Kadant Corporate

News Release

Kadant Reports Third Quarter 2021 Results and Record Bookings

November 2, 2021 at 4:22 PM EDT

WESTFORD, Mass., Nov. 02, 2021 (GLOBE NEWSWIRE) -- Kadant Inc. (NYSE: KAI) reported its financial results for the third quarter ended October 2, 2021.

Third Quarter Financial Highlights

  • Bookings increased 71% to a record $245 million.
  • Revenue increased 29% to a record $200 million.
  • Operating cash flow increased 56% to $38 million.
  • Free cash flow increased 53% to $35 million.
  • Net income increased 38% to $20 million.
  • GAAP diluted EPS increased 37% to $1.75.
  • Adjusted diluted EPS increased 50% to $1.97.
  • Adjusted EBITDA increased 36% to $41 million and represented 20.5% of revenue.
  • Backlog was a record $299 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
“Record revenue combined with excellent execution by our operations teams led to another quarter of strong performance,” said Jeffrey L. Powell, president and chief executive officer of Kadant Inc. “End-market demand was exceptional in the third quarter with record parts demand and robust capital order activity, particularly in our Industrial Processing segment. These results contributed to solid margin performance and improved operating leverage across all our segments.

“Despite an increasingly challenging operating environment resulting from supply chain constraints and inflationary pressures, our global workforce performed extremely well in fulfilling our customer commitments and delivering value. Our end markets continue to show signs of strength as we enter the final quarter of the year and we are well positioned for a strong finish to 2021.”

Third Quarter 2021 compared to 2020
Revenue increased 29 percent to a record $199.8 million compared to $154.6 million in 2020. Organic revenue increased 18 percent, which excludes an eight percent increase from acquisitions and a three percent increase from the favorable effect of foreign currency translation. Gross margin was 41.9 percent, which included a negative 110 basis point impact from the amortization of acquired profit in inventory, compared to 44.2 percent in 2020, which included a positive 110 basis point impact from the receipt of government assistance benefits related to the pandemic.

GAAP diluted earnings per share (EPS) increased 37 percent to a $1.75 compared to $1.28 in 2020. Adjusted diluted EPS increased 50 percent to $1.97 compared to $1.31 in 2020. Adjusted diluted EPS excludes $0.17 of amortization expense from acquired profit in inventory and backlog and $0.05 of acquisition costs in 2021 and $0.03 of restructuring costs, $0.03 of acquisition-related costs, and a $0.03 discrete tax benefit in 2020. Net income increased 38 percent to $20.5 million compared to $14.9 million in 2020. Adjusted EBITDA increased 36 percent to $40.9 million and 20.5 percent of revenue compared to $30.0 million and 19.4 percent of revenue in the prior year quarter. Operating cash flow increased 56 percent to $37.9 million compared to $24.4 million in 2020.

Bookings increased 71 percent to a record $244.7 million compared to $143.3 million in 2020. Organic bookings increased 57 percent, which excludes a ten percent increase from acquisitions and a four percent increase from the favorable effect of foreign currency translation.

Summary and Outlook
“The strong momentum built up during the first three quarters of 2021 has led to record backlog, and we expect a solid finish to the year," Mr. Powell continued. “While we continue to see strong demand for our products, supply chain constraints, delays in shipments, and the timing of capital orders are moderating our outlook for the fourth quarter. As a result, we are decreasing our revenue expectation to $778 to $783 million for 2021 from our previous range of $783 to $793 million.”

Conference Call
Kadant will hold a webcast with a slide presentation for investors on Wednesday, November 3, 2021, at 11:00 a.m. eastern time to discuss its third 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 9476904. 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 December 3, 2021.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the third quarter results on its website at www.kadant.com under the “Investors” section.

Use of Non-GAAP Financial Measures
In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including increases or decreases in revenue excluding the effect of acquisitions and foreign currency translation (organic revenue), adjusted operating income, adjusted net income, adjusted diluted EPS, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin, and free cash flow.

