UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________________________________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): July 28, 2020
(Exact name of registrant as specified in its charter)
Commission file number 001-11406
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
(Address of principal executive offices, including zip code)
(978 ) 776-2000
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | ||
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
KADANT INC.
Item 2.02 Results of Operations and Financial Condition.
On July 28, 2020, Kadant Inc. (the “Company”) announced its financial results for the fiscal quarter ended June 27, 2020. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
Item 7.01 Regulation FD Disclosure.
On July 29, 2020, the Company will hold a webcast and conference call to discuss its financial results for the fiscal quarter ended June 27, 2020. A copy of the slides that will be presented on the webcast and discussed in the conference call is furnished as Exhibit 99.2 to this Current Report on Form 8-K.
The information in Item 2.02 and Item 7.01 of this Form 8-K (including Exhibits 99.1 and 99.2) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits | ||
The following exhibits relating to Item 2.02 and Item 7.01 shall be deemed to be furnished and not filed. | ||
Exhibit No. | Description of Exhibits | |
99.1 | ||
99.2 | ||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
2
KADANT INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
KADANT INC. | ||
Date: July 28, 2020 | By | /s/ Michael J. McKenney |
Michael J. McKenney Executive Vice President and Chief Financial Officer | ||
3
Exhibit 99.1
KADANT INC.
One Technology Park Drive
Westford, MA 01886
NEWS
Kadant Reports Second Quarter 2020 Results
WESTFORD, Mass., July 28, 2020 - Kadant Inc. (NYSE: KAI) reported its financial results for the second quarter ended June 27, 2020.
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 Jeffrey L. Powell, president and chief executive officer of Kadant. “While second quarter revenue was weaker year-over-year, especially given a difficult comparable period and pandemic-related challenges, our cash flow and healthy balance sheet continue to be a source of strength. Our operating cash flow was $22 million for the second quarter, down three percent from the prior year, while our free cash flow increased to $21 million.
“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 $152.9 million compared to $177.2 million in 2019. Organic revenue was down 12 percent, which excludes an acquisition and a two percent decrease from the unfavorable effect of foreign currency translation. Gross margin was 43.5 percent compared to 42.0 percent in 2019.
GAAP diluted earnings per share (EPS) decreased 30 percent to $1.00 compared to $1.42 in 2019. Adjusted diluted EPS decreased 25 percent to $1.06 compared to $1.42 in 2019. Adjusted diluted EPS in 2020 excludes $0.03 of restructuring costs and $0.03 of acquisition costs. Adjusted diluted EPS in 2019 excludes $0.10 of amortization expense from acquired profit in inventory and backlog and an $0.11 discrete tax benefit related to the exercise of employee stock options. Adjusted EBITDA decreased 19 percent to $26.6 million compared to $32.7 million in 2019. Cash flow from operations decreased three percent to $22.0 million compared to $22.6 million in 2019.
Bookings decreased 24 percent to $133.0 million compared to $174.0 million in 2019. Organic bookings were down 21 percent, which excludes an acquisition and a two percent decrease from the unfavorable effect of foreign currency translation.
Summary and Outlook
“Our decentralized structure and global footprint combined with our strong aftermarket business have provided stability in this environment,” Mr. Powell continued. “We were pleased with the solid execution by our divisions, resulting in $21 million of free cash flow for the second quarter further strengthening our liquidity position. Looking ahead, we expect the third quarter will be our weakest quarter of the year and are anticipating an improvement in business activity in the fourth quarter assuming economies continue to re-open and consumer demand strengthens. However, given the current uncertainty surrounding the timing of the recovery in markets around the world, we will not be providing guidance at this time. Despite this, the underlying fundamentals of our markets and our business remain strong.”
Conference Call
Kadant will hold a webcast with a slide presentation for investors on Wednesday, July 29, 2020, at 11:00 a.m. eastern time to discuss its second 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 4880692. 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 August 28, 2020.
Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the second 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 second quarter of 2020 included a $4.0 million unfavorable foreign currency translation effect and $0.2 million from an acquisition. Revenue in the first six months of 2020 included a $6.5 million unfavorable foreign currency translation effect and $0.2 million from an acquisition. 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 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.
