Earnings call transcript Q4 2022

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Operator

Good day, and thank you for standing by. Welcome to the Kadant's Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that, today's conference is being recorded.

to McKenney, conference Chief Executive like speaker to Financial now Michael today, Vice would hand over the your Officer. I President and ahead, go sir. Please

Michael McKenney

Thank and me on to call today and Full you, Powell, XXXX Officer. the morning, our Jeff Quarter President Year With Fourth Executive and welcome Call. Earnings is Norma. Good Chief Kadant's everyone,

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

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

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

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

note we that, EPS calculated to GAAP wanted call, per of I share refer adjusted basis. a referring on to these as are earnings each when Finally, this we and to on diluted or EPS measures

the over will give update and who With future you to call Jeff prospects. I'll business Kadant's that, turn on an Powell,

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

Jeff Powell

review Mike. Thanks, quarter strong to and you macroeconomic challenges Despite cash fourth solid a and Thank discuss the us year pleased that, quarter. report was business Kadant. lingering morning record-setting our I'm results headwinds full EBITDA, which Hello, constraints, joining outlook had for this quarter. fourth supply quarter everyone. in for flow we by record our XXXX. about for a We year and to chain brought contributed well-executed the to to finish generated adjusted fourth another

the half Strong the quarter aftermarket activity capital full of robust in and project led revenue in first demand year and year. fourth the to the record

fewer engineered We operational continue advance inputs. on that waste with customers more generate technologies to help our or provide product mission to reduce innovations solutions and their performance, our to yield with deliver

area. as end be to were It's America's for we Newsweek by the Responsible efforts At recognized Most to of our for year. rewarding third Magazine, one XXXX, in named consecutive be the honored Companies this of

segment, on by few in our revenue more Flow shipments, QX was being our a of segments excludes I'll record was Next, portion of capital the margin performance translation currency impact revenue, I'd quarter fourth like to same to XXXX period which performance. X% of review This Organic execution provide was XX% acquisitions record-setting our larger a compared drove and excellent a detail record Despite EBITDA the $XXX our compared to the million. and QX minutes. QX a Control to revenue year. last financial the XX.X%. up up operating to foreign led

of Our earnings experienced in contributed in second X. slide Central first full sectors. which which our review said, Strong Bank's XX% half on year year performance, moderated strong the record included to increased demand as next we to a $XXX quarterly XXXX revenue performance exceptional I'll million the million, demand impact fiscal That FX. to soften full in a began negative some half policies $XX from

Adjusted per last negative a of increased record $X.XX share. to exceeding the set effect at share, diluted EPS $X.XX translation $X.XX despite prior share, per currency year per

million revenue. prior last $XXX full set performance was This XX% margin Our achieved a EBITDA year of record record to surpasses XX.X%. adjusted up year or our record XX.X% we when

our performance to are a on these strategic had focus margin strong pleased results. and see we have improving We

years. customers of customer-focused have financial businesses to we very have our our is the been to implementing program, our and As even previously coming in performance. our designed better these initiatives we serve results strengthening collective been forward discussed, have pursue The value continuing number while more create encouraging XX/XX look even to which a to

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

segment quarter show Control in the with to Our million. revenue Flow record fourth a to XX% continued up strength $XX

end around Aftermarket by Excluding to up up $XX million business the remain record believe revenue adjusted fourth parts FX, be a fundamental XX%. the healthy the XX% continues impact helped of though quarter. challenges geopolitical EBITDA made macroeconomic unfavorable We boost influenced globe. total revenue activity drivers to of was markets of revenue and in and our the

segment. our Processing to now Turning Industrial

revenue XX.X% strong in of performance. EBITDA but year's margin revenue performance to slightly higher quarter solid core last QX XXX revenue. the Organic markets. despite than declined our some prior in basis compared fourth Adjusted at of record year the performance remained Our end was points was the softening

Wood to product our the was timing in and market attributed decline line. mix Processing shipments of largely This

the couple in in record expect line. segment to demand product Looking experienced the to particularly demand Processing XXXX, ahead compared soften this Wood our to years we last we over of

for fourth total shipments revenue made In from equipment solid the Handling of and relatively year. in Capital Material and product quarter strong quarter the our XX% our due XX% bulk million demand was bookings all activity in Handling the the markets. was half in segment increased of first Material demand our strong. X% largely all lines were in $XX Organic Handling project demand across increased segment, in record Material up and to Revenue strong to parts benefited revenue.