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 third quarter of 2021 included $12.8 million from acquisitions and a $4.6 million favorable foreign currency translation effect. Revenue in the first nine months of 2021 included a $22.2 million favorable foreign currency translation effect and $13.3 million from acquisitions. We present increases or decreases in organic revenue, which excludes 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 items. 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. Free cash flow presents cash flow from operations excluding capital expenditures.

Third Quarter

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

  • Pre-tax expense related to amortization of acquired profit in inventory of $2.2 million in 2021.
  • Pre-tax acquisition costs of $0.7 million in 2021 and $0.1 million in 2020.
  • Pre-tax expense related to amortization of acquired backlog of $0.6 million in 2021 and $0.3 million in 2020.
  • Pre-tax restructuring costs of $0.5 million in 2020.

Adjusted net income and adjusted diluted EPS exclude:

  • After-tax expense related to amortization of acquired profit in inventory of $1.5 million ($2.2 million net of tax of $0.7 million) in 2021.
  • After-tax acquisition costs of $0.6 million in 2021 ($0.7 million net of tax of $0.1 million) in 2021 and $0.1 million in 2020.
  • After-tax expense related to amortization of acquired backlog of $0.4 million ($0.6 million net of tax of $0.2 million) in 2021 and $0.2 million ($0.3 million net of tax of $0.1 million) in 2020.
  • After-tax restructuring costs of $0.3 million ($0.5 million net of tax of $0.2 million) in 2020.
  • A discrete tax benefit of $0.3 million in 2020.

Free cash flow is calculated as cash flow from operations less:

  • Capital expenditures of $3.4 million in 2021 and $1.8 million in 2020.

First Nine Months

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

  • Pre-tax acquisition costs of $2.6 million in 2021 and $0.5 million in 2020.
  • Pre-tax expense related to acquired profit in inventory of $2.2 million in 2021.
  • Pre-tax expense related to amortization of acquired backlog of $0.7 million in 2021 and $0.4 million in 2020.
  • Pre-tax restructuring costs of $0.9 million in 2020.

Adjusted net income and adjusted diluted EPS exclude:

  • After-tax acquisition costs of $2.3 million ($2.6 million net of tax of $0.3 million) in 2021 and $0.4 million ($0.5 million net of tax of $0.1 million) in 2020.
  • After-tax expense related to acquired profit in inventory of $1.5 million ($2.2 million net of tax of $0.7 million) in 2021.
  • After-tax expense related to acquired backlog of $0.5 million ($0.7 million net of tax of $0.2 million) in 2021 and $0.3 million ($0.4 million net of tax of $0.1 million) in 2020.
  • After-tax restructuring costs of $0.7 million ($0.9 million net of tax of $0.2 million) in 2020.
  • A discrete tax benefit of $0.3 million in 2020.

Free cash flow is calculated as cash flow from operations less:

  • Capital expenditures of $7.7 million in 2021 and $5.4 million in 2020.

Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in this press release.

 

Financial Highlights (unaudited)              
(In thousands, except per share amounts and percentages)    
               
  Three Months Ended   Nine Months Ended
Consolidated Statement of Income October 2,
2021
  September 26,
2020
  October 2,
2021
  September 26,
2020
Revenue $ 199,789       $ 154,610       $ 568,063       $ 466,597    
Costs and Operating Expenses:              
Cost of revenue 116,096       86,294       323,337       263,510    
Selling, general, and administrative expenses 52,316       43,853       151,014       134,518    
Research and development expenses 2,649       2,658       8,547       8,532    
Restructuring costs       470             926    
  171,061       133,275       482,898       407,486    
Operating Income 28,728       21,335       85,165       59,111    
Interest Income 55       52       176       140    
Interest Expense (1,320 )     (1,670 )     (3,497 )     (6,060 )  
Other Expense, Net (23 )     (32 )     (71 )     (95 )  
Income Before Provision for Income Taxes 27,440       19,685       81,773       53,096    
Provision for Income Taxes 6,742       4,705       21,252       13,738    
Net Income 20,698       14,980       60,521       39,358    
Net Income Attributable to Noncontrolling Interest (237 )     (129 )     (635 )     (369 )  
Net Income Attributable to Kadant $ 20,461       $ 14,851       $ 59,886       $ 38,989    
               