-more-
Financial Highlights (unaudited) | ||||||||||||||||||
(In thousands, except per share amounts and percentages) | ||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||
Consolidated Statement of Income | June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 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 Kadant | $ | 11,607 | $ | 16,304 | $ | 24,138 | $ | 27,204 | ||||||||||
Earnings per Share Attributable to Kadant: | ||||||||||||||||||
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) | June 27, 2020 | June 27, 2020 | June 29, 2019 | June 29, 2019 | ||||||||||||||
Net Income and Diluted EPS Attributable to Kadant, as Reported | $ | 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 | ||||||||||
-more-
Six Months Ended | Six Months Ended | |||||||||||||||||
June 27, 2020 | June 27, 2020 | June 29, 2019 | June 29, 2019 | |||||||||||||||
Net Income and Diluted EPS Attributable to Kadant, as Reported | $ | 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) | June 27, 2020 | June 29, 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) | ||||||||||||||||
June 27, 2020 | June 29, 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) | June 27, 2020 | June 29, 2019 | ||||||||||||||||
North America | $ | 88,718 | $ | 98,667 | $ | (9,949 | ) | $ | (9,082 | ) | ||||||||
Europe | 37,916 | 43,813 | (5,897 | ) | (4,890 | ) | ||||||||||||
Asia | 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 | ) | |||||||||
-more-
Six Months Ended | Decrease | Increase (Decrease) Excluding Acquisition and FX (a,c) | ||||||||||||||||
June 27, 2020 | June 29, 2019 | |||||||||||||||||
North America | $ | 182,541 | $ | 199,543 | $ | (17,002 | ) | $ | (16,040 | ) | ||||||||
Europe | 73,930 | 82,798 | (8,868 | ) | (6,779 | ) | ||||||||||||
Asia | 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) | June 27, 2020 | June 29, 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 | |||||||||||||||||
June 27, 2020 | June 29, 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) | June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 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 | |||||||||||
-more-
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 | June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 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 | June 27, 2020 | December 28, 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 | ||||||||||||||||
Goodwill | 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 | |||||||||||||||
-more-
Three Months Ended | Six Months Ended | |||||||||||||||||
Adjusted Operating Income and Adjusted EBITDA Reconciliation (a,b) | June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 2019 | ||||||||||||||
Consolidated | ||||||||||||||||||
Net Income Attributable to Kadant | $ | 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 | % | ||||||||||
-more-
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 April 22, 2020. Prior period information has been recast to conform to the current period presentation. | |||||||||||||||||
(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 U.S. dollars at the exchange rate of the prior period compared to the U.S. dollar amount reported in the prior period. | |||||||||||||||||
(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. | |||||||||||||||||
-more-
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 2,700 employees in 20 countries worldwide. For more information, visit www.kadant.com.
Safe Harbor Statement
The following constitutes a “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements that involve a number of risks and uncertainties, including forward-looking statements about our future financial and operating performance, demand for our products, and economic and industry outlook. These forward-looking statements represent our expectations as of the date of this press release. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements as a result of various important factors, including those set forth under the heading "Risk Factors" in Kadant’s annual report on Form 10-K for the year ended December 28, 2019 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; our customers’ ability to obtain financing for capital equipment projects; international sales and operations; health epidemics; changes to government regulations and policies around the world; policies of the Chinese government; the variability and uncertainties in sales of capital equipment in China; 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; cyclical economic conditions affecting the global mining industry; development and use of digital media; currency fluctuations; demand for coal, including economic and environmental risks associated with coal; price increases or shortages of raw materials; dependence on certain suppliers; our acquisition strategy; failure of our information systems or breaches of data security and cybertheft; compliance with government regulations and policies and compliance with laws; implementation of our internal growth strategy; competition; soundness of suppliers and customers; changes in our tax provision or exposure to additional tax liabilities; our ability to successfully manage our manufacturing operations; disruption in production; future restructurings; economic conditions and regulatory changes caused by the United Kingdom’s exit from the European Union; our debt obligations; restrictions in our credit agreement and note purchase agreement; substitution of an alternative index for LIBOR; loss of key personnel and effective succession planning; protection of intellectual property; fluctuations in our share price; soundness of financial institutions; environmental laws and regulations; climate change; environmental, health and safety laws and regulations; adequacy of our insurance coverage; anti-takeover provisions; and reliance on third-party research.
