News Release

WESTFORD, Mass.--(BUSINESS WIRE)--Aug. 5, 2015-- Kadant Inc. (NYSE:KAI) reported its financial results for the second fiscal quarter ended July 4, 2015.

Second Quarter 2015 Financial Highlights

• GAAP diluted earnings per share (EPS) from continuing operations increased 9% to $0.76 in the second quarter of 2015 compared to $0.70 in the second quarter of 2014. The second quarter of 2015 included a $0.09 unfavorable effect of foreign currency translation compared to the second quarter of 2014. Guidance was $0.69 to $0.71.
• Adjusted diluted EPS increased 5% to $0.78 in the second quarter of 2015 compared to $0.74 in the second quarter of 2014.
• Revenue decreased 6% to $98 million in the second quarter of 2015 compared to $105 million in the second quarter of 2014, including a $9 million, or 8%, decrease from the unfavorable effects of foreign currency translation and a $2 million, or 2%, increase from an acquisition. Guidance was $95 to $97 million.
• Parts and consumables revenue increased 4% to $65 million, or 66% of total revenue, in the second quarter of 2015, compared to $63 million, or 60% of total revenue, in the second quarter of 2014. Excluding a $6 million unfavorable effect of foreign currency translation, parts and consumables revenue increased 13% compared to the second quarter of 2014.
• Gross margin was 46.5% in the second quarter of 2015, compared to 43.0% in the second quarter of 2014.
• Operating income increased 5% to $13 million in the second quarter of 2015 compared to $12 million in the second quarter of 2014 and represented 12.9% of revenue.
• Net income from continuing operations was $8 million in the second quarters of 2015 and 2014.
• Adjusted EBITDA was a record $16 million in the second quarter of 2015, up 1% compared to $15 million in the second quarter of 2014 and 17% sequentially, and represented 15.9% of revenue.
• Bookings decreased 19% to $94 million in the second quarter of 2015 compared to a record $115 million in the second quarter of 2014, including a $9 million, or 8%, decrease from the unfavorable effects of foreign currency translation and a $2 million, or 2%, increase from an acquisition. Excluding the acquisition and the foreign currency translation effect, bookings decreased 13% in the second quarter of 2015 compared to the second quarter of 2014.
• Backlog was $132 million at the end of the second quarter of 2015 and the second highest in our Company’s history.
• We repurchased 86,518 shares of our common stock for $4 million in the second quarter of 2015.

Note: Adjusted diluted EPS and adjusted EBITDA 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” and in the reconciliation tables below.

Management Commentary

“We had another solid quarter with better-than-expected revenue and earnings per share along with excellent gross margin performance,” said Jonathan W. Painter, president and chief executive officer of Kadant Inc. “Our diluted earnings per share from continuing operations was $0.76 in the second quarter of 2015, which exceeded our guidance of $0.69 to $0.71. Our operating margin increased to nearly 13 percent in the second quarter of 2015 compared to 11 percent in the second quarter of 2014.

“Despite the headwinds from the strong dollar, our revenue of $98 million in the second quarter of 2015 was better than expected, but was down six percent compared to the second quarter of 2014 due to the effects of foreign currency translation. Excluding these translation effects, our revenue growth was two percent in the second quarter of 2015 compared to the second quarter of 2014. Our revenue in North America was a record $59 million in the second quarter of 2015, increasing 11 percent compared to the second quarter of 2014. Our parts and consumables revenue increased four percent to $65 million in the second quarter of 2015 and was the second highest in our Company’s history.”

Second Quarter 2015

Kadant reported revenue of $98.3 million in the second quarter of 2015, a decrease of $6.5 million, or six percent, compared with $104.8 million in the second quarter of 2014. Revenue for the second quarter of 2015 included $2.5 million from an acquisition and an $8.5 million decrease from the unfavorable effects of foreign currency translation compared to the second quarter of 2014. Operating income from continuing operations increased five percent to $12.6 million in the second quarter of 2015 compared to $12.0 million in the second quarter of 2014. Operating income included $0.3 million of expense related to restructuring and acquired inventory and backlog in the second quarter of 2015 compared to $0.7 million of expense in the second quarter of 2014. Adjusted operating income, a non-GAAP measure, was $12.9 million in the second quarter of 2015 compared to $12.7 million in the second quarter of 2014.