Earnings per Share Attributable to Kadant:              
Basic $ 1.77       $ 1.29       $ 5.18       $ 3.40    
Diluted $ 1.75       $ 1.28       $ 5.14       $ 3.38    
               
Weighted Average Shares:              
Basic 11,580        11,504        11,571        11,472     
Diluted 11,668        11,589        11,644        11,550     

 

  Three Months Ended   Three Months Ended
Adjusted Net Income and Adjusted Diluted EPS (a) October 2,
2021
  October 2,
2021
  September 26,
2020
  September 26,
2020
Net Income and Diluted EPS Attributable to Kadant, as Reported $ 20,461     $ 1.75     $ 14,851       $ 1.28    
Adjustments for the Following:              
Restructuring Costs, Net of Tax         335       0.03    
Acquisition Costs, Net of Tax (b) 595     0.05     58       0.01    
Acquired Backlog Amortization, Net of Tax (c) 429     0.04     249       0.02    
Acquired Profit in Inventory, Net of Tax (d) 1,549     0.13              
Discrete Tax Items         (338 )     (0.03 )  
Adjusted Net Income and Adjusted Diluted EPS (a) $ 23,034     $ 1.97     $ 15,155       $ 1.31    
               

 

  Nine Months Ended   Nine Months Ended
  October 2,
2021
  October 2,
2021
  September 26,
2020
  September 26,
2020
Net Income and Diluted EPS Attributable to Kadant, as Reported $ 59,886     $ 5.14     $ 38,989       $ 3.38    
Adjustments for the Following:              
Restructuring Costs, Net of Tax         667       0.06    
Acquisition Costs, Net of Tax (b) 2,325     0.20     355       0.03    
Acquired Backlog Amortization, Net of Tax (c) 494     0.04     275       0.02    
Acquired Profit in Inventory, Net of Tax (d) 1,549     0.13              
Discrete Tax Items         (338 )     (0.03 )  
Adjusted Net Income and Adjusted Diluted EPS (a) $ 64,254     $ 5.52     $ 39,948       $ 3.46    
               

 





 
  Three Months Ended       Increase
Excluding
Acquisitions
and FX (a,e)
Revenue by Segment   October 2,
2021
  September 26,
2020
  Increase  
Flow Control   $ 76,253     $ 56,815     $ 19,438     $ 8,193  
Industrial Processing   81,620     62,086     19,534     16,687  
Material Handling   41,916     35,709     6,207     2,943  
    $ 199,789     $ 154,610     $ 45,179     $ 27,823  
                 
Percentage of Parts and Consumables Revenue   66 %   66 %        
                 
    Nine Months Ended   Increase   Increase
Excluding
Acquisitions
and FX (a,e)
    October 2,
2021
  September 26,
2020
   
Flow Control   $ 210,769     $ 165,329     $ 45,440     $ 28,778  
Industrial Processing   233,455     192,468     40,987     28,391  
Material Handling   123,839     108,800     15,039     8,846  
    $ 568,063     $ 466,597     $ 101,466     $ 66,015  
                 
Percentage of Parts and Consumables Revenue   66 %   65 %        
                 
    Three Months Ended   Increase   Increase
Excluding
Acquisitions
and FX (e)
Bookings by Segment   October 2,
2021
  September 26,
2020
   
Flow Control   $ 76,661     $ 49,608     $ 27,053     $ 15,721  
Industrial Processing   118,896     59,903     58,993     55,681  
Material Handling   49,137     33,838     15,299     9,793  
    $ 244,694     $ 143,349     $ 101,345     $ 81,195  
                 
