News Release

Achieves Record Revenue, Bookings, Backlog, and Adjusted Diluted EPS

Lowers Guidance for 2014 due to Project Delays

WESTFORD, Mass.--(BUSINESS WIRE)--Jul. 28, 2014-- Kadant Inc. (NYSE:KAI) reported its financial results for the second quarter ended June 28, 2014.

Second Quarter 2014 Financial Highlights

• GAAP diluted earnings per share (EPS) from continuing operations increased 37% to $0.70 in the second quarter of 2014 compared to $0.51 in the second quarter of 2013. Guidance was $0.66 to $0.68. Our adjusted diluted EPS of $0.70 in the second quarter of 2014 set a new quarterly record.
• Revenue increased 28% to a record $105 million in the second quarter of 2014, including $10 million from acquisitions, compared to $82 million in the second quarter of 2013. Excluding acquisitions, revenue increased 15% in the second quarter of 2014 compared to the second quarter of 2013. Guidance was $104 to $106 million.
• Bookings increased 32% to a record $115 million in the second quarter of 2014, including $14 million from acquisitions, compared to $87 million in the second quarter of 2013. Excluding acquisitions, bookings increased 16% in the second quarter of 2014 compared to the second quarter of 2013.
• Parts and consumables bookings increased 26% to a record $66 million in the second quarter of 2014, compared to $53 million in the second quarter of 2013.
• Gross margin was 43.0% in the second quarter of 2014, compared to a record 48.6% in the second quarter of 2013.
• Net income from continuing operations was $8 million in the second quarter of 2014 compared to $6 million in the second quarter of 2013.
• Adjusted EBITDA increased 39% to a record $15 million in the second quarter of 2014 compared to $11 million in the second quarter of 2013.
• Backlog was a record $129 million at the end of the second quarter of 2014.
• Repurchased 255,135 shares of common stock for $9 million in the second quarter of 2014.

Note: Adjusted diluted EPS and adjusted EBITDA are non-GAAP measures that exclude certain items as detailed later in this press release under the heading “Use of Non-GAAP Financial Measures” and in the reconciliation tables below.

Management Commentary

“We had an outstanding quarter and set a number of financial records including revenue, bookings, backlog, adjusted operating income, adjusted EBITDA, and adjusted diluted EPS,” said Jonathan W. Painter, president and chief executive officer of Kadant Inc. “Our diluted earnings per share from continuing operations was $0.70 in the second quarter of 2014, which included $0.04 of expense related to acquired profit in inventory and backlog associated with businesses acquired in 2013.

“Revenue was a record $105 million in the second quarter of 2014, increasing 28 percent compared to the second quarter of 2013 with increases in all our major geographic regions except South America. I’m particularly pleased that internal growth, which excludes acquisitions, made up over half of this revenue increase. Our parts and consumables revenue was a record $63 million in the second quarter of 2014, increasing 19 percent compared to the second quarter of 2013.

“Despite the decrease in gross margin in the second quarter of 2014 compared to the second quarter 2013, we had excellent operating margins primarily due to improved operating leverage in selling, general, and administrative expenses. Our operating income was $12 million, or 11.5 percent of revenue, in the second quarter of 2014, compared to $8 million, or 10.3 percent of revenue, in the second quarter of 2013. Our adjusted operating income was a record $13 million in the second quarter of 2014, or 12.1 percent of revenue, compared to $9 million, or 10.5 percent of revenue, in the second quarter of 2013.

“Our bookings of $115 million in the second quarter of 2014, including $14 million from acquisitions, increased 32 percent compared to the second quarter of 2013. Excluding bookings from acquisitions, our bookings in the second quarter of 2014 increased 16 percent compared to the second quarter of 2013. We ended the quarter with a record backlog of $129 million.”

