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