Kadant Reports 2018 Second Quarter Results

Reports Bookings of $176M and Record Revenue of $155M
Lowers EPS Guidance due to FX and Tariffs

WESTFORD, Mass., July 30, 2018 (GLOBE NEWSWIRE) -- Kadant Inc. (NYSE: KAI) reported its financial results for the second quarter ended June 30, 2018.

Second Quarter 2018 Highlights

• Revenue increased 41% to a record $155 million
• GAAP diluted EPS increased 50% to $1.08
• Adjusted diluted EPS increased 3% to $1.07
• Net income increased 53% to $12 million
• Adjusted EBITDA increased 37% to $26 million and represented 17% of revenue
• Gross margin was 44.0%
• Bookings increased 47% to $176 million
• Backlog increased 8% sequentially to a record $194 million
• Cash flow from operations increased 20% to $28 million

Note: Adjusted diluted EPS, adjusted EBITDA, and adjusted EBITDA margin are non-GAAP financial measures that exclude certain items as detailed later in this press release under the heading “Use of Non-GAAP Financial Measures.”

Management Commentary
“The strong start we had to 2018 continued into the second quarter with record revenue and solid EPS performance,” said Jonathan Painter, president and chief executive officer. “The growth in revenue was broad-based across all our product lines and especially strong in North America. Our near-record bookings of $176 million in the second quarter benefited from the robust economy in North America, capacity build-outs in Asia, and our acquisitions. Our book-to-bill ratio for the first six months of 2018 was 1.18, driven by strong growth in bookings in our Stock-Preparation and Fluid-Handling product lines.”

Second Quarter 2018 Results
Revenue increased 41 percent to a record $154.9 million compared to the second quarter of 2017, including $28.9 million from acquisitions and a $4.6 million increase from the favorable effect of foreign currency translation. Excluding the impact of acquisitions and foreign currency translation, revenue increased 10 percent compared to the second quarter of 2017. Gross margin was 44.0 percent. Net income increased 53 percent to $12.3 million, or $1.08 per diluted share, compared to $8.1 million, or $0.72 per diluted share, in the second quarter of 2017. Adjusted diluted EPS increased three percent to $1.07 compared to $1.04 in the second quarter of 2017. Adjusted diluted EPS in the second quarter of 2018 excludes a $0.05 discrete tax benefit and $0.04 of restructuring costs. Adjusted diluted EPS in the second quarter of 2017 excludes $0.32 of acquisition costs.

Adjusted EBITDA increased 37 percent to $26.1 million compared to $19.0 million in the second quarter of 2017. Adjusted EBITDA excludes $0.6 million of restructuring costs in the second quarter of 2018 and $4.1 million of acquisition costs in the second quarter of 2017. Cash flows from operations increased 20 percent to $28.4 million compared to $23.7 million in the second quarter of 2017. Bookings increased 47 percent to $176.4 million compared to $120.3 million in the second quarter of 2017, including $37.2 million from acquisitions and a $5.4 million increase from the favorable effect of foreign currency translation. Excluding the impact of acquisitions and foreign currency translation, bookings increased 11 percent compared to the second quarter of 2017.

Summary and Outlook
“The strong start to the first half of 2018 has positioned us for another record year of financial performance,” Mr. Painter continued. “However, we expect headwinds from the stronger U.S. dollar and recently implemented tariffs to negatively impact our reported financial results. Since we announced our first quarter results, our full year diluted EPS guidance has been negatively impacted by an unfavorable foreign currency translation effect of $0.19 per diluted share and additional costs of $0.09 per diluted share related to the trade tariffs and, as a result, we are lowering our diluted EPS guidance for 2018. Without these negative factors, we would have raised our full year EPS guidance.

For 2018, we are raising our full year revenue guidance to $630 to $638 million, from our previous guidance of $625 to $635 million. However, we now expect to achieve GAAP diluted EPS of $4.89 to $4.99 in 2018, lowered from our previous guidance of $4.98 to $5.08. The revised 2018 guidance includes pre-tax restructuring costs of $1.5 million, or $0.10 per diluted share, pre-tax amortization expense associated with acquired backlog of $0.3 million, or $0.02 per diluted share, and a discrete tax benefit of $0.1 million, or $0.01 per diluted share. Excluding these expenses, we expect adjusted diluted EPS of $5.00 to $5.10 for 2018, lowered from our previous guidance of $5.15 to $5.25. For the third quarter of 2018, we expect GAAP diluted EPS of $1.35 to $1.40 on revenue of $162 to $166 million. The third quarter of 2018 guidance includes pre-tax restructuring costs of $0.1 million, or $0.01 per diluted share.”

