Earnings call transcript Q1 2023

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Operator

[Call Starts Abruptly] At this time, I would like to instruct all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

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

Michael McKenney

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

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

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

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

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

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

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

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

Jeffrey Powell

everyone. a and first business aftermarket the first Handling EPS quarter. XXXX. record Thanks, XXXX excellent for our you start us activity and bookings order to outlook review and results QX quarter Hello, Thank of with this regions world, growth for strong our discuss solid was segment, to was contributed Material our for with morning by parts, Mike. activity segment. an joining record to which in in Flow Control strong along was the Business our in led adjusted most new demand operating

new first more of provide activity, quarter review details we record our backlog. I operating result order a segments. on with I'll ended when that As the

capitalize cash strong QX growth currency we XXXX. sheet healthy increases and opportunities well to us last our compared had balance of to foreign the Despite in Overall, across on translation, positions financial year. flow metrics most dampening of solid effect

up quarter for Slide X% year. our period were the same bookings compared record As Bookings see X, million, a can our on in performance. the $XXX highlight you record to previous notable was last

Excluding the bookings FX, were negative up X%. impact of organic

the million X% year. period to $XXX QX same revenue to increased last compared

revenue X%. Excluding FX, was organic up

record cash which million, flow million. operating while period a in quarter, million. adjusted of two-thirds excellent X% up inflationary was $XXX increased last parts million, despite of and compared performance EBITDA is $X.XX EPS Our QX, record pressures. $XX a operating $XX and revenue. of year our Improved delivered aftermarket adjusted revenue Cash made representing up adjusted $XX XX.X% flow to revenue performance XX% EBITDA same segments was to to free of historically All QX led weaker margin the to

aftermarket begin with and Control set record I'll our review to experienced segment. strong like in Control performance segment Flow to year. foreign I'd same capital bookings first Next, our up boosted Both translation, details at bookings, new million. X% and $XXX in currency a parts demand operating last business the Flow which demand segments. a performance each were period the exclude compared the pickup quarter. effects from on Organic

QX and EBITDA was from adjusted led revenue of despite operating made performance increase XX.X%. QX margin in an of XX% outstanding Aftermarket parts was of leverage EBITDA and to headwinds up QX a to an the revenue FX. adjusted XX% record XXXX Improved total compared revenue.

prepare bookings first many you the annual of As our in our spring year customers for maintenance of the shutdowns. historically as of quarter know, quarter terms is strongest

year year result, to quarterly performance our a as do said, this remain segment healthy. Control strong we again markets subsequent to in we end progresses. bookings our As the expect moderate expect Flow That deliver as

now Turning recent Demand yet the quarter. the reflecting in sector. all for in more first Processing capital world. the the across Industrial parts capital period, softer robust experienced processing wood were We for for was our good and recycling X% down demand to to compared segment. parts and of the systems our strong still of both activity year bookings moderation regions prior QX

decreased $XX Revenue in last million segment XX% period the same first year. in the to to quarter this compared

relatively Overall, with a the processing wood Excluding to we activity negative impact FX, year our revenue the good of had organic strong in line. X%. product decreased start

wood the progresses. activity year moderate business expect sector the in to as We

this also systems segment, record in first high-performance handling quarter. the million Handling first North Material we material bulk with for $XX in in our achieved demand our bookings Demand best leading for equipment both and quarter. our the was notable performance our In segment baling strong of to Europe since America creating

was drove contribution adjusted to last XX% $XX XX% period significant XX% compared EBITDA the capital to performance boosted record of XX% to same EBITDA shipments. revenue from up million revenue. Improved margin a with QX year. operating increased up organic and Revenue adjusted

long conveyor booked truck for and to eliminating line transport, incorporates XX-mile the order The of North with associated our for rolls with bulk capital the designed quarter, eliminate the a longest material. idler $XX the we thereby approximately smart During of need a million. emissions America's transport value large is conveying

full-year, and record positioned ability flows the capitalize emerge second the may As as generate of year look to well and quarter that cash our we us unfolds. on robust has opportunities to XXXX backlog the to

