KADANT INC - FORM 8-K - EX-99.1 - KAI FORM 8-K EXHIBIT 99.1 10-29-2018

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EX-99.2 - KAI FORM 8-K EXHIBIT 99.2 10-29-2018 - KADANT INC	kaiform8kexhibit99210292.htm
8-K - KAI FORM 8-K 10-29-2018 - KADANT INC	kaiform8k10292018er.htm

Exhibit 99.1

KADANT INC.

One Technology Park Drive

Westford, MA 01886

NEWS

Kadant Reports 2018 Third Quarter Results

Reports Record Revenue and Diluted EPS

WESTFORD, Mass. - October 29, 2018 - Kadant Inc. (NYSE: KAI) reported its financial results for the third quarter ended September 29, 2018.

Third Quarter 2018 Highlights


•	Revenue increased 8% to a record $166 million


•	GAAP diluted EPS increased 40% to a record $1.64


•	Adjusted diluted EPS increased 3% to a record $1.53


•	Net income increased 41% to $19 million


•	Adjusted EBITDA increased 11% to a record $34 million and represented 20% of revenue


•	Gross margin was 44.1%


•	Bookings increased 22% to $165 million


•	Backlog was $192 million


•	Cash flow from operations was $17 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 record-setting pace we set in the first half of 2018 continued into the third quarter,” said Jonathan Painter, president and chief executive officer. “Strong internal growth and excellent execution led to record revenue and diluted EPS. Capacity build-outs at mills in Asia and strong demand in North America, particularly for our Fluid-Handling and Stock-Preparation product lines, led this growth. Our bookings increased 22 percent due almost entirely to internal growth, contributing to our near-record backlog of $192 million at the end of the third quarter. Our operating units executed extremely well this quarter resulting in record adjusted EBITDA, representing 20 percent of revenue.”

Third Quarter 2018 Results

Revenue increased eight percent to a record $165.7 million compared to the third quarter of 2017, including $0.9 million from an acquisition and a $3.8 million decrease from the unfavorable effect of foreign currency translation. Excluding the impact of the acquisition and foreign currency translation, revenue increased 10 percent compared to the third quarter of 2017. Gross margin was 44.1 percent. Net income increased 41 percent to $18.8 million, or $1.64 per diluted share, compared to $13.3 million, or $1.17 per diluted share, in the third quarter of 2017. Adjusted diluted EPS increased three percent to $1.53 compared to $1.49 in the third quarter of 2017. Adjusted diluted EPS excludes a $0.14 discrete tax benefit and $0.03 of restructuring costs in the third quarter of 2018 and $0.32 of acquisition-related costs in the third quarter of 2017.

Adjusted EBITDA increased 11 percent to a record $33.5 million compared to $30.1 million in the third quarter of 2017. Adjusted EBITDA excludes $0.4 million of restructuring costs in the third quarter of 2018 and $4.9 million of acquisition-related costs in the third quarter of 2017. Cash flows from operations increased 144 percent to $17.0 million compared to $7.0 million in the third quarter of 2017. Bookings increased 22 percent to $165.0 million compared to $135.5 million in the third quarter of 2017, including $1.2 million from an acquisition and a $3.8 million decrease from the unfavorable effect of foreign currency translation. Excluding the impact of the acquisition and foreign currency translation, bookings increased 24 percent compared to the third quarter of 2017.

Summary and Outlook

“Our strong performance in the first three quarters of 2018 has positioned us for another record year of financial performance,” Mr. Painter continued. “However, the timing of capital bookings and shipments as well as some modest currency headwinds have caused us to revise our previous guidance.

“For 2018, we now expect to report full year revenue of $628 to $632 million, revised from our previous guidance of $630 to $638 million. We expect to achieve GAAP diluted EPS of $4.93 to $4.98 in 2018, revised from our previous guidance of $4.89 to $4.99. The revised 2018 guidance includes a pre-tax curtailment loss of $1.4 million, or $0.09 per diluted share, related to the termination of defined benefit plans at one of our U.S. operations. The revised 2018 guidance also includes pre-tax restructuring costs of $1.7 million, or $0.11 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 $1.7 million, or $0.15 per diluted share. Excluding these items, we expect adjusted diluted EPS of $5.00 to $5.05 for 2018, revised from our previous guidance of $5.00 to $5.10.

“For the fourth quarter of 2018, we expect GAAP diluted EPS of $1.24 to $1.29 on revenue of $158 to $162 million. The fourth quarter guidance includes the pre-tax curtailment loss of $1.4 million, or $0.09 per diluted share. Excluding the curtailment loss, we expect adjusted diluted EPS of $1.33 to $1.38 in the fourth quarter of 2018.”

Conference Call

Kadant will hold a webcast with a slide presentation for investors on Tuesday, October 30, 2018, at 11:00 a.m. eastern time to discuss its third 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 8097465. 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 November 30, 2018.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the third 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 $0.9 million and $64.6 million from acquisitions in the third quarter and first nine months of 2018, respectively. Revenue also included $3.8 million of unfavorable and $7.6 million of favorable foreign currency translation effect in the third quarter and first nine 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 profit in inventory 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.

Third Quarter

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


•	Pre-tax restructuring costs of $0.4 million in 2018.


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


•	Pre-tax expense related to acquired profit in inventory and backlog of $4.3 million in 2017.

Adjusted net income and adjusted diluted EPS exclude:


•	After-tax restructuring costs of $0.3 million ($0.4 million net of tax of $0.1 million) in 2018.


•	A discrete tax benefit of $1.5 million in 2018 related to the reversal of tax reserves associated with uncertain tax positions covering multiple tax years.


•	After-tax acquisition costs of $0.4 million ($0.6 million net of tax of $0.2 million) in 2017.


