KADANT INC - FORM 8-K - EX-99.1 - KAI FORM 8-K EXHIBIT 99.1 07-30-2018

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EX-99.2 - KAI FORM 8-K EXHIBIT 99.2 07-30-2018 - KADANT INC	kaiform8kexhibit99207302.htm

Exhibit 99.1

KADANT INC.

One Technology Park Drive

Westford, MA 01886

NEWS

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 - 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.

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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

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		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						Increase		Acquisitions
		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

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									Increase
									(Decrease)
									Excluding
		Six Months Ended				Increase			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							Acquisitions
Bookings by Product Line		June 30, 2018		July 1, 2017		Increase (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 (Decrease)			Acquisitions
		June 30, 2018		July 1, 2017		Increase (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

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			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

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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	)

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(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.

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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

Media Contact Information:

Wes Martz, 269-278-1715

wes.martz@kadant.com

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