Kadant Reports Second Quarter 2020 Results
Second Quarter 2020 Financial Highlights
- Bookings decreased 24% to
$133 million . - Revenue decreased 14% to
$153 million . - GAAP diluted EPS decreased 30% to
$1.00 . - Adjusted diluted EPS decreased 25% to
$1.06 . - Net income decreased 29% to
$12 million . - Adjusted EBITDA decreased 19% to
$27 million and represented 17.4% of revenue. - Operating cash flow was
$22 million . - Our balance sheet remains healthy and our liquidity position is solid.
Note: Adjusted diluted EPS, adjusted EBITDA, adjusted EBITDA margin, free cash flow, 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
“Despite challenging circumstances, our workforce around the world continues to perform exceptionally well to meet the needs and expectations of our customers,” said
“Our parts and consumables revenue made up 64 percent of our second quarter revenue and that aspect of our business continues to provide a relatively stable revenue stream. Our parts and consumables support the production of essential items found in health care facilities and grocery stores and in packaging shipped directly to consumers and businesses. They also support the requirements of critical infrastructure such as housing, highway construction and road repair, and other basic societal needs.
“Strategic acquisitions continue to be an important part of our growth strategy and today we announced our acquisition of a leading North American industrial automation and controls solution provider completed in the second quarter. This acquisition will help us enhance and expand our smart connected product offerings around the world.”
Second Quarter 2020 compared to 2019
Revenue decreased 14 percent to
GAAP diluted earnings per share (EPS) decreased 30 percent to
Bookings decreased 24 percent to
Summary and Outlook
“Our decentralized structure and global footprint combined with our strong aftermarket business have provided stability in this environment,”
Conference Call
Shortly after the webcast,
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 second quarter of 2020 included a
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 none at all.
Second Quarter
Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude:
- Pre-tax acquisition costs of
$0.4 million in 2020. - Pre-tax restructuring costs of
$0.5 million in 2020. - Pre-tax expense related to amortization of acquired profit in inventory and backlog of
$1.5 million in 2019.
Adjusted net income and adjusted diluted EPS exclude:
- After-tax acquisition costs of
$0.3 million ($0.4 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. - After-tax expense related to amortization of acquired profit in inventory and backlog of
$1.2 million ($1.5 million net of tax of$0.3 million ) in 2019. - A discrete tax benefit of
$1.2 million in 2019.
Free cash flow is calculated as cash flow from operations less:
- Capital expenditures of
$0.9 million in 2020 and$2.0 million in 2019.
First Six Months
Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude:
- Pre-tax acquisition costs of
$0.4 million in 2020 and$0.8 million in 2019. - Pre-tax restructuring costs of
$0.5 million in 2020. - Pre-tax expense related to amortization of acquired profit in inventory and backlog of
$4.8 million in 2019.
Adjusted net income and adjusted diluted EPS exclude:
- After-tax acquisition costs of
$0.3 million ($0.4 million net of tax of$0.1 million ) in 2020 and$0.7 million ($0.8 million net of tax of$0.1 million ) in 2019. - After-tax restructuring costs of
$0.3 million ($0.5 million net of tax of$0.2 million ) in 2020. - After-tax expense related to amortization of acquired profit in inventory and backlog of
$3.7 million ($4.8 million net of tax of$1.1 million ) in 2019. - A discrete tax benefit of
$1.2 million in 2019.
Free cash flow is calculated as cash flow from operations less:
- Capital expenditures of
$3.6 million in 2020 and$4.1 million in 2019.
Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in this press release.