Contacts
Investor Contact Information:
Michael McKenney, 978-776-2000
IR@kadant.com
or
Media Contact Information:
Wes Martz, 269-278-1715
media@kadant.com
###
Exhibit 99.2 Second Quarter 2020 Business Review July 29, 2020
Forward-Looking Statements The following constitutes a “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: This presentation 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 Kadant’s expectations as of the date of this presentation. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward- looking statements as a result of various important factors, including those set forth under the heading "Risk Factors" in Kadant’s annual report on Form 10-K for the year ended December 28, 2019 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; our customers’ ability to obtain financing for capital equipment projects; international sales and operations; health epidemics; changes to government regulations and policies around the world; policies of the Chinese government; the variability and uncertainties in sales of capital equipment in China; 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; cyclical economic conditions affecting the global mining industry; development and use of digital media; currency fluctuations; demand for coal, including economic and environmental risks associated with coal; price increases or shortages of raw materials; dependence on certain suppliers; our acquisition strategy; failure of our information systems or breaches of data security and cybertheft; compliance with government regulations and policies and compliance with laws; implementation of our internal growth strategy; competition; soundness of suppliers and customers; changes in our tax provision or exposure to additional tax liabilities; our ability to successfully manage our manufacturing operations; disruption in production; future restructurings; economic conditions and regulatory changes caused by the United Kingdom’s exit from the European Union; our debt obligations; restrictions in our credit agreement and note purchase agreement; substitution of an alternative index for LIBOR; loss of key personnel and effective succession planning; protection of intellectual property; fluctuations in our share price; soundness of financial institutions; environmental laws and regulations; climate change; environmental, health and safety laws and regulations; adequacy of our insurance coverage; anti-takeover provisions; and reliance on third-party research. KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 2
Use of Non-GAAP Financial Measures In addition to the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including adjusted diluted EPS, adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA), adjusted EBITDA margin, and free cash flow. Specific non-GAAP financial measures have been marked with an * (asterisk) within this presentation. A reconciliation of those numbers to the most directly comparable GAAP financial measures is shown in the Appendix and in our second quarter 2020 earnings press release issued July 28, 2020, which is available in the Investors section of our website at investor.kadant.com under the heading News Releases. 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 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 presentation 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 presentation 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. KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 3
BUSINESS REVIEW Jeffrey L. Powell | President & CEO KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 4
Operational Highlights • Our global workforce performed exceptionally well with continued commitment to meet our customers’ needs • Safeguarding our workplaces and protecting the health and safety of our employees remains a core priority • Our balance sheet remains healthy and our liquidity position remains solid KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 5
Q2 2020 Performance ($ in millions, except per share amounts) Q2 20 Q2 19 Change HIGHLIGHTS Revenue $152.9 $177.2 -13.7% Net Income $11.6 $16.3 -28.8% • Free cash flow* was strong at $21 million and Adjusted EBITDA* $26.6 $32.7 -18.8% increased 2% over Q2 2019 Adjusted EBITDA Margin* 17.4% 18.5% -110 bps • Parts and consumables revenue was relatively stable Diluted EPS $1.00 $1.42 -29.6% and made up 64% of Q2 revenue Adjusted Diluted EPS* $1.06 $1.42 -25.4% Operating Cash Flow $22.0 $22.6 -2.5% • Completed the acquisition of automation and controls Free Cash Flow* $21.1 $20.6 +2.4% solution provider, Cogent Industrial Technologies Bookings $133.0 $174.0 -23.6% KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 6
