KAI - Earnings call transcript Q2 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2020 Kadant Incorporated Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Michael McKenney. ahead. go Please

Michael McKenney

Good quarter Shalon. today and to Executive welcome Jeff Thank call. morning, With second Officer. Chief and earnings our call me Kadant's Powell, you, President everyone, on is the

Act slide read our me risks actual may provisions under the and purposes financial Risk XXXX. of statements as factors, to December we about of statements and various the those Factors let cause forward-looking begin, heading results important and today Litigation report ended annual the the we year our harbor in for to XX, Private Commission. our prospects Securities results subsequent remarks and make and including statement. plans known XX-K future those statements harbor from XXXX, and for the and on forward-looking and the presentation under are these that safe result and Securities with Exchange Kadant's fiscal operating at may uncertainties Form safe that Various of materially expectations, Reform discussed These a forward-looking Before outlined are our differ subject of filings unknown beginning

we and this today. make forward-looking represent our webcast views In any addition, estimates statements of as only during

views While estimates in forward-looking disclaim our we so change. may specifically statements elect to point future, or the do if update even we at some any to obligation

measures the call, the the slides These second quarter financial accounting and which this not our to are of principles. press During presented measures. non-GAAP discussed website most of non-GAAP Investors in non-GAAP contained www.kadant.com. reconciliation the the measures directly are refer our accordance webcast, section we and generally webcast A in is will prepared at release financial measures to in with GAAP comparable available accepted on the some conference in earnings

each of we GAAP will refer update over the to basis. these call share that, Powell, diluted turn adjusted and calculated on on to to this Finally, on call, we give I when future business as prospects. that are Jeff earnings a EPS an want Kadant's to per and With note will you referring EPS or I measures who

for Following overview we session. Jeff's have and financial then will Jeff? results remarks, I'll Q&A quarter, a of the our an give

Jeff Powell

crisis everyone. half for and region many us led COVID our company. to review pandemic. economic be in of of pandemic in quarter with one countries the has our of earnings Thanks, Mike. Hello, business. every by quarters this affected the comments the and companies, our with joining pandemic, results history has deal economic a which we Like of about for morning has COVID world industrial more our the second The the call, our nearly to have few the Since the pandemic and been continued depressed of effect to operations begin other I'll affect to challenging you activity. most our by Thank this the made XXXX. how in quarter outlook world. discuss the Most second last an impacted to continued continue ways second

our they've global Our employees dedicated under talented performed the of new to challenging serve for workforce extremely around to and and way world I'm customers our and each proud adapted to a the work has of and very exceptionally circumstances. work continue do well done other.

world. enhanced us our and have manufacturing safety safeguard These of served designed our facilities of of safety work to workplaces continue continue health all measures at operational fully under our precautionary and well region and protect the protocols us every and to operating allowed employees. to are in We the

recovery virus. we and are Having environment. uncertainties the some to early still fragile believe positioned navigate orders. the surges reflected of this the are time well we and signs in economic reopen, will it The could said around starting see regions new some activity to While the be the increased take to world are pandemic new that, in in upended through economic by

Our cash have believe strength and economies request the around quarter and this been Robust and is will our production. continue flows remains by liquidity of projects and the Performance Kadant, balance in solid. always to position delay healthy, work impacted sheet service as was world. to the begin curtail second reopen we our customers' propone

million from was QX Our XXXX, cash cash increased flow flow compared strong. to of flow were our and free cash of down while to million. operations flow free both Cash X% X% $XX $XX

the comparable quarter, the flows made and XX% our focus selective on into comments the prior of current via early furloughs my reductions offers, tissue environment. business we total and the in certain on in early divisions. up remarks. Also & provide After quarter, markets But our and in to are that indicative to performing initiative. of sector seems continues a year specifically at general Overall, environment. during second customers strategic to – packaging the Parts in that put this more relative be place in to various later level Our be is of measures key our adjusting period. in to I'll and cash new retirement our our area This lumber. most cost-contingent demand growing initial of better-than-expected levels in the operating demand surge second the have Consumables to and one is additional revenue these returned the Parts economic period the the wood strong layoffs & reflected revenue implemented workforce Consumables stability

to, forward reflect environment. business levels necessary While the never something staffing were look to our these adjustments ensure we

appropriate. each and our We to of businesses at take situation the actions assess continue where

acquisition systems across acquisition our family. customers' addition new and deliver productivity Cogent this in wanted platform comment agility. offering our greatly We increased ecosystem Technologies automation yesterday. and solutions of role Kadant to this exciting play to slide, I industries. technology expands also for leaving on recent to and believe Before an This to by us enhanced our the ability plant-wide Industrial digital announced operational It integration process solutions products processes, bigger to allows a multiple is

segments. our to in our performance review like Next, X operating I'd

those As shown faced was industrial where This segment on was down environment production forced rates. evident that challenging continue operations at sectors. infrastructure a X, manufacturers down activity our were shut operating were quarter. with in at the to market impacted industries, to Flow operate project and Capital especially across noncritical Control companies during most Slide lower did doing most so industrial much particularly

demand aftermarket employees with to While and customers work both and service bookings our face-to-face project made of was up and revenue customer execution, and the negatively inability due of engage prospects the our pandemic delays performance. postponed total solid capital our XX% quarter, in the to parts revenue for affected and

