Kadant Corporate

News Release

Kadant Reports Third Quarter 2023 Results

October 31, 2023 at 4:46 PM EDT

Raises Revenue and Earnings Guidance

WESTFORD, Mass., Oct. 31, 2023 (GLOBE NEWSWIRE) -- Kadant Inc. (NYSE: KAI) reported its financial results for the third quarter ended September 30, 2023.

Third Quarter Financial Highlights  

  • Revenue increased 9% to $244 million
  • Operating cash flow increased 89% to $47 million
  • Free cash flow increased 106% to $38 million
  • Net income increased 12% to $31 million
  • GAAP EPS increased 12% to $2.63
  • Adjusted EPS increased 13% to a record $2.69
  • Adjusted EBITDA increased 10% to a record $53 million and represented a record 21.6% of revenue
  • Bookings decreased 1% to $210 million
  • Backlog was $324 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. Free cash flow, 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 delivered another exceptional quarter with record adjusted EBITDA, record adjusted EBITDA margin, and record adjusted EPS,” said Jeffrey L. Powell, president and chief executive officer of Kadant Inc. “Our performance was driven by a combination of excellent execution across our operating segments and strong aftermarket parts revenue.

“While we have seen a general slowdown in manufacturing activity in most regions of the world, all of our operating segments achieved solid revenue performance and margin expansion. Growth in our Material Handling segment was particularly notable as we benefited from strong demand for both aftermarket parts and capital equipment leading to excellent financial results in the third quarter.”

Third Quarter 2023 Compared to 2022
Revenue increased nine percent to $244.2 million compared to $224.5 million in 2022. Organic revenue increased seven percent, which excludes a two percent increase from the favorable effect of foreign currency translation. Gross profit margin increased to 43.3 percent compared to 42.5 percent in 2022.

GAAP EPS increased 12 percent to $2.63 compared to $2.35 in 2022. Adjusted EPS increased 13 percent to a record $2.69 compared to $2.38 in 2022. Net income was $30.9 million, increasing 12 percent compared to $27.5 million in 2022. Adjusted EBITDA increased 10 percent to a record $52.7 million and represented a record 21.6 percent of revenue compared to $47.8 million and 21.3 percent in the prior year. Operating cash flow increased 89 percent to $47.0 million compared to $24.9 million in 2022. Free cash flow increased 106 percent to $38.1 million compared to $18.5 million in 2022.

Bookings decreased one percent to $209.6 million compared to $210.9 million in 2022. Organic bookings decreased two percent, which excludes a one percent increase from the favorable effect of foreign currency translation.

Summary and Outlook
“While industrial demand continues to moderate in response to a variety of macroeconomic challenges, we remain well positioned to finish the year strong and deliver record financial performance again in 2023,” continued Mr. Powell. “We are raising our revenue and earnings guidance for the full year and now expect revenue of $941 to $949 million in 2023, revised from our previous guidance of $925 to $940 million, GAAP EPS of $9.59 to $9.69, revised from our previous guidance of $9.11 to $9.31, and adjusted EPS of $9.65 to $9.75, revised from our previous guidance of $9.15 to $9.35. The 2023 adjusted EPS guidance excludes $0.03 of relocation costs and $0.03 of restructuring and impairment costs. For the fourth quarter of 2023, we expect GAAP EPS of $2.02 to $2.12 on revenue of $222 to $230 million.”

Conference Call
Kadant will hold a webcast with a slide presentation for investors on Wednesday, November 1, 2023, at 11:00 a.m. eastern time to discuss its third quarter financial 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 December 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 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 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 a favorable foreign currency translation effect of $3.9 million in the third quarter of 2023 compared to the third quarter of 2022 and an unfavorable foreign currency translation effect of $5.8 million in the first nine months of 2023 compared to the first nine months of 2022. Our other non-GAAP financial measures exclude relocation costs, restructuring and impairment costs, acquisition costs, amortization expense related to acquired profit in inventory and backlog, and other income or expense, 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.

Third Quarter

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

  • Pre-tax acquisition costs of $0.4 million in 2022.
  • Pre-tax indemnification asset provision of $0.1 million in 2023.
  • Pre-tax relocation costs of $0.5 million in 2023.
  • Pre-tax restructuring and impairment costs of $0.4 million in 2023 and in $0.1 million in 2022.

