Earnings call transcript Q2 2023

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Operator

Good day and thank you for standing by. Welcome to the Kadant's Second Quarter 2023 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] 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. ahead. go Please

Michael McKenney

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

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

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

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

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

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

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

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

Jeffrey Powell

everyone, Hello, to thank for results of joining our XXXX. quarter our discuss and the morning us review outlook second this business second Mike. Thanks, for and half you

I'll record with to record for begin solid operational we by reviewing highlights adjusted capital second parts, the strong revenue, I'm our EBITDA for adjusted combined demand well-executed record another and leading quarter. EPS. with to quarter aftermarket business, pleased had report,

results value the our Our and I customers' at our operations want their generated. a performance. teams exceptional for around great job perform shown our to work environment, challenging for customers in needs by a done deliver high and level They outstanding the meeting to as them of financial globe continued have a thank and strong they

like contributed X. with execution Turning all in to Revenue records our with second growth financial compared quarter to of operating financial new quarter. the XX% along review contribution of million, Strong $XX adjusted and year up parts. achieved shipments next driven Slide performance. in increased second large to capital QX number by aftermarket XX% We I'd from strong a million $XXX last record across representing a to all a segments. solid revenue of and record XX% regions EBITDA to the

record adjusted Our $X.XX share. also EPS a was a at

the cases, in these pushed in time remains of scope some bookings but as project year. second line strengthen, quarter healthy, headwinds declined date. is the refined, Capital first this quarter economic to activity a been later of out has, from the As record set projects execution the

of be activity, second the similar half we I'll is bookings on XXXX new half strong months of provide order in review last operating I in the second While quarter activity our the reflected general second expect backlog more segments. that over year. our slowdown a to industrial few have and to details when past the in

with segments, to operating our Flow Control. three discuss like I'd Next, beginning

first see the off million quarter a As XXXX. on record coming can Revenue a in had with capital our Slide you to quarter second contribution X, solid increased Flow XX% Control in from projects. record a of segment $XX strong bookings

record revenue second adjusted aftermarket robust and Excellent parts XX.X%. Our margin performance remained and made XX% led an revenue. the operating of EBITDA in up quarter of total EBITDA to adjusted

start segment's in bookings the performance provided to Flow half good Control year. XXXX first of Our a the

remain well-positioned moderate in new production. are and second the half, to the on overall our projects the That in industrial opportunities. healthy, markets reflecting business expect to softening we capitalize We and of end said, fundamentals

XX Our X% revenue segments, more our the Industrial translation to the was operating XX.X%. to EBITDA grew basis same Industrial Processing Relative other quarter. the to boosted margin last impacted segment revenue And our was quarter segment currency compared in points foreign excluding our by FX, impact leverage in period Processing operating X%. second the when Strong of year. second up

The last Slide X, year-over-year comparison product challenging had for for as segment processing business second the period. see was in on can our the capital in prior line, while demand largely you to was year. As this wood bookings decline our demand year the we quarter is comparable same parts historic period in in

$XX equipment, strong performance our also revenue from leading was this bulk material billing In creating in contributions demand systems, parts in record quarter. achieved best Handling since handling our Material for with segment notable. of Aftermarket million high-performance to particularly our the Europe, segment, we revenue our

The adjusted billing segment EBITDA with combined segment to margin in in Material same boost helped compared XX.X% product in project by were the this period in the record line. Bookings down last a to execution our to volume businesses due solid Handling year, revenue largely activity XX% capital record-setting quarter. our our reduced

being the traction, the number are growing for and already and since in equipment We increase are bill by the demand. well-positioned to passage as to infrastructure gain of projects material projects advantage handling Inquiries the encouraged of planned we this of projects underway the infrastructure U.S. additional our infrastructure continue take

to to second the look the XXXX, second lead half As will year. for of challenges ongoing the last to of ahead us demand of believe that half be we our products economic similar

executing Our operations more making capture globe around positive initiatives and well teams strides on and their the to value. strategic create are

and have well-positioned robust strong Our ability to emerge to on to year backlog us that capitalize may opportunities continue flows generate cash the unfolds. as

record We year expect performance and again to XXXX year raising this full deliver guidance. financial revenue EPS our and are

over in the to the for turn and year. performance review With of financial Mike? for that, our Mike remainder I'll the guidance QX our outlook call a of

Michael McKenney

XXXX, segment, to points compared second in second second XXXX metrics increase especially parts Thank to principally quarter was the you, Jeff. of to XX financial offset part key higher quarter. XXXX. gross XX.X% XX% due lower in quarter margins quarter proportion year. margins up our some second of in compared basis XX.X% of Industrial start XX% in our I'll in were from projects, consumables achieved Processing Consolidated by in a with the of This revenue revenue, prior the which and on capital of represented the

and expenses related and to due compared to $XX increases in the quarter travel. XXXX costs trade increased second $X.X wage to in SG&A million shows $XX.X the second million of million incremental quarter to of XXXX

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

second Our to XXXX, higher in $X.XX quarter quarter increased principally of XX% revenues. to EPS in second the compared GAAP due the to $X.XX

XXXX, the the a record achieved $X.XX was second first EPS adjusted record $X.XX in quarter the exceeding prior of quarter of Our in XXXX.

