News Release

Raises Revenue and EPS Guidance for 2017

WESTFORD, Mass.--(BUSINESS WIRE)--Oct. 30, 2017-- Kadant Inc. (NYSE: KAI) reported its financial results for the third quarter ended September 30, 2017.

Third Quarter 2017 Highlights

• Acquired the businesses of NII FPG Company and Unaflex, LLC
• Revenue increased 45% to a record $153 million
• Gross margin was 42.3%
• GAAP diluted EPS increased 43% to a record $1.17
• Adjusted diluted EPS increased 84% to a record $1.49
• Net income increased 45% to a record $13 million
• Adjusted EBITDA increased 85% to a record $30 million and represented 20% of revenue
• Bookings increased 43% to a record $135 million

Note: Adjusted diluted EPS, adjusted EBITDA, adjusted EBITDA margin, and revenues excluding acquisitions and the effect of foreign currency translation are non-GAAP financial measures that exclude certain items as detailed later in this press release.

Management Commentary
“Following our strong first half of 2017, we had another outstanding quarter with a number of record-setting performances across a broad range of metrics contributing to a strong EPS and revenue beat,” said Jonathan Painter, president and chief executive officer of Kadant. “Our third quarter financial results were driven by a combination of better than expected performance from our Wood Processing acquisition and significant internal growth, particularly in China.

“Our record bookings of $135 million in the third quarter extended our strong bookings performance beyond the previous three quarters and was led by our Wood-Processing product line. Also contributing to the record performance were our Stock-Preparation and Fluid-Handling product lines, each of which achieved over 25 percent growth in bookings compared to the same period last year. From a geographic perspective, bookings in China were exceptionally strong in the third quarter, while North America saw the largest impact from our two acquisitions completed during the quarter.”

Third Quarter 2017 Results
Revenue increased 45 percent to $152.8 million compared to the third quarter of 2016, including $29.2 million from acquisitions and a $2.6 million increase from the favorable effect of foreign currency translation. Excluding the impact of acquisitions and foreign currency translation, revenue was up 15 percent compared to the third quarter of 2016. Gross margin was 42.3 percent, including a negative 220 basis point impact from the amortization of acquired profit in inventory. Net income was $13.3 million, or $1.17 per diluted share, compared to $9.2 million, or $0.82 per diluted share, in the third quarter of 2016. Adjusted diluted EPS increased 84 percent to $1.49 in the third quarter of 2017, compared to $0.81 in the third quarter of 2016. Adjusted diluted EPS in the third quarter of 2017 excludes $0.28 of amortization from acquired profit in inventory and backlog and $0.04 of acquisition costs. Adjusted diluted EPS in the third quarter of 2016 excludes a $0.02 benefit from discrete tax items and $0.01 of acquisition costs.

Adjusted EBITDA increased 85 percent to $29.9 million compared to $16.2 million in the third quarter of 2016. Adjusted EBITDA excludes $4.3 million of amortization from acquired profit in inventory and backlog in the third quarter of 2017 and $0.6 million and $0.2 million of acquisition costs in the third quarters of 2017 and 2016, respectively. Cash flows from operations were $7.0 million in the third quarter of 2017 and were impacted by the high level of shipments, which increased accounts receivable and the payment of acquisition-related expenses. Bookings increased 43 percent to $135.5 million compared to $94.8 million in the third quarter of 2016 and includes $20.5 million from acquisitions and a $2.3 million increase from the favorable effect of foreign currency translation. Excluding the impact of acquisitions and foreign currency translation, bookings increased 19 percent compared to the third quarter of 2016.

