WESTFORD, Mass., Nov. 01, 2022 (GLOBE NEWSWIRE) -- Kadant Inc. (NYSE:KAI) reported its financial results for the third quarter ended October 1, 2022.

Third Quarter Financial Highlights

Revenue increased 12% to $225 million.
Bookings decreased 14% to $211 million.
Net income increased 34% to $27 million.
GAAP diluted EPS increased 34% to $2.35.
Adjusted diluted EPS increased 21% to a record $2.38.
Adjusted EBITDA increased 17% to a record $48 million and represented 21.3% of revenue.
Operating cash flow decreased 34% to $25 million.
Backlog was $350 million.

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

Management Commentary

"We delivered strong revenue and earnings performance in the third quarter despite the challenging macroeconomic environment," said Jeffrey L. Powell, president and chief executive officer of Kadant Inc. "Organic revenue growth was 19 percent in the third quarter with excellent contributions across all operating segments. Solid execution led to a fourth consecutive quarterly record for adjusted EBITDA and record adjusted earnings per share.

"Throughout the quarter we successfully navigated increasingly complex market conditions fueled by inflationary pressures, the strengthening U.S. dollar, lingering global supply chain constraints, and China's zero-COVID policy. Our operations teams around the globe continued to do an excellent job proactively managing these challenges."

Third Quarter 2022 compared to 2021

Revenue increased 12 percent to $224.5 million compared to $199.8 million in 2021. Organic revenue increased 19 percent, which excludes a seven percent decrease from the unfavorable effect of foreign currency translation. Gross margin was 42.5 percent compared to 41.9 percent in 2021. Gross margin in 2021 included a negative 110 basis point impact from the amortization of acquired profit in inventory.

GAAP diluted earnings per share (EPS) increased 34 percent to $2.35 compared to $1.75 in 2021. Adjusted diluted EPS increased 21 percent to a record $2.38 compared to $1.97 in 2021. Adjusted diluted EPS excludes $0.02 of acquisition costs and $0.01 of restructuring costs in 2022. Adjusted diluted EPS excludes $0.22 of acquisition-related costs in 2021. Net income increased 34 percent to $27.5 million compared to $20.5 million in 2021. Adjusted EBITDA increased 17 percent to a record $47.8 million and represented a record 21.3 percent of revenue compared to $40.9 million and 20.5 percent of revenue in the prior year quarter. Operating cash flow decreased 34 percent to $24.9 million compared to $37.9 million in 2021 due to an increase in working capital.

Bookings decreased 14 percent to $210.9 million compared to $244.7 million in 2021. Organic bookings decreased ten percent, which excludes a five percent decrease from the unfavorable effect of foreign currency translation and a one percent increase from an acquisition.

Summary and Outlook

"As we look ahead to the remainder of 2022, we are well positioned to finish the year strong," Mr. Powell continued. "We have a significant amount of capital projects to deliver in the upcoming quarter, and our backlog remains at a near-record level. However, we expect macroeconomic headwinds to strengthen and order activity to continue to moderate through the remainder of the year.

"We are narrowing our revenue and adjusted diluted EPS guidance and we now expect revenue of $890 to $896 million in 2022, revised from our previous guidance of $890 to $905 million. Our GAAP diluted EPS guidance is now $10.02 to $10.19 revised from our previous guidance of $10.05 to $10.25. This guidance includes a $1.30 gain on the sale of a facility, $0.06 of acquisition-related costs, and $0.02 of impairment and restructuring costs. Excluding these items, we expect adjusted diluted EPS of $8.80 to $8.97, revised from our previous guidance of $8.80 to $9.00. For the fourth quarter of 2022, we expect GAAP diluted EPS of $1.90 to $2.07 on revenue of $217 to $223 million."

Conference Call

Kadant will hold a webcast with a slide presentation for investors on Wednesday, November 2, 2022, at 11:00 a.m. eastern time to discuss its third quarter performance, as well as future expectations. To listen to the call live and view the webcast, go to the "Investors" section of the Company's website at www.kadant.com. Participants interested in joining the call's live question and answer session are required to register by clicking here or selecting the Q&A link on our website to receive a dial-in number and unique PIN. It is recommended that you join the call 10 minutes prior to the start of the event. A replay of the webcast presentation will be available on our website through December 2, 2022.