We expect our year and XXXX are revenue detail. financial this Mike again excellent performance and raising deliver to this guidance. full-year more in discuss will EPS

with the And to over Mike. that, I'll turn call

Michael McKenney

quarter quarter quarter. margins points the to XXX the you, Processing compared higher our Thank financial first Jeff. a compared contributing up the parts higher This in Gross represented especially quarter basis margin was key due achieved to revenue, margins projects, percentage to XXXX, was from to XX.X% start I'll increase mix XX.X% XXXX. XXXX which metrics with some Industrial principally XX% improved the were prior in first gross the segment. of Also the in capital our overall of XX% first revenue year. consumables in in of first on and

and expenses quarter first SG&A In the million, had $X.X asset XXXX. XXXX, in a of $X.X had indemnification which the first acquisition-related were XXXX. favorable to in foreign million We effect in XXXX, $XX.X million expenses translation million of in currency decrease we first reversal. a $X.X the costs million first a the lowered of quarter SG&A compared quarter $X.X quarter $XX.X million

costs. up SG&A as compensation increased Excluding million expense expenses to travel-related compared were X% these due first the as to or quarter well primarily $X.X items, XXXX,

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

XX tax Our points. tax lowered effective in effective tax to included of the quarter equity basis first XX.X%, which was by the rate rate the which benefits vesting related awards,

quarter EPS XXXX, GAAP in on Our first decreased to to to the included the which $X.XX gain facilities compared related XX% one sale our quarter of in plan. $X.XX relocation first of the a $X.XX Chinese

exceeded high by a end $X.XX, higher-than-anticipated of up adjusted $X.XX, our due Material revenue, record Handling X% especially Our predominantly our range the EPS which segment. in to was to guidance

quarter compared X% strong which to Adjusted Material driven by million $XX.X Flow our XXXX, first Control adjusted EBITDA record increased had in Handling EBITDA. and the million in segments, performance to both $XX.X

the increased XX.X% of quarter XX.X% of percentage compared EBITDA XXXX. a revenue, As to to adjusted in first

the of first to quarter Both operating cash respectively. $XX.X XXXX increased million XX% flow $XX.X and and free million, in

flow Historically, a quarter the flow the quarterly Our weak and flows. quarter million has free a start been cash in highest represents operating since both highest for XXXX cash cash XXXX XXXX. quarter being operating strong fourth flow the represents first This first $XX.X of for first of operating the quarter quarter our of cash with performance.

capital We debt paid $X.X to $X.X vesting the paid withholding had in several in first a common of million million, paid of $X awards. and paid cash expenditures, quarter notable stock uses the on payments related million stock our We non-operating for by XXXX. tax of $XX.X dividend million down

$X We China. move of XXXX of related costs million projected million year. incur project of the for to million a $X.X the in new of will estimate with facility in quarter of in to the expenditures million this remainder Capital $X to second the included half the construction our facility $X.X project first XXXX

results next EPS and EPS GAAP first Let EPS GAAP quarter was me to adjusted turn first XXXX, adjusted EPS for In were the $X.XX. the was and quarter quarter. our both XXXX, In the $X.XX. $X.XX

sale in acquisition-related the one facilities included plan, of Our gain a charge. first $X.XX on Chinese $X.XX the our costs a in related $X.XX of quarter to EPS XXXX relocation impairment and

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

XX. our at liquidity Slide metrics Looking on

in conversion XXXX. first the end XXX quarter quarter we in by to days cash accounts calculate taking days, the days at plus of XXX inventory to XXXX which payable, receivables subtracting and end the days compared of increased first at in Our the

Our the has quarters days over days. average been X XXX last cash conversion

Our by their in number end conversion are businesses XX-day which first of working Industrial year increase of XXXX in fulfill The backlog. driven inventory, was quarter average. cash conversion from days average record the our cash in prior of to at below where Processing period, segment, was days the the higher a orders especially days above compared to is

long-term the percentage to a reclassification was as of short-term. capital from first of the first this a was The quarter $XX Working the China in by in to orders relocation to metric our in quarter to million our increase $XX a XX.X% compared receivable related increase XXXX million in inventory of revenue fulfill in and XXXX. XX.X% backlog driven note project

less to Our net debt $XX or at million quarter XXXX. the million end debt, is XX% that first sequentially decreased cash, the $XX of

further With XXXX. compared end first the quarter our pay were X.XX ratio end to with to debt accordance at the of we XXXX in down the at quarter, leverage calculated our lower our the credit in agreement to first X.XX able of

