				55,395				35,025
		Wood Processing Systems			109,335				61,050				48,285				(3,513	)
		Fiber-Based Products			9,705				9,427				278				278
				$	469,851			$	365,893			$	103,958			$	31,790
																Increase
																(Decrease)
																Excluding
				Three Months Ended								Increase (Decrease)				Acquisitions
	Revenues by Geography (d)			Sept. 29, 2018				Sept. 30, 2017								and FX (b,c)
	North America			$	74,089			$	68,369			$	5,720			$	5,867
	Europe				44,912				46,475				(1,563	)			(639	)
	Asia				32,887				25,215				7,672				8,359
	Rest of World				13,857				12,735				1,122				2,219
				$	165,745			$	152,794			$	12,951			$	15,806
																Increase
																(Decrease)
																Excluding
				Nine Months Ended								Increase				Acquisitions
				Sept. 29, 2018				Sept. 30, 2017								and FX (b,c)
	North America			$	227,080			$	170,092			$	56,988			$	10,131
	Europe				131,437				113,178				18,259				523
	Asia				78,537				53,658				24,879				21,649
	Rest of World				32,797				28,965				3,832				(513	)
				$	469,851			$	365,893			$	103,958			$	31,790
																Increase
																Excluding
				Three Months Ended								Increase				Acquisitions
	Bookings by Product Line			Sept. 29, 2018				Sept. 30, 2017								and FX (c)
	Stock-Preparation			$	69,341			$	50,797			$	18,544			$	19,348
	Fluid-Handling				29,671				28,426				1,245				732
	Doctoring, Cleaning, & Filtration				27,788				27,656				132				967
		Papermaking Systems			126,800				106,879				19,921				21,047
		Wood Processing Systems			36,080				26,548				9,532				11,022
		Fiber-Based Products			2,120				2,030				90				90
				$	165,000			$	135,457			$	29,543			$	32,159
																Increase
																(Decrease)
																Excluding
				Nine Months Ended								Increase				Acquisitions
				Sept. 29, 2018				Sept. 30, 2017								and FX (c)
	Stock-Preparation			$	187,073			$	149,285			$	37,788			$	31,027
	Fluid-Handling				107,363				79,752				27,611				11,581
	Doctoring, Cleaning, & Filtration				86,603				86,354				249				(780	)
		Papermaking Systems			381,039				315,391				65,648				41,828
		Wood Processing Systems			133,213				50,172				83,041				18,489
		Fiber-Based Products			9,088				8,999				89				89
				$	523,340			$	374,562			$	148,778			$	60,406
				Three Months Ended								Nine Months Ended
	Business Segment Information (a)			Sept. 29, 2018				Sept. 30, 2017				Sept. 29, 2018				Sept. 30, 2017
	Gross Margin:
			Papermaking Systems		44.6	%			45.6	%			45.1	%			47.1	%
			Wood Processing Systems		42.6	%			33.5	%			40.4	%			37.1	%
			Fiber-Based Products		36.6	%			35.7	%			50.1	%			50.1	%
					44.1	%			42.3	%			44.1	%			45.5	%
	Operating Income:
			Papermaking Systems	$	25,919			$	21,684			$	61,402			$	53,247
			Wood Processing Systems		8,704				4,418				21,380				6,511
			Corporate and Other		(7,248	)			(6,428	)			(19,008	)			(16,174	)
				$	27,375			$	19,674			$	63,774			$	43,584
	Adjusted Operating Income (b, e):
			Papermaking Systems	$	26,297			$	21,962			$	63,119			$	53,840
			Wood Processing Systems		8,704				9,043				21,632				15,238
			Corporate and Other		(7,248	)			(6,428	)			(19,008	)			(16,174	)
				$	27,753			$	24,577			$	65,743			$	52,904
	Capital Expenditures:
			Papermaking Systems	$	1,348			$	3,790			$	9,837			$	6,567
			Wood Processing Systems		1,026				1,358				2,586				1,649
			Corporate and Other		232				135				394				502
				$	2,606			$	5,283			$	12,817			$	8,718
				Three Months Ended								Nine Months Ended
	Cash Flow and Other Data			Sept. 29, 2018				Sept. 30, 2017				Sept. 29, 2018				Sept. 30, 2017
	Cash Provided by Operations			$	16,979			$	6,952			$	52,550			$	32,328
	Depreciation and Amortization Expense				5,796				6,525				17,739				13,056
	Balance Sheet Data											Sept. 29, 2018				Dec. 30, 2017
	Assets
	Cash, Cash Equivalents, and Restricted Cash											$	58,059			$	76,846
	Accounts Receivable, net												96,326				89,624
	Inventories												91,736				84,933
	Unbilled Revenues												8,315				2,374
	Property, Plant and Equipment, net												79,458				79,723
	Intangible Assets												119,246				133,036
	Goodwill												262,081				268,001
	Other Assets												26,541				26,557
												$	741,762			$	761,094
	Liabilities and Stockholders' Equity
	Accounts Payable											$	34,761			$	35,461
	Debt Obligations												189,052				237,011
	Capital Lease Obligations												4,563				5,069
	Other Liabilities												154,947				151,049
		Total Liabilities											383,323				428,590
		Stockholders' Equity											358,439				332,504
												$	741,762			$	761,094