Looking good XXXX, of ahead bill begin infrastructure to aggregate for from particularly new infrastructure see executed, traction. business to to activity, the passage our are as continue increasing this gain the infrastructure Inquiries will US. segment producers Handling the projects bulk as believe equipment we our construction projects are following Material in

the year, to demand we and is activity As ahead the we ongoing first has of year. look project XXXX solid healthy as full entered and the quarter been

the headwinds makes the year building, less are second half which of certain. economic However,

we Our to have to the opportunities that solid capitalize strong may financial the us year. sheet backlog and balance as for unfolds, well and emerge year deliver a expect performance positioned on

With review that, his of XXXX. I'd for now outlook like to financial for the performance Mike? and pass over to our call Mike

Michael McKenney

Thank financial you, some with Jeff. some I'll metrics start records. fourth our from key includes quarter, notable which

points Gross in increased the of XXXX. quarter XX.X% XX margin fourth to in XXXX XX.X% the fourth basis compared to of quarter

of gross acquired inventory, points. Our the gross basis XXXX margin by quarter lowered margin in amortization the of was negatively XX which profit and by affected fourth

mix was down Excluding the quarter, gross higher of basis XX capital to in a this impact year's revenue. margin due points prior

significantly revenue revenue of quarter in XXXX of our percentage capital to the overall of compared and segment. quarter Flow decreased revenue fourth consumables fourth parts to to due XXXX higher XX% Control of the XX% Our at total in

$XX.X quarter percentage in fourth $X the SG&A period. compared a million the decreased SG&A As decreased XX.X% fourth expense to $XX.X revenue, in million in XXXX. XX.X% of the to million to expenses in the quarter compared XXXX XXXX fourth of quarter prior year to

The quarter tax offsetting $X.X fourth release to $X.X favorable decrease from of indemnification translation XXXX. asset to Partially the included favorable these reversal quarter effects and in effect was fourth million million costs of related a acquisition-related foreign the compared XXXX reserves. million of $X.X expense currency an a

increased $X.X additional Excluding all items, within increased and and headcount sales due selling service. related SG&A these travel to costs to million, expense

Our rate the due slightly higher incentive forecasted was of certain compensation our of fourth payments. quarter than XX.X% in effective tax XX%, rate to timing the

up to X% quarter fourth XXXX the $X.XX in to $X.XX in was Our fourth our to EPS and GAAP EPS X% compared diluted quarter diluted adjusted increased the $X.XX.

end $X.XX range and to to at $X.XX high a diluted by due segment Control gross of extent lesser quarter Flow our Our especially our the EPS XXXX guidance fourth adjusted revenue, margins. higher-than-anticipated exceeded of higher

was gross full compared XX.X% XXXX. margin year XX.X%, XXXX, the to For in

the the inventory points prior XXXX, a Excluding XX in and in due year in compared revenue. of assistance of amortization profit both and capital benefits to down mix periods higher gross XX.X% to to XX%, was government basis margin

revenue and XXXX, Our consumables XX% in was percentage XX% compared XXXX. to of in parts

an $X.X XXXX. XX.X% expenses increase XX.X% and in compared foreign reduction decreased of taxes. a XX.X% within of were a tax to asset We to million expenses acquisition-related $XX.X of in for by favorable benefits income $XXX.X million effect from in XXXX, was revenue, $X.X million in acquisitions, $X.X excuse in percentage or $XX.X in – SG&A million reversals, from costs, which which As had are SG&A million a of of $XXX.X XXXX. expenses me X%, XXXX, compared million of XXXX. government to corresponding SG&A currency translation assistance lowered by reduction This million SG&A expense a $X.X provisions offset in a benefit million our offset and indemnification

additional or primarily increased X% compensation related items, Excluding costs. XXXX, SG&A wages $XX.X all as and to expense up as headcount well these million to travel-related expenses increased were compared due to

in Our GAAP compared was in $X.XX XXXX, $XX.XX diluted up EPS XX%, to XXXX. a record