At had in the quarter matures capacity end available revolving of which borrowing XXXX. the under November we facility, of million $XXX first of credit XXXX, our

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

I'll Now guidance for XXXX. our to turn

relocation to million EPS As And start full-year our to our guidance $XXX from adjusted the in for increasing associated are to to are we $X.XX full-year year, with costs million to from adjusted $X.XX $XXX one estimated million. a of $XXX result we China. facilities The revenue EPS million to to our strong $X.XX of increasing the guidance excludes $X.XX our guidance $XXX $X.XX.

$XXX to second $X.XX is EPS XXXX for revenue Our to $X.XX guidance adjusted relocation guidance $X.XX, million of million, of the our estimated is and which $XXX costs. excludes quarter

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

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

quarter mix the quarter quarters remaining projected anticipate low gross second XXXX. capital first XXXX weighted to gross will be margins be of be implies gross in expected range, more to heavily XX% in range margins to This come the with end the the XX% in margins continue in We XX% will the to the at as is of towards for the XX%.

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

We expect remaining quarters our be tax XX%. rate for will the approximately

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

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

Operator

question this session. the line time from At Barrington Prestopino you. we Instructions] conduct question-and-answer a first Thank [Operator Gary comes Our Research. will from of

is line open. now Your

Gary Prestopino

everyone. Hey. Good morning,

Michael McKenney

Good morning.

Gary Prestopino

here. question Quick

On the XX% Flow correct quarter? said revenue that of this was in Control, aftermarket you parts. Is

Michael McKenney

Yes.

Gary Prestopino

how have did you that that Do And compare handy? last to year?

Michael McKenney

See here.

I come have on that of rate it. think front that find me, I'll one. I in you back to Gary. I'll

Gary Prestopino

time, I'd I it just XX% also you too where last said at industrial. – and And to that too? – Okay. would was like that was for at this see year time

Michael McKenney

year, XX%. was it XX% were for this XX%. And flow. year, was we industrial, Last year, it Last

Gary Prestopino

versus side decrease paper Industrial due was then to And really do what paperboard? Processing in the and Okay. the that of majority products revenue you on side, recycling wood the

Michael McKenney

note a mean, there, It's for tough us. things. I I'd of a Yes, Gary, – it also couple did But first, we comp was.

quarters to other I I my for that going in quarter, year. about capital that in scheduled those the which capital, who were some is moved wood happened, variability thing had the in But especially were mention have we to think made and ship ships, frequently, of to first the is later that when that call the projects XXXX. we're why notes in

So – on flat revenue. been really in those we have shipped quarter, would organically we had the

Gary Prestopino

You them? still have

Michael McKenney

is Yes, pulled most course, This still capital get course especially, have can things, them. or They especially projects. moved – out. on in of normal of

Jeffrey Powell

be site construction that be to their site, will install and happens, customers often our equipment. before they're lot the has not work equipment civil ready for there's What on often to projects, the can is installed. completed And the they get a of behind so Gary, the

the So that schedule. kind delivery dictates of

Gary Prestopino

lastly, Okay. pretty segment, then Handling there. good in growth And the you Material had some

conveyor. any – was you booked there that? from I the That's capital all huge a a the conveyor. from – all revenue any was revenue large for was the XX-mile in in that? said Or quarter revenue mean, quarter But majority well, – You a was order was it there the

Michael McKenney

No, that. in no, the Gary. revenue quarter No to related first

Gary Prestopino

Okay. Thank you.

Operator

next Instructions] of Davidson. the line Our Adi from question [Operator D.A. comes Madan from

now Your open. line is

Aditya Madan

Hi. morning. Good

Jeffrey Powell

morning. Good

Aditya Madan

Good morning.