Guidance
“While we began the year with a fairly optimistic outlook, steadily improving global market conditions combined with contributions from our acquisitions and excellent execution by our operations teams have further raised our expectations for 2017,” Mr. Painter continued. “We now expect to report full year revenue of $509 to $512 million, revised from our previous guidance of $488 to $494 million. We expect to achieve GAAP diluted EPS of $3.56 to $3.60 in 2017, revised from our previous guidance of $3.18 to $3.26. The revised 2017 guidance includes pre-tax acquisition costs of $5.0 million, or $0.38 per diluted share, and pre-tax amortization expense associated with acquired profit in inventory and backlog of $6.6 million, or $0.43 per diluted share. Excluding these acquisition-related expenses, we expect adjusted diluted EPS of $4.37 to $4.41 for 2017. For the fourth quarter of 2017, we expect GAAP diluted EPS of $0.87 to $0.91 on revenue of $143 to $146 million, including $0.15 of amortization expense associated with acquired profit in inventory and backlog. Excluding the amortization expense, we expect adjusted diluted EPS of $1.02 to $1.06 for the fourth quarter of 2017.”

Conference Call
Kadant will hold a webcast with a slide presentation for investors on Tuesday, October 31, 2017, 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 90222803. 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 1, 2017.

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, adjusted operating income, adjusted net income, adjusted diluted earnings per share (EPS), adjusted earnings before interest, taxes, depreciation, and amortization (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 third quarter and first nine months of 2017 included $29.2 million from acquisitions completed in 2017. Revenue in the first nine months of 2017 also included $13.3 million from an acquisition completed in April 2016. Revenue included a $2.6 million favorable and a $1.1 million unfavorable foreign currency translation effect in the third quarter and first nine months of 2017, respectively, compared to the same periods in 2016. We present increases or decreases in revenue excluding the effect of acquisitions and foreign currency translation to provide investors insight into underlying revenue trends.

Adjusted operating income, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and adjusted diluted EPS exclude acquisition costs, amortization of acquired profit in inventory and backlog, and other income. These items are excluded as they are not indicative of our core operating results and may not be 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 $0.6 million in the third quarter and $5.0 million in the first nine months of 2017. Pre-tax acquisition costs of $0.2 million in the third quarter and $1.8 million in the first nine months of 2016.
• Pre-tax expense related to acquired profit in inventory and backlog of $4.3 million in the third quarter and first nine months of 2017. Pre-tax expense related to acquired profit in inventory and backlog of $1.9 million in the first nine months of 2016.
• Pre-tax gain on the sale of assets of $0.3 million in the first nine months of 2016.

Adjusted net income and adjusted diluted EPS exclude:

• After-tax acquisition costs of $0.4 million ($0.6 million net of tax of $0.2 million) in the third quarter of 2017 and $4.3 million ($5.0 million net of tax of $0.7 million) in the first nine months of 2017. After-tax acquisition costs of $0.1 million ($0.2 million net of tax of $0.1 million) in the third quarter of 2016 and $1.6 million ($1.8 million net of tax of $0.2 million) in the first nine months of 2016.
• After-tax expense related to acquired profit in inventory and backlog of $3.2 million ($4.3 million net of tax of $1.1 million) in the third quarter and first nine months of 2017. After-tax expense related to acquired profit in inventory and backlog of $1.4 million ($1.9 million net of tax of $0.5 million) in the first nine months of 2016.
• After-tax gain on the sale of assets of $0.2 million ($0.3 million net of tax of $0.1 million) in the first nine months of 2016.
• Benefit from discrete tax items of $0.3 million in the third quarter and first nine months of 2016. The benefit from discrete tax items was primarily due to the reversal of valuation allowances on certain deferred tax assets in the U.S.