XXXX exceeded gross and revenue quarter margins high second by of forecasted. better range end adjusted The due than guidance $X.XX EPS the our to higher

Handling orders of XXXX quarter second the exceeded in in additional to consumable revenue Industrial part consumables and and forecast backlog. their parts quarterly driven and our record Material had Both parts fulfilling We revenue our segments highest from Processing by due revenue.

$XX.X XX% second XXXX quarter Flow Material segments. strong million to record a and of performance compared in million to $XX in Handling increased Control EBITDA due our to Adjusted the

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

Operating million cash was XXXX. of $XX.X $XX.X second to Free second second flow XXXX. the to million of the in in the compared in to the compared $XX.X quarter million XXXX XX% cash XX% quarter up flow in of second to quarter increased XXXX million quarter $XX.X

of capital note We for had paid paid dividend in by I third million $X.X project expenditure a million related facility stock. $X.X is million, uses cash be China. over move XXXX. $X.X next capital second $X facility to down of million notable quarters. the has paid non-operating with that common approximately in quarter two of $X.X quarter, would also expected the to and million the our started Paid and The remaining $XX.X expenditures on in several expenditure the capital amount be debt million completed of the the to

for me quarter. turn to EPS Let results the next our

the in second share were per Our of GAAP to and $X.XX quarter adjusted XXXX quarter compared $X.XX the in XXXX. earnings second

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

our metrics liquidity Looking XX. at on Slide

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

calculated that lowest revolving of able debt is the This credit with since X.XX decreased agreement sequentially cash, had million. debt our XXXX. first at were X.XX is $XX quarter We million pay second from of in XX% down XXXX. quarter of credit our XXXX. the the million we've quarter second net end ratio, at decreased end a facility to $XX Our position the to XXXX to as debt, accordance or $XX in result, of less the debt And net leverage the

capacity of sheet a additional an current We $XXX to are position, of of $XXX take under credit million current our debt borrowing balance and borrowing well-positioned with and investment uncommitted facility, opportunities available our million advantage capacity. revolving net strong have

our for I'll XXXX. guidance update Now

EPS The to in to year estimated adjusted to $X.XX for our EPS million relocation $X.XX We from adjusted are to in $XXX we and to China. revenue $XXX facilities million increasing our our increasing the to costs guidance $X.XX million one of $X.XX. $X.XX associated excludes from are $XXX million, guidance year full guidance full $XXX with

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

will due in I'll in here as As the We be be of margins results in including XX% second be some of gross XX.X%. half there is always, the variability margins mix towards to that our heavy-weighted implies variability to remaining will to expected XXXX shipments. XXXX. order flow the capital gross below factors the slightly This and several XX% quarters more the caution capital anticipate be could for now of timing quarterly

we As approximately be a of now revenue, anticipate will percentage SG&A XX%.

approximately up approximately rate to will million for CapEx originally the for to were as to investments anticipate million, we XXXX some of able and be from anticipate million remaining will accelerate to we continue XXXX. $XX $XX XXXX $XX now planned be million our in tax $XX quarters spending We XX%,

XXXX, in China. facility related Our our spending includes to million $X for CapEx CapEx, project approximately

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

Operator

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

Your is line open.

Gary Prestopino

go and on down purposes, suppose. just They're Mike dramatically, for puts new -- the company, my maybe Jeff. Good I’d and bookings? some into just go a the as morning, analyst Hi. year-over-year takes just Could following -- could we somewhat the you of

was seeing terms economically of really So to is year pandemic? slowdown? just in catch-up of bookings Or that you're last a big year could function due just from a the a what --

Jeffrey Powell

Yes.