Second Quarter 2014

Kadant reported record revenue of $104.8 million in the second quarter of 2014, an increase of $22.6 million, or 28 percent, compared with $82.2 million in the second quarter of 2013. Revenue for the second quarter of 2014 included $10.1 million from acquisitions and a $1.2 million increase from foreign currency translation compared to the second quarter of 2013. Operating income from continuing operations was $12.0 million in the second quarter of 2014, including $0.6 million of expense related to acquired inventory and backlog and $0.1 million of restructuring costs, compared to $8.4 million in the second quarter of 2013, including a $1.7 million gain on the sale of assets and a $1.9 million acquisition-related restructuring charge. Adjusted operating income, a non-GAAP measure, was a record $12.7 million in the second quarter of 2014 compared to $8.6 million in the second quarter of 2013.

Both net income and adjusted net income, a non-GAAP measure, from continuing operations were $7.9 million or $0.70 per diluted share, in the second quarter of 2014, compared to $5.8 million, or $0.51 per diluted share, in the second quarter of 2013.

Adjusted Net Income and Adjusted Diluted EPS Reconciliation (non-GAAP)			Three Months Ended June 28, 2014								Three Months Ended June 29, 2013
			($ in millions)				Diluted EPS				($ in millions)					Diluted EPS
Income and Diluted EPS from Continuing Operations Attributable to Kadant, as reported			$	7.9			$	0.70			$	5.8				$	0.51
Adjustments:
Restructuring costs				-				-				1.3					0.12
Gain on the sale of assets				-				-				(1.3	)				(0.12	)
Adjusted Net Income and Adjusted Diluted EPS			$	7.9			$	0.70			$	5.8				$	0.51

Guidance

“We had record bookings in the first and second quarters of 2014 and overall market conditions remain healthy. That said, it is not unusual for customers with larger capital projects, particularly in China, to delay shipment for any number of reasons, and we saw several of these being deferred from the third to the fourth quarter of 2014 and also into early 2015. As a result of the change in the timing of these large capital projects, we are lowering our full year 2014 guidance,” Mr. Painter continued. “For the full year, we expect revenue of $400 to $410 million, revised from our previous guidance of $410 to $420 million. We expect to achieve GAAP diluted EPS from continuing operations of $2.50 to $2.60, revised from our previous GAAP diluted EPS guidance of $2.60 to $2.70, including $0.17 of expense related to acquired inventory and backlog associated with businesses acquired in 2013 and $0.03 of restructuring costs. We expect to achieve GAAP diluted EPS from continuing operations of $0.52 to $0.54 in the third quarter of 2014 on revenue of $94 to $96 million.”

Conference Call

Kadant will hold a webcast with a slide presentation for investors on Tuesday, July 29, 2014, at 11 a.m. eastern time to discuss its second 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 877-703-6107 within the U.S., or +1-857-244-7306 outside the U.S. and reference participant passcode 83375884. 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 Web site until August 29, 2014.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the second quarter results on its Web site 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 revenues excluding the effect of acquisitions and foreign currency translation, adjusted operating income, adjusted net income, adjusted diluted EPS, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

We believe that 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 or future outlook. We believe that the inclusion of such measures helps investors to 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. 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.

We present increases or decreases in revenues excluding the effect of acquisitions and foreign currency translation to provide investors insight into underlying revenue trends.

Adjusted operating income and adjusted EBITDA exclude pre-tax restructuring costs of $0.1 million and $0.4 million for the three- and six-month periods ended June 28, 2014, respectively, and exclude pre-tax expense related to acquired backlog and inventory of $0.6 million and $2.6 million for the three- and six-month periods ended June 28, 2014, respectively. These items are excluded as they are not indicative of our core operating results and not comparable to other periods, which have differing levels of incremental costs or none at all.

Adjusted net income and adjusted diluted EPS exclude after-tax restructuring costs of $1.3 million ($1.9 million net of tax of $0.6 million) and an after-tax gain on the sale of assets of $1.3 million ($1.7 million net of tax of $0.4 million) in the three-month period ended June 29, 2013. Adjusted diluted EPS in the three-month periods ended June 28, 2014 and June 29, 2013 was calculated using the reported weighted average diluted shares for each period.