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						Sept. 30, 2017						Oct. 1, 2016						Sept. 30, 2017						Oct. 1, 2016
Revenues						$	152,794					$	105,519					$	365,893					$	313,885
Costs and Operating Expenses:
Cost of revenues							88,166						57,440						199,449						171,569
Selling, general, and administrative expenses							42,535						33,527						116,493						102,095
Research and development expenses							2,635						1,991						7,004						5,640
Other income							-						-						-						(317	)
							133,336						92,958						322,946						278,987
Operating Income							19,458						12,561						42,947						34,898
Interest Income							94						54						300						175
Interest Expense							(1,282	)					(305	)					(2,022	)					(914	)
Income from Continuing Operations Before Provision for Income Taxes
							18,270						12,310						41,225						34,159
Provision for Income Taxes							4,860						3,081						10,550						9,500
Income from Continuing Operations							13,410						9,229						30,675						24,659
Income from Discontinued Operation, Net of Tax							-						3						-						3
Net Income							13,410						9,232						30,675						24,662
Net Income Attributable to Noncontrolling Interest							(125	)					(75	)					(343	)					(318	)
Net Income Attributable to Kadant						$	13,285					$	9,157					$	30,332					$	24,344
Earnings per Share Attributable to Kadant:
Basic						$	1.21					$	0.84					$	2.76					$	2.24
Diluted						$	1.17					$	0.82					$	2.69					$	2.19
Weighted Average Shares:
Basic							11,004						10,901						10,986						10,854
Diluted							11,344						11,189						11,282						11,120
						Three Months Ended												Three Months Ended
Adjusted Net Income and Adjusted Diluted EPS (b)						Sept. 30, 2017						Sept. 30, 2017						Oct. 1, 2016						Oct. 1, 2016
Net Income and Diluted EPS Attributable to Kadant, as Reported						$	13,285					$	1.17					$	9,157					$	0.82
Net Income and Diluted EPS from Discontinued Operation							-						-						(3	)					-
Net Income and Diluted EPS from Continuing Operations							13,285						1.17						9,154						0.82
Adjustments for the Following:
Acquisition Costs, Net of Tax							441						0.04						115						0.01
Amortization of Acquired Profit in Inventory and Backlog, Net of Tax							3,191						0.28						-						-
Benefit from Discrete Tax Items							-						-						(261	)					(0.02	)
Adjusted Net Income and Adjusted Diluted EPS						$	16,917					$	1.49					$	9,008					$	0.81
						Nine Months Ended												Nine Months Ended
						Sept. 30, 2017						Sept. 30, 2017						Oct. 1, 2016						Oct. 1, 2016
Net Income and Diluted EPS Attributable to Kadant, as Reported						$	30,332					$	2.69					$	24,344					$	2.19
Net Income and Diluted EPS from Discontinued Operation							-						-						(3	)					-
Net Income and Diluted EPS from Continuing Operations							30,332						2.69						24,341						2.19
Adjustments for the Following:
Acquisition Costs, Net of Tax							4,274						0.38						1,625						0.15
Amortization of Acquired Profit in Inventory and Backlog, Net of Tax							3,191						0.28						1,359						0.12
Benefit from Discrete Tax Items							-						-						(261	)					(0.02	)
Other Income, Net of Tax							-						-						(247	)					(0.02	)
Adjusted Net Income and Adjusted Diluted EPS						$	37,797					$	3.35					$	26,817					$	2.41
																								Increase
																								Excluding
						Three Months Ended																		Acquisitions
Revenues by Product Line						Sept. 30, 2017						Oct. 1, 2016						Increase						and FX (a,b)
Stock-Preparation						$	52,065					$	44,099					$	7,966					$	6,905
Doctoring, Cleaning, & Filtration							30,538						28,955						1,583						1,129
Fluid-Handling							28,532						23,024						5,508						2,370
Papermaking Systems							111,135						96,078						15,057						10,404
Wood Processing Systems							39,714						7,962						31,752						4,574
Fiber-Based Products							1,945						1,479						466						466
						$	152,794					$	105,519					$	47,275					$	15,444
																								Increase
																								(Decrease)
																								Excluding
						Nine Months Ended																		Acquisitions
						Sept. 30, 2017						Oct. 1, 2016						Increase						and FX (a,b)
Stock-Preparation						$	139,396					$	132,158					$	7,238					$	(5,398	)
Doctoring, Cleaning, & Filtration							82,921						80,374						2,547						3,296
Fluid-Handling							73,099						67,904						5,195						2,727
Papermaking Systems							295,416						280,436						14,980						625