Percentage of Parts and Consumables Bookings   53 %   67 %        
                 
    Nine Months Ended   Increase   Increase
Excluding
Acquisitions
and FX (e)
    October 2,
2021
  September 26,
2020
   
Flow Control   $ 224,479     $ 166,713     $ 57,766     $ 40,454  
Industrial Processing   307,401     178,885     128,516     112,345  
Material Handling   130,468     106,344     24,124     15,361  
    $ 662,348     $ 451,942     $ 210,406     $ 168,160  
                 
Percentage of Parts and Consumables Bookings   59 %   67 %        
                 

 

  Three Months Ended   Nine Months Ended
Business Segment Information October 2,
2021
  September 26,
2020
  October 2,
2021
  September 26,
2020
Gross Margin:              
Flow Control 49.7 %   52.9 %   51.8 %   53.1 %
Industrial Processing 39.7 %   43.7 %   40.1 %   41.0 %
Material Handling 31.9 %   31.1 %   33.8 %   33.5 %
  41.9 %   44.2 %   43.1 %   43.5 %

 


Operating Income:
             
Flow Control $ 17,129     $ 13,770     $ 51,899     $ 37,360  
Industrial Processing 16,095     12,072     44,449     32,147  
Material Handling 3,491     2,614     12,941     10,341  
Corporate (7,987 )   (7,121 )   (24,124 )   (20,737 )
  $ 28,728     $ 21,335     $ 85,165     $ 59,111  
               
Adjusted Operating Income (a,f):              
Flow Control $ 19,835     $ 14,035     $ 55,841     $ 38,081  
Industrial Processing 16,128     12,438     44,622     32,948  
Material Handling 4,290     2,862     14,352     10,597  
Corporate (7,987 )   (7,121 )   (24,124 )   (20,737 )
  $ 32,266     $ 22,214     $ 90,691     $ 60,889  
               
Capital Expenditures:              
Flow Control $ 1,128     $ 509     $ 1,830     $ 1,667  
Industrial Processing 1,725     785     4,720     2,460  
Material Handling 505     486     1,121     1,167  
Corporate 12     42     17     125  
  $ 3,370     $ 1,822     $ 7,688     $ 5,419  
               
  Three Months Ended   Nine Months Ended
Cash Flow and Other Data October 2,
2021
  September 26,
2020
  October 2,
2021
  September 26,
2020
Operating Cash Flow $ 37,932     $ 24,393     $ 101,410     $ 52,601  
Less: Capital Expenditures (3,370 )   (1,822 )   (7,688 )   (5,419 )
Free Cash Flow (a) $ 34,562     $ 22,571     $ 93,722     $ 47,182  
               
Depreciation and Amortization Expense $ 9,195     $ 8,086     $ 24,597     $ 23,260  
               

 

Balance Sheet Data October 2,
2021
  January 2,
2021
Assets      
Cash, Cash Equivalents, and Restricted Cash $ 83,664     $ 66,640  
Accounts Receivable, net 120,496     91,540  
Inventories 135,476     106,814  
Unbilled Revenue 7,915     7,576  
Property, Plant, and Equipment, net 110,088     84,642  
Intangible Assets 205,328     160,965  
Goodwill 398,907     351,753  
Other Assets 71,254     57,641  
  $ 1,133,128     $ 927,571  
Liabilities and Stockholders' Equity      
Accounts Payable $ 53,476     $ 32,264  
Debt Obligations 309,389     227,963  
Other Borrowings 5,107     5,511  
Other Liabilities 221,770     164,928  
Total Liabilities 589,742     430,666  
Stockholders' Equity 543,386     496,905  
  $ 1,133,128     $ 927,571  
       

 