QX some Looking orders improvement, to ahead while to capital subdued. project quarter, the expect expect we to third remain show we

Industrial Our segment in Processing was QX. impacted also the global by lockdown

This a starts in quarter. compared up seeing made in in up of in boost the June and up May were to in largely the in housing exceptional years U.S. and XX% to starts, sequentially second in revenue due Encouragingly, which XX% $X.X XX% total housing year. market followed million, significant compared our was to up The products. year-over-year, particularly increase capital forced on wood slowdown lumber encouraging signs Parts in segment was remain April. are in was project Consumables hand, of this and decline declined this with for wood XX% to other QX the strong widespread home at to products. during slightly of to homeowners sectors coupled some we However, Revenue to construction, revenue, $XX May, April solid led shutdowns projects million housing & activity. demand but other and a of capital following X

As has higher levels. products. benefited for July is our a in result, turn, increased lumber high, X% demand above customers producing prices and support providing This, delivery for price pre-pandemic wood

experiencing second bookings strengthen are and in project capital We activity unfolds. expect increase half the of an as to capital XXXX

results our visitors the increased government-mandated margin quarter the to million, and nearly quarter to for was to result Material EBITDA a second the solid levels second quarter spot had fiber-based a healthy segment unable used We and operating a segment. bookings receive more now customers second being bright lawn Handling associated products pandemic. being closures of experienced to solid others part X% shut most due in down our to to due homeowners as garden depressed adjusted and mix. execution in our backlog. with due $X and This Turning of EBITDA as Adjusted XX% Demand was in products. in product

capital As activity. in we our are seeing other segments, increasing project

potential this Looking spending. we in its if to increased continue beyond market upside end aggregates there infrastructure has segment is XXXX, believe

While manage many remain through challenging ability be to several in unprecedented times. these the months proven unknowns, to our we last confident have with

will the forecast at XXXX, the environment of ahead Therefore, the to economic look be evolving we accurately and timing time. visibility the to As limit providing uncertainty not of guidance half recovery. we of speed our in orders second this

weakest be for our hope the over of view pass quarter the what to looking and Mike the we expect bottom We we QX year QX some a this like in to call through Mike? of for recession. QX improvement is navigate as I'd pandemic-induced to the now are financial of performance.

Michael McKenney

a our I'll XX on second Jeff. over I'll metrics metrics financial slides. financial some is of you, start the some Slide summary Thank that key next key quarter. the few from with comment of

quarter $X.XX in EPS compared $X XXXX. diluted was to the quarter, in GAAP second Our down second XX% the of

$X.XX and Cogent, quarter acquisition in the of associated of EPS acquisition was with diluted restructuring costs costs in of which includes GAAP Our completed our June. second $X.XX

included quarter or quarter employees In world towards of in due was compared of XX% the the around effect retain included second government-sponsored us or pandemic compared of Consolidated in $X.X dividend to million results of the of decrease quarter or in in compared travel-related Control to $XX.X which government-sponsored we million included EBITDA segment a XXXX currency The year. of a the is or quarter million our employee Flow operating decreased cash revenue tax a from from pretax segment. government-sponsored the increase XX% revenue the for acquisition to acquired $X.X XXXX, in for quarter the to to flows flow as attributable related million $X.X on the Free a of or We modest way $XX.X basis by basis margins of second of to cash XX.X% million, expenditures. Adjusted XXXX. due programs the addition, of XXXX. XXXX the XXXX. significantly compared the XX.X% uses as paid was We to second to paid the million profitability decrease the prior of retention first positive the million stock the million $X.X and that the normal $XX.X the XX% impact revenue negative in million Cogent, and, our to for quarter $X.X & $XX.X our employee of to second of consistent cash in received effect points the capital million costs. was down of the with favorable million typically year. by retention XX.X% were quarter $X.XX foreign XX.X% several retention $XX.X conditions. related many XXX Consumables from Industrial million of from in gross income XX.X% extent, of XXXX and of programs XXXX. in decrease quarter was of quarter million in up nonoperating the were notable in flows include $X.X compared debt of work XXXX. declines to and amortization to to in benefit of remained of our million of $X.X of $X.X second our million expenses and second the operating second working pandemic. first back increased our employee million to programs expense the at remainder last had Parts SG&A paid revenue were fairly Operating on essentially our a in $XX.X quarter million quarter Processing of December quarter of profit year due to common revenue weakest revenue in a inventory The were second XXXX, enabled $X.X These Approximately results paid sequential of capital lesser basis cash of compared second $XX.X programs. net translation at XXXX, points as reduced receipt subsidiaries the remainder $XX to a XX to the of second SG&A percentage due

of XXXX. $X.X was quarter than the second cash flow In addition, the second XXXX million free of quarter higher

