Kadant Corporate

News Release

Kadant Reports First Quarter 2022 Results

May 3, 2022 at 4:45 PM EDT
Raises Full Year 2022 Earnings Guidance

WESTFORD, Mass., May 03, 2022 (GLOBE NEWSWIRE) -- Kadant Inc. (NYSE: KAI) reported its financial results for the first quarter ended April 2, 2022.

First Quarter Financial Highlights

  • Bookings increased 30% to a record $266 million.
  • Revenue increased 31% to a record $226 million.
  • Operating cash flow increased 24% to $24 million.
  • Free cash flow increased 24% to $21 million.
  • Net income was $41 million, including a $15 million after-tax gain on the sale of a facility.
  • GAAP diluted EPS increased 147% to $3.53.
  • Adjusted diluted EPS increased 49% to $2.28.
  • Adjusted EBITDA increased 41% to a record $46 million and represented 20.2% of revenue.
  • Backlog was a record $348 million.

Note: Percent changes above are based on comparison to the prior year period. Free cash flow, adjusted diluted EPS, adjusted EBITDA, adjusted EBITDA margin, and changes in organic revenue are non-GAAP financial measures that exclude certain items as detailed later in this press release under the heading “Use of Non-GAAP Financial Measures.”

Management Commentary
“We had an excellent start to 2022 with record bookings, revenue, and adjusted EBITDA in the first quarter,” said Jeffrey L. Powell, president and chief executive officer of Kadant. “Strong demand continued across all operating segments with new order activity from both parts and capital contributing to record backlog at the end of the first quarter.

“Solid execution by our operations teams led to improved operating performance and record adjusted EBITDA despite ongoing supply chain constraints and inflationary pressures. Our global workforce once again delivered exceptional value to our customers who rely on our critical technologies and engineered systems to enable Sustainable Industrial Processing.”

First Quarter 2022 compared to 2021
Revenue increased 31 percent to a record $226.5 million compared to $172.5 million in 2021. Organic revenue increased 22 percent, which excludes an 11 percent increase from acquisitions and a two percent decrease from the unfavorable effect of foreign currency translation. Gross margin was 43.4 percent compared to 43.9 percent in 2021.

GAAP diluted earnings per share (EPS) increased 147 percent to $3.53, which included a $1.30 gain on the sale of a facility, compared to $1.43 in 2021. Adjusted diluted EPS increased 49 percent to $2.28 compared to $1.53 in 2021. Adjusted diluted EPS excludes a $1.30 gain on the sale of a facility, $0.04 of acquisition-related costs, and $0.01 of impairment costs in 2022 and $0.10 of acquisition costs in 2021. Net income increased 149 percent to $41.2 million compared to $16.6 million in 2021. Adjusted EBITDA increased 41 percent to a record $45.8 million and represented 20.2 percent of revenue compared to $32.4 million and 18.8 percent of revenue in the prior year quarter. Operating cash flow increased 24 percent to $23.8 million compared to $19.1 million in 2021.

Bookings increased 30 percent to a record $266.1 million compared to $204.5 million in 2021. Organic bookings increased 22 percent, which excludes an 11 percent increase from acquisitions and a three percent decrease from the unfavorable effect of foreign currency translation.

Summary and Outlook
“We are encouraged by the strong start, and as a result, we are raising our guidance for the year,” Mr. Powell continued. “Our record backlog has us positioned well, and we expect to generate record financial results while continuing to navigate supply chain challenges, economic headwinds, and growing socio-political uncertainties.

“We now expect revenue of $885 to $905 million in 2022, revised from our previous guidance of $870 to $890 million. We now expect to achieve GAAP diluted EPS of $10.05 to $10.25, revised from our previous guidance of $8.50 to $8.70. The revised 2022 guidance includes a $1.30 gain on the sale of a facility, $0.04 of acquisition-related costs, and a $0.01 impairment charge. Excluding these items, we now expect adjusted diluted EPS of $8.80 to $9.00, revised from our previous guidance of $8.55 to $8.75. The 2022 guidance includes a negative effect from foreign currency translation, lowering revenue guidance by $14 million and adjusted diluted EPS guidance by $0.14. For the second quarter of 2022, we expect GAAP diluted EPS of $1.86 to $1.96 on revenue of $215 to $220 million.”

Conference Call
Kadant will hold a webcast with a slide presentation for investors on Wednesday, May 4, 2022, 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 8582925. 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 June 3, 2022.

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 (organic revenue), adjusted operating income, adjusted net income, adjusted diluted 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. Revenue in the first quarter of 2022 included $20.0 million from acquisitions and a $3.9 million unfavorable foreign currency translation effect. Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude impairment costs, acquisition costs, amortization expense related to acquired profit in inventory and backlog, and certain gains or losses. 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.

