Kadant Reports 2019 First Quarter Results

April 29, 2019 at 4:32 PM EDT
Reports Record Revenue and Bookings

WESTFORD, Mass., April 29, 2019 (GLOBE NEWSWIRE) -- Kadant Inc. (NYSE: KAI) reported its financial results for the first quarter ended March 30, 2019.

First Quarter 2019 Highlights

  • Revenue increased 15% to a record $171 million
  • GAAP diluted EPS was unchanged at $0.96
  • Adjusted diluted EPS increased 16% to $1.24
  • Net income was unchanged at $11 million
  • Adjusted EBITDA increased 27% to $30 million and represented 17.5% of revenue
  • Gross margin was 41.2%
  • Bookings increased 1% to a record $184 million
  • Revenue and bookings for parts and consumables were a record at $113 million and $120 million, respectively
  • Backlog increased 16% sequentially to a record $200 million
  • Cash flow from operations increased 37% to $10 million

Note: Adjusted diluted EPS, adjusted EBITDA, and adjusted EBITDA margin 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 a great start to 2019 with record bookings and revenue and a nice EPS beat in the first quarter,” said Jonathan Painter, chief executive officer. “Solid performance by our recent acquisition, Syntron Material Handling Group, contributed to our record-setting quarter and helped drive our backlog to a record $200 million, a 16 percent sequential increase.

“Strong operating performance across our businesses led to our adjusted EBITDA increasing 27 percent and cash flow from operations increasing 37 percent compared to the first quarter of 2018. We continued to see healthy market conditions in North America, while China experienced slower activity due to restrictions on wastepaper imports and weaker demand. We are seeing strong project activity in Southeast Asia as producers seek to build capacity outside of China.

“Our parts and consumables revenue and bookings in the first quarter were also outstanding, up 18 percent and 17 percent, respectively, compared to the first quarter of 2018. This continues to be a strategic focus of ours and I am pleased to see these positive results.”

First Quarter 2019 Results
Revenue increased 15 percent to $171.3 million compared to the first quarter of 2018, including $20.6 million from an acquisition and a $7.0 million decrease from the unfavorable effect of foreign currency translation. Excluding the impact of an acquisition and foreign currency translation, revenue increased six percent compared to the first quarter of 2018. Gross margin was 41.2 percent, including a 1.3 percent negative impact from the amortization of acquired profit in inventory. Net income was $10.9 million, or $0.96 per diluted share, in both the first quarters of 2019 and 2018. Adjusted diluted EPS increased 16 percent to $1.24 compared to $1.07 in the first quarter of 2018. Adjusted diluted EPS in the first quarter of 2019 excludes $0.22 of amortization from acquired profit in inventory and backlog and $0.06 of acquisition costs. Adjusted diluted EPS in the first quarter of 2018 excludes $0.05 of restructuring costs, $0.04 of discrete tax expense, and $0.02 of amortization from acquired backlog.

Adjusted EBITDA increased 27 percent to $30.0 million compared to $23.5 million in the first quarter of 2018. Adjusted EBITDA excludes $3.3 million of amortization from acquired profit in inventory and backlog and $0.8 million of acquisition costs in the first quarter of 2019 and $0.8 million of restructuring costs and $0.3 million of amortization from acquired backlog in the first quarter of 2018. Cash flows from operations increased 37 percent to $9.9 million compared to $7.2 million in the first quarter of 2018. Bookings increased to a record $183.6 million compared to $181.9 million in the first quarter of 2018, including $24.5 million from an acquisition and a $7.7 million decrease from the unfavorable effect of foreign currency translation. Excluding the impact of an acquisition and foreign currency translation, bookings decreased eight percent compared to the first quarter of 2018.

Summary and Outlook
“Despite the policy uncertainty on wastepaper imports in China and some weakness in our Wood Processing capital business in North America, we are encouraged by our solid start to 2019,” Mr. Painter continued. “For 2019, we are reaffirming our adjusted diluted EPS and revenue guidance and raising our GAAP diluted EPS guidance from our previous guidance of $4.75 to $4.90. We now expect to achieve GAAP diluted EPS of $4.84 to $4.99 on revenue of $700 to $710 million. The 2019 guidance includes pre-tax amortization expense associated with acquired profit in inventory and backlog of $4.6 million, or $0.30 per diluted share, and pre-tax acquisition costs of $0.8 million, or $0.06 per diluted share. Excluding these expenses, we expect adjusted diluted EPS of $5.20 to $5.35 for 2019.