Wood Processing Systems							61,050						25,437						35,613						8,587
Fiber-Based Products							9,427						8,012						1,415						1,415
						$	365,893					$	313,885					$	52,008					$	10,627
																								Increase
																								(Decrease)
																								Excluding
						Three Months Ended																		Acquisitions
Revenues by Geography (c)						Sept. 30, 2017						Oct. 1, 2016						Increase						and FX (a,b)
North America						$	68,369					$	46,994					$	21,375					$	3,902
Europe							46,475						31,686						14,789						5,540
Asia							25,215						18,466						6,749						6,623
Rest of World							12,735						8,373						4,362						(621	)
						$	152,794					$	105,519					$	47,275					$	15,444
																								Increase
																								(Decrease)
																								Excluding
						Nine Months Ended																		Acquisitions
						Sept. 30, 2017						Oct. 1, 2016						Increase						and FX (a,b)
North America						$	170,092					$	155,633					$	14,459					$	(3,324	)
Europe							113,178						85,611						27,567						8,733
Asia							53,658						45,456						8,202						9,699
Rest of World							28,965						27,185						1,780						(4,481	)
						$	365,893					$	313,885					$	52,008					$	10,627
																								Increase
																								(Decrease)
																								Excluding
						Three Months Ended																		Acquisitions
Bookings by Product Line						Sept. 30, 2017						Oct. 1, 2016						Increase						and FX (a)
Stock-Preparation						$	50,797					$	37,039					$	13,758					$	12,737
Doctoring, Cleaning, & Filtration							27,656						27,272						384						22
Fluid-Handling							28,426						20,450						7,976						4,568
Papermaking Systems							106,879						84,761						22,118						17,327
Wood Processing Systems							26,548						8,623						17,925						(73	)
Fiber-Based Products							2,030						1,435						595						595
						$	135,457					$	94,819					$	40,638					$	17,849
																								Increase
																								Excluding
						Nine Months Ended																		Acquisitions
						Sept. 30, 2017						Oct. 1, 2016						Increase						and FX (a)
Stock-Preparation						$	149,285					$	103,228					$	46,057					$	34,777
Doctoring, Cleaning, & Filtration							86,354						86,141						213						1,391
Fluid-Handling							79,752						66,336						13,416						11,032
Papermaking Systems							315,391						255,705						59,686						47,200
Wood Processing Systems							50,172						26,981						23,191						5,198
Fiber-Based Products							8,999						7,164						1,835						1,835
						$	374,562					$	289,850					$	84,712					$	54,233
						Three Months Ended												Nine Months Ended
Business Segment Information						Sept. 30, 2017						Oct. 1, 2016						Sept. 30, 2017						Oct. 1, 2016
Gross Margin:
Papermaking Systems							45.5	%					46.0	%					47.1	%					45.7	%
Wood Processing Systems							33.5	%					45.9	%					37.1	%					41.7	%
Fiber-Based Products							35.7	%					15.0	%					50.1	%					45.7	%
							42.3	%					45.6	%					45.5	%					45.3	%
Operating Income:
Papermaking Systems						$	21,544					$	16,915					$	52,932					$	44,747
Wood Processing Systems							4,418						2,150						6,196						5,406
Corporate and Other							(6,504	)					(6,504	)					(16,181	)					(15,255	)
						$	19,458					$	12,561					$	42,947					$	34,898
Adjusted Operating Income (b, g):
Papermaking Systems						$	21,822					$	17,029					$	53,525					$	47,921
Wood Processing Systems							9,043						2,150						14,923						5,406
Corporate and Other							(6,504	)					(6,451	)					(16,181	)					(14,988	)
						$	24,361					$	12,728					$	52,267					$	38,339
Capital Expenditures:
Papermaking Systems						$	3,790					$	1,632					$	6,567					$	3,341
Corporate and Other							1,493						211						2,151						238
						$	5,283					$	1,843					$	8,718					$	3,579
						Three Months Ended												Nine Months Ended
Cash Flow and Other Data						Sept. 30, 2017						Oct. 1, 2016						Sept. 30, 2017						Oct. 1, 2016
Cash Provided by Continuing Operations						$	6,952					$	15,530					$	32,328					$	34,739
Depreciation and Amortization Expense							6,525						3,457						13,056						10,934
Balance Sheet Data																		Sept. 30, 2017						Dec. 31, 2016
Assets
Cash, Cash Equivalents, and Restricted Cash																		$	91,388					$	73,569
Accounts Receivable, net																			94,664						65,963
Inventories																			90,450						54,951
Unbilled Contract Costs and Fees																			6,256						3,068