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

Use of Non-GAAP Financial Measures

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

We use organic revenue to understand our trends and to forecast and evaluate our financial performance and compare revenue to prior periods. Organic revenue excludes revenue from acquisitions for the four quarterly reporting periods following the date of the acquisition and the effect of foreign currency translation. Revenue in the third quarter of 2022 included $0.2 million from an acquisition and a $14.1 million unfavorable foreign currency translation effect. Revenue in the first nine months of 2022 included $40.1 million from acquisitions and a $27.0 million unfavorable foreign currency translation effect. Our other non-GAAP financial measures exclude impairment and restructuring costs, acquisition costs, amortization expense related to acquired profit in inventory and backlog, and certain gains or losses, as indicated. Collectively, these items are excluded as they are not indicative of our core operating results and are not comparable to other periods, which have differing levels of incremental costs, expenditures or income, or none at all. Additionally, we use free cash flow in order to provide insight on our ability to generate cash for acquisitions and debt repayments, as well as for other investing and financing activities.

We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our core business, operating results, or future outlook. We believe that the inclusion of such measures helps investors gain an understanding of our underlying operating performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making and for compensation purposes. We also believe this information is responsive to investors' requests and gives them an additional measure of our performance.

The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for the results of operations prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.

Third Quarter

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

Pre-tax expense related to amortization of acquired profit in inventory and backlog of $2.8 million in 2021.
Pre-tax acquisition costs of $0.4 million in 2022 and $0.7 million in 2021.
Pre-tax restructuring costs of $0.1 million in 2022.

Adjusted net income and adjusted diluted EPS exclude:

After-tax expense related to amortization of acquired profit in inventory and backlog of $2.0 million ($2.8 million net of tax of $0.8 million) in 2021.
After-tax acquisition costs of $0.3 million ($0.4 million net of tax of $0.1 million) in 2022 and $0.6 million ($0.7 million net of tax of $0.1 million) in 2021.
After-tax restructuring costs of $0.1 million in 2022.

Free cash flow is calculated as operating cash flow less:

Capital expenditures of $6.4 million in 2022 and $3.4 million in 2021.

First Nine Months

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

Pre-tax gain on the sale of a facility of $20.2 million in 2022.
Pre-tax acquisition costs of $0.5 million in 2022 and $2.6 million in 2021.
Pre-tax indemnification asset reversal of $0.6 million in 2022.
Pre-tax impairment and restructuring costs of $0.3 million in 2022.
Pre-tax expense related to amortization of acquired profit in inventory and backlog of $0.5 in 2022 and $2.9 million in 2021.

Adjusted net income and adjusted diluted EPS exclude:

After-tax gain on the sale of a facility of $15.1 million ($20.2 million net of tax of $5.1 million) in 2022.
After-tax acquisition costs of $0.3 million ($0.5 million net of tax of $0.2 million) in 2022 and $2.3 million ($2.6 million net of tax of $0.3 million) in 2021.
After-tax impairment and restructuring costs of $0.2 million ($0.3 million net of tax of $0.1 million) in 2022.
After-tax expense related to amortization of acquired profit in inventory and backlog of $0.4 million ($0.5 million net of tax of $0.1 million) in 2022 and $2.0 ($2.9 million net of tax of $0.9 million) in 2021.

Free cash flow is calculated as operating cash flow less:

Capital expenditures of $16.2 million in 2022 and $7.7 million in 2021.

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

Financial Highlights (unaudited)
(In thousands, except per share amounts and percentages)

			Three Months Ended						Nine Months Ended
Consolidated Statement of Income			October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Revenue			$	224,510		$	199,789		$	672,639		$	568,063
Costs and Operating Expenses:
	Cost of revenue			129,154			116,096			383,034			323,337
	Selling, general, and administrative expenses			53,153			52,316			167,640			151,014
	Research and development expenses			3,245			2,649			9,574			8,547
	Gain on sale and other costs, net (b)			72			—			(19,936	)		—
				185,624			171,061			540,312			482,898
Operating Income				38,886			28,728			132,327			85,165
Interest Income				271			55			650			176
Interest Expense				(1,721	)		(1,320	)		(4,321	)		(3,497	)
Other Expense, Net				(19	)		(23	)		(60	)		(71	)
Income Before Provision for Income Taxes				37,417			27,440			128,596			81,773
Provision for Income Taxes				9,746			6,742			33,075			21,252
Net Income				27,671			20,698			95,521			60,521
Net Income Attributable to Noncontrolling Interest				(184	)		(237	)		(672	)		(635	)
Net Income Attributable to Kadant			$	27,487		$	20,461		$	94,849		$	59,886