Conference Call
Kadant will hold a webcast with a slide presentation for investors on Tuesday, July 31, 2018, at 11:00 a.m. eastern time to discuss its second quarter performance, as well as future expectations. To access the webcast, including the slideshow and accompanying audio, go to www.kadant.com and click on “Investors”. To listen to the webcast via teleconference, call 888-326-8410 within the U.S., or +1-704-385-4884 outside the U.S. and reference participant passcode 9068779. Prior to the call, our earnings release and the slides used in the webcast presentation will be filed with the Securities and Exchange Commission and will be available at www.sec.gov. An archive of the webcast presentation will be available on our website until August 31, 2018.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the second quarter results on its website at www.kadant.com under the “Investors” section.

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

We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our core business, operating results, or future outlook. We believe that the inclusion of such measures helps investors gain an understanding of our underlying operating performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making and for compensation purposes. We also believe this information is responsive to investors' requests and gives them an additional measure of our performance.
           
The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for the results of operations prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.

Revenue included $28.9 million and $63.6 million from acquisitions in the second quarter and first six months of 2018, respectively. Revenue also included $4.6 million and $11.4 million of favorable foreign currency translation effect in the second quarter and first six months of 2018, respectively. We present increases or decreases in revenue excluding the effect of acquisitions and foreign currency translation to provide investors insight into underlying revenue trends.
                       
Our non-GAAP financial measures exclude restructuring costs, acquisition costs, amortization expense related to acquired backlog and a discrete tax benefit. These items are excluded as they are not indicative of our core operating results and are not comparable to other periods, which have differing levels of incremental costs or income or none at all.

Second Quarter

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

• Pre-tax restructuring costs of $0.6 million in 2018.
• Pre-tax acquisition costs of $4.1 million in 2017.

Adjusted net income and adjusted diluted EPS exclude:

• After-tax restructuring costs of $0.4 million ($0.6 million net of tax of $0.2 million) in 2018.
• A discrete tax benefit of $0.6 million related to the repatriation of foreign earnings in 2018.
• After-tax acquisition costs of $3.6 million ($4.1 million net of tax of $0.5 million) in 2017.

First Six Months

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

• Pre-tax restructuring costs of $1.3 million in 2018.
• Pre-tax expense related to acquired backlog of $0.3 million in 2018.
• Pre-tax acquisition costs of $4.4 million in 2017.

Adjusted net income and adjusted diluted EPS exclude:

• After-tax restructuring costs of $1.0 million ($1.3 million net of tax of $0.3 million) in 2018.
• After-tax expense related to acquired backlog of $0.2 million ($0.3 million net of tax of $0.1 million) in 2018.
• A discrete tax benefit of $0.1 million in 2018.
• After-tax acquisition costs of $3.8 million ($4.4 million net of tax of $0.6 million) in 2017.