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						June 28, 2014							June 29, 2013							June 28, 2014							June 29, 2013
	Revenues						$	104,835						$	82,165						$	198,202						$	158,369
	Costs and Operating Expenses:
		Cost of revenues						59,753							42,225							110,940							82,403
		Selling, general, and administrative expenses						31,588							29,445							64,070							56,395
		Research and development expenses						1,392							1,852							3,141							3,556
		Restructuring costs and other income, net (a)						66							218							394							218
								92,799							73,740							178,545							142,572
	Operating Income							12,036							8,425							19,657							15,797
	Interest Income							82							142							304							251
	Interest Expense							(250	)						(231	)						(556	)						(396	)
	Income from Continuing Operations before Provision
		for Income Taxes						11,868							8,336							19,405							15,652
	Provision for Income Taxes							3,870							2,492							6,222							4,459
	Income from Continuing Operations							7,998							5,844							13,183							11,193
	Loss from Discontinued Operation, Net of Tax							(9	)						(12	)						(14	)						(41	)
	Net Income							7,989							5,832							13,169							11,152
	Net Income Attributable to Noncontrolling Interest							(131	)						(72	)						(258	)						(108	)
	Net Income Attributable to Kadant						$	7,858						$	5,760						$	12,911						$	11,044
	Amounts Attributable to Kadant:
			Income from Continuing Operations				$	7,867						$	5,772						$	12,925						$	11,085
			Loss from Discontinued Operation, Net of Tax					(9	)						(12	)						(14	)						(41	)
			Net Income Attributable to Kadant				$	7,858						$	5,760						$	12,911						$	11,044
	Earnings per Share from Continuing Operations
		Attributable to Kadant:
			Basic				$	0.71						$	0.52						$	1.17						$	0.99
			Diluted				$	0.70						$	0.51						$	1.15						$	0.98
	Earnings per Share Attributable to Kadant:
			Basic				$	0.71						$	0.52						$	1.16						$	0.99
			Diluted				$	0.70						$	0.51						$	1.14						$	0.98
	Weighted Average Shares:
			Basic					11,049							11,178							11,091							11,170
			Diluted					11,246							11,331							11,280							11,299
																												Increase
																												Excluding Effect
							Three Months Ended																					of Currency
	Revenues by Product Line						June 28, 2014							June 29, 2013							Increase							Translation (b,c)
	Stock-Preparation						$	36,248						$	28,493						$	7,755						$	7,089
	Doctoring, Cleaning, & Filtration							28,180							27,666							514							363
	Fluid-Handling							27,547							23,094							4,453							4,071
		Papermaking Systems Segment						91,975							79,253							12,722							11,523
		Wood Processing Systems Segment						9,837							-							9,837							9,837
		Fiber-Based Products						3,023							2,912							111							111
							$	104,835						$	82,165						$	22,670						$	21,471
																												Increase
																												Excluding Effect
							Six Months Ended																					of Currency
							June 28, 2014							June 29, 2013							Increase							Translation (b,c)
	Stock-Preparation						$	62,422						$	51,495						$	10,927						$	9,875
	Doctoring, Cleaning, & Filtration							55,189							53,528							1,661							1,348
	Fluid-Handling							52,548							46,627							5,921							5,585
		Papermaking Systems Segment						170,159							151,650							18,509							16,808
		Wood Processing Systems Segment						21,110							-							21,110							21,110
		Fiber-Based Products						6,933							6,719							214							214
							$	198,202						$	158,369						$	39,833						$	38,132
																												Increase
																												(Decrease)
																												Excluding Effect
							Three Months Ended														Increase							of Currency
	Sequential Revenues by Product Line						June 28, 2014							March 29, 2014							(Decrease)							Translation (b,c)
	Stock-Preparation						$	36,248						$	26,174						$	10,074						$	10,125
	Doctoring, Cleaning, & Filtration							28,180							27,009							1,171							1,008
	Fluid-Handling							27,547							25,001							2,546							2,379
		Papermaking Systems Segment						91,975							78,184							13,791							13,512
		Wood Processing Systems Segment						9,837							11,273							(1,436	)						(1,509	)
		Fiber-Based Products						3,023							3,910							(887	)						(887	)
							$	104,835						$	93,367						$	11,468						$	11,116
																												Increase
																												(Decrease)
																												Excluding Effect
							Three Months Ended														Increase							of Currency
	Revenues by Geography (d)						June 28, 2014							June 29, 2013							(Decrease)							Translation (b,c)
	North America						$	53,224						$	40,350						$	12,874						$	12,915
	Europe							27,288							16,594							10,694							9,223
	China							13,648							12,353							1,295							1,196
	South America							6,074							7,801							(1,727	)						(1,248	)
	Other							4,601							5,067							(466	)						(615	)
							$	104,835						$	82,165						$	22,670						$	21,471
																												Increase
																												(Decrease)
																												Excluding Effect
							Six Months Ended														Increase							of Currency
							June 28, 2014							June 29, 2013							(Decrease)							Translation (b,c)
	North America						$	106,766						$	79,228						$	27,538						$	27,756
	Europe							47,777							34,167							13,610							11,441
	China							20,343							23,581							(3,238	)						(3,526	)
	South America							12,944							11,992							952							1,733