	Adjusted Operating Income and Adjusted EBITDA			Three Months Ended								Nine Months Ended
	Reconciliation (a, b)			Sept. 29, 2018				Sept. 30, 2017				Sept. 29, 2018				Sept. 30, 2017
	Consolidated
			Net Income Attributable to Kadant	$	18,784			$	13,285			$	41,991			$	30,332
			Net Income Attributable to Noncontrolling Interest		195				125				487				343
			Provision for Income Taxes		6,443				4,860				15,575				10,550
			Interest Expense, Net		1,708				1,188				4,985				1,722
			Other Expense, Net		245				216				736				637
			Operating Income		27,375				19,674				63,774				43,584
			Restructuring Costs		378				-				1,717				-
			Acquisition Costs		-				585				-				5,002
			Acquired Backlog Amortization (f)		-				958				252				958
			Acquired Profit in Inventory (g)		-				3,360				-				3,360
			Adjusted Operating Income (b)		27,753				24,577				65,743				52,904
			Depreciation and Amortization		5,796				5,567				17,487				12,098
			Adjusted EBITDA (b)	$	33,549			$	30,144			$	83,230			$	65,002
			Adjusted EBITDA Margin (b, h)		20.2	%			19.7	%			17.7	%			17.8	%
	Papermaking Systems
			Operating Income	$	25,919			$	21,684			$	61,402			$	53,247
			Restructuring costs		378				-				1,717				-
			Acquisition Costs		-				172				-				487
			Acquired Profit in Inventory (g)		-				106				-				106
			Adjusted Operating Income (b)		26,297				21,962				63,119				53,840
			Depreciation and Amortization		3,132				2,894				9,407				8,105
			Adjusted EBITDA (b)	$	29,429			$	24,856			$	72,526			$	61,945
	Wood Processing Systems
			Operating Income	$	8,704			$	4,418			$	21,380			$	6,511
			Acquisition Costs		-				413				-				4,515
			Acquired Backlog Amortization (f)		-				958				252				958
			Acquired Profit in Inventory (g)		-				3,254				-				3,254
			Adjusted Operating Income (b)		8,704				9,043				21,632				15,238
			Depreciation and Amortization		2,505				2,527				7,585				3,547
			Adjusted EBITDA (b)	$	11,209			$	11,570			$	29,217			$	18,785
	Corporate and Other
			Operating Loss	$	(7,248	)		$	(6,428	)		$	(19,008	)		$	(16,174	)
			Depreciation and Amortization		159				146				495				446
			EBITDA (b)	$	(7,089	)		$	(6,282	)		$	(18,513	)		$	(15,728	)
	(a)		Prior period amounts have been restated to conform to the current period presentation as a result of the adoption of the Financial Accounting Standards Board's Accounting Standards Update No. 2017-07.
	(b)		Represents a non-GAAP financial measure.
	(c)		Represents the increase (decrease) 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.
	(d)		Geographic revenues are attributed to regions based on customer location.
	(e)		See reconciliation to the most directly comparable GAAP financial measure under "Adjusted Operating Income and Adjusted EBITDA Reconciliation."
	(f)		Represents intangible amortization expense associated with acquired backlog.
	(g)		Represents expense within cost of revenues associated with acquired profit in inventory.
	(h)		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 2,500 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 Kadant’s 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 year ended December 30, 2017 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; our customers’ ability to obtain financing for capital equipment projects; the variability and uncertainties in sales of capital equipment in China; international sales and operations; the oriented strand board market and levels of residential construction activity; development and use of digital media; currency fluctuations; price increases or shortages of raw materials; dependence on certain suppliers; our acquisition strategy; failure of our information systems or breaches of data security; changes in government regulations and policies and compliance with laws; our internal growth strategy; competition; soundness of suppliers and customers; changes in our tax provision or exposure to additional tax liabilities; our ability to successfully manage our manufacturing operations; disruption in production; future restructurings; economic conditions and regulatory changes caused by the United Kingdom’s likely exit from the European Union; our debt obligations; restrictions in our credit agreement; loss of key personnel; protection of patents and proprietary rights; fluctuations in our share price; soundness of financial institutions; environmental laws and regulations; anti-takeover provisions; and reliance on third-party research.

Contacts
Investor Contact Information:
Michael McKenney, 978-776-2000
mike.mckenney@kadant.com 
or
Media Contact Information:
Wes Martz, 269-278-1715
wes.martz@kadant.com 

Source: Kadant Inc