“For the second quarter of 2019, we expect GAAP diluted EPS of $0.99 to $1.05 on revenue of $165 to $170 million. The second quarter of 2019 guidance includes pre-tax amortization expense associated with acquired profit in inventory and backlog of $1.1 million, or $0.08 per diluted share. Excluding this expense, we expect adjusted diluted EPS of $1.07 to $1.13 for the second quarter of 2019.”

Conference Call
Kadant will hold a webcast with a slide presentation for investors on Tuesday, April 30, 2019, at 11:00 a.m. eastern time to discuss its first 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 888-326-8410 within the U.S., or +1-704-385-4884 outside the U.S. and reference participant passcode 8759439. 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 website until May 31, 2019.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the first 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, adjusted operating income, adjusted net income, adjusted diluted earnings per share (EPS), earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, and adjusted EBITDA margin. 

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.

Revenue in the first quarter of 2019 included $20.6 million from an acquisition and a $7.0 million unfavorable foreign currency translation effect. We present increases or decreases in revenue excluding the effect of acquisitions and foreign currency translation to provide investors insight into underlying revenue trends.
                       
Our non-GAAP financial measures exclude restructuring costs, acquisition costs, amortization expense related to acquired profit in inventory and backlog, and discrete tax expense. 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 income or none at all.

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

  • Pre-tax acquisition costs of $0.8 million in the first quarter of 2019.
  • Pre-tax expense related to amortization of acquired profit in inventory and backlog of $3.3 million in the first quarter of 2019.
  • Pre-tax restructuring costs of $0.8 million in the first quarter of 2018.
  • Pre-tax expense related to amortization of acquired backlog of $0.3 million in the first quarter of 2018.

Adjusted net income and adjusted diluted EPS exclude:

  • After-tax acquisition costs of $0.7 million ($0.8 million net of tax of $0.1 million) in the first quarter of 2019.
  • After-tax expense related to amortization of acquired profit in inventory and backlog of $2.5 million ($3.3 million net of tax of $0.8 million) in the first quarter of 2019.
  • After-tax restructuring costs of $0.6 million ($0.8 million net of tax of $0.2 million) in the first quarter of 2018.
  • After-tax expense related to amortization of acquired backlog of $0.2 million ($0.3 million net of tax of $0.1 million) in the first quarter of 2018.
  • Discrete tax expense of $0.4 million in the first quarter of 2018.

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    
Consolidated Statement of Income March 30, 2019   March 31, 2018        
                     
Revenues $ 171,316     $ 149,193          
                     
Costs and Operating Expenses:              
Cost of revenues   100,801       83,114          
Selling, general, and administrative expenses   49,319       45,776          
Research and development expenses   2,621       2,869          
Restructuring costs   -       770          
          152,741       132,529          
                     
Operating Income   18,575       16,664          
Interest Income   56       183          
Interest Expense   (3,504 )     (1,732 )        
Other Expense, Net   (99 )     (246 )        
                     
Income Before Provision for Income Taxes   15,028       14,869          
Provision for Income Taxes   3,963       3,861          
                     
Net Income   11,065       11,008          
                     
Net Income Attributable to Noncontrolling Interest   (165 )     (150 )        
                     
Net Income Attributable to Kadant $ 10,900     $ 10,858          
                     
Earnings per Share Attributable to Kadant:              
Basic   $ 0.98     $ 0.98          
Diluted   $ 0.96     $ 0.96          
                     
Weighted Average Shares:              
Basic     11,133       11,042          
Diluted     11,385       11,342          
                     
                     
        Three Months Ended   Three Months Ended
Adjusted Net Income and Adjusted Diluted EPS (a) March 30, 2019   March 30, 2019   March 31, 2018   March 31, 2018
                     
Net Income and Diluted EPS Attributable to Kadant, as Reported $ 10,900     $ 0.96     $ 10,858     $ 0.96  
Adjustments for the Following:              
Restructuring Costs, Net of Tax   -       -       589       0.05  
Acquisition Costs, Net of Tax   699       0.06       -       -  
Amortization of Acquired Profit in Inventory and Backlog, Net of Tax (e,f)   2,513       0.22       189       0.02  
Discrete Tax Items   -       -       444       0.04  
                     
Adjusted Net Income and Adjusted Diluted EPS (a) $ 14,112     $ 1.24     $ 12,080     $ 1.07  
                     