Let second EPS next adjusted our acquisition $X.XX The to $X, the and second turn $X.XX. diluted diluted EPS was difference me and due both expenses and discrete We quarter $X.XX to $X.XX XXXX, to was $X.XX. comparison adjusted EPS In tax of quarter. restructuring was our of had benefit. XXXX, the which EPS by of of of for results expenses, $X.XX GAAP a diluted offset costs. acquisition-related quarter In was our were GAAP fully

the on of diluted of of XXXX EPS $X.XX due was mentioned, effect second These revenue compared of quarter gross in adjusted in lower strengthening the unfavorable costs, due the to of percentages. XXXX interest last second decreases of due the to U.S. to and shown dollar. quarter higher offset $X.XX quarter effective the operating consists the partially categories $X.XX As $X.XX second XXXX to to of following: $X.XX due $X.XX rate. lower by to lower were the tax chart, Collectively currency higher decrease year to to a foreign the the margin in compared and the translation all just $X.XX included second I an due in expense quarter

our at liquidity metrics Slide Looking XX. on

the Our in plus of quarter quarter days and XXXX. the of and increase receivables XXX at of revenue taking as cash XXX second at we the of by number in second accounts This was a XXXX subtracting percentage payable, XX.X% of driven compared calculate was end end the XX.X% inventory in a by to quarter in second second XX.X% the in XXXX to in days which higher conversion quarter the inventory. in compared XXXX XXXX. days the capital quarter days, first Working was days of

by Our debt at X million in XXXX. decreased $XX.X of revolver quarter of at estate repaid second which loan on XXXX. real quarter principal annual the rate that first end, in quarter quarter debt, $XXX debt repaid This interest less swapped balance current our of expense After basis. $XX.X from $XX.X repaid X% revolving under end have debt which estate remaining the of million the the million by an over an annual our for borrowing real net the XXXX $XXX of is first debt, cash, of would X.XX%, million currently with at million second or compared the interest reduced end of $XX.X and we to We the X.XX% a had loan, debt to million months credit interest facility. rates effectively of $XXX,XXX at

end leverage X.XX of decreased in this to calculated July, loan over the credit of in Our second estate borrowing of have which under under have in ratio, compared repaying accordance our XXXX. million uncommitted with the XXXX million facility, available the facility, end currently and access to of X.XX of revolving to borrowing our $XXX additional at After at capacity an the real we matures December agreement. capacity credit $XXX XXXX quarter

cash notes agreement. debt We under until We on not senior promissory facilities XXXX. credit to capital on have also and any payments the this We through with borrowing note access provide and to uncommitted available our do flows million continue operating meet our of believe cash liquidity have issuance challenging hand, through sufficient principle requirements of navigate mandatory that access our us environment. capacity to $XXX to purchase

quite Regarding has guidance, certainly difficult. made current forecasting environment the

experienced to capital also our inquiries experience we have a and in bookings we delays projects, expenditures related noticed and capital increase customers. While have delays to an in project anticipated due in to continue by reduction

our addition, backlog. continued delays customer-requested related in capital In expect certain projects to we

not will the Given year quarter for XXXX. third the current full uncertainty, providing be the guidance we or

next reevaluate quarter. will guidance We providing

the weakest year. outlook providing would directional few to as quarter to comments X% not third the result, While a our the provide decrease be We anticipate revenue of for guidance, likely X%. sequential could on will quarter like we our year. are I approximately a And

Our government-sponsored eligible could for will revenue other XX% remain notes. to year we XXXX. some programs the various decrease XX% compared for We in that to retention locations. Few anticipate directional employee roughly

the these traditional progresses, expect businesses our we programs operating diminish However, year return to will levels. as more as

related of second we across in reduction million recognized our the employees costs quarter, restructuring to $X.X During business.

positive annually. these incur expect approximately may net downturn million. businesses. be will expect now the to compared on global the earnings economic interest periods pandemic $X to our cost of On reduce as for restructuring impact costs we million note, estimate we our restructuring We of structure We XXXX our million additional future to to $X.X monitor resulting continue and a $X.X by in $X the last million expense under call activities

lack visibility the future markets it's what at end and firm of the provide to our the moment. guidance difficult Given holds across geographies, into

However, help as our current cycle. that into strong of back business navigate we've our business operator given Operator? belief current over my as concludes streams our help and insight our flows and now the will cash recurring financials, through environment sheet, the our session. turn review That business comments for well call balance to will these revenue I directional Q&A to provide the healthy the

Operator

comes the from Thank you. first Sidoti [Operator Instructions] from of John Your question Franzreb Incorporated. line

John Franzreb

How doing? Good you morning are guys.

Jeff Powell

Hi, Good. John.

Michael McKenney

Hi, John.