  Three Months Ended   Nine Months Ended
Adjusted Operating Income and Adjusted EBITDA Reconciliation (a) October 2,
2021
  September 26,
2020
  October 2,
2021
  September 26,
2020
Consolidated              
    Net Income Attributable to Kadant $ 20,461       $ 14,851       $ 59,886       $ 38,989    
    Net Income Attributable to Noncontrolling Interest 237       129       635       369    
    Provision for Income Taxes 6,742       4,705       21,252       13,738    
    Interest Expense, Net 1,265       1,618       3,321       5,920    
    Other Expense, Net 23       32       71       95    
    Operating Income 28,728       21,335       85,165       59,111    
    Restructuring Costs       470             926    
    Acquisition Costs (b) 718       78       2,619       485    
    Acquired Backlog Amortization (c) 604       331       691       367    
    Acquired Profit in Inventory (d) 2,216             2,216          
    Adjusted Operating Income (a) 32,266       22,214       90,691       60,889    
    Depreciation and Amortization 8,591       7,755       23,906       22,893    
    Adjusted EBITDA (a) $ 40,857       $ 29,969       $ 114,597       $ 83,782    
    Adjusted EBITDA Margin (a,g) 20.5   %   19.4   %   20.2   %   18.0   %
                   
Flow Control              
    Operating Income $ 17,129       $ 13,770       $ 51,899       $ 37,360    
    Restructuring Costs       265             721    
    Acquisition Costs (b) 507             1,743          
    Acquired Backlog Amortization (c) 353             353          
    Acquired Profit in Inventory (d) 1,846             1,846          
    Adjusted Operating Income (a) 19,835       14,035       55,841       38,081    
    Depreciation and Amortization 2,333       1,564       5,473       4,729    
    Adjusted EBITDA (a) $ 22,168       $ 15,599       $ 61,314       $ 42,810    
    Adjusted EBITDA Margin (a,g) 29.1   %   27.5   %   29.1   %   25.9   %
                   
Industrial Processing              
    Operating Income $ 16,095       $ 12,072       $ 44,449       $ 32,147    
    Restructuring Costs       205             205    
    Acquisition Costs (b) 33       78       113       485    
    Acquired Backlog Amortization (c)       83       60       111    
    Adjusted Operating Income (a) 16,128       12,438       44,622       32,948    
    Depreciation and Amortization 3,341       3,311       10,082       9,598    
    Adjusted EBITDA (a) $ 19,469       $ 15,749       $ 54,704       $ 42,546    
    Adjusted EBITDA Margin (a,g) 23.9   %   25.4   %   23.4   %   22.1   %
                   
Material Handling              
    Operating Income $ 3,491       $ 2,614       $ 12,941       $ 10,341    
    Acquisition Costs (b) 178             763          
    Acquired Backlog Amortization (c) 251       248       278       256    
    Acquired Profit in Inventory (d) 370             370          
    Adjusted Operating Income (a) 4,290       2,862       14,352       10,597    
    Depreciation and Amortization 2,885       2,824       8,253       8,416    
    Adjusted EBITDA (a) $ 7,175       $ 5,686       $ 22,605       $ 19,013    
    Adjusted EBITDA Margin (a,g) 17.1   %   15.9   %   18.3   %   17.5   %
                   
Corporate              
    Operating Loss $ (7,987 )     $ (7,121 )     $ (24,124 )     $ (20,737 )  
    Depreciation and Amortization 32       56       98       150    
    EBITDA (a) $ (7,955 )     $ (7,065 )     $ (24,026 )     $ (20,587 )  
                 

 

(a) Represents a non-GAAP financial measure.
   
(b) Represents transaction costs associated with our acquisitions. Operating income by segment has been recast in the first six months of 2021 to include acquisition costs of $585 and $80 in our Material Handling and Industrial Processing segments, respectively, which were previously included in Corporate.
   
(c) Represents intangible amortization expense associated with acquired backlog.
   
(d) Represents expense within the cost of revenue associated with amortization of acquired profit in inventory.
   
(e) Represents the increase 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) 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 2,900 employees in 21 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 2, 2021 and subsequent filings with the Securities and Exchange Commission. These include risks and uncertainties relating to the impact of the COVID-19 pandemic on our operating and financial results; 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; price increases or shortages of 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
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media@kadant.com


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