time that So think the it's million at $XXX really combination I of for was a things. record a two quite was strong. us, Last year,

quarter $XXX year course, And a and record. the million, of this first of -- new was so

in quarter. at -- first we of bookings, in at look would of some So come maybe look kind quarter our when moved what we second we thought the the

we $XXX quarter. the the So very had million strong in first

I But question there industrial there a bit there's is -- think of slowdown. an little is no

of economy, the side some. the what service is overall and look doing is the side slowing industrial well economy we're the at that If you seeing is down quite

at the little of -- think it last comparing slowdown bit of little industrial such in $XXX a quarter is record a at million is it year, time having to little a a with production. phenomenal the I a So bit first combined

to tends that be It equipment around. shifts our capital

parts Our pretty actually. flat pretty are stable, and they're

of the timing the next and bit slowdown. So it's from capital of quarter really one a a little to

approach, a Fed going think Interest gone I people a the is taking little borrowing trying have cost just wait-and-see what see to increases the which of more course, are rates of up, of to do. money.

those I it's factors. think so, all And combination a of

Gary Prestopino

Okay. you. Thank

Operator

One our question. moment next for

comes question De Lawrence next from the Blair. of Maria Our William line with

Your open. line is

Lawrence De Maria

Jeff and morning, good and Mike. Thanks

gives your the to just what in half That's have the an first on and sorry, part. Do idea follow-up give good visibility much you pipeline of quarter? a the and as you confidence Just the second -- were can question, And orders conversations those compared you how through worse earnings will they expectations orders said that? on come the were? that at levels bookings you the the

Michael McKenney

Larry. That was forecast orders in the forecast. on quarter. Yes, for the The came

So, as mentioned, Again, extraordinarily Jeff anticipated. That we noted. is bookings strong performance what as an quarter we had first no disappointment there. we

were it's $XXX at extraordinarily you're at So which year first million. looking -- of quarter and second bookings, also quarter last strong

a order us, quarter also indicated was strong on both front. it the especially phenomenally capital in We periods for

Lawrence De Maria

into Okay. you half then gives that that And confidence? pipeline the second the

Michael McKenney

Yes.

as Jeff is our stable. think parts business I and said, consumables very

what that's forecast. have capital little a seeing bookings and are some on front, folks softness the We --

Lawrence De Maria

Is then thoughts, margin And looking and kind having that we that for can based would XX:XX it, term if if high-level frame are start the reacceleration [IIJA] means how willing Or and year? of is orders are to start some do we (ph) and and growing sort actually look to half us the where next then it about now next on a we're to year earnings of orders about think second are trough this because things? based and from at, now think start industrial kind we -- of -- again do long low year be other soft you the off Any can positive of takes even to really on kind you -- puts on Okay. it price? helpful. in orders through starting of we're into high-level and Give what XXXX now.

Jeffrey Powell

Yes.

when particular, Of you what's is lot the to had inflation. control you challenging starting Fed sit second optimistic. going encouraged get have are to to know, just The But course, somewhat the are improved particularly to as I a our a fact see product wood forest the and we're the -- here a earnings in builders -- and the that by quarter, of of think and closing earnings next try -- always still the it's demand. group, released companies little strong it's exactly because to on campaign year know happen

back think little year. I hoping think next I come bit sector, that they're might a that So

the Handling bulk to this Material to been for that ramping infrastructure spent. takes with that's handling start It that. now particular, Our in side, is the spending while equipment really be a side, starting bill government just up

it the really customers flow, money they're -- get is our market of in really that that their starts ahead and when it So but make kind some so hasn't prepared to business, to of investments just hit try yet.

even be not. some might second there be as the there us people some will the back the progresses. start cuts be maybe the predict I up. I be we the that predict. I second say and even that half still of are half things rate the think half will it's might some will or experts year. slow bit it's things the that What will year in There whether have in idea -- But believe would early first year to saying in pick improvements case the expect But is, be of -- they a that for to no

year be year, stable year, last -- way, expect start I of of and would be that the the get first action progresses with out this then think probably going we where think rest we customers flat and kind the investments the of it's to of to see interest our visibility out a kind rates to might made be. top on Fed's start little and at the exactly year what more that as

central are inflation. China, But about trying in growing. it's They're -- the these worried banks. would uncertain say I I not do have spur because these bankers disinflation because growth you more actually to mean, are times they're

quarter, X.XXX] just So up is they're or maybe a essentially this to course, percent. Europe, demand. flat of trying of increase (ph) [X.XXX

fair things now a variability impact of bankers and what that to there we year. generally economies. right as think, amount goes are speaking, world next the around improve But different should year doing So the their the on

Lawrence De Maria

Okay. to ever That sheet. difficult point, considered getting calls Or share to Obviously, it's some we -- question, talked things about, align? waiting M&A? just the do center a balance for Last closer makes now. sense, at are repurchases? it And where At you actionable good and I pipeline in is M&A make appreciate. point capacity and we're those obviously, to you is the still right