| Financial Highlights (unaudited) | |||||||||||||||||
| (In thousands, except per share amounts and percentages) | |||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| Consolidated Statement of Income | 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Revenue | $ | 152,860 | $ | 177,165 | $ | 311,987 | $ | 348,481 | |||||||||
| Costs and Operating Expenses: | |||||||||||||||||
| Cost of revenue | 86,412 | 102,794 | 177,216 | 203,595 | |||||||||||||
| Selling, general, and administrative expenses | 45,073 | 48,467 | 90,665 | 97,786 | |||||||||||||
| Research and development expenses | 2,798 | 2,762 | 5,874 | 5,383 | |||||||||||||
| Restructuring costs | 456 | — | 456 | — | |||||||||||||
| 134,739 | 154,023 | 274,211 | 306,764 | ||||||||||||||
| Operating Income | 18,121 | 23,142 | 37,776 | 41,717 | |||||||||||||
| Interest Income | 37 | 59 | 88 | 115 | |||||||||||||
| Interest Expense | (1,931 | ) | (3,573 | ) | (4,390 | ) | (7,077 | ) | |||||||||
| Other Expense, Net | (31 | ) | (99 | ) | (63 | ) | (198 | ) | |||||||||
| Income Before Provision for Income Taxes | 16,196 | 19,529 | 33,411 | 34,557 | |||||||||||||
| Provision for Income Taxes | 4,474 | 3,128 | 9,033 | 7,091 | |||||||||||||
| Net Income | 11,722 | 16,401 | 24,378 | 27,466 | |||||||||||||
| Net Income Attributable to Noncontrolling Interest | (115 | ) | (97 | ) | (240 | ) | (262 | ) | |||||||||
| Net Income Attributable to |
$ | 11,607 | $ | 16,304 | $ | 24,138 | $ | 27,204 | |||||||||
| Earnings per Share Attributable to |
|||||||||||||||||
| Basic | $ | 1.01 | $ | 1.46 | $ | 2.11 | $ | 2.44 | |||||||||
| Diluted | $ | 1.00 | $ | 1.42 | $ | 2.09 | $ | 2.38 | |||||||||
| Weighted Average Shares: | |||||||||||||||||
| Basic | 11,482 | 11,194 | 11,457 | 11,164 | |||||||||||||
| Diluted | 11,552 | 11,448 | 11,530 | 11,416 | |||||||||||||
| Three Months Ended | Three Months Ended | ||||||||||||||||
| Adjusted Net Income and Adjusted Diluted EPS (a) | 2020 |
2020 |
2019 |
2019 |
|||||||||||||
| Net Income and Diluted EPS Attributable to |
$ | 11,607 | $ | 1.00 | $ | 16,304 | $ | 1.42 | |||||||||
| Adjustments for the Following: | |||||||||||||||||
| Restructuring Costs, Net of Tax | 332 | 0.03 | — | — | |||||||||||||
| Acquisition Costs, Net of Tax | 297 | 0.03 | — | — | |||||||||||||
| Amortization of Acquired Profit in Inventory and Backlog, Net of Tax (f,g) | 20 | — | 1,158 | 0.10 | |||||||||||||
| Discrete Tax Items | — | — | (1,235 | ) | (0.11 | ) | |||||||||||
| Adjusted Net Income and Adjusted Diluted EPS (a) | $ | 12,256 | $ | 1.06 | $ | 16,227 | $ | 1.42 | |||||||||
| Six Months Ended | Six Months Ended | ||||||||||||||||
2020 |
2020 |
2019 |
2019 |
||||||||||||||
| Net Income and Diluted EPS Attributable to |
$ | 24,138 | $ | 2.09 | $ | 27,204 | $ | 2.38 | |||||||||
| Adjustments for the Following: | |||||||||||||||||
| Restructuring Costs, Net of Tax | 332 | 0.03 | — | — | |||||||||||||
| Acquisition Costs, Net of Tax | 297 | 0.03 | 699 | 0.06 | |||||||||||||
| Amortization of Acquired Profit in Inventory and Backlog, Net of Tax (f,g) | 26 | — | 3,671 | 0.32 | |||||||||||||
| Discrete Tax Items | — | — | (1,235 | ) | (0.11 | ) | |||||||||||
| Adjusted Net Income and Adjusted Diluted EPS (a) | $ | 24,793 | $ | 2.15 | $ | 30,339 | $ | 2.66 | |||||||||
Three Months Ended |
Increase (Decrease) Excluding Acquisition and FX (a,c) |
||||||||||||||||
| Revenue by Segment (b) | 2020 |
2019 |
Increase (Decrease) |