	Other							10,372							9,401							971							728
							$	198,202						$	158,369						$	39,833						$	38,132
																												Increase
																												(Decrease)
																												Excluding Effect
							Three Months Ended														Increase							of Currency
	Sequential Revenues by Geography (d)						June 28, 2014							March 29, 2014							(Decrease)							Translation (b,c)
	North America						$	53,224						$	53,542						$	(318	)					$	(449	)
	Europe							27,288							20,489							6,799							6,757
	China							13,648							6,695							6,953							7,090
	South America							6,074							6,870							(796	)						(1,072	)
	Other							4,601							5,771							(1,170	)						(1,210	)
							$	104,835						$	93,367						$	11,468						$	11,116
							Three Months Ended														Six Months Ended
	Business Segment Information						June 28, 2014							June 29, 2013							June 28, 2014							June 29, 2013
	Gross Profit Margin:
			Papermaking Systems					43.5	%						48.7	%						45.4	%						47.8	%
			Other					39.1	%						47.1	%						35.8	%						51.4	%
								43.0	%						48.6	%						44.0	%						48.0	%
	Operating Income:
			Papermaking Systems				$	13,803						$	11,821						$	23,213						$	21,765
			Corporate and Other					(1,767	)						(3,396	)						(3,556	)						(5,968	)
							$	12,036						$	8,425						$	19,657						$	15,797
	Adjusted Operating Income (c) (g)
			Papermaking Systems				$	13,869						$	12,039						$	23,668						$	21,983
			Corporate and Other					(1,189	)						(3,396	)						(1,028	)						(5,968	)
							$	12,680						$	8,643						$	22,640						$	16,015
	Bookings from Continuing Operations:
			Papermaking Systems				$	98,646						$	84,857						$	202,612						$	170,485
			Other					16,296							2,271							27,035							6,925
							$	114,942						$	87,128						$	229,647						$	177,410
	Capital Expenditures from Continuing Operations:
			Papermaking Systems				$	772						$	1,226						$	1,289						$	2,398
			Corporate and Other					131							168							153							174
							$	903						$	1,394						$	1,442						$	2,572
							Three Months Ended														Six Months Ended
	Cash Flow and Other Data from Continuing Operations						June 28, 2014							June 29, 2013							June 28, 2014							June 29, 2013
	Cash Provided by Operations						$	8,993						$	11,090						$	15,195						$	18,071
	Depreciation and Amortization Expense							2,829							2,475							5,874							4,428
	Balance Sheet Data																				June 28, 2014							Dec. 28, 2013
	Assets
	Cash, Cash Equivalents, and Restricted Cash																				$	37,677						$	50,200
	Accounts Receivable, Net																					67,233							70,271
	Inventories																					60,087							62,805
	Unbilled Contract Costs and Fees																					3,344							3,679
	Other Current Assets																					20,023							19,333
	Property, Plant and Equipment, Net																					43,879							44,885
	Intangible Assets																					46,305							47,850
	Goodwill																					134,098							131,915
	Other Assets																					10,894							11,230
																					$	423,540						$	442,168
	Liabilities and Stockholders' Equity
	Accounts Payable																				$	29,254						$	28,388
	Short- and Long-term Debt																					28,194							38,635
	Other Liabilities																					95,029							104,724
		Total Liabilities																				152,477							171,747
		Stockholders' Equity																				271,063							270,421
																					$	423,540						$	442,168
	Adjusted Operating Income and Adjusted EBITDA						Three Months Ended														Six Months Ended
	Reconciliation						June 28, 2014							June 29, 2013							June 28, 2014							June 29, 2013
	Consolidated
			Net Income Attributable to Kadant				$	7,858						$	5,760						$	12,911						$	11,044
			Net Income Attributable to Noncontrolling Interest					131							72							258							108
			Loss from Discontinued Operation, Net of Tax					9							12							14							41
			Provision for Income Taxes					3,870							2,492							6,222							4,459
			Interest Expense, Net					168							89							252							145
			Operating Income					12,036							8,425							19,657							15,797
			Restructuring Costs and Other Income, Net (a)					66							218							394							218
			Acquired Backlog Amortization (e)					76							-							392							-
			Acquired Profit in Inventory (f)					502							-							2,197							-
			Adjusted Operating Income (c)					12,680							8,643							22,640							16,015
			Depreciation and Amortization					2,753							2,475							5,482							4,428
			Adjusted EBITDA (c)				$	15,433						$	11,118						$	28,122						$	20,443
	Papermaking Systems
			Operating Income				$	13,803						$	11,821						$	23,213						$	21,765
			Restructuring Costs and Other Income, Net (a)					66							218							394							218
			Acquired Profit in Inventory (f)					-							-							61							-
			Adjusted Operating Income (c)					13,869							12,039							23,668							21,983
			Depreciation and Amortization					1,984							2,356							3,945							4,191
			Adjusted EBITDA (c)				$	15,853						$	14,395						$	27,613						$	26,174
	Corporate and Other
			Operating Loss				$	(1,767	)					$	(3,396	)					$	(3,556	)					$	(5,968	)
			Acquired Backlog Amortization (e)					76							-							392							-
			Acquired Profit in Inventory (f)					502							-							2,136							-
			Adjusted Operating Loss (c)					(1,189	)						(3,396	)						(1,028	)						(5,968	)
			Depreciation and Amortization					769							119							1,537							237
			Adjusted EBITDA (c)				$	(420	)					$	(3,277	)					$	509						$	(5,731	)