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

	Financial Highlights (unaudited)
	(In thousands, except per share amounts and percentages)
				Three Months Ended								Six Months Ended
	Consolidated Statement of Income (a)			June 30, 2018				July 1, 2017				June 30, 2018				July 1, 2017
	Revenues			$	154,913			$	110,242			$	304,106			$	213,099
	Costs and Operating Expenses:
		Cost of revenues			86,749				57,390				169,863				111,230
		Selling, general, and administrative expenses			45,132				38,970				90,908				73,590
		Research and development expenses			2,728				2,222				5,597				4,369
		Restructuring costs			569				-				1,339				-
					135,178				98,582				267,707				189,189
	Operating Income				19,735				11,660				36,399				23,910
	Interest Income				122				102				305				206
	Interest Expense				(1,850	)			(392	)			(3,582	)			(740	)
	Other Expense, Net				(245	)			(217	)			(491	)			(421	)
	Income Before Provision for Income Taxes				17,762				11,153				32,631				22,955
	Provision for Income Taxes				5,271				2,955				9,132				5,690
	Net Income				12,491				8,198				23,499				17,265
	Net Income Attributable to Noncontrolling Interest				(142	)			(102	)			(292	)			(218	)
	Net Income Attributable to Kadant			$	12,349			$	8,096			$	23,207			$	17,047
	Earnings per Share Attributable to Kadant:
			Basic	$	1.11			$	0.74			$	2.10			$	1.55
			Diluted	$	1.08			$	0.72			$	2.04			$	1.52
	Weighted Average Shares:
			Basic		11,092				11,001				11,067				10,976
			Diluted		11,400				11,296				11,371				11,250
				Three Months Ended								Three Months Ended
	Adjusted Net Income and Adjusted Diluted EPS (b)			June 30, 2018				June 30, 2018				July 1, 2017				July 1, 2017
	Net Income and Diluted EPS Attributable to Kadant, as Reported			$	12,349			$	1.08			$	8,096			$	0.72
	Adjustments for the Following:
		Restructuring Costs, Net of Tax			432				0.04				-				-
		Acquisition Costs, Net of Tax			-				-				3,627				0.32
		Discrete Tax Items			(574	)			(0.05	)			-				-
	Adjusted Net Income and Adjusted Diluted EPS			$	12,207			$	1.07			$	11,723			$	1.04
				Six Months Ended								Six Months Ended
				June 30, 2018				June 30, 2018				July 1, 2017				July 1, 2017
	Net Income and Diluted EPS Attributable to Kadant, as Reported			$	23,207			$	2.04			$	17,047			$	1.52
	Adjustments for the Following:
		Restructuring Costs, Net of Tax			1,021				0.09				-				-
		Acquisition Costs, Net of Tax			-				-				3,833				0.34
		Amortization of Acquired Backlog, Net of Tax			189				0.02				-				-
		Discrete Tax Items			(130	)			(0.01	)			-				-
	Adjusted Net Income and Adjusted Diluted EPS			$	24,287			$	2.14			$	20,880			$	1.86
																Increase
																(Decrease)
																Excluding
				Three Months Ended												Acquisitions
	Revenues by Product Line			June 30, 2018				July 1, 2017				Increase				and FX (b,c)
	Stock-Preparation			$	56,376			$	46,178			$	10,198			$	7,255
	Doctoring, Cleaning, & Filtration				29,543				27,033				2,510				1,949
	Fluid-Handling				32,531				22,520				10,011				3,823
		Papermaking Systems			118,450				95,731				22,719				13,027
		Wood Processing Systems			33,152				11,393				21,759				(2,079	)
		Fiber-Based Products			3,311				3,118				193				193
				$	154,913			$	110,242			$	44,671			$	11,141
																Increase
																(Decrease)
																Excluding
				Six Months Ended												Acquisitions
	Revenues by Product Line			June 30, 2018				July 1, 2017				Increase				and FX (b,c)
	Stock-Preparation			$	101,859			$	87,331			$	14,528			$	8,129
	Doctoring, Cleaning, & Filtration				56,765				52,383				4,382				2,620
	Fluid-Handling				65,417				44,567				20,850				7,163
		Papermaking Systems			224,041				184,281				39,760				17,912
		Wood Processing Systems			72,293				21,336				50,957				(2,218	)
		Fiber-Based Products			7,772				7,482				290				290
				$	304,106			$	213,099			$	91,007			$	15,984
																Increase
																(Decrease)
																Excluding
				Three Months Ended												Acquisitions
	Revenues by Geography (d)			June 30, 2018				July 1, 2017				Increase				and FX (b,c)
	North America			$	75,375			$	51,557			$	23,818			$	2,147
	Europe				45,032				33,952				11,080				3,342
	Asia				25,502				16,545				8,957				6,898
	Rest of World				9,004				8,188				816				(1,246	)
				$	154,913			$	110,242			$	44,671			$	11,141
																Increase
																(Decrease)
																Excluding
				Six Months Ended												Acquisitions
				June 30, 2018				July 1, 2017				Increase				and FX (b,c)
	North America			$	152,991			$	101,723			$	51,268			$	4,264
	Europe				86,525				66,703				19,822				1,162
	Asia				45,650				28,443				17,207				13,290
	Rest of World				18,940				16,230				2,710				(2,732	)
				$	304,106			$	213,099			$	91,007			$	15,984
																Increase
																(Decrease)
																Excluding
				Three Months Ended								Increase				Acquisitions
	Bookings by Product Line			June 30, 2018				July 1, 2017				(Decrease)				and FX (c)
	Stock-Preparation			$	61,217			$	50,166			$	11,051			$	7,641
	Doctoring, Cleaning, & Filtration				30,484				32,145				(1,661	)			(2,230	)
	Fluid-Handling				37,922				25,207				12,715				6,201
		Papermaking Systems			129,623				107,518				22,105				11,612
		Wood Processing Systems			44,404				10,543				33,861				1,769
		Fiber-Based Products			2,393				2,194				199				199
				$	176,420			$	120,255			$	56,165			$	13,580
																Increase
																(Decrease)
																Excluding
				Six Months Ended								Increase				Acquisitions
				June 30, 2018				July 1, 2017				(Decrease)				and FX (c)