||||||||||||||
| Flow Control | $ | 51,365 | $ | 65,273 | $ | (13,908 | ) | $ | (11,784 | ) | |||||||
| Industrial Processing | 65,673 | 76,396 | (10,723 | ) | (9,387 | ) | |||||||||||
| Material Handling | 35,822 | 35,496 | 326 | 641 | |||||||||||||
| $ | 152,860 | $ | 177,165 | $ | (24,305 | ) | $ | (20,530 | ) | ||||||||
Six Months Ended |
Decrease | Increase (Decrease) Excluding Acquisition and FX (a,c) |
|||||||||||||||
2020 |
2019 |
||||||||||||||||
| Flow Control | $ | 108,514 | $ | 126,417 | $ | (17,903 | ) | $ | (14,469 | ) | |||||||
| Industrial Processing | 130,382 | 148,670 | (18,288 | ) | (16,069 | ) | |||||||||||
| Material Handling | 73,091 | 73,394 | (303 | ) | 373 | ||||||||||||
| $ | 311,987 | $ | 348,481 | $ | (36,494 | ) | $ | (30,165 | ) | ||||||||
Three Months Ended |
Decrease | Increase (Decrease) Excluding Acquisition and FX (a,c) |
|||||||||||||||
| Revenue by Geography (d) | 2020 |
2019 |
|||||||||||||||
| $ | 88,718 | $ | 98,667 | $ | (9,949 | ) | $ | (9,082 | ) | ||||||||
| 37,916 | 43,813 | (5,897 | ) | (4,890 | ) | ||||||||||||
| 16,237 | 23,696 | (7,459 | ) | (6,845 | ) | ||||||||||||
| Rest of World | 9,989 | 10,989 | (1,000 | ) | 287 | ||||||||||||
| $ | 152,860 | $ | 177,165 | $ | (24,305 | ) | $ | (20,530 | ) | ||||||||
Six Months Ended |
Decrease | Increase (Decrease) Excluding Acquisition and FX (a,c) |
|||||||||||||||
2020 |
2019 |
||||||||||||||||
| $ | 182,541 | $ | 199,543 | $ | (17,002 | ) | $ | (16,040 | ) | ||||||||
| 73,930 | 82,798 | (8,868 | ) | (6,779 | ) | ||||||||||||
| 32,145 | 40,774 | (8,629 | ) | (7,500 | ) | ||||||||||||
| Rest of World | 23,371 | 25,366 | (1,995 | ) | 154 | ||||||||||||
| $ | 311,987 | $ | 348,481 | $ | (36,494 | ) | $ | (30,165 | ) | ||||||||
| Decrease Excluding Acquisition and FX (c) |
|||||||||||||||||
| Three Months Ended | Decrease | ||||||||||||||||
| Bookings by Segment (b) | 2020 |
2019 |
|||||||||||||||
| Flow Control | $ | 49,361 | $ | 60,694 | $ | (11,333 | ) | $ | (9,287 | ) | |||||||
| Industrial Processing | 53,144 | 75,008 | (21,864 | ) | (20,604 | ) | |||||||||||
| Material Handling | 30,471 | 38,258 | (7,787 | ) | (7,504 | ) | |||||||||||
| $ | 132,976 | $ | 173,960 | $ | (40,984 | ) | $ | (37,395 | ) | ||||||||
| Decrease Excluding Acquisition and FX (c) |
|||||||||||||||||
| Six Months Ended | Decrease | ||||||||||||||||
2020 |
2019 |
||||||||||||||||
| Flow Control | $ | 117,105 | $ | 125,429 | $ | (8,324 | ) | $ | (4,759 | ) | |||||||
| Industrial Processing | 118,982 | 154,079 | (35,097 | ) | (33,077 | ) | |||||||||||
| Material Handling | 72,506 | 78,064 | (5,558 | ) | (4,948 | ) | |||||||||||
| $ | 308,593 | $ | 357,572 | $ | (48,979 | ) | $ | (42,784 | ) | ||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| Business Segment Information (b) | 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Gross Margin: | |||||||||||||||||
| Flow Control | 53.5 | % | 51.0 | % | 53.2 | % | 51.0 | % | |||||||||
| Industrial Processing | 40.9 | % | 39.4 | % | 39.7 | % | 39.2 | % | |||||||||
| Material Handling | 33.8 | % | 30.9 | % | 34.7 | % | 30.1 | % | |||||||||
| 43.5 | % | 42.0 | % | 43.2 | % | 41.6 | % | ||||||||||
| Operating Income: | |||||||||||||||||
| Flow Control | $ | 10,260 | $ | 15,133 | $ | 23,590 | $ | 28,117 | |||||||||
| Industrial Processing | 10,639 | 13,869 | 20,075 | 25,723 | |||||||||||||
| Material Handling | 3,593 | 1,259 | 7,727 | 1,990 | |||||||||||||