Adjusted net income and adjusted EPS exclude:

  • After-tax acquisition costs of $0.3 million ($0.4 million net of tax of $0.1 million) in 2022.
  • After-tax relocation costs of $0.4 million ($0.5 million net of tax of $0.1 million) in 2023.
  • After-tax restructuring and impairment costs of $0.3 million ($0.4 million net of tax of $0.1 million) in 2023 and $0.1 million in 2022.

Free cash flow is calculated as operating cash flow less:

  • Capital expenditures of $8.8 million in 2023 and $6.4 million in 2022.

First Nine 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 indemnification asset reversal of $0.1 million in 2023 and $0.6 million in 2022.
  • Pre-tax relocation costs of $0.6 million in 2023.
  • Pre-tax restructuring and impairment costs of $0.4 million in 2023 and $0.3 million in 2022.
  • Pre-tax acquisition costs of $0.5 million and 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 relocation costs of $0.5 million ($0.6 million net of tax of $0.1 million) in 2023.
  • After-tax restructuring and impairment costs of $0.3 million ($0.4 million net of tax of $0.1 million) in 2023 and $0.2 million ($0.3 million net of tax of $0.1 million) in 2022.
  • After-tax acquisition costs of $0.3 million ($0.5 million net of tax of $0.2 million) and 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 $22.1 million in 2023 and $16.2 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 Nine Months Ended
    September 30, October 1, September 30, October 1,
Consolidated Statement of Income 2023  2022  2023  2022 
Revenue $244,182  $224,510  $718,993  $672,639 
Costs and Operating Expenses:        
 Cost of revenue 138,456   129,154   404,671   383,034 
 Selling, general, and administrative expenses 57,889   53,153   176,441   167,640 
 Research and development expenses 3,324   3,245   10,102   9,574 
 Gain on sale and other costs, net (b) 969   72   1,043   (19,936)
    200,638   185,624   592,257   540,312 
Operating Income  43,544   38,886   126,736   132,327 
Interest Income  438   271   1,053   650 
Interest Expense  (2,107)  (1,721)  (6,722)  (4,321)
Other Expense, Net  (20)  (19)  (62)  (60)
Income Before Provision for Income Taxes  41,855   37,417   121,005   128,596 
Provision for Income Taxes  10,816   9,746   31,761   33,075 
Net Income  31,039   27,671   89,244   95,521 
Net Income Attributable to Noncontrolling Interest  (175)  (184)  (571)  (672)
Net Income Attributable to Kadant $30,864  $27,487  $88,673  $94,849 
           
Earnings per Share Attributable to Kadant:        
  Basic $2.64  $2.36  $7.58  $8.14 
  Diluted $2.63  $2.35  $7.57  $8.12 
           
Weighted Average Shares:        
  Basic  11,706   11,662   11,697   11,651 
  Diluted  11,740   11,700   11,719   11,681 
           


    Three Months Ended Three Months Ended
    September 30, September 30, October 1, October 1,
Adjusted Net Income and Adjusted Diluted EPS (a)  2023 2023 2022  2022 
Net Income and Diluted EPS Attributable to Kadant, as Reported $30,864 $2.63 $27,487  $2.35 
Adjustments, Net of Tax:        
 Acquisition Costs       276   0.02 
 Relocation Costs   401  0.03      
 Restructuring and Impairment Costs  295  0.03  72   0.01 
Adjusted Net Income and Adjusted Diluted EPS (a) $31,560 $2.69 $27,835  $2.38 
           
    Nine Months Ended Nine Months Ended
    September 30, September 30, October 1, October 1,
     2023 2023 2022  2022 
Net Income and Diluted EPS Attributable to Kadant, as Reported $88,673 $7.57 $94,849  $8.12 
Adjustments, Net of Tax:        
 Gain on Sale (b)       (15,143)  (1.30)
 Acquisition-Related Costs      722   0.06 
 Relocation Costs  457  0.04      
 Restructuring and Impairment Costs  295  0.03  207   0.02 
Adjusted Net Income and Adjusted Diluted EPS (a) $89,425 $7.63 $80,635  $6.90 
           