John Franzreb

just the like talk bookings about to profile. I'd Actually,

You what you you mentioned segments on was at quarter that the of ago? the wood better you when But downside look that participate surprised you a to relative in, kind expected. than

Michael McKenney

we most our be equipment certainly than it capital to impacted expected think was. I the

many world operate, that industries that a I down for big noncritical, of obviously, other impact a couple the the out bookings. on shut the industrials all months. our a there. had And of well was there, around think But that it and infrastructure, The them were did shut we paper side, a was because course, the to us. challenge down were noncritical infrastructure, reasonably critical completely, of for continued

outside now, economic to back principally and around And paper at as bookings, an for open up in our I we've of they're shut that down in know where that industries was but industry. ever it recover the we of globe environment faced whole in the look industries our – period extended was reduction time. don't the So were life an starting

John Franzreb

your you a V-shaped near recovery? Or Are industries to expect troughing thoughts are the hearing more a and cautious indicating clearly term? in from some them effect have a outlook more are customers you that your

Jeff Powell

big big a That's a discussion. debate,

function we occurring my that's And take from – of quickly you As think well how how a the think globally quickly as really place. know, recovery nationally I vaccine. it's it's think we I will perspective, get a as

we if social to distancing we're an then other in a a see taken, the think But the If, manage going can available and think to virus. that it's going quicker depend a have think, more and really, we at rebound quickly might think control to this it's vaccine could environment I recovery. year, a of on how to slow actually have fact, I – there's I to I return a where early continue be safeguards we've going in in snapback and or industries get pace. we

John Franzreb

paper Okay. second. just for market And switching to the a

working, there with a that on, what going and You environment, institutional buying uncertainty been thoughts kind pulled of forward. about market. kind like. is lot there's advanced of on supply tissue of your office back-to-school usually, on What the more remote like season your what's how are the market is thoughts look has maybe climate in going packaging touched and business? coming, that so to The paper side of the much There's that

Jeff Powell

today. the look So at know announced PCA think you I think – earlier I if I

are home doing think, office it's be they well. work by well. doing home. this from our continue strong. course, be tissue customers the the Certainly, is as market side But quite at is side continues really supply to packaging to impacted, The I packaging of market look you will and impacted experiencing, If delivery what been reasonably

stories. a really well. think that, tale The quite X doing home little a delivery bit. struggling and So commercial-related Office-related I of that's is is

John Franzreb

decision forward? And to appealing purchasing take an the little X you Cogent. have I talk expect business you going that of could question, a Do any about It's that last you particularly it it? where if bit is sneak market you concentration Can strategic in. and integrator. to

Jeff Powell

Yes.

the wood known processing So side. while. They're quite a for we've strong Cogent quite in

So have think, businesses for attractive very, they've processing many, with wood they worked years. our industries. process And very, we for a platform many offering

– a what very platform on Handling customers. well of we our that processing have Handling business. paper segments our doing so the think many paper applicable to industry we innovative can Material and Material done and as And lot that side applied capabilities as primarily as They think be very are to well of the offerings our the they're wood bring as

our capability smarter, other transformation our of in markets. take is, our going we've our to And and now our that ours provide our as I making is side primarily you So know, guys decisions, wood systems processing digital for where operating that from these collect well the the that. they're goal to enhance to, as connecting time acceleration make really allowing been some data and working specialize customers' as customers in think, really them to they in products,

to it to customers that the will progress their think our offer a – our allow accelerate we also world. platforms around of So will lot our and to us

John Franzreb

Great. for questions my guys. Thanks taking

Operator

Your next the Chris line of from comes from Research. Howe Barrington question

Chris Howe

morning everyone. Good

Jeff Powell

morning. Good

Michael McKenney

Hi, Chris. Good morning.

accretive on how margin for it to forward. those level up be some paid that This felt fits following EBITDA acquisition will business? the the Cogent. Perhaps from on assume moving this of speak about to perspective you a And you margins accretion. is exciting. I multiple and questions you this Just of can

Michael McKenney

But EBITDA this Chris, XX%. itself business Yes. yes. is are small. north of accretive. It Their be margins will

So accretive. – will but be it

Chris Howe

should that segment as And mentioned product how that, this on following capital the in look Okay. should Jeff's Material the have quarter? similar Has the margin the Processing to mix the half? gave other in we segment terms benefit to how think margin a were regard regard do bookings shaking we mix expense, the up quarter. product directional of helpful remainder out into regard in the And year with margin? in July? upcoming similar the for in to about comments to to continued Industrial you Handling margins you think things Jeff know interest And segments a question, revenue to and in benefited segments, of and about but product some comments very expect sustainability then that next second my projects that capital of the had this about we for mix I

Jeff Powell

well, year, Okay. XX.X%. year beginning we at in the very XX.X% originally of finish the on had originally we margins going the of Chris, that. I'm we're And – higher January, the optimistic to to side of to off guided that

So I think we can still be optimistic mix. also in that I'm specifically range quarter And the and in the to the that third higher side with of it. that see product we'll

Chris Howe

has And moved changed Okay. but part, going Material mix all? the forward product has That's the – Or to Handling helpful. at back into July? beginning in the it

Michael McKenney

We Material the a hasn't on side. haven't – Handling a been had of lot there movement

Jeff Powell

that one, they're small. quarter them, quarters one our our be but smaller one for garden slower groups agriculture the the & it's supplies the of fairly and would group tends I of home but markets, this to

big see the So impact you that. overall on for a don't business

Chris Howe

impressed I'm free Okay. that flow this pandemic this lastly, the And quarter then cash in past with environment. you generated

cash top perspective, a the although is So there the perspective, what look thoughts from through year? from weakest as your a QX free we line are flow

Michael McKenney

No.

half off of discretionary I and capital. curtailed that the also our the flows I remainder our CapEx, free the working second anticipating And a expect pickup in year. curtailed we've think get we'll healthy you're cash I'm We've that will for right, Chris. remain spending. little of

Chris Howe

you. Okay, now. have great. for right Thank I That's all

Operator

Okay.

from Davidson. comes Your Yinger Kurt next from D.A. question

Kurt Yinger

were sequential diverged to and going Mike, appreciate just sounded you and all I may and a And in Jeff green It color. I the trend be there or like morning, think see tell? on Good QX bit bookings. it start just some maybe was segments is Yes. to a through maybe the wanted the little too I little could that early curious revenue if from improvement shoots.