	(a)					Includes restructuring costs of $66 and $394 in the three- and six-month periods ended June 28, 2014, respectively. Includes
						restructuring costs of $1,958 net of a gain of $1,740 from the sale of assets, in both the three- and six-month periods
						ended June 29, 2013.
	(b)					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.
	(c)					Represents a non-GAAP financial measure.
	(d)					Geographic revenues are attributed to regions based on customer location.
	(e)					Represents intangible amortization expense associated with backlog acquired in 2013.
	(f)					Represents expense within cost of revenues associated with profit in inventory acquired in 2013.
	(g)					See reconciliation to the most directly comparable GAAP financial measure under "Adjusted Operating Income and
						Adjusted EBITDA Reconciliation."

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 revenue of $344 million in 2013 and 1,800 employees in 18 countries worldwide. For more information, visit www.kadant.com.

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 expected future financial and operating performance, demand for our products, and economic and industry outlook. Our actual results may 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 quarterly report on Form 10-Q for the period ended March 29, 2014. These include risks and uncertainties relating to our dependence on process industries; significance of sales and operation of manufacturing facilities in China; oriented strand board market and levels of residential construction activity; commodity and component price increases or shortages; dependence on certain suppliers; international sales and operations; our acquisition strategy; our internal growth strategy; fluctuations in currency exchange rates; competition; soundness of suppliers and customers; our effective tax rate; future restructurings; soundness of financial institutions; our debt obligations; restrictions in our credit agreement; reliance on third-party research; protection of patents and proprietary rights; failure of our information systems or breaches of data security; fluctuations in our share price; and anti-takeover provisions. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

Source: Kadant Inc.

Kadant Inc.
Investor contact:
Thomas M. O’Brien, 978-776-2000
or
Media contact:
Wes Martz, 269-278-1715