Flow Control Custom-engineered products, systems, and technologies that control the flow of fluids HIGHLIGHTS $ in millions Q2 20 Q2 19 Change Revenue $51.4 $65.3 -21.3% • Softness in general industry outside of Bookings $49.4 $60.7 -18.7% critical infrastructure manufacturers Adjusted EBITDA* $12.3 $16.7 -26.6% Adjusted EBITDA Margin* 23.9% 25.6% -170 bps • Large capital project activity and service work most impacted ($ in millions) BOOKINGS $75 • Parts and consumables revenue $67.7 made up 72% of total Q2 revenue $60.7 $50 $58.8 $57.0 $49.4 $25 • Improved bookings activity in June following a notably weak April/May $0 2Q19 3Q19 4Q19 1Q20 2Q20 KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 7
Industrial Processing Products used to recycle paper and paperboard and to process timber HIGHLIGHTS $ in millions Q2 20 Q2 19 Change Revenue $65.7 $76.4 -14.0% • Strong demand for wood products, Bookings $53.1 $75.0 -29.1% lumber prices near all-time high Adjusted EBITDA* $14.2 $17.1 -17.0% Adjusted EBITDA Margin* 21.6% 22.4% -80 bps • U.S. housing starts surprisingly strong BOOKINGS ($ in millions) • Parts and consumables revenue made $100 up 62% of total Q2 revenue $75 $75.0 $74.9 $65.8 • Increasing project activity expected as $50 $61.9 $53.1 new inquiries continue to grow $25 $0 2Q19 3Q19 4Q19 1Q20 2Q20 KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 8
Material Handling Products used to handle bulk and discrete materials for secondary processing. HIGHLIGHTS $ in millions Q2 20 Q2 19 Change Revenue $35.8 $35.5 +0.9% • Solid performance in the aggregates and Bookings $30.5 $38.3 -20.4% food sectors Adjusted EBITDA* $6.4 $5.9 +8.3% Adjusted EBITDA Margin* 17.8% 16.6% +120 bps • Capital project and service work negatively impacted ($ in millions) BOOKINGS $50 • Parts and consumables revenue made up 55% of total Q2 revenue $40.9 $42.0 $38.3 $37.2 $25 $30.5 • Solid execution and product mix led to adjusted EBITDA* increasing 8% $0 2Q19 3Q19 4Q19 1Q20 2Q20 KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 9
Business Outlook • Certain end markets are showing signs of gradual recovery • Q3 is expected to be the weakest quarter of the year • Expect increased business activity in Q4 • Our strong cash flow positions us well to navigate through these uncertain times and capitalize on new opportunities KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 10
FINANCIAL REVIEW Michael J. McKenney | EVP & CFO KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 11
Q2 2020 Financial Performance ($ in millions, except per share amounts) HIGHLIGHTS Q2 20 Q2 19 • Adjusted EBITDA margin* of 17.4% Gross Margin 43.5% 42.0% SG&A % of Revenue 29.5% 27.4% • Operating cash flows of $22.0 million Operating Income $18.1 $23.1 • Free cash flow* of $21.1 million Net Income $11.6 $16.3 • Net debt of $222 million; leverage ratio1 of 2.01 Adjusted EBITDA* $26.6 $32.7 Diluted EPS $1.00 $1.42 Adjusted Diluted EPS* $1.06 $1.42 KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 12
Key Consolidated Financial Metrics GROSS MARGIN SG&A 43.5% 29.5% 42.0% 42.8% 42.9% 28.7% 40.9% 27.4% 27.1% 26.1% 2Q19 3Q19 4Q19 1Q20 2Q20 2Q19 3Q19 4Q19 1Q20 2Q20 ADJUSTED EBITDA* CASH FLOWS ($ in millions) $39.2 18.5% 18.6% $25.7 $35.5 $22.6 $22.0 17.6% 17.1% 17.4% $23.6 $20.6 $21.1 $6.2 $3.5 2Q19 3Q19 4Q19 1Q20 2Q20 2Q19 3Q19 4Q19 1Q20 2Q20 FREE CASH FLOW * OPERATING CASH FLOW KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 13
2Q19 to 2Q20 Adjusted Diluted EPS* $2.00 $0.08 ($0.71) $0.11 $0.24 $1.50 $1.42 ($0.08) $1.06 $1.00 $0.50 $0.00 KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 14
Key Liquidity Metrics $ in millions Q2 20 Q1 20 Q2 19 Cash, cash equivalents, and restricted cash $60.9 $62.1 $58.1 Debt $277.5 $289.5 $340.2 Lease obligations $5.6 $5.9 $6.6 Net Debt $222.2 $233.3 $288.7 Leverage ratio1 2.01 2.04 2.19 Working capital % LTM revenue2 14.8% 14.2% 15.4% Cash conversion days3 128 days 119 days 117 days • Net debt decreased 23% from Q2 2019 • Paid down $13.8 million of debt in the second quarter of 2020 • Our liquidity remains solid with $400 million in borrowing capacity • Over $130 million under our revolving credit facility; an additional uncommitted $150 million • Up to $115 million through our note purchase agreement KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 15