Michael McKenney

in quarter. the improvement anticipating Jeff certainly, as some to shoots into And we in fourth and bookings yes, in Control. Processing are seeing mentioned, – are the quarter third markets. for certainly And green the a we Well, sequential Flow Industrial the wood in

Kurt Yinger

it. Got

it bit, quarter. demand shift to And Okay. I box those of where the mean this wood around were online you kind that seem least can is but a mean products, I and realize a down maybe the of here business in in about customers talked shut at May like I some strength in third bottom things back coming seems

just between your And that it are customer the getting getting so worse you do bit And see segment could disconnect the really whether I the QX expectations maybe a you geography? QX, and or outlook end be guess, by things maybe for about guys talk markets little versus better? where

Michael McKenney

the things Well, forward. overall, improve believe segments actually will I we think going in all

Jeff Powell

I mean, if it at build our takes those. of deliver – to products takes you look it the our way products, are many and delivered, months

lagging. be So we might in some sense,

to build deliver So takes translate if some necessarily months QX, it and improved line because several the that product. weeks, in bookings in won't we cases see all that to the bottom

that a it show of of that see think comes to QX, revenue bookings in up that in XXXX. I So when see we'll or lot we [indiscernible] QX

our bit product little is of a So lifecycle.

weeks consumables, other or go and As hours months. through in of you might imagine, our that parts times sometimes and in those course, we

So place equipment, us we to shipped months number many But big equipment and when new those orders. actually as converted said, for and to last course, a of, build that and takes of get a I pretty time a long our them. capital sometimes it weeks quickly a get get new when is order, you that

versus little bookings side. a the the with I it's issue – revenue us bit a of think timing So

Kurt Yinger

operating about and levels versus and recovery any sense. just to realize equipment, think sticking impossible probably of fourth you as rates a guess, that's color quantify, fared potential into makes maybe I lower the capital better And we about Could shape helpful than pent-up pressure. demand destocking and attributable the And of much It's that would customers the be the how a parts Okay. with some you as we get for but I to of lot bit? but XXXX? quarter think That under consumables. talk still and is production been early

Jeff Powell

were also think to for middle difficult demand running people down exactly for know. down what was just but were very Well, conserve them reasons. question I level this they that don't their think the of product. to Obviously, forecast inventories, it the cash, there's running They in the I didn't any be to two going their store, is for

the not conserve a for the to been to product cash demand of so of forecast – And caution. their trying to bit and their combination quite leads able

was of our clearly in there there a products is production – There Now curtailments. was reduction customers' certain there.

that some would so of is curtailments. of say of cautious. it lot and of spare I a And result question no there was that our production being was conserving a decline cash bookings

of So and in make what seen back seen to restock. is more is again, one of but unlike the seen of have sure parts consume first one production what our up we've ramp ever in they before, past, started to When past starts the course, parts any things this they they they and obviously that to parts. we've are recessions, we've want

the unlike we only environment economic to that ramp have that that equipment. as at up be to see with up, production expect this normally So being parts the here back pace that. qualifier snaps than But back, we'll normally any the case other capital is And a we faster experienced. that obviously ramps start would

experiences so dealing and go. we're to as it's normally go we using see our same what parts here. tend rates the past we're would – kind exactly of operating And not But as with

have increase to that rates to increase, support parts So our as effort. will operating

Kurt Yinger

right. Right,

Carmona then don't it Carmona part that Okay. lastly way in on to it or sense. really with of actually have lot And I like OSB any that into is [ph]. relationship That sounds an Cogent. that know business something just a guys kind I is integrated offering mean, or of a holistic – if with interacted you was mill? it makes what products of Is

Jeff Powell

Yes.

will it operate they're a So in. we're they that all industries in in industries we're as industries, and actually to that continue because not crossover stand-alone

that they've get there, to OSB entire in. are mills. focused manager strong installation goes new they The And – they new actually mill heavily contract turnkey so the will start-up operation for wood actually They turnkey on very act the and manage entire as contracts side might an from standpoint. and get although to the

our also they'll they as the And cross markets. helping they continue divisions directly all They'll to they'll but in their we'll to enhance our continue will work and to a end segments customers. – and with capabilities. because provide do and to things. operate our two business They'll But stand-alone. crossover continue services different So expand

accelerate have end very, also our And very enhance so we capabilities for they adding nice it because to to more regarded and different saw selling market, profitable, win-win of it companies a very and they a products. offerings as kind really our very in real markets, digital the well presence comes capability when will our internal the but us to more

Kurt Yinger

right. taking interesting appreciate Well, for it Got it. Makes I'll I sure. over. sense. turn time, guys All you Yes, capabilities the and

Jeff Powell

Thanks.