Earnings per Share Attributable to Kadant:
		Basic	$	2.36		$	1.77		$	8.14		$	5.18
		Diluted	$	2.35		$	1.75		$	8.12		$	5.14

Weighted Average Shares:
		Basic		11,662			11,580			11,651			11,571
		Diluted		11,700			11,668			11,681			11,644

		Three Months Ended				Three Months Ended
Adjusted Net Income and Adjusted Diluted EPS (a)		October 1, 2022			October 1, 2022	October 2, 2021		October 2, 2021
Net Income and Diluted EPS Attributable to Kadant, as Reported		$	27,487	$	2.35	$	20,461	$	1.75
Adjustments for the Following, Net of Tax:
	Acquisition Costs		276		0.02		595		0.05
	Restructuring Costs		72		0.01		—		—
	Acquired Profit in Inventory and Backlog Amortization (c,d)		—		—		1,978		0.17
Adjusted Net Income and Adjusted Diluted EPS (a)		$	27,835	$	2.38	$	23,034	$	1.97

		Nine Months Ended						Nine Months Ended
		October 1, 2022			October 1, 2022			October 2, 2021			October 2, 2021
Net Income and Diluted EPS Attributable to Kadant, as Reported		$	94,849		$	8.12		$	59,886	$	5.14
Adjustments for the Following, Net of Tax:
	Gain on Sale (b)		(15,143	)		(1.30	)		—		—
	Acquisition Costs		335			0.03			2,325		0.20
	Impairment and Restructuring Costs		207			0.02			—		—
	Acquired Profit in Inventory and Backlog Amortization (c,d)		387			0.03			2,043		0.17
Adjusted Net Income and Adjusted Diluted EPS (a)		$	80,635		$	6.90		$	64,254	$	5.52

	Three Months Ended									Increase Excluding Acquisitions and FX (a,e)
Revenue by Segment	October 1, 2022			October 2, 2021			Increase
Flow Control	$	86,880		$	76,253		$	10,627		$	16,913
Industrial Processing		86,085			81,620			4,465			9,179
Material Handling		51,545			41,916			9,629			12,493
	$	224,510		$	199,789		$	24,721		$	38,585

Percentage of Parts and Consumables Revenue		63	%		66	%

	Nine Months Ended						Increase			Increase Excluding Acquisitions and FX (a,e)
	October 1, 2022			October 2, 2021
Flow Control	$	257,926		$	210,769		$	47,157		$	33,598
Industrial Processing		263,572			233,455			30,117			39,584
Material Handling		151,141			123,839			27,302			18,289
	$	672,639		$	568,063		$	104,576		$	91,471

Percentage of Parts and Consumables Revenue		64	%		66	%

	Three Months Ended						Increase (Decrease)			Increase (Decrease) Excluding Acquisitions and FX (e)
Bookings by Segment	October 1, 2022			October 2, 2021
Flow Control	$	84,902		$	76,661		$	8,241		$	14,294
Industrial Processing		77,878			118,896			(41,018	)		(39,200	)
Material Handling		48,093			49,137			(1,044	)		1,250
	$	210,873		$	244,694		$	(33,821	)	$	(23,656	)

Percentage of Parts and Consumables Bookings		68	%		53	%

	Nine Months Ended						Increase (Decrease)			Increase (Decrease) Excluding Acquisitions and FX (e)
	October 1, 2022			October 2, 2021
Flow Control	$	282,360		$	224,479		$	57,881		$	42,859
Industrial Processing		294,105			307,401			(13,296	)		(6,105	)
Material Handling		166,408			130,468			35,940			20,327
	$	742,873		$	662,348		$	80,525		$	57,081

Percentage of Parts and Consumables Bookings		62	%		59	%

		Three Months Ended				Nine Months Ended
Business Segment Information		October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Gross Margin:
	Flow Control	51.6	%	49.7	%	52.3	%	51.8	%
	Industrial Processing	39.3	%	39.7	%	38.8	%	40.1	%
	Material Handling	32.3	%	31.9	%	34.8	%	33.8	%
		42.5	%	41.9	%	43.1	%	43.1	%

Operating Income:
	Flow Control	$	22,874		$	17,129		$	67,306		$	51,899
	Industrial Processing		17,550			16,095			70,994			44,449
	Material Handling		6,945			3,491			21,490			12,941
	Corporate		(8,483	)		(7,987	)		(27,463	)		(24,124	)
		$	38,886		$	28,728		$	132,327		$	85,165