First Quarter

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

  • Pre-tax gain on the sale of a facility of $20.2 million in 2022.
  • Pre-tax acquisition costs of $0.1 million in 2022 and $1.3 million in 2021.
  • Pre-tax indemnification asset reversal of $0.6 million in 2022.
  • Pre-tax impairment costs of $0.2 million in 2022.
  • Pre-tax expense related to amortization of acquired profit in inventory and backlog of $0.5 million in 2022 and $0.1 million in 2021.

Adjusted net income and adjusted diluted EPS exclude:

  • After-tax gain on the sale of a facility of $15.1 million ($20.2 million net of tax of $5.1 million) in 2022.
  • After-tax acquisition costs of $0.1 million in 2022 and $1.2 million ($1.3 million net of tax of $0.1 million) in 2021.
  • After-tax impairment costs of $0.1 million ($0.2 million net of tax of $0.1 million) in 2022.
  • After-tax expense related to amortization of acquired profit in inventory and backlog of $0.4 million ($0.5 million net of tax of $0.1 million) in 2022.

Free cash flow is calculated as operating cash flow less:

  • Capital expenditures of $2.9 million in 2022 and $2.3 million in 2021.

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   April 2,
2022
  April 3,
2021
Revenue   $ 226,480     $ 172,463  
Costs and Operating Expenses:        
  Cost of revenue   128,269       96,748  
  Selling, general, and administrative expenses   59,168       49,431  
  Research and development expenses   3,078       2,857  
  Gain on sale and other expense, net (b)   (20,008 )      
        170,507       149,036  
Operating Income     55,973       23,427  
Interest Income     102       65  
Interest Expense     (1,234 )     (1,111 )
Other Expense, Net     (22 )     (24 )
Income Before Provision for Income Taxes     54,819       22,357  
Provision for Income Taxes     13,378       5,561  
Net Income     41,441       16,796  
Net Income Attributable to Noncontrolling Interest     (249 )     (235 )
Net Income Attributable to Kadant   $ 41,192     $ 16,561  
             
Earnings per Share Attributable to Kadant:        
    Basic   $ 3.54     $ 1.43  
    Diluted   $ 3.53     $ 1.43  
             
Weighted Average Shares:        
    Basic     11,630       11,553  
    Diluted     11,655       11,612  
             


        Three Months Ended   Three Months Ended
Adjusted Net Income and Adjusted Diluted EPS (a) April 2,
2022
  April 2,
2022
  April 3,
2021
  April 3,
2021
Net Income and Diluted EPS Attributable to Kadant, as Reported   $ 41,192     $ 3.53     $ 16,561   $ 1.43
Adjustments for the Following, Net of Tax:                
  Gain on Sale (b)     (15,143 )     (1.30 )        
  Acquisition Costs     59       0.01       1,173     0.10
  Impairment Costs     135       0.01          
  Acquired Profit in Inventory and Backlog Amortization (c,d)     387       0.03       44    
Adjusted Net Income and Adjusted Diluted EPS (a)   $ 26,630     $ 2.28     $ 17,778   $ 1.53


        Three Months Ended       Increase Excluding Acquisitions and FX (a,e)
Revenue by Segment   April 2,
2022
  April 3,
2021
  Increase  
Flow Control   $ 85,826     $ 63,754     $ 22,072   $ 11,227
Industrial Processing     93,085       69,154       23,931     25,186
Material Handling     47,569       39,555       8,014     1,484
        $ 226,480     $ 172,463     $ 54,017   $ 37,897
                     
Percentage of Parts and Consumables Revenue     65 %     68 %        
                     
        Three Months Ended   Increase
  Increase Excluding Acquisitions and FX (e)
Bookings by Segment   April 2,
2022
  April 3,
2021
   
Flow Control   $ 100,111     $ 75,999     $ 24,112   $ 13,378
Industrial Processing     106,344       86,606       19,738     21,149
Material Handling     59,640       41,884       17,756     9,467
        $ 266,095     $ 204,489     $ 61,606   $ 43,994
                     
Percentage of Parts and Consumables Bookings     60 %     65 %        


        Three Months Ended
Business Segment Information   April 2,
2022
  April 3,
2021
Gross Margin:        
    Flow Control     52.4 %     53.3 %
    Industrial Processing     38.6 %     40.5 %
    Material Handling     36.4 %     34.7 %
          43.4 %     43.9 %
             
Operating Income:        
    Flow Control   $ 21,725     $ 15,446  
    Industrial Processing     38,159       11,106  
    Material Handling     5,844       4,169  
    Corporate     (9,755 )     (7,294 )
        $ 55,973     $ 23,427  
             
Adjusted Operating Income (a,f):        
    Flow Control   $ 21,569     $ 16,443  
    Industrial Processing     18,726       11,193  
    Material Handling     6,561       4,443  
    Corporate     (9,755 )     (7,294 )
        $ 37,101     $ 24,785  
             
Capital Expenditures:        
    Flow Control   $ 525     $ 334  
    Industrial Processing     1,952       1,804  
    Material Handling     384       121  
    Corporate     7        
        $ 2,868     $ 2,259  
             