Operator

the of from question Seaport Your next from comes Walter line Liptak Global.

Walter Liptak

Hi, thanks. Good morning.

Jeff Powell

Good morning, Walt.

Walter Liptak

to that back come happened to still April to them in in – July for time this continue the is that crept guess, June can timing. need sort want just the ask I where the we some in delays delays it over of their so interested delays. I'm something and and the those about project of on? I forefront And Was timing in May

Jeff Powell

saw No, you're We on. right, Walt. them early

And for forward project. we're they – still in fourth there quarter. customer the and us been more waiting May, would are have, and the So listing others the are was some them have still rescheduled I they're early – I April, want folks and of of to that say, the when they're determine move notifying were it with to of already the shipping

Walter Liptak

Okay. is orders not backlog, come the those And have of backlog, in that the those are out right? still

Jeff Powell

are but up a only really that maybe Yes. in listed, all being the the orders – proceed one And certain, we're is I backlog. end they're Correct. still have there – others I of cancellation, that fairly think will Those ahead.

Walter Liptak

order great. have in that paper this? and you an And to remotely? Do the you out spec about you ordering out working that something before and need facilities is engineer you engineers to How Okay, for fundamentals or the it field some go then your of wood visit can products systems. I'm sales engineers the curious are pointed strong sales and on can do on and

Jeff Powell

Yes.

weeks that our we're some projects discussion requires that doing and larger and normally team with So and started – we several really people the going really, are it customers stages, face-to-face for we – now. up capital of visiting starting back you in ago engagement, you are a

the but not receiving going and projects and would traditionally in is and a visiting proceeding to and still and teams certainly starting the completely, opening and So to in been lot China, North time level that visit continue that is requiring it's little North back enjoy in get to are in to I particularly. back cautious – customers that going America the on America it's some Europe, slowly China, and that are something back people to to our want back our we the But take slower more been with, a are drawing board and our they it. that It's to visitors. Asia in up in Asia say has customers. have and we doing for to larger –

Walter Liptak

of And Okay, they in couple – Is have Cogent penetration do got ones. Handling? Material or M&A it. a paper quick yet

Jeff Powell

They spending right any have focus the significance. side. paper majority Material And principal bit penetration of a but they time the any speak to don't Their of. that's And of in effort and in on now. is Handling, their processing really have nothing little

Walter Liptak

got it. Okay,

with deals a the And a even done so, looks there other like? potential deal look congratulations that pipeline does getting in for this on bad environment, like one. What environment? good this Is

Jeff Powell

team full for to the would not of handful a in companies we're full in has able a So that, prospective we're we that things hundred say buyers of not couple working visit, I and as available. still looking hit on on moment, evaluating any looking with we quickly pause button – course continued call, our receiving I March-April that, narrows given still there. speed the back last think speed At are looking I at us companies sellers down meetings. being meet But timeframe think criteria. and certainly at is they I just to that strategically the fit at And mentioned our continued, that out very or have face-to-face at

have slowed to things sale we apart in starting down market I conversations, the the think reengage this. sense so to see, companies are that up would again. a everybody that to think, think are that want say for actively bit. to I going starting on are down, was Also, bottom, was of call – bankers the that quite I world were to slowed And or I discussions fall a would bottom there a now And

of that be. to would activity the we're severe slowly just handle to more So expect, slow, people after gets the get know, I in all starting on everybody it returns see as July is as are you in on to of is a I And how year North vacation. very of going America, part down, in even particular, people think and almost August latter be – Europe a crisis the lot

of middle It relationship much excited was benefits we were there, very perceive course think this Kadant part were the And any and hear run because after we that, much able of have a we're So to I do we'll for about out I that and business much being saw acquisitions of of return, to we why vacation, altered that and as in would able that our – the that key pandemic acquisition ownership a It term the we of pleased much planning months. team this. them we're last after the our we're we August saw very way part that's hasn't the more still that. very the with are we long the opportunities there. us. expect the they really bankers start of are to through were had being benefits do of of in part and several the the – for about from But of

able we were travel to Canada. actually to time. even that though get weren't was we finished a to travel So allowed the ban There at

to remotely. not we to with we because travel of do to So our were of weren't to Canada, were transaction but travel able they them, able kind able the long-standing here, relationship

Walter Liptak

Okay, it. got

quarter. very you much. Congratulations thank on good Okay, the

Michael McKenney

Thanks.

Jeff Powell

Thanks, Walt.