FINANCIAL REVIEW Michael J. McKenney | EVP & CFO KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 16
Questions & Answers To ask a question, please call 888-326-8410 within the U.S. or +1 704-385-4884 outside the U.S. and reference 488 0692. Please mute the audio on your computer. KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 17
2020 Key Priorities SAFEGUARD OUR MAINTAIN STRONG EMPLOYEES CASH FLOW MEET OUR OPTIMIZE OUR CUSTOMERS’ NEEDS LIQUIDITY KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 18
Thank You INVESTOR RELATIONS CONTACT Michael McKenney, 978-776-2000 IR@kadant.com MEDIA RELATIONS CONTACT Wes Martz, 269-278-1715 media@kadant.com July 29, 2020
APPENDIX Second Quarter 2020 Business Review KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 20
Strategic Operating Segments FLOW CONTROL INDUSTRIAL PROCESSING MATERIAL HANDLING • Fluid Handling and Doctoring, Cleaning, & • Stock Preparation and Wood Processing • Conveyors, Vibratory Feeders, Balers, and Filtration product lines product lines Fiber-based Products • Custom-engineered products, systems and • Products used to recycle paper and • Products used to handle bulk and discrete technologies that control the flow of fluids paperboard and process timber materials for secondary processing • Key industries include packaging, tissue, • Key industries include packaging, tissue, • Key industries include aggregates, mining, food, and metals wood products, and alternative fuels food, and waste management • $250 million revenue (2019) • $302 million revenue (2019) • $152 million revenue (2019) KAI Q120 Business Review–April 30, 2020 | © 2020 Kadant Inc. All rights reserved. 21
Operating Segment Revenue Fiber-based Material Handling Material Products, 2% Fluid Handling 12% Handling 19% 22% Stock Preparation Flow Control (Balers) 36% 8% Doctoring, Cleaning, Filtration 17% Stock Preparation 70% 61% 60% 55% 22% Industrial Wood Processing Processing 20% 42% 2019 AS REPORTED 2019 RECAST KAI Q120 Business Review–April 30, 2020 | © 2020 Kadant Inc. All rights reserved. 22
Adjusted Diluted EPS Reconciliation Adjusted diluted EPS (earnings per share) is a non-GAAP financial measure. Q2 20 Q2 19 Diluted EPS, as reported $1.00 $1.42 Restructuring Costs, Net of Tax $0.03 - Acquisition Costs, Net of Tax $0.03 - Amortization of Acquired Profit in Inventory and Backlog, Net of Tax - $0.10 Discrete Tax Items - ($0.11) Adjusted Diluted EPS $1.06 $1.42 Free Cash Flow Reconciliation Free cash flow is a non-GAAP financial measure. $ in thousands Q2 20 Q2 19 Cash Provided by Operations $22,039 $22,612 Capital Expenditures (911) (1,975) Free Cash Flow $21,128 $20,637 KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 23
Adjusted EBITDA Reconciliation Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA in a given period by revenue in the same period. $ in thousands Q2 20 Q2 19 Net Income Attributable to Kadant $11,607 $16,304 Net Income Attributable to Noncontrolling Interest 115 97 Provision for Income Taxes 4,474 3,128 Interest Expense, Net 1,894 3,514 Other Expense, Net 31 99 Restructuring Costs 456 - Acquisition Costs 407 - Acquired Backlog Amortization 28 284 Acquired Profit in Inventory - 1,239 Depreciation and Amortization 7,548 8,026 Adjusted EBITDA $26,560 $32,691 Adjusted EBITDA Margin 17.4% 18.5% KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 24
Notes PRESENTATION NOTES • This presentation reflects our new reportable operating segments, as announced on the Form 8-K we filed with the U.S. Securities and Exchange Commission on April 22, 2020. Prior periods have been recast to conform to this presentation. • All references to EPS (earnings per share) are to our EPS as calculated on a diluted basis. • Percent change in slides 6-10 is calculated using actual numbers reported in our press release dated July 28, 2020. FOOTNOTES 1) Leverage ratio is calculated by dividing total debt by EBITDA. For purposes of this calculation, EBITDA is calculated by adding or subtracting certain items from Adjusted EBITDA, as required by our amended and restated credit facility (“Credit Facility”). Our Credit Facility defines total debt as debt less worldwide cash of up to $30 million. 2) Working capital is defined as current assets less current liabilities, excluding cash and debt. LTM is defined as last 12 months. 3) Cash conversion days is based on days in receivables plus days in inventory less days in accounts payable. KAI Q220 Business Review–July 29, 2020 | © 2020 Kadant Inc. All rights reserved. 25