	Stock-Preparation			$	117,732			$	98,488			$	19,244			$	11,679
	Doctoring, Cleaning, & Filtration				58,815				58,698				117				(1,747	)
	Fluid-Handling				77,692				51,326				26,366				10,849
		Papermaking Systems			254,239				208,512				45,727				20,781
		Wood Processing Systems			97,133				23,624				73,509				7,467
		Fiber-Based Products			6,968				6,969				(1	)			(1	)
				$	358,340			$	239,105			$	119,235			$	28,247
				Three Months Ended								Six Months Ended
	Business Segment Information (a)			June 30, 2018				July 1, 2017				June 30, 2018				July 1, 2017
	Gross Margin:
			Papermaking Systems		45.3	%			48.2	%			45.4	%			48.0	%
			Wood Processing Systems		38.9	%			44.9	%			39.2	%			43.6	%
			Fiber-Based Products		50.0	%			52.3	%			53.5	%			53.9	%
					44.0	%			47.9	%			44.1	%			47.8	%
	Operating Income:
			Papermaking Systems	$	20,899			$	17,264			$	35,483			$	31,563
			Wood Processing Systems		5,313				(411	)			12,676				2,093
			Corporate and Other		(6,477	)			(5,193	)			(11,760	)			(9,746	)
				$	19,735			$	11,660			$	36,399			$	23,910
	Adjusted Operating Income (b, e):
			Papermaking Systems	$	21,468			$	17,579			$	36,822			$	31,878
			Wood Processing Systems		5,313				3,372				12,928				6,195
			Corporate and Other		(6,477	)			(5,193	)			(11,760	)			(9,746	)
				$	20,304			$	15,758			$	37,990			$	28,327
	Capital Expenditures:
			Papermaking Systems	$	3,840			$	1,293			$	8,489			$	2,777
			Wood Processing Systems		1,184				105				1,560				291
			Corporate and Other		36				315				162				367
				$	5,060			$	1,713			$	10,211			$	3,435
				Three Months Ended								Six Months Ended
	Cash Flow and Other Data			June 30, 2018				July 1, 2017				June 30, 2018				July 1, 2017
	Cash Provided by Operations			$	28,355			$	23,693			$	35,571			$	25,376
	Depreciation and Amortization Expense				5,844				3,275				11,943				6,531
	Balance Sheet Data											June 30, 2018				Dec. 30, 2017
	Assets
	Cash, Cash Equivalents, and Restricted Cash											$	61,152			$	76,846
	Accounts Receivable, net												88,223				89,624
	Inventories												96,261				84,933
	Unbilled Revenues												2,183				2,374
	Property, Plant and Equipment, net												79,887				79,723
	Intangible Assets												122,242				133,036
	Goodwill												261,488				268,001
	Other Assets												29,750				26,557
												$	741,186			$	761,094
	Liabilities and Stockholders' Equity
	Accounts Payable											$	35,069			$	35,461
	Long-term Debt												202,205				237,011
	Capital Lease Obligations												4,691				5,069
	Other Liabilities												157,536				151,049
		Total Liabilities											399,501				428,590
		Stockholders' Equity											341,685				332,504
												$	741,186			$	761,094
	Adjusted Operating Income and Adjusted EBITDA			Three Months Ended								Six Months Ended
	Reconciliation (a, b)			June 30, 2018				July 1, 2017				June 30, 2018				July 1, 2017
	Consolidated
			Net Income Attributable to Kadant	$	12,349			$	8,096			$	23,207			$	17,047
			Net Income Attributable to Noncontrolling Interest		142				102				292				218
			Provision for Income Taxes		5,271				2,955				9,132				5,690
			Interest Expense, Net		1,728				290				3,277				534
			Other Expense, Net		245				217				491				421
			Operating Income		19,735				11,660				36,399				23,910
			Restructuring Costs		569				-				1,339				-
			Acquisition Costs		-				4,098				-				4,417
			Acquired Backlog Amortization (f)		-				-				252				-
			Adjusted Operating Income (b)		20,304				15,758				37,990				28,327
			Depreciation and Amortization		5,844				3,275				11,691				6,531
			Adjusted EBITDA (b)	$	26,148			$	19,033			$	49,681			$	34,858
			Adjusted EBITDA Margin (b, g)		16.9	%			17.3	%			16.3	%			16.4	%
	Papermaking Systems
			Operating Income	$	20,899			$	17,264			$	35,483			$	31,563
			Acquisition Costs		-				315				-				315
			Restructuring costs		569				-				1,339				-
			Adjusted Operating Income (b)		21,468				17,579				36,822				31,878
			Depreciation and Amortization		3,139				2,618				6,275				5,211
			Adjusted EBITDA (b)	$	24,607			$	20,197			$	43,097			$	37,089
	Wood Processing Systems
			Operating Income (Loss)	$	5,313			$	(411	)		$	12,676			$	2,093
			Acquisition Costs		-				3,783				-				4,102
			Acquired Backlog Amortization (f)		-				-				252				-
			Adjusted Operating Income (b)		5,313				3,372				12,928				6,195
			Depreciation and Amortization		2,536				506				5,080				1,020
			Adjusted EBITDA (b)	$	7,849			$	3,878			$	18,008			$	7,215
	Corporate and Other
			Operating Loss	$	(6,477	)		$	(5,193	)		$	(11,760	)		$	(9,746	)
			Depreciation and Amortization		169				151				336				300
			EBITDA	$	(6,308	)		$	(5,042	)		$	(11,424	)		$	(9,446	)
	(a)		Prior period amounts have been restated to conform to the current period presentation as a result of the adoption of the Financial Accounting Standards Board's Accounting Standards Update No. 2017-07.
	(b)		Represents a non-GAAP financial measure.
	(c)		Represents the increase (decrease) resulting from the exclusion of acquisitions and from the conversion of current period amounts reported in local currencies into U.S. dollars at the exchange rate of the prior period compared to the U.S. dollar amount reported in the prior period.
	(d)		Geographic revenues are attributed to regions based on customer location.
	(e)		See reconciliation to the most directly comparable GAAP financial measure under "Adjusted Operating Income and Adjusted EBITDA Reconciliation."
	(f)		Represents intangible amortization expense associated with acquired backlog.
	(g)		Calculated as adjusted EBITDA divided by revenue in each period.