Operator

Columbia. question next British line the Your from Charan comes Sanghera of from

Charan Sanghera

it's to think a white paper Investment Columbia a Management. of definitely from It's probably about do containerboard to stock-prep from assets the Hi, outlook for on North the is America. the the potential environment, How that in Kadant Charan I had in leading impact of question from Just work-from-home conversions some you British but paper on markets. more of terms side? a suffering there. Like kind for

Jeff Powell

when we continue percentage the when Or exactly everybody going the paradigm a think we and to any – work see that new to gone? part-time there you're – return return think pre-pandemic office levels? now back and – is is a paper So I this to either when likely. depressed office with to right I associated return will is pandemic which shift new is things is question or home full-time, is of office severely back people where from I work really right Are the what think normal

more of and more companies, hearing are You high-tech talk that. in particular, about

it further for at-home paper happens, likely for the office will demand demand products. and the white extent to and that depress the paper will that So increase

working more are instead more be products home you at-home buying from of and home – and going products to delivery. so out tends home, you'll at the eat be for you to and your in there'll packaging consume If you be that tend higher

expect biggest packaging would business of see we and an at-home a grade a product And is percentage decrease. luckily So us, small nowadays. in increase our business. to of Y and for our packaging is very course,

of we're will of consumer some social the markets over we've might – comments, some from So benefit trends frankly part seeing we and will that's of my And the the is I think – when we actually mentioned thought done seeing our it. behavior in we're we – improve with. I this and

good out so tend moving we arrangements. of going the mean be apartments, so is People because currently slightly we market markets home, you're have are too, I fire working buying for home from is from housing home, real white there, industry, different – work lot support you to work from changing them which We I people support and If real because realize, and that's a consume business living kind more estate of going the builders our of the the arrangement hot, to on their of than they're I to that. estate people actually – if I'm serve. the and are suppliers homes market resources a need the

So we I – actually a be we're be think likely will us. will the think a it seeing, there'll for extent shifts positive change, to the

Charan Sanghera

Packaging on Corp's, more containerboard, into your if and the world, customer they're specifically orders this base, if paper about? that have some the place? IPs Like of Just impact trend white that will when see of thinking the we equipment is take Donckers Kadant RISI talking the maybe on the converting assets been like that of potentially capital orders what and to for would trend kind has kind were about

Jeff Powell

Yes.

So had we – – from others. we the received – of got we did the probably packaging majority as conversions know, the orders we've you to for

trying likely expect I continue to and successful fair to to right be receive understand So, in thing I which, play that, mean quickly share it's extent is we to we orders out everybody that of obviously, of our the the pandemic gone. happened so hard would that timing that, to where think, this now, data the the once mean, is I will this still likely say. for

in to They of take timing those be orders then I So and they the conversion bigger tend even to those kind orders I will months to a don't be many, built, that. operating. installed or years many those know – know tend year of up say the get and and I can that projects. planning things

would term we longer conversions a for those, we and in our in as going are But plans been to longer-term benefit do forward. well those sure. that they customers in very those and place are from they put they So expect we've successful supporting projects –

Charan Sanghera

OSB, sell industries in your that. natural like Norbord with projects Cogent major And is Cogent and question been be they've seem on kind into more guys of just cross you strong like move in with or of can They helps in the that a that involved you play conversions Weyerhaeuser of a standard like like capital, other quick things kind press extension and Cogent. it Scotland major very Is in to guys there products?

Jeff Powell

the think, I thing care doesn't – almost where automation is thing it's it controls and data from. the of No, kind about coming management about and

at at that whatever, – they in If where production takes looking a looking or And at form helps at looking of kind you're don't you're the rates or it operator. and it data the looking you're temperatures, vibration whether you're puts really care.

industries they've you that systems, really things. and like really applied so at projects, don't be transportation portfolio make based systems Cogent's done are you airports operations if work data. to mean, for they their at speak, digital trying – I to transit decisions coming almost and signal digital If where really to they getting can anywhere the care about look that on you're the what of think I mean, inputs, mean, from. they're they've were I work done a

so one big frankly their apply And the operating that's quite to paper capabilities of Handling, Material into easily systems, systems. their that industry our was their and our really we liked platforms, provide them about we where things

of out miles have – going these management. and control and power aggregates opportunities constant that or or You think about systems lot a And mining data all the there's in of operational of conveying salt you market, if miles you're units, systems monitoring what's require on. sands data and come of other things, the those and kind understanding

so in to industries. is take applies those for industries of get And us it customers. knowledgeable fully technology those we the and The think processes those I about provide challenge that them to all their easily

Charan Sanghera

it that. good All for you from Have a right. me. That's Thank morning.

Operator

follow-up a John you Okay, from Franzreb. have question

John Franzreb

to if Yes, in – I sneak I two get want can.

there Handling second Firstly, the it, than that you particular Material food others? side of be Handling any to on the Material the alluded what looking the the first the the of better business, packaging in kind topic, better than like? market, mining or be half. half look You in end Is fact that's and profile last booking does to expect

Jeff Powell

out to shift a side and they food in things I because that of percentage the everybody think volume smaller allowed on Well, think the is, course, very technology that where technology, tends are our for food be more as to in of you restaurants supports increases again, at-home this it being that from I I bulk demand receive food packaging loves the when product. mentioned, of stable, consumption of of packaging, the large our because

us. some that's So one has that opportunity I think for

and of several hit The to think recover, starts that had been the think down other been and before projects. have of this on were clear very I we this kind starting especially the hit grow everybody that thing, to as years pause larger industries pandemic infrastructure – market the thing support has think, But course button that over grown the to expect our for a to business a of has and in And year. of five X% I business grow. kind backlog. last continue or that We record in first booking starts those four we'd between X% quarter, the markets most strong years and spending

business that but is pandemic, that, that the experienced growing, through the bookings we picking nice last we're business. has that but – years, So and once over up work importantly, the more to we it several industry by pretty growth share some is resume there in market – interrupted expect

coming is growth the of up around market lot the from share a so us And suppliers other globe. from picking there out