at to increased fourth million XX.X% year. $XX.X EPS of EBITDA fourth by of also revenue, was to or adjusted Our compared XX.X% diluted million a the led revenue to Flow compared segment. a the XXXX In our XX%, $X.XX in of XXXX, up record last quarter $XX.X adjusted Control quarter of or XX% $X.XX, record

adjusted XX.X% $XXX.X in compared or due but $XX.X $XX our of XXXX. XX.X% For a XXXX in Flow of segments. quarter EBITDA year, to performance EBITDA sequentially was Operating compared revenue the XXXX, million Handling quarter strong XX% and cash flow a record the and the $XXX.X up XX% to to million million Material of full fourth in record Control in million down adjusted of was revenue, fourth

For full to operating flow XX% was year, from cash XXXX of due down million the timing capital working $XXX.X increases. the

inventory payable XXXX benefit as and in million to was working flow due customer outpaced in cash the accounts a $XX.X a in part accounts receivable. from Operating record growth deposits and growth capital

was inventory record our increase an operating for working our impacted purchases of in receivable backlog capital accounts revenue a large part as cash result to million $XX.X of related by in flow XXXX, growth. cash use In support and to a

considering our quarter of fourth guidance here XXXX. non-operating requirements. capital continued we I uses working several not had in for XXXX, We add the in notable would anticipate growth cash that do of

project in of expenditures, We and $X which capital million $X stock. debt common for paid $XX.X facility a for China our $XX on repaid million and our dividend included million million paid

In in addition, acquisition $X.X credit million our detail of related part Handling to discuss business Material million as review. more I'll Canada liquidity we and renewal facility, of paid in which $X.X the for of my a the a

for $XX.X $X million $X the million included of For China. year, and debt project full in capital with middle for projected our and our estimated $XX.X repaid is expenditures, of million facility underway move in which million. we date well costs $XX the million Construction this a million paid to of project remaining for construction $XX.X

in of the new and will relocate. that down may quarter sale facility a local us of be to quarter XXXX. the pay XX% our property the from of facility in front project the costs the wanted the the facility incurred. we the selling to remaining I of Proceeds the in regards China that asked when They facility the or the due from on existing payment recall facility to the proceeds sells purchased and relocation the earlier first first for the with had XXXX CapEx government received government will you as mention

costs. to $X.XX. me results to In $X.XX per diluted restructuring was for relates EPS impairment $X.XX fourth earnings EPS the GAAP our the costs of difference and $X.XX acquisition turn The Let and of was share quarter $X.XX and diluted adjusted XXXX quarter. our

impairment two costs the manufacturing business with consolidation associated components; with relates [indiscernible] restructuring business; component additional $X.XX an other in The cost has costs our relates exiting to asset and the restructuring charge in our to ceramic and Europe first of recently associated component in Russia. second our into impairment the blade acquired

business restricted a Russia with severely small employees, our have winding was in XXXX. We due have Russian which as been Local acquisition down subsidiary a foreign-owned of to a companies result part small NII by we've few this sanctions in transactions operation. and been

was EPS tax of earnings gain diluted per quarter on $X.XX adjusted $X.XX $X.XX $X.XX. of of and GAAP discrete impairment $X.XX restructuring the costs, In a share and $X.XX XXXX, benefit and the was costs, acquisition-related difference fourth diluted building. a to relates $X.XX sale

of XXXX margins. The increase due $X.XX due higher in gross the compared to EPS partially $X.XX the 'XX adjusted and by consists interest the lower diluted rate; in of following; to of a higher to recurring due fourth quarter to offset higher $X.XX due expense; to revenue fourth $X.XX quarter $X.XX tax

year $X.XX due was compared XXXX a included reversal associated last the tax positions rate currency categories US dollar. options. exercise unfavorable our related primarily of tax to the translation employee The awarded due strengthening $X.XX in recurring uncertain the rate quarter tax to just and tax the impact foreign the fourth Collectively, previously fourth from fourth effect in with to in XXXX lower all due in increase reserves of a stock of benefits the quarter of an the I the of tax to was of to quarter mentioned

results $X.XX to to difference Slide acquisition-related on relates to per $X.XX. was our of diluted on our diluted Chinese gain facilities the XXXX Now share costs $X.XX restructuring in $X.XX. of turning EPS $X.XX impairment adjusted full one We our EPS of related reported sale costs and and earnings $XX.XX XX. and for year of GAAP