About Kadant
Kadant Inc. is a global supplier of high-value, critical components and engineered systems used in process industries worldwide. The Company’s products, technologies, and services play an integral role in enhancing process efficiency, optimizing energy utilization, and maximizing productivity in resource-intensive industries. Kadant is based in Westford, Massachusetts, with 2,500 employees in 20 countries worldwide. For more information, visit www.kadant.com.

Safe Harbor Statement
The following constitutes a “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements that involve a number of risks and uncertainties, including forward-looking statements about our future financial and operating performance, demand for our products, and economic and industry outlook. These forward-looking statements represent Kadant’s expectations as of the date of this press release. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements as a result of various important factors, including those set forth under the heading "Risk Factors" in Kadant’s annual report on Form 10-K for the year ended December 30, 2017 and subsequent filings with the Securities and Exchange Commission. These include risks and uncertainties relating to adverse changes in global and local economic conditions; the variability and difficulty in accurately predicting revenues from large capital equipment and systems projects; our customers’ ability to obtain financing for capital equipment projects; the variability and uncertainties in sales of capital equipment in China; international sales and operations; the oriented strand board market and levels of residential construction activity; development and use of digital media; currency fluctuations; price increases or shortages of raw materials; dependence on certain suppliers; our acquisition strategy; failure of our information systems or breaches of data security; changes in government regulations and policies and compliance with laws; our internal growth strategy; competition; soundness of suppliers and customers; changes in our tax provision or exposure to additional tax liabilities; our ability to successfully manage our manufacturing operations; disruption in production; future restructurings; economic conditions and regulatory changes caused by the United Kingdom’s likely exit from the European Union; our debt obligations; restrictions in our credit agreement; loss of key personnel; protection of patents and proprietary rights; fluctuations in our share price; soundness of financial institutions; environmental laws and regulations; anti-takeover provisions; and reliance on third-party research.

Contacts
Investor Contact Information:
Michael McKenney, 978-776-2000
mike.mckenney@kadant.com 
or
Media Contact Information:
Wes Martz, 269-278-1715
wes.martz@kadant.com