        Three Months Ended
Cash Flow and Other Data   April 2,
2022
  April 3,
2021
Operating Cash Flow   $ 23,768     $ 19,092  
Less: Capital Expenditures     (2,868 )     (2,259 )
Free Cash Flow (a)   $ 20,900     $ 16,833  
             
Depreciation and Amortization Expense   $ 9,445     $ 7,686  
         


Balance Sheet Data           April 2,
2022
  January 1,
2022
Assets                
Cash, Cash Equivalents, and Restricted Cash           $ 88,971   $ 94,161
Accounts Receivable, net             125,919     117,209
Inventories             143,583     134,356
Contract Assets             8,978     8,626
Property, Plant, and Equipment, net             105,851     107,989
Intangible Assets             192,426     199,343
Goodwill             394,414     396,887
Other Assets             84,124     73,641
                $ 1,144,266   $ 1,132,212
Liabilities and Stockholders' Equity                
Accounts Payable           $ 67,762   $ 59,250
Debt Obligations             243,377     264,597
Other Borrowings             4,479     4,917
Other Liabilities             228,910     237,832
  Total Liabilities             544,528     566,596
  Stockholders' Equity             599,738     565,616
                $ 1,144,266   $ 1,132,212


    Three Months Ended
Adjusted Operating Income and Adjusted EBITDA Reconciliation (a)   April 2,
2022
  April 3,
2021
Consolidated        
    Net Income Attributable to Kadant   $ 41,192     $ 16,561  
    Net Income Attributable to Noncontrolling Interest     249       235  
    Provision for Income Taxes     13,378       5,561  
    Interest Expense, Net     1,132       1,046  
    Other Expense, Net     22       24  
    Operating Income     55,973       23,427  
    Gain on Sale (b)     (20,190 )      
    Acquisition Costs     76       1,298  
    Indemnification Asset Reversal (g)     575        
    Impairment Costs     182        
    Acquired Backlog Amortization (c)     703       60  
    Acquired Profit in Inventory Amortization (d)     (218 )      
    Adjusted Operating Income (a)     37,101       24,785  
    Depreciation and Amortization     8,742       7,626  
    Adjusted EBITDA (a)   $ 45,843     $ 32,411  
    Adjusted EBITDA Margin (a,h)     20.2 %     18.8 %
             
Flow Control        
    Operating Income   $ 21,725     $ 15,446  
    Acquisition Costs     62       997  
    Acquired Profit in Inventory Amortization (d)     (218 )      
    Adjusted Operating Income (a)     21,569       16,443  
    Depreciation and Amortization     2,347       1,572  
    Adjusted EBITDA (a)   $ 23,916     $ 18,015  
    Adjusted EBITDA Margin (a,h)     27.9 %     28.3 %
         
Industrial Processing        
    Operating Income   $ 38,159     $ 11,106  
    Gain on Sale (b)     (20,190 )      
    Indemnification Asset Reversal (g)     575        
    Impairment Costs     182        
    Acquisition Costs           27  
    Acquired Backlog Amortization (c)           60  
    Adjusted Operating Income (a)     18,726       11,193  
    Depreciation and Amortization     3,274       3,338  
    Adjusted EBITDA (a)   $ 22,000     $ 14,531  
    Adjusted EBITDA Margin (a,h)     23.6 %     21.0 %
             
Material Handling        
    Operating Income   $ 5,844     $ 4,169  
    Acquisition Costs     14       274  
    Acquired Backlog Amortization (c)     703        
    Adjusted Operating Income (a)     6,561       4,443  
    Depreciation and Amortization     3,096       2,686  
    Adjusted EBITDA (a)   $ 9,657     $ 7,129  
    Adjusted EBITDA Margin (a,h)     20.3 %     18.0 %
             
Corporate        
    Operating Loss   $ (9,755 )   $ (7,294 )
    Depreciation and Amortization     25       30  
    EBITDA (a)   $ (9,730 )   $ (7,264 )
           
(a) Represents a non-GAAP financial measure.
             
(b) Includes a $20,190 gain on the sale of a Chinese facility in our Industrial Processing segment pursuant to a relocation plan.
             
(c) Represents intangible amortization expense associated with acquired backlog.
             
(d) Represents income within the cost of revenue associated with amortization of acquired profit in inventory.
   
(e) Represents the increase (decrease) resulting from the exclusion of acquisitions 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.
             
(f) See reconciliation to the most directly comparable GAAP financial measure under "Adjusted Operating Income and Adjusted EBITDA Reconciliation."
   
(g) Represents an indemnification asset reversal related to the release of tax reserves associated with uncertain tax positions.
             
(h) 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 3,000 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 January 1, 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; 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; economic conditions and regulatory changes caused by the United Kingdom’s exit from the European Union; 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; substitution of an alternative index for LIBOR; 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 


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