John Franzreb

from year, of you for when programs that them much employees, government-sponsored And bring embedded back? furloughed in the captured regarding number? the to your expectations And margin second Okay. how do half the in is that's expect

Michael McKenney

amount say I estimating us. going less because be roughly, improve will we small – and these things It's we're John, benefit be believe to of we're – would I will it's to mean, – a it's programs

So margin. we half, I'd quarter second second the the say the in in about saw half of what in

John Franzreb

own of timing your bringing the back? And guys

Jeff Powell

will That of recover. how as you're back. because come people fast forced thing, know, One very of when have bringing demand, back, to very you workforce to things the the things when always you're be happen that much on tends – decreased dependent on cautious reductions

And productivity so everybody right don't – so those to you away. tend we happen bring tend some back things experience when – we you and don't improvements

differently. do that can there's you You things learn

– time. difficult period people when strongly would of obviously able hope we that very our productive for when back out a business back. experience exactly I returns your predict these say that to slowly and you're more of so will my come And of more to it's We everybody we're employ our bring has employee just we kind recessions been base recovers that because but

John Franzreb

Thanks my taking for Okay. guys follow-ups.

Jeff Powell

Yes.

Operator

up you Kurt Okay, follow from a have Yinger.

Kurt Yinger

follow-ups. Two for ones. quick Thanks Yes. taking the

way First might your of experienced Flow some Control, is in what in quarter? any customers there have percentage think sort to about shutdown second of the

Jeff Powell

overstatement, the was production chance of course. critical Yes, would And say, the was percentage But as non-paper it is curtailed completely. the – I – your a that's stopped of – non company, everybody weren't a if infrastructure you it almost paper a that was is designated or large it there good but an guys.

or was shut down I – so market, paper was an completely. largest is have curtailed And it certainly – portion a piece. serves lot but of that exact sizable and it's industry don't general have that numbers, still their now, their they a awful but significant

Kurt Yinger

one you sizing kind opportunity the the is virgin for that's Okay. then of I say of the important for a guys equipment? side, that helpful. conversation. in where, these to board really mean fair returning furnish the No, it recycled really it's to just whether And of conversion recycled? the capital is it's of opportunity or bigger a projects On characterization

Jeff Powell

technology the We side is the supplies do certainly of into production on have primary that a the pulp our business recycle But Well, that serves our services market. the majority and market. business on recycle side.

I'm shopped from now, lot of that's in what mean I and is our of be that all a shift to will set had permanent of lot likely online is a not resulted analyzing what with are to think having packaging will continue that that right interesting people doing the after reasonable I this sure pandemic. that customers has accounts do were it, and I online them gone gone. this so, forced up and comfortable gotten thing think doing and it's assume

is fiber, demand we be this. now And from trying think kind So that and in made produced large to America early comes okay, know it's clearly are it's packaging world. is will But demand out in the And customers sure a right to little of determine, of the strong, it I very there our is the probably permanent? – best A very quality. to what increased North too virgin that. increased I'm packaging high percentage think the it's of do – that's extent initially that

will And continue post so the that to of the strength recovery the of and of that I it, think it. because recycle consumer the of value of grow

import but they're ban, the which themselves created this Now, as waste effect year that you know, some the into next or at business, and over completely end dislocations in to go the of will China they sort disruptions starting has will out two. and year

themselves sort equilibrium. out will they'll get think an back I and to

know think therefore what some. I I the capacity little but think there early a and it's will So will to exactly be, too demand be production increased

Kurt Yinger

Right.

you, Thank guys. that's helpful. Okay,

Operator

now Okay. remarks. the turn I closing Jeff back call for will to over

Jeff Powell

Thank operator. you,

our takeaways I the leave I'm you few crisis, uncertain has the today, the these serve the from of throughout their a call our work to the employees of and well-being of to up and quarter. resilience top continues proud beginning been be with employees' wrapping From hard and customers priority. Before our want health – health to very very times. our just our

generation. you of flow has Kadant As of a know, proven strong record track many cash

updating businesses. finally, and family can for free behavior digital strategic we continues to addition base in Kadant forward the markets the companies a forward our opportunities technologies the the recovery around we Our strong excited are packaging parts underlying Cogent products with we ahead transformation. customers' have role stay around at the of could you particularly source look Thank call housing look consumables and and the demand We we joining the of play seeing is about of This improve flow. and safe. consumer and to cash in food, large group a I'm future to quarter to next believe calls. strength X.X the to for I world, to And the as discussing that in installed of look potential serve, addition and the you please be changes the social the today. we one and the trends Kadant that prospects Industry and And

Operator

concludes This today’s conference.

disconnect. now may You

Kadant (KAI) 31 Jul 202020 Q2 Earnings call transcript