                    Increase
                    (Decrease)
                    Excluding
        Three Months Ended   Increase
(Decrease)
  Acquisition
Revenues by Product Line March 30, 2019   March 31, 2018     and FX (a,b)
                     
Stock-Preparation $ 52,048     $ 45,483     $ 6,565     $ 9,129  
Fluid-Handling   32,754       32,886       (132 )     1,207  
Doctoring, Cleaning, & Filtration   28,390       27,222       1,168       2,298  
                     
Papermaking Systems   113,192       105,591       7,601       12,634  
Wood Processing Systems   34,049       39,141       (5,092 )     (3,117 )
Material Handling Systems   20,584       -       20,584       -  
Fiber-Based Products   3,491       4,461       (970 )     (970 )
                     
        $ 171,316     $ 149,193     $ 22,123     $ 8,547  
                     
                    Increase
                    (Decrease)
                    Excluding
        Three Months Ended   Increase
(Decrease)
  Acquisition
Revenues by Geography (c) March 30, 2019   March 31, 2018     and FX (a,b)
                     
North America $ 100,876     $ 77,616     $ 23,260     $ 5,803  
Europe   38,985       41,493       (2,508 )     739  
Asia   17,078       20,148       (3,070 )     (2,643 )
Rest of World   14,377       9,936       4,441       4,648  
                     
        $ 171,316     $ 149,193     $ 22,123     $ 8,547  
                     
                    Increase
                    (Decrease)
                    Excluding
        Three Months Ended   Increase
(Decrease)
  Acquisition
Bookings by Product Line March 30, 2019   March 31, 2018     and FX (b)
                     
Stock-Preparation $ 55,828     $ 56,515     $ (687 )   $ 2,130  
Fluid-Handling   37,039       39,770       (2,731 )     (1,084 )
Doctoring, Cleaning, & Filtration   27,696       28,331       (635 )     433  
                     
Papermaking Systems   120,563       124,616       (4,053 )     1,479  
Wood Processing Systems   34,882       52,729       (17,847 )     (15,642 )
Material Handling Systems   24,475       -       24,475       -  
Fiber-Based Products   3,692       4,575       (883 )     (883 )
                     
        $ 183,612     $ 181,920     $ 1,692     $ (15,046 )
                     
        Three Months Ended    
Business Segment Information  March 30, 2019   March 31, 2018        
                     
Gross Margin:              
Papermaking Systems     44.2 %     45.6 %        
Wood Processing Systems     41.4 %     39.5 %        
Material Handling Systems     22.5 %     -          
Fiber-Based Products     50.3 %     56.0 %        
                     
          41.2 %     44.3 %        
Operating Income:              
Papermaking Systems   $ 18,509     $ 14,584          
Wood Processing Systems     7,270       7,363          
Material Handling Systems     (1,353 )     -          
Corporate and Other     (5,851 )     (5,283 )        
                     
        $ 18,575     $ 16,664          
                     
Adjusted Operating Income (a,d):              
Papermaking Systems   $ 18,509     $ 15,354          
Wood Processing Systems     7,270       7,615          
Material Handling Systems     2,798       -          
Corporate and Other     (5,851 )     (5,283 )        
                     
        $ 22,726     $ 17,686          
                     
Capital Expenditures:              
Papermaking Systems   $ 1,357     $ 4,649          
Wood Processing Systems     551       376          
Material Handling Systems     38       -          
Corporate and Other     222       126          
                     
        $ 2,168     $ 5,151          
                     
        Three Months Ended    
Cash Flow and Other Data March 30, 2019   March 31, 2018        
                     
Cash Provided by Operations $ 9,876     $ 7,216          
Depreciation and Amortization Expense   8,231       6,099          
                     
Balance Sheet Data March 30, 2019   Dec. 29, 2018        
                     
Assets              
Cash, Cash Equivalents, and Restricted Cash $ 57,175     $ 46,117          
Accounts Receivable, net   104,120       92,624          
Inventories   103,029       86,373          
Unbilled Revenues   16,996       15,741          
Property, Plant and Equipment, net   87,732       80,157          
Intangible Assets   184,596       113,347          
Goodwill   343,768       258,174          
Other Assets   60,824       33,216          
                     
        $ 958,240     $ 725,749          
Liabilities and Stockholders' Equity              
Accounts Payable $ 43,571     $ 35,720          
Debt Obligations   354,790       171,434          
Other Borrowings   6,127       4,387          
Other Liabilities   171,756       139,637          
                     