Net income from continuing operations was $8.5 million in the second quarter of 2015, or $0.76 per diluted share, compared to $7.9 million, or $0.70 per diluted share, in the second quarter of 2014. Net income from continuing operations in the second quarter of 2015 included $0.2 million, or $0.02 per diluted share, of after-tax restructuring costs. Net income from continuing operations in the second quarter of 2014 included after-tax expense of $0.4 million, or $0.04 per diluted share, related to acquired inventory and backlog. Adjusted net income, a non-GAAP measure, was $8.7 million, or $0.78 per diluted share, in the second quarter of 2015 compared to $8.3 million, or $0.74 per diluted share, in the second quarter of 2014.

Adjusted Net Income and Adjusted Diluted EPS Reconciliation (non-GAAP)					Three Months Ended July 4, 2015							Three Months Ended June 28, 2014
					($ in millions)			Diluted EPS				($ in millions)			Diluted EPS
Income and Diluted EPS from continuing operations, as reported					$	8.5		$	0.76			$	7.9		$	0.70
Adjustments for the following:
Amortization of profit in inventory and acquired backlog, net of tax						- -			- -				0.4			0.04
Restructuring costs, net of tax						0.2			0.02				-			-
Adjusted Net Income and Adjusted Diluted EPS					$	8.7		$	0.78			$	8.3		$	0.74

Guidance

“The first half of 2015 has positioned us well for another great year,” Mr. Painter continued. “That said, we expect the shipment dates for several capital projects in China to be delayed into 2016. As a result, we are lowering our full year revenue guidance and now expect full year revenue of $395 to $400 million, revised from our previous guidance of $403 to $410 million. While we expect that improved operating margins will diminish the impact from the delayed capital shipments, we are narrowing our full year guidance for GAAP diluted EPS from continuing operations to $3.05 to $3.11, revised from our previous guidance of $3.05 to $3.15. For the third quarter of 2015, we expect to achieve GAAP diluted EPS from continuing operations of $0.70 to $0.72 on revenue of $95 to $97 million. We still expect 2015 to be a record year for GAAP diluted EPS.”

Conference Call

Kadant will hold a webcast with a slide presentation for investors on Thursday, August 6, 2015, 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 September 4, 2015.

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 revenue excluding acquisitions and the effect of foreign currency translation, adjusted operating income, adjusted net income, adjusted diluted EPS, earnings before interest, taxes, depreciation, and amortization (EBITDA) and adjusted 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, operating results, 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 and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making and for compensation purposes. We also believe this information is responsive to investors' requests and gives them an additional measure of our performance.

The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for the results of operations prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.

Revenue included $2.5 million from an acquisition and an $8.5 million unfavorable foreign currency translation effect in the second quarter of 2015 and $4.2 million from an acquisition and a $15.2 million unfavorable foreign currency translation effect in the first six months of 2015. We present increases or decreases in revenue excluding the effects of acquisitions and foreign currency translation to provide investors insight into underlying revenue trends.

Adjusted operating income, adjusted EBITDA, adjusted net income, and adjusted diluted EPS exclude restructuring costs and expense related to acquired inventory and backlog. These items are excluded as they are not indicative of our core operating results and are not comparable to other periods, which have differing levels of incremental costs or none at all.

Adjusted operating income and adjusted EBITDA exclude:

• Pre-tax restructuring costs of $0.2 million and $0.1 million in the second quarters of 2015 and 2014, respectively, and $0.3 million and $0.4 million in the first six months of 2015 and 2014, respectively.
• Pre-tax expense related to acquired inventory and backlog of $0.1 million and $0.6 million in the second quarters of 2015 and 2014, respectively, and $0.2 million and $2.6 million in the first six months of 2015 and 2014, respectively.

Adjusted net income and adjusted diluted EPS exclude:

• After-tax restructuring costs of $0.2 million in the second quarter of 2015.
• After-tax expense related to acquired inventory and backlog of $0.4 million ($0.6 million net of tax of $0.2 million) in the second quarter of 2014.