Adjusted Operating Income (a,f):
	Flow Control	$	23,356		$	19,835		$	67,632		$	55,841
	Industrial Processing		17,550			16,128			51,561			44,622
	Material Handling		6,945			4,290			22,207			14,352
	Corporate		(8,483	)		(7,987	)		(27,463	)		(24,124	)
		$	39,368		$	32,266		$	113,937		$	90,691

Capital Expenditures:
	Flow Control	$	868		$	1,128		$	2,424		$	1,830
	Industrial Processing (h)		4,654			1,725			11,679			4,720
	Material Handling		854			505			2,081			1,121
	Corporate		—			12			7			17
		$	6,376		$	3,370		$	16,191		$	7,688

		Three Months Ended						Nine Months Ended
Cash Flow and Other Data		October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Operating Cash Flow		$	24,897		$	37,932		$	67,462		$	101,410
Less: Capital Expenditures (h)			(6,376	)		(3,370	)		(16,191	)		(7,688	)
Free Cash Flow (a)		$	18,521		$	34,562		$	51,271		$	93,722

Depreciation and Amortization Expense		$	8,456		$	9,195		$	26,387		$	24,597

Balance Sheet Data		October 1, 2022		January 1, 2022
Assets
Cash, Cash Equivalents, and Restricted Cash		$	75,114	$	94,161
Accounts Receivable, net			128,253		117,209
Inventories			156,567		134,356
Contract Assets			16,064		8,626
Property, Plant, and Equipment, net			105,439		107,989
Intangible Assets			173,707		199,343
Goodwill			372,966		396,887
Other Assets			78,743		73,641
		$	1,106,853	$	1,132,212
Liabilities and Stockholders' Equity
Accounts Payable		$	53,495	$	59,250
Debt Obligations			207,885		264,597
Other Borrowings			1,782		4,917
Other Liabilities			234,187		237,832
	Total Liabilities		497,349		566,596
	Stockholders' Equity		609,504		565,616
		$	1,106,853	$	1,132,212

		Three Months Ended						Nine Months Ended
Adjusted Operating Income and Adjusted EBITDA Reconciliation (a)		October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Consolidated
	Net Income Attributable to Kadant	$	27,487		$	20,461		$	94,849		$	59,886
	Net Income Attributable to Noncontrolling Interest		184			237			672			635
	Provision for Income Taxes		9,746			6,742			33,075			21,252
	Interest Expense, Net		1,450			1,265			3,671			3,321
	Other Expense, Net		19			23			60			71
	Operating Income		38,886			28,728			132,327			85,165
	Gain on Sale (b)		—			—			(20,190	)		—
	Acquisition Costs		410			718			486			2,619
	Indemnification Asset Reversal (g)		—			—			575			—
	Impairment and Restructuring Costs		72			—			254			—
	Acquired Backlog Amortization (c)		—			604			703			691
	Acquired Profit in Inventory Amortization (d)		—			2,216			(218	)		2,216
	Adjusted Operating Income (a)		39,368			32,266			113,937			90,691
	Depreciation and Amortization		8,456			8,591			25,684			23,906
	Adjusted EBITDA (a)	$	47,824		$	40,857		$	139,621		$	114,597
	Adjusted EBITDA Margin (a,i)		21.3	%		20.5	%		20.8	%		20.2	%

Flow Control
	Operating Income	$	22,874		$	17,129		$	67,306		$	51,899
	Acquisition Costs		410			507			472			1,743
	Restructuring Costs		72			—			72			—
	Acquired Backlog Amortization (c)		—			353			—			353
	Acquired Profit in Inventory Amortization (d)		—			1,846			(218	)		1,846
	Adjusted Operating Income (a)		23,356			19,835			67,632			55,841
	Depreciation and Amortization		2,229			2,333			6,873			5,473
	Adjusted EBITDA (a)	$	25,585		$	22,168		$	74,505		$	61,314
	Adjusted EBITDA Margin (a,i)		29.4	%		29.1	%		28.9	%		29.1	%

Industrial Processing
	Operating Income	$	17,550		$	16,095		$	70,994		$	44,449
	Gain on Sale (b)		—			—			(20,190	)		—
	Indemnification Asset Reversal (g)		—			—			575			—
	Impairment Costs		—			—			182			—
	Acquisition Costs		—			33			—			113
	Acquired Backlog Amortization (c)		—			—			—			60
	Adjusted Operating Income (a)		17,550			16,128			51,561			44,622
	Depreciation and Amortization		3,122			3,341			9,476			10,082
	Adjusted EBITDA (a)	$	20,672		$	19,469		$	61,037		$	54,704
	Adjusted EBITDA Margin (a,i)		24.0	%		23.9	%		23.2	%		23.4	%