share $X.XX tax difference to of operating in acquisitions. EPS $X.XX in $X.XX restructuring a These rate, in higher compared XXXX relates expenses, higher from in to benefit from The our higher from our tax of expense. I $X.XX the interest foreign of $X.XX $X.XX and by We a diluted of adjusted the of impairment acquisition-related margins, $X.XX from weighted partially programs, gross XXXX per EPS costs were diluted revenue reduction reported just $X.XX. government due of increase gain $X.XX effect and a diluted costs from included on XXXX from $X.XX consists lower $X.XX of $X.XX was sale to higher higher of adjusted from $X.XX $X.XX increases discrete unfavorable was average The XXXX to assistance earnings benefits $X.XX, GAAP following; and and and results recurring of operating mentioned offset categories shares the from Collectively translation outstanding, currency in XXXX. $X.XX all from $X.XX.

on to Slide XX. Now our let's metrics turn liquidity

XXXX. days to payable up but in days the subtracting the fourth was taking from receivables cash the plus The days end by the XXX down prior days was end the quarter days as XXXX, of increase record measure conversion at driven by XXX Our we of quarter in calculated backlog. purchased higher support inventory, XXXX of in number end third days from and conversion in inventory from XXX in accounts at of have material a days year at principally our the

quarter compared million, the compared revenue the of that is was quarter XXXX. fourth end of of increased XX.X% of less in $XX at a XXXX, in of capital XXXX, a end XXXX. to debt $XXX.X fourth and cash XXXX Working the debt as of at percentage $XXX.X to decrease in the million, to third million quarter the X.X% XX.X% Net

interest compared increased to in $X.X $X.X XXXX, half in Our second XXXX in to to expense the rates the of million increase XX% XXXX. in due borrowing million

$XXX X.XX our at credit from incremental at of million ratio $XXX X.XX term our credit from uncommitted Our end XXXX five-year the million. our another facility to calculated $XXX and XXXX. of defined November leverage for agreement million renewed We in increased decreased borrowing in to as end facility the

opportunities. well future leverage ratio act us borrowing investment to positioned capacity increased on and Our low has

Now XXXX. review guidance for our I'll

million $X.XX million the quarter to EPS $XXX for quarter revenue for first first diluted of Our our $X.XX. adjusted guidance is XXXX to is the and $XXX guidance

$X.XX occur our the in XXXX. $XXX which excludes $XXX moving our revenue with relocation For $X.XX, full million the estimated year, of of China, associated middle adjusted guidance and is costs facility diluted is million to and the $X.XX, guidance should EPS an in the to

that capital results of due timing our several some flow I variability could here order factors, the shipments. there of variability be in including should quarterly and caution the to

that tensions, dollar, to our addition, the In risks policy of and strengthening supply Central other chain US guidance, Bank's responses geopolitical issues. inflation, include could lingering impact

an the includes revenue million and due of $X.XX on impact the US guidance on EPS approximately unfavorable currency XXXX $X.X gross will strength adjusted diluted The XX%. XX% foreign translation anticipate We XXXX of to for dollar. be approximately margins to

XX% As X.X% revenue SG&A will a R&D expense to percentage XX% approximately anticipate be will of revenue, be approximately XXXX. in of we and

We anticipate to be we will XXXX. in recurring rate of our XX% net interest million approximately and approximately tax expense XX% expect $X

approximately depreciation China. $XX spending million, facility we and million in XXXX $XX million $X includes be approximately related to XXXX in in $XX expect amortization our CapEx project and to will $X million be million million anticipate will We which to $XX to

our a percent of Processing revenue to the facility line. are facility we our Excluding related Wood approximately project, normal a above of product metric to $X little a bit million project expansion due CapEx as

concludes review the session. now for call financials, to Q&A back our and my Operator? of operator That the turn I'll the over

Operator

you. our first Thank Instructions] comes question from with Davidson. And Kurt [Operator Yinger D.A.

Your line now is open.

Kurt Yinger

you, and good Mike morning Jeff. Thank Great. and

Michael McKenney

morning Good Kurt.

Jeff Powell

Hi, Kurt.