Adjusted diluted EPS in the second quarters of 2015 and 2014 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							July 4, 2015				June 28, 2014					July 4, 2015				June 28, 2014
Revenues							$	98,327			$	104,835				$	190,578			$	198,202
Costs and Operating Expenses:
	Cost of revenues							52,600				59,753					100,514				110,940
	Selling, general, and administrative expenses							31,068				31,588					63,290				64,070
	Research and development expenses							1,800				1,392					3,460				3,141
	Restructuring costs							216				66					300				394
								85,684				92,799					167,564				178,545
Operating Income								12,643				12,036					23,014				19,657
Interest Income								43				82					96				304
Interest Expense								(231	)			(250	)				(462	)			(556	)
Income from Continuing Operations before Provision
	for Income Taxes							12,455				11,868					22,648				19,405
Provision for Income Taxes								3,914				3,870					7,182				6,222
Income from Continuing Operations								8,541				7,998					15,466				13,183
(Loss) Income from Discontinued Operation, Net of Tax								(5	)			(9	)				60				(14	)
Net Income								8,536				7,989					15,526				13,169
Net Income Attributable to Noncontrolling Interest								(72	)			(131	)				(165	)			(258	)
Net Income Attributable to Kadant							$	8,464			$	7,858				$	15,361			$	12,911
Amounts Attributable to Kadant:
		Income from Continuing Operations					$	8,469			$	7,867				$	15,301			$	12,925
		(Loss) Income from Discontinued Operation, Net of Tax						(5	)			(9	)				60				(14	)
		Net Income Attributable to Kadant					$	8,464			$	7,858				$	15,361			$	12,911
Earnings per Share from Continuing Operations
	Attributable to Kadant:
		Basic					$	0.77			$	0.71				$	1.40			$	1.17
		Diluted					$	0.76			$	0.70				$	1.37			$	1.15
Earnings per Share Attributable to Kadant:
		Basic					$	0.77			$	0.71				$	1.41			$	1.16
		Diluted					$	0.76			$	0.70				$	1.38			$	1.14
Weighted Average Shares:
		Basic						10,948				11,049					10,920				11,091
		Diluted						11,173				11,246					11,130				11,280
																				Increase
																				(Decrease)
																				Excluding Effect
							Three Months Ended													of Currency
Revenues by Product Line							July 4, 2015				June 28, 2014					Decrease				Translation (a,b)
Stock-Preparation							$	35,271			$	36,248				$	(977	)		$	1,118
Doctoring, Cleaning, & Filtration								26,800				28,180					(1,380	)			983
Fluid-Handling								24,554				27,547					(2,993	)			(39	)
	Papermaking Systems Segment							86,625				91,975					(5,350	)			2,062
	Wood Processing Systems Segment							9,019				9,837					(818	)			316
	Fiber-Based Products							2,683				3,023					(340	)			(340	)
							$	98,327			$	104,835				$	(6,508	)		$	2,038
																				Increase
																				(Decrease)
																				Excluding Effect
							Six Months Ended									Increase				of Currency
							July 4, 2015				June 28, 2014					(Decrease)				Translation (a,b)
Stock-Preparation							$	65,917			$	62,422				$	3,495			$	7,316
Doctoring, Cleaning, & Filtration								54,086				55,189					(1,103	)			3,045
Fluid-Handling								47,277				52,548					(5,271	)			(158	)
	Papermaking Systems Segment							167,280				170,159					(2,879	)			10,203
	Wood Processing Systems Segment							16,791				21,110					(4,319	)			(2,194	)
	Fiber-Based Products							6,507				6,933					(426	)			(426	)
							$	190,578			$	198,202				$	(7,624	)		$	7,583
																				Increase
																				(Decrease)
																				Excluding Effect
							Three Months Ended									Increase				of Currency
Sequential Revenues by Product Line							July 4, 2015				April 4, 2015					(Decrease)				Translation (a,b)
Stock-Preparation							$	35,271			$	30,646				$	4,625			$	4,766
Doctoring, Cleaning, & Filtration								26,800				27,286					(486	)			(333	)
Fluid-Handling								24,554				22,723					1,831				2,051
	Papermaking Systems Segment							86,625				80,655					5,970				6,484
	Wood Processing Systems Segment							9,019				7,772					1,247				1,167
	Fiber-Based Products							2,683				3,824					(1,141	)			(1,141	)
							$	98,327			$	92,251				$	6,076			$	6,510
																				Increase
																				(Decrease)
																				Excluding Effect
							Three Months Ended									Increase				of Currency