    Three Months Ended   Increase
    September 30, October 1,     Excluding FX
Revenue by Segment 2023  2022  Increase (a,e)
Flow Control $90,798  $86,880  $3,918  $1,175 
Industrial Processing  94,220   86,085   8,135   8,145 
Material Handling  59,164   51,545   7,619   6,402 
    $244,182  $224,510  $19,672  $15,722 
           
Percentage of Parts and Consumables Revenue  61%  63%    
           
    Nine Months Ended     Increase
    September 30, October 1,     Excluding FX
     2023  2022 Increase (a,e)
Flow Control $276,048  $257,926  $18,122  $18,181 
Industrial Processing  267,729   263,572   4,157   10,313 
Material Handling  175,216   151,141   24,075   23,634 
    $718,993  $672,639  $46,354  $52,128 
           
Percentage of Parts and Consumables Revenue  63%  64%    
           
    Three Months Ended     Increase
(Decrease)
    September 30, October 1, Increase Excluding FX
Bookings by Segment 2023  2022 (Decrease) (e)
Flow Control $83,005  $84,902  $(1,897) $(4,007)
Industrial Processing  70,441   77,878   (7,437)  (7,210)
Material Handling  56,158   48,093   8,065   6,848 
    $209,604  $210,873  $(1,269) $(4,369)
           
Percentage of Parts and Consumables Bookings  67%  68%    
           
    Nine Months Ended   Increase
(Decrease)
    September 30, October 1, Increase Excluding FX
     2023  2022 (Decrease)(e)
Flow Control $275,862  $282,360  $(6,498) $(5,470)
Industrial Processing  246,006   294,105   (48,099)  (41,145)
Material Handling  177,482   166,408   11,074   10,850 
    $699,350  $742,873  $(43,523) $(35,765)
           
Percentage of Parts and Consumables Bookings  65%  62%    
           


    Three Months Ended Nine Months Ended 
 September 30, October 1, September 30, October 1,
Business Segment Information 2023   2022   2023   2022 
Gross Profit Margin:        
  Flow Control  52.2%  51.6%  52.3%  52.3%
  Industrial Processing  39.5%  39.3%  39.8%  38.8%
  Material Handling  35.7%  32.3%  36.2%  34.8%
  Consolidated  43.3%  42.5%  43.7%  43.1%
           
Operating Income:        
  Flow Control $24,246  $22,874  $74,256  $67,306 
  Industrial Processing (b)  19,023   17,550   51,968   70,994 
  Material Handling  10,345   6,945   30,006   21,490 
  Corporate  (10,070)  (8,483)  (29,494)  (27,463)
    $43,544  $38,886  $126,736  $132,327 
           
Adjusted Operating Income (a,f):        
  Flow Control $24,680  $23,356  $74,690  $67,632 
  Industrial Processing  19,558   17,550   52,577   51,561 
  Material Handling  10,295   6,945   30,133   22,207 
  Corporate  (10,070)  (8,483)  (29,494)  (27,463)
    $44,463  $39,368  $127,906  $113,937 
           
Capital Expenditures:        
  Flow Control $1,195  $868  $3,889  $2,424 
  Industrial Processing (h)  7,299   4,654   16,007   11,679 
  Material Handling  350   854   2,170   2,081 
  Corporate  4      28   7 
    $8,848  $6,376  $22,094  $16,191 
           


    Three Months Ended Nine Months Ended 
 September 30, October 1, September 30, October 1,
Cash Flow and Other Data 2023   2022   2023   2022 
Operating Cash Flow $46,967  $24,897  $106,311  $67,462 
Less: Capital Expenditures (h)  (8,848)  (6,376)  (22,094)  (16,191)
Free Cash Flow (a) $38,119  $18,521  $84,217  $51,271 
           
Depreciation and Amortization Expense $8,234  $8,456  $24,917  $26,387 
         


   September 30, December 31,
Balance Sheet Data 2023  2022
Assets   
Cash, Cash Equivalents, and Restricted Cash$79,053 $79,725
Accounts Receivable, net 140,075  130,297
Inventories 164,346  163,672
Contract Assets 12,113  14,898
Property, Plant, and Equipment, net 128,738  118,855
Intangible Assets 161,034  175,645
Goodwill 384,317  385,455
Other Assets 84,428  81,334
   $1,154,104 $1,149,881
Liabilities and Stockholders' Equity   
Accounts Payable$44,286 $58,060
Debt Obligations 127,535  199,219
Other Borrowings 1,704  1,942
Other Liabilities 246,662  235,089
 Total Liabilities 420,187  494,310
 Stockholders' Equity 733,917  655,571
   $1,154,104 $1,149,881
        