| Corporate | (6,371 | ) | (7,119 | ) | (13,616 | ) | (14,113 | ) | |||||||||
| $ | 18,121 | $ | 23,142 | $ | 37,776 | $ | 41,717 | ||||||||||
| Adjusted Operating Income (a,e): | |||||||||||||||||
| Flow Control | $ | 10,716 | $ | 15,133 | $ | 24,046 | $ | 28,117 | |||||||||
| Industrial Processing | 11,074 | 13,869 | 20,510 | 25,723 | |||||||||||||
| Material Handling | 3,593 | 2,782 | 7,735 | 7,664 | |||||||||||||
| Corporate | (6,371 | ) | (7,119 | ) | (13,616 | ) | (14,113 | ) | |||||||||
| $ | 19,012 | $ | 24,665 | $ | 38,675 | $ | 47,391 | ||||||||||
| Capital Expenditures: | |||||||||||||||||
| Flow Control | $ | 337 | $ | 707 | $ | 1,158 | $ | 1,178 | |||||||||
| Industrial Processing | 211 | 807 | 1,675 | 2,170 | |||||||||||||
| Material Handling | 283 | 415 | 681 | 748 | |||||||||||||
| Corporate | 80 | 46 | 83 | 47 | |||||||||||||
| $ | 911 | $ | 1,975 | $ | 3,597 | $ | 4,143 | ||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| Cash Flow and Other Data | 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Cash Provided by Operations | $ | 22,039 | $ | 22,612 | $ | 28,208 | $ | 32,488 | |||||||||
| Less: Capital Expenditures | (911 | ) | (1,975 | ) | (3,597 | ) | (4,143 | ) | |||||||||
| Free Cash Flow (a) | $ | 21,128 | $ | 20,637 | $ | 24,611 | $ | 28,345 | |||||||||
| Depreciation and Amortization Expense | $ | 7,576 | $ | 8,310 | $ | 15,174 | $ | 16,541 | |||||||||
| Balance Sheet Data | 2020 |
2019 |
|||||||||||||||
| Assets | |||||||||||||||||
| Cash, Cash Equivalents, and Restricted Cash | $ | 60,949 | $ | 68,273 | |||||||||||||
| Accounts Receivable, net | 89,393 | 95,740 | |||||||||||||||
| Inventories | 109,663 | 102,715 | |||||||||||||||
| Unbilled Revenue | 10,444 | 13,162 | |||||||||||||||
| Property, Plant, and Equipment, net | 82,242 | 86,032 | |||||||||||||||
| Intangible Assets | 167,314 | 173,896 | |||||||||||||||
| 337,993 | 336,032 | ||||||||||||||||
| Other Assets | 57,294 | 63,537 | |||||||||||||||
| $ | 915,292 | $ | 939,387 | ||||||||||||||
| Liabilities and Stockholders' Equity | |||||||||||||||||
| Accounts Payable | $ | 39,922 | $ | 45,852 | |||||||||||||
| Debt Obligations | 277,525 | 294,717 | |||||||||||||||
| Other Borrowings | 5,622 | 6,308 | |||||||||||||||
| Other Liabilities | 151,864 | 165,431 | |||||||||||||||
| Total Liabilities | 474,933 | 512,308 | |||||||||||||||
| Stockholders' Equity | 440,359 | 427,079 | |||||||||||||||
| $ | 915,292 | $ | 939,387 | ||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| Adjusted Operating Income and Adjusted EBITDA Reconciliation (a,b) | 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Consolidated | |||||||||||||||||
| Net Income Attributable to |
$ | 11,607 | $ | 16,304 | $ | 24,138 | $ | 27,204 | |||||||||
| Net Income Attributable to Noncontrolling Interest | 115 | 97 | 240 | 262 | |||||||||||||
| Provision for Income Taxes | 4,474 | 3,128 | 9,033 | 7,091 | |||||||||||||
| Interest Expense, Net | 1,894 | 3,514 | 4,302 | 6,962 | |||||||||||||
| Other Expense, Net | 31 | 99 | 63 | 198 | |||||||||||||
| Operating Income | 18,121 | 23,142 | 37,776 | 41,717 | |||||||||||||
| Restructuring Costs | 456 | — | 456 | — | |||||||||||||
| Acquisition Costs | 407 | — | 407 | 843 | |||||||||||||
| Acquired Backlog Amortization (f) | 28 | 284 | 36 | 1,282 | |||||||||||||
| Acquired Profit in Inventory (g) | — | 1,239 | — | 3,549 | |||||||||||||
| Adjusted Operating Income (a) | 19,012 | 24,665 | 38,675 | 47,391 | |||||||||||||