Material Handling
	Operating Income	$	6,945		$	3,491		$	21,490		$	12,941
	Acquisition Costs		—			178			14			763
	Acquired Backlog Amortization (c)		—			251			703			278
	Acquired Profit in Inventory Amortization (d)		—			370			—			370
	Adjusted Operating Income (a)		6,945			4,290			22,207			14,352
	Depreciation and Amortization		3,083			2,885			9,262			8,253
	Adjusted EBITDA (a)	$	10,028		$	7,175		$	31,469		$	22,605
	Adjusted EBITDA Margin (a,i)		19.5	%		17.1	%		20.8	%		18.3	%

Corporate
	Operating Loss	$	(8,483	)	$	(7,987	)	$	(27,463	)	$	(24,124	)
	Depreciation and Amortization		22			32			73			98
	EBITDA (a)	$	(8,461	)	$	(7,955	)	$	(27,390	)	$	(24,026	)

(a)	Represents a non-GAAP financial measure.

(b)	Includes a $20.2 million gain on the sale of a Chinese facility in our Industrial Processing segment pursuant to a relocation plan.

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

(d)	Represents expense (income) within cost of revenue associated with amortization of acquired profit in inventory.

(e)	Represents the increase (decrease) resulting from the exclusion of acquisitions and from the conversion of current period amounts reported in local currencies into U.S. dollars at the exchange rate of the prior period compared to the U.S. dollar amount reported in the prior period.

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

(g)	Represents an indemnification asset reversal related to the release of tax reserves associated with uncertain tax positions.

(h)	Includes $2.2 million and $5.4 million in the three and nine months ended October 1, 2022, respectively, related to the construction of a new manufacturing facility in China.

(i)	Calculated as adjusted EBITDA divided by revenue in each period.

About Kadant

Kadant Inc. is a global supplier of technologies and engineered systems that drive Sustainable Industrial Processing. The Company's products and services play an integral role in enhancing efficiency, optimizing energy utilization, and maximizing productivity in process industries. Kadant is based in Westford, Massachusetts, with approximately 3,000 employees in 20 countries worldwide. For more information, visit www.kadant.com.

Safe Harbor Statement

The following constitutes a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements that involve a number of risks and uncertainties, including forward-looking statements about our future financial and operating performance, demand for our products, and economic and industry outlook. These forward-looking statements represent our expectations as of the date of this press release. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements as a result of various important factors, including those set forth under the heading "Risk Factors" in Kadant's annual report on Form 10-K for the fiscal year ended January 1, 2022 and subsequent filings with the Securities and Exchange Commission. These include risks and uncertainties relating to adverse changes in global and local economic conditions; the variability and difficulty in accurately predicting revenues from large capital equipment and systems projects; health epidemics; our acquisition strategy; levels of residential construction activity; reductions by our wood processing customers of their capital spending or production of oriented strand board; changes to the global timber supply; development and use of digital media; cyclical economic conditions affecting the global mining industry; demand for coal, including economic and environmental risks associated with coal; failure of our information systems or breaches of data security and cybertheft; implementation of our internal growth strategy; supply chain constraints, inflationary pressure, price increases and shortages in raw materials; competition; changes in our tax provision or exposure to additional tax liabilities; our ability to successfully manage our manufacturing operations; disruption in production; future restructurings; loss of key personnel and effective succession planning; protection of intellectual property; climate change; adequacy of our insurance coverage; global operations; policies of the Chinese government; the variability and uncertainties in sales of capital equipment in China; currency fluctuations; economic conditions and regulatory changes caused by the United Kingdom's exit from the European Union; changes to government regulations and policies around the world; compliance with government regulations and policies and compliance with laws; environmental laws and regulations; environmental, health and safety laws and regulations impacting the mining industry; our debt obligations; restrictions in our credit agreement and note purchase agreement; substitution of an alternative index for LIBOR; soundness of financial institutions; fluctuations in our share price; and anti-takeover provisions.

Contacts

Investor Contact Information:

Michael McKenney, 978-776-2000

IR@kadant.com

or

Media Contact Information:

Wes Martz, 269-278-1715

media@kadant.com

Kadant Reports Third Quarter 2022 Results