Revenues by Geography (c)							July 4, 2015				June 28, 2014					(Decrease)				Translation (a,b)
North America							$	59,075			$	53,224				$	5,851			$	7,752
Europe								17,734				27,288					(9,554	)			(5,663	)
Asia								14,044				16,199					(2,155	)			(1,378	)
Rest of World								7,474				8,124					(650	)			1,327
							$	98,327			$	104,835				$	(6,508	)		$	2,038
																				Increase
																				(Decrease)
																				Excluding Effect
							Six Months Ended									Increase				of Currency
							July 4, 2015				June 28, 2014					(Decrease)				Translation (a,b)
North America							$	116,166			$	106,766				$	9,400			$	12,687
Europe								33,990				47,777					(13,787	)			(6,548	)
Asia								27,174				26,367					807				2,509
Rest of World								13,248				17,292					(4,044	)			(1,065	)
							$	190,578			$	198,202				$	(7,624	)		$	7,583
																				Increase
																				Excluding Effect
							Three Months Ended													of Currency
Sequential Revenues by Geography (c)							July 4, 2015				April 4, 2015					Increase				Translation (a,b)
North America							$	59,075			$	57,091				$	1,984			$	1,966
Europe								17,734				16,256					1,478				1,672
Asia								14,044				13,130					914				890
Rest of World								7,474				5,774					1,700				1,982
							$	98,327			$	92,251				$	6,076			$	6,510
																				Increase
																				(Decrease)
																				Excluding Effect
							Three Months Ended									Increase				of Currency
Bookings by Product Line							July 4, 2015				June 28, 2014					(Decrease)				Translation (a)
Bookings from Continuing Operations:
		Stock-Preparation					$	28,588			$	45,502				$	(16,914	)		$	(15,154	)
		Doctoring, Cleaning, & Filtration						25,972				28,345					(2,373	)			301
		Fluid-Handling						23,303				24,799					(1,496	)			1,484
		Papermaking Systems						77,863				98,646					(20,783	)			(13,369	)
		Wood Processing Systems						13,185				13,698					(513	)			1,145
		Fiber-Based Products						2,670				2,598					72				72
							$	93,718			$	114,942				$	(21,224	)		$	(12,152	)
																				Increase
																				(Decrease)
																				Excluding Effect
							Six Months Ended													of Currency
Bookings by Product Line							July 4, 2015				June 28, 2014					Decrease				Translation (a)
Bookings from Continuing Operations:
		Stock-Preparation					$	72,931			$	89,325				$	(16,394	)		$	(12,509	)
		Doctoring, Cleaning, & Filtration						53,020				60,614					(7,594	)			(3,246	)
		Fluid-Handling						49,395				52,673					(3,278	)			2,471
		Papermaking Systems						175,346				202,612					(27,266	)			(13,284	)
		Wood Processing Systems						21,175				21,502					(327	)			2,350
		Fiber-Based Products						5,194				5,533					(339	)			(339	)
							$	201,715			$	229,647				$	(27,932	)		$	(11,273	)
							Three Months Ended									Six Months Ended
Business Segment Information							July 4, 2015				June 28, 2014					July 4, 2015				June 28, 2014
Gross Profit Margin:
		Papermaking Systems						46.2	%			43.5	%				46.8	%			45.4	%
		Other						48.9	%			39.1	%				50.5	%			35.8	%
								46.5	%			43.0	%				47.3	%			44.0	%
Operating Income:
		Papermaking Systems					$	15,030			$	13,803				$	27,313			$	23,213
		Corporate and Other						(2,387	)			(1,767	)				(4,299	)			(3,556	)
							$	12,643			$	12,036				$	23,014			$	19,657
Adjusted Operating Income (b) (f)
		Papermaking Systems					$	15,295			$	13,869				$	27,801			$	23,668
		Corporate and Other						(2,387	)			(1,189	)				(4,299	)			(1,028	)
							$	12,908			$	12,680				$	23,502			$	22,640
Capital Expenditures from Continuing Operations:
		Papermaking Systems					$	1,202			$	772				$	2,154			$	1,289
		Corporate and Other						233				131					497				153
							$	1,435			$	903				$	2,651			$	1,442
							Three Months Ended									Six Months Ended
Cash Flow and Other Data from Continuing Operations							July 4, 2015				June 28, 2014					July 4, 2015				June 28, 2014
Cash Provided by Operations							$	14,164			$	8,993				$	9,641			$	15,195
Depreciation and Amortization Expense								2,753				2,829					5,663				5,874
Balance Sheet Data																July 4, 2015				Jan. 3, 2015
Assets
Cash, Cash Equivalents, and Restricted Cash																$	48,585			$	45,793
Accounts Receivable, Net																	58,117				58,508