Kurt Yinger

some demand, including continued to curtailment. growing you on I looks have with story look like challenge. if pretty a America, And a of start containerboard I on it's it to the the perform side Processing well wanted at in aftermarket related North just downtime And QX. out pretty significant demand guys Wood list which market taking similar

thoughts love just service much impact more as I you aftermarket lot customers the seemed on than just hasn't have to business, to to a recognizing your would those mentioned? hear So that why

Jeff Powell

there's of and couple But of of out, softening running utilization some the pretty normal aware been in and been taking not many has there that lot scheduled Kurt were there outages customers years, you're ran also downtime full wore right or some last those out. and they as you're hard equipment mean, it rates. the I lower Yeah. a

now to for little seeing They of they're now So we're that right interest lot opportunity the the and made again. what off and equipment come rates of get I on bit cut money of the the the hard equipment start of as slowdown their big next taking bit maintain a typical a and some think little ran time. likely with repair is drop increase ready and to during those they periods back a a maintenance

I So busy maintenance little they're times to very neglected bit the seeing just up and think trying we're of and during repair a catch now.

Kurt Yinger

Right.

sense. customers levels, of some next expect ties in my fruition you this get short-lived. gives if that come they're the reassess? That Then you makes at budgets strength, sense you that they to testament Okay. least doesn't -- your still have a windfall North do at America, look into past pretty high in be And to that may think demand few the which seen I their suspect years it confidence. at downturn the your mean and customers you financial that's or relatively to look and some question and I here CapEx in Do to the

Jeff Powell

fundamentals So be not business of people They this mentioned do recession I are ran as equipment business the a And and -- in certainly the of to short I expect and as most hard. of strong. severe their a had maybe they crisis moment that money. pretty past. we've underlying that ago, lot as they our the the made think

are and If you for good levels. forecast activity the many next the fundamentals look years, out the

I think prepared they're that. So getting for

started. projects not or know take and that to And large if But of tend they're these there if But over years, once look think, they further some is be a five most be and pretty next down indicating right I at shut the to -- quick you then companies are recession say there longer outlook could the slowdown. these get their it's things as they you're so you while positive. the deeper

Kurt Yinger

Right.

just me. Okay. And for then, lastly

are there. margin at maybe the of few hoping, was kind initiatives you examples And here particularly you of XX/XX XX/XX, I you're other that's divisions? were having in successful You in touched give, beyond any been could looking on there success just where different notable XXXX? some of and a

Michael McKenney

now is look our the Well, at about about I'd program. right half revenue on if Kurt, say basis revenue you in have of we -- a it

good have And years, some had in say, seen a benefits. one in look stages are operations the more earlier I'd have the the of when Control. place had across in. Control And Flow joined few and also in in the -- of was some particular course, and Flow a for I in that in segments, we've few very We've first

and very we're nice progress Flow the to starting traction -- we've Processing. on seen some in So, also see Control in some good Industrial

Jeff Powell

improvement. the kind As of as ours, Lean have ongoing of far always finished a you big focus never is of continuous there. other we programs, that kind

programs trying going we've on optimize, results and So encouraging that XX/XX we from biggest years. but seen investment been always have over few certainly probably, has the to our other probably, the last the operations most the

Kurt Yinger

Got it. Thanks the for details. all

Operator

remarks. Thank to this to closing over time, And for at I'd you conference Instructions] any like Mr. turn Powell, [Operator the back

Jeff Powell

Norma. you, Thank

the Before serve I around of we was achieving these for takeaways. call world, our our dedicated you to few record-setting for want a employees leave a employees wrap with year the to I thank Kadant just to up deserve efforts excellent really lot our and the customers' want for results. credit XXXX today, a needs.

to focus meeting that In sustainable customers' and our as we drive needs, opportunities technologies continue create solutions new seek XXXX, value innovative we to processing. on with will industrial

cash and of ability Our flow free model. to financial a remains, health excellent is business generate strong our our cornerstone

stay expect stakeholders in We for and again, the to today, you thank joining for value want safe. to exceptional deliver We our call XXXX.

Operator

call. Thank today's for concludes This your you participation. conference

You wonderful Everyone, may now a disconnect. day. have

Kadant (KAI) 16 Feb 232022 Q4 Earnings call transcript