  Three Months Ended Nine Months Ended
    September 30, October 1, September 30, October 1,
Adjusted Operating Income and Adjusted EBITDA Reconciliation(a)  2023   2022   2023   2022 
Consolidated        
  Net Income Attributable to Kadant $30,864  $27,487  $88,673  $94,849 
  Net Income Attributable to Noncontrolling Interest  175   184   571   672 
  Provision for Income Taxes  10,816   9,746   31,761   33,075 
  Interest Expense, Net  1,669   1,450   5,669   3,671 
  Other Expense, Net  20   19   62   60 
  Operating Income  43,544   38,886   126,736   132,327 
  Gain on Sale (b)           (20,190)
  Acquisition Costs     410      486 
  Indemnification Asset (Provision) Reversals (g)  (50)     127   575 
  Relocation Costs  535      609    
  Restructuring and Impairment Costs  434   72   434   254 
  Acquired Backlog Amortization (c)           703 
  Acquired Profit in Inventory Amortization (d)           (218)
  Adjusted Operating Income (a)  44,463   39,368   127,906   113,937 
  Depreciation and Amortization  8,234   8,456   24,917   25,684 
  Adjusted EBITDA (a) $52,697  $47,824  $152,823  $139,621 
  Adjusted EBITDA Margin (a,i)  21.6%  21.3%  21.3%  20.8%
           
Flow Control        
  Operating Income $24,246  $22,874  $74,256  $67,306 
  Acquisition Costs     410      472 
  Restructuring and Impairment Costs  434   72   434   72 
  Acquired Profit in Inventory Amortization (d)           (218)
  Adjusted Operating Income (a)  24,680   23,356   74,690   67,632 
  Depreciation and Amortization  2,277   2,229   6,785   6,873 
  Adjusted EBITDA (a) $26,957  $25,585  $81,475  $74,505 
  Adjusted EBITDA Margin (a,i)  29.7%  29.4%  29.5%  28.9%
           
Industrial Processing        
  Operating Income $19,023  $17,550  $51,968  $70,994 
  Gain on Sale (b)           (20,190)
  Indemnification Asset Reversal (g)           575 
  Relocation Costs  535      609    
  Impairment Costs           182 
  Adjusted Operating Income (a)  19,558   17,550   52,577   51,561 
  Depreciation and Amortization  2,906   3,122   8,823   9,476 
  Adjusted EBITDA (a) $22,464  $20,672  $61,400  $61,037 
  Adjusted EBITDA Margin (a,i)  23.8%  24.0%  22.9%  23.2%
           
Material Handling        
  Operating Income $10,345  $6,945  $30,006  $21,490 
  Acquisition Costs           14 
  Indemnification Asset (Provision) Reversal (g)  (50)     127    
  Acquired Backlog Amortization (c)           703 
  Adjusted Operating Income (a)  10,295   6,945   30,133   22,207 
  Depreciation and Amortization  3,034   3,083   9,254   9,262 
  Adjusted EBITDA (a) $13,329  $10,028  $39,387  $31,469 
  Adjusted EBITDA Margin (a,i)  22.5%  19.5%  22.5%  20.8%
           
Corporate        
  Operating Loss $(10,070) $(8,483) $(29,494) $(27,463)
  Depreciation and Amortization  17   22   55   73 
  EBITDA (a) $(10,053) $(8,461) $(29,439) $(27,390)


(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 nine months ended October 1, 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 the provision for or reversal of indemnification assets related to the establishment or release of tax reserves associated with uncertain tax positions.
           
(h)Includes $2.5 million and $5.8 million in the three and nine months ended September 30, 2023, respectively, and $2.2 million and $5.4 million in the three and nine months ended October 1, 2022, respectively, related to the construction of a new manufacturing facility in China.
           
(i)Calculated as adjusted EBITDA divided by revenue in each period.


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

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

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


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