Other Current Assets																			20,911						9,799
Property, Plant and Equipment, net																			70,373						47,704
Intangible Assets																			135,231						52,730
Goodwill																			264,840						151,455
Other Assets																			13,546						11,452
																		$	787,659					$	470,691
Liabilities and Stockholders' Equity
Accounts Payable																		$	35,136					$	23,929
Long-term Debt																			273,671						61,494
Capital Lease Obligations																			5,127						4,917
Other Liabilities																			142,838						96,072
Total Liabilities																			456,772						186,412
Stockholders' Equity																			330,887						284,279
																		$	787,659					$	470,691
Adjusted Operating Income and Adjusted EBITDA						Three Months Ended												Nine Months Ended
Reconciliation						Sept. 30, 2017						Oct. 1, 2016						Sept. 30, 2017						Oct. 1, 2016
Consolidated
Net Income Attributable to Kadant						$	13,285					$	9,157					$	30,332					$	24,344
Net Income Attributable to Noncontrolling Interest							125						75						343						318
Income from Discontinued Operation, Net of Tax							-						(3	)					-						(3	)
Provision for Income Taxes							4,860						3,081						10,550						9,500
Interest Expense, net							1,188						251						1,722						739
Operating Income							19,458						12,561						42,947						34,898
Other Income							-						-						-						(317	)
Acquisition Costs (d)							585						167						5,002						1,832
Acquired Backlog Amortization (e)							958						-						958						1,468
Acquired Profit in Inventory (f)							3,360						-						3,360						458
Adjusted Operating Income (b)							24,361						12,728						52,267						38,339
Depreciation and Amortization							5,567						3,457						12,098						9,466
Adjusted EBITDA (b)						$	29,928					$	16,185					$	64,365					$	47,805
Adjusted EBITDA Margin (b, h)							19.6	%					15.3	%					17.6	%					15.2	%
Papermaking Systems
Operating Income						$	21,544					$	16,915					$	52,932					$	44,747
Other Income							-						-						-						(317	)
Acquisition Costs (d)							172						114						487						1,565
Acquired Backlog Amortization (e)							-						-						-						1,468
Acquired Profit in Inventory (f)							106						-						106						458
Adjusted Operating Income (b)							21,822						17,029						53,525						47,921
Depreciation and Amortization							2,894						2,746						8,105						7,359
Adjusted EBITDA (b)						$	24,716					$	19,775					$	61,630					$	55,280
Wood Processing Systems
Operating Income						$	4,418					$	2,150					$	6,196					$	5,406
Acquisition Costs (d)							413						-						4,515						-
Acquired Backlog Amortization (e)							958						-						958						-
Acquired Profit in Inventory (f)							3,254						-						3,254						-
Adjusted Operating Income (b)							9,043						2,150						14,923						5,406
Depreciation and Amortization							2,527						559						3,547						1,644
Adjusted EBITDA (b)						$	11,570					$	2,709					$	18,470					$	7,050
Corporate and Other
Operating Loss						$	(6,504	)				$	(6,504	)				$	(16,181	)				$	(15,255	)
Acquisition Costs (d)							-						53						-						267
Adjusted Operating Loss (b)							(6,504	)					(6,451	)					(16,181	)					(14,988	)
Depreciation and Amortization							146						152						446						463
Adjusted EBITDA (b)						$	(6,358	)				$	(6,299	)				$	(15,735	)				$	(14,525	)

(a) 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.

(b) Represents a non-GAAP financial measure.

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

(d) Represents transaction costs associated with our acquisitions.

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

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

(g) See reconciliation to the most directly comparable GAAP financial measure under "Adjusted Operating Income and Adjusted EBITDA Reconciliation."

(h) 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 2,400 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. 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 December 31, 2016 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; 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; economic conditions and regulatory changes caused by the United Kingdom’s likely exit from the European Union; 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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20171030006259/en/

Source: Kadant Inc.

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