Kurt today. here have in You filling for Adi Yinger

Jeffrey Powell

Adi. Hi,

Aditya Madan

Hey.

more congrats activity year, the And outlook half on you off, from are first first quarter Or so you seeing lead tangible environment. it questions the is given great being potentially have second booking of the you And your for actually that a a signs for moderation the of terms conservative in of this I and terms recent customers? activities to is environment? today, the three Or of or in – stance in current commentary view? one in of it just more in

Jeffrey Powell

first bookings you Well, a $XXX the that, were even was big can incredibly There than quarter stronger bookings Yes. even in the impact so the as see, were to reality. in FX strong. million the

the know, crush very have in working activity, try we in particular Bank hard great experienced these the Federal demand. because, do the you we year – as concerns think Reserve – to back So is but Banks to Central I the half of do and we

particularly back there's half And so have think the good of out just a noise we're and lot cautious year visibility, of of being because the we I lot a in uncertainty and there. don't

so a And conservative be, to organization – know, we're you we tend anyway. as

of all the segments we're and But through course, the was just being demand across exceptionally our so really strong And our all first quarter, cautious. of businesses, world.

because cautious the of this say, being point. just more it's So would I unknown, at

Aditya Madan

That makes about margin. And Yes. question sense. Okay. gross another

is to mix there that Could expectations balance related around So the you how some forward? year? quite of And to primarily trend relative to the going you capital just strong compression to QX. guide gross your margins higher full-year in expect the were talk over

Michael McKenney

Hi, Yes. Adi.

right. exactly You're

strong us, first be weighted margins more to quarter to The gross be tend for consumables. be will first – see our it you pretty because more tends parts and towards to tends heavily quarter

saw of for you As was year, it exactly quarter right. you're And first XX%. this

to going mix that year, the through go we towards As more capital. is shift

and will start we that what's creating we is a of out I pressure that gave consumables why in that then the result, kind a it gross revenue. fits range. strong more as be gross careful very and that, guidance that margins. out on XX%. started that the as margins. call as was to and quarters, to We margins XX% say, this to will parts on percent with And And the go-forward quarter that's see And of strongest Hey, anticipated call decrease for we ship capital, the So of percentage in to you'll XX% our

Aditya Madan

Okay. allocation. And just capital lastly Yes. That on makes sense.

And are you you. share front? of dividends? less there. year, if active For you're maybe you seeing versus next what how out the be about And Are for to the remainder opportunity could more you quarter. on Thank specifically, luck kind or good willing thinking of that repurchases about talk M&A, more

Jeffrey Powell

Yes. you. Thank

a as dividend. So you know, pay we

Our goal is something Board every at the it But every – year. looks tends to try kind quarter. to to increase of that it be every

we we found far authorized we were there shares good haven't out thought as opportunities We there us. any acquisition purchased while several been stock As buyback, years. buybacks, returns that better have for have for that

And last was quite an acquisition I standpoint, that slow. activity say would from year

business lot there's of off this I the certainly would I year, more year. XX% But activity. was saw think a that. discussions think say more on. lot last We about going There's a many their bankers

still through say the So the up the in from it picking the this of bit last up to a least level, activity like is quarter, market but first quite number the early coming year, I does course, is would of deals year. seem the deal It's at flow discussions, year.

don't we do to and balance on but them. the course, buy We tend fits, we companies you of if know, got debt capacity to And good strategic that. as move sheet opportunistic. we've the find every be will So we year,

Gerald, of I the I questions. questioner. think don't was there's know that his if last another

Operator

[Operator one Research. Our Liptak have We Seaport question. next Walter more from comes from Instructions] question

now Your is open. line

Walter Liptak

How doing? morning, guys. you Good are Hey.

Jeffrey Powell

Good. Walter, how are you?

