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 2022Revenue 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 MeasuresIn 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)   IncreaseExcluding 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 StatementThe 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.

ContactsInvestor Contact Information:Michael McKenney, 978-776-2000IR@kadant.com orMedia Contact Information:Wes Martz, 269-278-1715media@kadant.com 

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