| Depreciation and Amortization | 7,548 | 8,026 | 15,138 | 15,259 | |||||||||||||
| Adjusted EBITDA (a) | $ | 26,560 | $ | 32,691 | $ | 53,813 | $ | 62,650 | |||||||||
| Adjusted EBITDA Margin (a,h) | 17.4 | % | 18.5 | % | 17.2 | % | 18.0 | % | |||||||||
| Flow Control | |||||||||||||||||
| Operating Income | $ | 10,260 | $ | 15,133 | $ | 23,590 | $ | 28,117 | |||||||||
| Restructuring Costs | 456 | — | 456 | — | |||||||||||||
| Adjusted Operating Income (a) | 10,716 | 15,133 | 24,046 | 28,117 | |||||||||||||
| Depreciation and Amortization | 1,579 | 1,608 | 3,165 | 3,194 | |||||||||||||
| Adjusted EBITDA (a) | $ | 12,295 | $ | 16,741 | $ | 27,211 | $ | 31,311 | |||||||||
| Adjusted EBITDA Margin (a,h) | 23.9 | % | 25.6 | % | 25.1 | % | 24.8 | % | |||||||||
| Industrial Processing | |||||||||||||||||
| Operating Income | $ | 10,639 | $ | 13,869 | $ | 20,075 | $ | 25,723 | |||||||||
| Acquisition Costs | 407 | — | 407 | — | |||||||||||||
| Acquired Backlog Amortization (f) | 28 | — | 28 | — | |||||||||||||
| Adjusted Operating Income (a) | 11,074 | 13,869 | 20,510 | 25,723 | |||||||||||||
| Depreciation and Amortization | 3,126 | 3,238 | 6,287 | 6,482 | |||||||||||||
| Adjusted EBITDA (a) | $ | 14,200 | $ | 17,107 | $ | 26,797 | $ | 32,205 | |||||||||
| Adjusted EBITDA Margin (a,h) | 21.6 | % | 22.4 | % | 20.6 | % | 21.7 | % | |||||||||
| Material Handling | |||||||||||||||||
| Operating Income | $ | 3,593 | $ | 1,259 | $ | 7,727 | $ | 1,990 | |||||||||
| Acquisition Costs | — | — | — | 843 | |||||||||||||
| Acquired Backlog Amortization (f) | — | 284 | 8 | 1,282 | |||||||||||||
| Acquired Profit in Inventory (g) | — | 1,239 | — | 3,549 | |||||||||||||
| Adjusted Operating Income (a) | 3,593 | 2,782 | 7,735 | 7,664 | |||||||||||||
| Depreciation and Amortization | 2,795 | 3,115 | 5,592 | 5,458 | |||||||||||||
| Adjusted EBITDA (a) | $ | 6,388 | $ | 5,897 | $ | 13,327 | $ | 13,122 | |||||||||
| Adjusted EBITDA Margin (a,h) | 17.8 | % | 16.6 | % | 18.2 | % | 17.9 | % | |||||||||
| Corporate | |||||||||||||||||
| Operating Loss | $ | (6,371 | ) | $ | (7,119 | ) | $ | (13,616 | ) | $ | (14,113 | ) | |||||
| Depreciation and Amortization | 48 | 65 | 94 | 125 | |||||||||||||
| EBITDA (a) | $ | (6,323 | ) | $ | (7,054 | ) | $ | (13,522 | ) | $ | (13,988 | ) | |||||
| (a) | Represents a non-GAAP financial measure. | ||||||||||||||||
| (b) | Reflects our new reportable operating segments announced on |
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| (c) | Represents the increase (decrease) resulting from the exclusion of an acquisition and from the conversion of current period amounts reported in local currencies into |
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| (d) | Geographic revenues are attributed to regions based on customer location. | ||||||||||||||||
| (e) | See reconciliation to the most directly comparable GAAP financial measure under "Adjusted Operating Income and Adjusted EBITDA Reconciliation." | ||||||||||||||||
| (f) | Represents intangible amortization expense associated with acquired backlog. | ||||||||||||||||
| (g) | Represents expense within cost of revenues associated with amortization of acquired profit in inventory. | ||||||||||||||||
| (h) | Calculated as adjusted EBITDA divided by revenue in each period. | ||||||||||||||||
About
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
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Source: Kadant Inc