Inventories																	64,207				55,223
Unbilled Contract Costs and Fees																	4,066				5,436
Other Current Assets																	22,670				18,714
Property, Plant and Equipment, Net																	43,693				44,965
Intangible Assets																	42,143				46,954
Goodwill																	122,804				127,882
Other Assets																	9,548				10,272
																$	415,833			$	413,747
Liabilities and Stockholders' Equity
Accounts Payable																$	28,453			$	27,233
Short- and Long-term Debt																	28,500				25,861
Other Liabilities																	93,205				95,194
	Total Liabilities																150,158				148,288
	Stockholders' Equity																265,675				265,459
																$	415,833			$	413,747
Adjusted Operating Income and Adjusted EBITDA							Three Months Ended									Six Months Ended
Reconciliation							July 4, 2015				June 28, 2014					July 4, 2015				June 28, 2014
Consolidated
		Net Income Attributable to Kadant					$	8,464			$	7,858				$	15,361			$	12,911
		Net Income Attributable to Noncontrolling Interest						72				131					165				258
		Loss (Income) from Discontinued Operation, Net of Tax						5				9					(60	)			14
		Provision for Income Taxes						3,914				3,870					7,182				6,222
		Interest Expense, Net						188				168					366				252
		Operating Income						12,643				12,036					23,014				19,657
		Restructuring Costs						216				66					300				394
		Acquired Backlog Amortization (d)						16				76					107				392
		Acquired Profit in Inventory (e)						33				502					81				2,197
		Adjusted Operating Income (b)						12,908				12,680					23,502				22,640
		Depreciation and Amortization						2,737				2,753					5,556				5,482
		Adjusted EBITDA (b)					$	15,645			$	15,433				$	29,058			$	28,122
Papermaking Systems
		Operating Income					$	15,030			$	13,803				$	27,313			$	23,213
		Restructuring Costs						216				66					300				394
		Acquired Backlog Amortization (d)						16				-					107				-
		Acquired Profit in Inventory (e)						33				-					81				61
		Adjusted Operating Income (b)						15,295				13,869					27,801				23,668
		Depreciation and Amortization						1,977				1,984					4,049				3,945
		Adjusted EBITDA (b)					$	17,272			$	15,853				$	31,850			$	27,613
Corporate and Other
		Operating Loss					$	(2,387	)		$	(1,767	)			$	(4,299	)		$	(3,556	)
		Acquired Backlog Amortization (d)						-				76					-				392
		Acquired Profit in Inventory (e)						-				502					-				2,136
		Adjusted Operating Loss (b)						(2,387	)			(1,189	)				(4,299	)			(1,028	)
		Depreciation and Amortization						760				769					1,507				1,537
		Adjusted EBITDA (b)					$	(1,627	)		$	(420	)			$	(2,792	)		$	509

(a) 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.

(b) Represents a non-GAAP financial measure.

(c) Geographic revenues are attributed to regions based on customer location.

(d) Represents intangible amortization expense associated with acquired backlog.

(e) Represents expense within cost of revenues associated with acquired profit in inventory.

(f) 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 $402 million in fiscal year 2014 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 annual report on Form 10-K for the year ended January 3, 2015 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 revenue from large capital equipment and systems projects; the variability and uncertainties in sales of capital equipment in China; currency fluctuations; our customers’ ability to obtain financing for capital equipment projects; changes in government regulations and policies; the oriented strand board market and levels of residential construction activity; development and use of digital media; price increases or shortages of raw materials; dependence on certain suppliers; international sales and operations; disruption in production; our acquisition strategy; our internal growth strategy; competition; soundness of suppliers and customers; our effective tax rate; future restructurings; soundness of financial institutions; our debt obligations; restrictions in our credit agreement; loss of key personnel; 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.

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Source: Kadant Inc.

Kadant Inc.
Investor contact:
Michael McKenney, 978-776-2000
or
Media contact:
Wes Martz, 269-278-1715