Total Liabilities   576,244       351,178          
Stockholders' Equity   381,996       374,571          
                     
        $ 958,240     $ 725,749          
                     
Adjusted Operating Income and Adjusted EBITDA Three Months Ended    
Reconciliation  March 30, 2019   March 31, 2018        
                     
Consolidated              
Net Income Attributable to Kadant   $ 10,900     $ 10,858          
Net Income Attributable to Noncontrolling Interest     165       150          
Provision for Income Taxes     3,963       3,861          
Interest Expense, Net     3,448       1,549          
Other Expense, Net     99       246          
                     
Operating Income     18,575       16,664          
Restructuring Costs     -       770          
Acquisition Costs     843       -          
Acquired Backlog Amortization (e)     998       252          
Acquired Profit in Inventory (f)     2,310       -          
                     
Adjusted Operating Income (a)     22,726       17,686          
Depreciation and Amortization     7,233       5,847          
                     
Adjusted EBITDA (a)   $ 29,959     $ 23,533          
                     
Adjusted EBITDA Margin (a,g)     17.5 %     15.8 %        
                     
Papermaking Systems              
Operating Income   $ 18,509     $ 14,584          
Restructuring costs     -       770          
                     
Adjusted Operating Income (a)     18,509       15,354          
Depreciation and Amortization     3,188       3,136          
                     
Adjusted EBITDA (a)   $ 21,697     $ 18,490          
                     
Wood Processing Systems              
Operating Income   $ 7,270     $ 7,363          
Acquired Backlog Amortization (e)     -       252          
                     
Adjusted Operating Income (a)     7,270       7,615          
Depreciation and Amortization     2,387       2,544          
                     
Adjusted EBITDA (a)   $ 9,657     $ 10,159          
                     
Material Handling Systems              
Operating Loss   $ (1,353 )   $ -          
Acquisition Costs     843       -          
Acquired Backlog Amortization (e)     998       -          
Acquired Profit in Inventory (f)     2,310       -          
                     
Adjusted Operating Income (a)     2,798       -          
Depreciation and Amortization     1,466       -          
                     
Adjusted EBITDA (a)   $ 4,264     $ -          
                     
Corporate and Other              
Operating Loss   $ (5,851 )   $ (5,283 )        
Depreciation and Amortization     192       167          
                     
EBITDA (a)   $ (5,659 )   $ (5,116 )        
                     
                     
(a)   Represents a non-GAAP financial measure.                
                     
(b)   Represents the increase (decrease) resulting from the exclusion of an acquisition and 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)   Geographic revenues are attributed to regions based on customer location.
             
(d)   See reconciliation to the most directly comparable GAAP financial measure under "Adjusted Operating Income and Adjusted EBITDA Reconciliation." 
                     
(e)   Represents intangible amortization expense associated with acquired backlog.
         
(f)   Represents expense within cost of revenues associated with amortization of acquired profit in inventory.  
         
(g)   Calculated as adjusted EBITDA divided by revenue in each period.
     

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 approximately 2,800 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 year ended December 29, 2018 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; our customers’ ability to obtain financing for capital equipment projects; international sales and operations; the variability and uncertainties in sales of capital equipment in China; the oriented strand board market and levels of residential construction activity; development and use of digital media; currency fluctuations; cyclical economic conditions affecting the global mining industry and the continued demand for coal; price increases or shortages of raw materials; dependence on certain suppliers; our acquisition strategy; failure of our information systems or breaches of data security and cybertheft; changes in government regulations and policies and compliance with laws; our internal growth strategy; competition; soundness of suppliers and customers; changes in our tax provision or exposure to additional tax liabilities; our ability to successfully manage our manufacturing operations; disruption in production; future restructurings; economic conditions and regulatory changes caused by the United Kingdom’s exit from the European Union; our debt obligations; restrictions in our credit agreement and note purchase agreement; loss of key personnel and effective succession planning; protection of intellectual property; fluctuations in our share price; soundness of financial institutions; environmental laws and regulations; climate change; environmental, health and safety laws and regulations; adequacy of our insurance coverage; anti-takeover provisions; and reliance on third-party research.

Contacts
Investor Contact Information:
Michael McKenney, 978-776-2000
mike.mckenney@kadant.com
or
Media Contact Information:
Wes Martz, 269-278-1715
wes.martz@kadant.com

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Source: Kadant Inc