Michael McKenney

available say, we yes, have share the authorization to I always outstanding. utilize. repurchase, We million So $XX an a on would Larry, authorization have

us I M&A lot there is on a that now, So We're for mix come is capital right would seeing activity in also a the always the deployment. companies for of of say, currently And lot front. out.

us play certainly always for that also. is So in

Jeffrey Powell

last deal the flow, say year. talk -- corporate that. has that would group weak a have I I development nicely but it this deal bounced on flow our back was about say we year, Yes. we surprisingly would focuses

a being in of interested out lot of there companies are So there's that acquired. lot activity, a of a discussions, lot

busy So for to our group strategic now good is to try that value. find us quite at right companies looking proper fits the are

Lawrence De Maria

good much Thank luck. Okay. you very and

Jeffrey Powell

you. Thank

Operator

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

Your open. line is

Aditya Madan

Hey, couple for good today. a morning, And questions for of everyone. filling quick And just Kurt Yinger me. in

color should backlog? else So does it? the characterize on or about And the When would could you extend cancellation us into give more we how it anything rate out you like know it?

Michael McKenney

a Well, our ended quarter -- of we Adi, million. with $XXX the back backlog

as the million third And XXXX, by backlog $XXX our you be would a first highest we first of a quarter higher $XXX high that be a us. had record ended know, as only just we of a mid-XXXX, It benchmark, of quarter So the very backlog, backlog second for with million. XXXX. quarter the would and in then backlog eclipsed

very backlog. have So a we strong

And the question, -- chunk you happen cancellations, a it out XX% the for occasion. breaks to of in on us. We capital. rare I good of backlog It XX-XX, think saying is is about But of backlog very regards your were that's does kind capital.

far capital when So and off backlog majority, of that. commit to away, tend to base, our And project, back is customer capital. they in they a not

does on much. So not cancellations, happen occasion, but it

Aditya Madan

it. talked you Got then about your And clients. wood it. Yes, Got sense. makes that

Also, talk so that expect it to that comes year? quarter, you forward, for going broadly? be when did And the over more full how it mill how if do you taking maybe could downtime about And trend? to the

Jeffrey Powell

Yes.

quite second up quarter, first firmed side up. operating be was the strong, tends mills in an to quite and indicator bit it our was The the down, parts surprisingly quarter. Prices business were picked which but on And slow the rates. of wood a demand

on So things be improving. the to side, say I seem would wood

think a low-interest-rate of is market. want kind new rates. to much into loans. the there's very X%. inventory mortgage everybody of a adjust no on to But Now coming it's out used to interest the don't trade for very X% rates. Everybody's They trying locked these And I function almost

so all of home the construction And are new almost of that. purchases now because

so demand. course, our that And of customers' lot drives a of

is on as you place, which going of quite to in at the XX also, housing the XX when So I major are to far remodeling homes And the too. year, rate, which the look millennials, buying. prime at fundamentals think then of underlying XXXX peak that's takes if you average age look a around sector, as house at high demand the

And to Fed fundamentals for the there's next this think underlying been several try rates with to the actually crush inflation. the So good wood momentary raising for years. I were challenge quite

And the going want But whether next as down, get very to year, going come see middle aren't back think their much They there's to strongly come of the forever. live you're to basement end parent's out. rates because it's just wood millennials demand. these next start or I to in so of sector year underlying

of now years a demand, and And underbuilt more. so just for or we've there's lot XX

down will So see to and I soon absolutely we some. think now, and you're start expect rates and accelerate will top continue as improvements to starting that some as out come

Aditya Madan

sticking for And you your then dividend M&A? from it fair dividend capital Thank leaning say towards the and to back the comments, relative you're to more to just is with Great. that. allocation like going increasing

Michael McKenney

I be true. That wouldn't would no. say,

try and -- We a dividend strive have we every increase to always promise, we is to goal although year. can't our it to

continuing So M&A be that the say, not what do likelihood, would But on we'll is really, we dividend. in impacting all I to all. at choose with

Aditya Madan

Thank you for so quarter. it. next Got and good the much luck Okay.

Michael McKenney

you. Thank

Jeffrey Powell

Thank you.

Operator

it remarks. time, question-and-answer back to would for closing like to Jeff At [Operator Instructions] session. the turn That this Powell I concludes

Jeffrey Powell

lot Thank just credit takeaways. a you the Despite was for the to And of slowing the you, Abigail. results. our quarter, want operations producing today, before teams second I wrapping deserve with leave economies, record-setting a another these call quarter and few up

and the strong during expect the strengthen, stable are second market to our pursuing growth new have actively of year. We sheet finally, opportunities. we positions And and demand balance continues half

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

Operator

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

now disconnect. may You

Kadant (KAI) 2 Aug 232023 Q2 Earnings call transcript