Walter Liptak

Good. Thanks. – and a little – wonder the clarify. if bit a little business consensus below more the you. just quarter. where I was ask line I to second on had The you in number mix of could second about the quarter maybe wanted about bit the the guidance the EPS just

the you touched it maybe second little I bit, but what's like think for quarter? looking on the a mix

Michael McKenney

Walt. Yes. One second here,

that projecting XX% The the second be about capital will the we're quarter, mix. of

parts So consumables, XX%. and

I as the year, as and of as to going kind you through our we're that's – going we see, it's can We we're play move how had – – So have that's you'll out. to will side. then consumable be will capital think be at fourth, terms this quarter our and see and of heavier mix best in second, on third And the XX%. parts it much

Walter Liptak

And coming What of and customers your from the with then in I adds? another monetary about later of them year having cautiousness for question OSB some down. because seen Okay. We've looking funnel the is you kind future are kind project what discussions the capacity wonder of prices, the lumber, And OCC policy. maybe like.

Jeffrey Powell

know mills a years, Journal upgrades, was traditional lot in don't a bit. we've that couple The really the first this talking experienced, of to was for we I What take morning, didn't quarter, what about refurbishments. downtimes would do full their say, of the maintenance, and were out has in last running – of our it customers lot the but the up article if back bounced saw experienced little I So you housing a certainly how

utilization aren't XXX% And so because the way the of last years. of we things taking they're where the opportunity quarter, that first activity the saw amount were of now a around at they couple running in fair

in as We've announced would a seen but China on packaging only There in has mill U.S. I say, little the the been well. bit not some some downtime side. softness,

the back kind what the do. do So of Everybody and to to the is going bankers position is half discern trying like of rates to the interest think they're and year same to we're are are look I in. in going what what going

people So most I unclear, expecting do think a think I moderation. it's little although some are

years. of They've the a a money, last couple money of of in lot made lot

you year production, using And to to in we as money so still more economic and I that of the get their the overall slow And do operating they're on. down first a as from they're facilities, think benefited consumables, And activity is two-thirds could rates. But your of upgrade the to more know, there the become and when efficient, of that some. parts forecasted function goes got quarter. business you've to be that level being more

bit, our of little half So the if That's corresponding a operating the year. that's question. cautious why And being rates activity. slowdown the we're for slow really we'll somewhat back down a see in

Walter Liptak

a offset Okay. last inflation that perspective, could about us maybe know pricing Got it. handled and pretty chains what you on you I for and from then wonder if price/cost, But just have last any one you're about pricing supply And pricing the me, for just for well. year guys strategies. maybe thinking to I refresh my XXXX?

Jeffrey Powell

Well, our work first cost always to to very we and that so cost try lower we foremost, manage hard increases. those

to them, course, customers, Our those passing to us. don't having like we don't like our on vendors on to like of pass just cost us

always those you we're going to to see instances hard come our position to in in so year, lower marketplace. competitive And with customers. any by in maintain can't get required up to input across can just think you that we're to the sometimes I industries increases pass cases, This are those less our more all the But on board savings. – we where there can't our something anymore. ways So kind working of not the demand deliver. later. mentality price. cost need case products about people frank, a And could get the because first to to have concerned foremost, logistics were than worry they about substantially, you And the quite the be them that little going I'll more supply to year, chain whether and delivered is about down so be improved to I has where, bit. don't were last you're they That's

our competitive therefore, maintain of sure And we to there's contain to so think I And hard cost on position. scrutiny our pricing. working lot make we're a

Walter Liptak

much. very Thanks sense. Makes Okay.

Operator

[Operator Looks further no there's questions. like Instructions]

turn So to it to would time, closing for remarks. like I at Powell back Jeff this

Jeffrey Powell

Thank you, Gerald.

today, takeaways. Before you with the to leave wrapping call wanted just up I a few

XXXX an demand with quarter for activity, bookings led which and high to start backlog. project to First and parts our record was record good excellent

continuing employees deliver solutions with innovative around value and needs continue our that headwinds, meeting are there globe economic our technologies Although long-term focus customers' to to the on stakeholders. our

financial value Our opportunities. stakeholders ability again us and free health forward excellent, we is to our strong exceptional has positioned well capitalize flow growth cash our to to to on delivering And generate look in XXXX.

With that, I joining call next want and again to you for to thank today, updating quarter. you forward the look we

Operator

you does conference. the Thank in for today's program. participation your This conclude

now You may disconnect.

Kadant (KAI) 3 May 232023 Q1 Earnings call transcript