•	After-tax expense related to acquired profit in inventory and backlog of $3.2 million ($4.3 million net of tax of $1.1 million) in 2017.

First Nine Months

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


•	Pre-tax restructuring costs of $1.7 million in 2018.


•	Pre-tax expense related to acquired backlog of $0.3 million in 2018.


•	Pre-tax acquisition costs of $5.0 million in 2017.


•	Pre-tax expense related to acquired profit in inventory and backlog of $4.3 million in 2017.

Adjusted net income and adjusted diluted EPS exclude:


•	After-tax restructuring costs of $1.3 million ($1.7 million net of tax of $0.4 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 $1.7 million in 2018.


•	After-tax acquisition costs of $4.3 million ($5.0 million net of tax of $0.7 million) in 2017.


•	After-tax expense related to acquired profit in inventory and backlog of $3.2 million ($4.3 million net of tax of $1.1 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						Nine Months Ended
Consolidated Statement of Income (a)			Sept. 29, 2018			Sept. 30, 2017			Sept. 29, 2018			Sept. 30, 2017

Revenues			$	165,745		$	152,794		$	469,851		$	365,893
Costs and Operating Expenses:
	Cost of revenues		92,652			88,139			262,515			199,369
	Selling, general, and administrative expenses		42,888			42,346			133,796			115,936
	Research and development expenses		2,452			2,635			8,049			7,004
	Restructuring costs		378			—			1,717			—
			138,370			133,120			406,077			322,309
Operating Income			27,375			19,674			63,774			43,584
Interest Income			30			94			335			300
Interest Expense			(1,738		)	(1,282		)	(5,320		)	(2,022		)
Other Expense, Net			(245		)	(216		)	(736		)	(637		)

Income Before Provision for Income Taxes			25,422			18,270			58,053			41,225
Provision for Income Taxes			6,443			4,860			15,575			10,550
Net Income			18,979			13,410			42,478			30,675
Net Income Attributable to Noncontrolling Interest			(195		)	(125		)	(487		)	(343		)
Net Income Attributable to Kadant			$	18,784		$	13,285		$	41,991		$	30,332

Earnings per Share Attributable to Kadant:
		Basic	$	1.69		$	1.21		$	3.79		$	2.76
		Diluted	$	1.64		$	1.17		$	3.69		$	2.69

Weighted Average Shares:
		Basic	11,101			11,004			11,078			10,986
		Diluted	11,421			11,344			11,388			11,282

			Three Months Ended						Three Months Ended
Adjusted Net Income and Adjusted Diluted EPS (b)			Sept. 29, 2018			Sept. 29, 2018			Sept. 30, 2017			Sept. 30, 2017

Net Income and Diluted EPS Attributable to Kadant, as Reported			$	18,784		$	1.64		$	13,285		$	1.17
Adjustments for the Following:
	Restructuring Costs, Net of Tax		287			0.03			—			—
	Acquisition Costs, Net of Tax		—			—			441			0.04
	Amortization of Acquired Profit in Inventory and Backlog, Net of Tax		—			—			3,191			0.28
	Discrete Tax Items		(1,542		)	(0.14		)	—			—
Adjusted Net Income and Adjusted Diluted EPS			$	17,529		$	1.53		$	16,917		$	1.49

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		Nine Months Ended						Nine Months Ended
		Sept. 29, 2018			Sept. 29, 2018			Sept. 30, 2017			Sept. 30, 2017

Net Income and Diluted EPS Attributable to Kadant, as Reported		$	41,991		$	3.69		$	30,332		$	2.69
Adjustments for the Following:
	Restructuring Costs, Net of Tax	1,308			0.11			—			—
	Acquisition Costs, Net of Tax	—			—			4,274			0.38
	Amortization of Acquired Profit in Inventory and Backlog, Net of Tax	189			0.02			3,191			0.28
	Discrete Tax Items	(1,672		)	(0.15		)	—			—
Adjusted Net Income and Adjusted Diluted EPS		$	41,816		$	3.67		$	37,797		$	3.35

											Increase
											(Decrease)
											Excluding
		Three Months Ended									Acquisitions
Revenues by Product Line		Sept. 29, 2018			Sept. 30, 2017			Increase (Decrease)			and FX (b,c)
Stock-Preparation		$	62,983		$	52,065		$	10,918		$	11,603
Fluid-Handling		33,083			28,532			4,551			4,451
Doctoring, Cleaning, & Filtration		30,704			30,538			166			1,059
	Papermaking Systems	126,770			111,135			15,635			17,113
	Wood Processing Systems	37,042			39,714			(2,672		)	(1,295		)
	Fiber-Based Products	1,933			1,945			(12		)	(12		)
		$	165,745		$	152,794		$	12,951		$	15,806

											Increase
											(Decrease)
											Excluding
		Nine Months Ended						Increase			Acquisitions
		Sept. 29, 2018			Sept. 30, 2017			Increase			and FX (b,c)
Stock-Preparation		$	164,842		$	139,396		$	25,446		$	19,732
Fluid-Handling		98,500			73,099			25,401			11,614
Doctoring, Cleaning, & Filtration		87,469			82,921			4,548			3,679
	Papermaking Systems	350,811			295,416			55,395			35,025
	Wood Processing Systems	109,335			61,050			48,285			(3,513		)
	Fiber-Based Products	9,705			9,427			278			278
		$	469,851		$	365,893		$	103,958		$	31,790

											Increase
											(Decrease)
											Excluding
		Three Months Ended									Acquisitions
Revenues by Geography (d)		Sept. 29, 2018			Sept. 30, 2017			Increase (Decrease)			and FX (b,c)
North America		$	74,089		$	68,369		$	5,720		$	5,867
Europe		44,912			46,475			(1,563		)	(639		)
Asia		32,887			25,215			7,672			8,359
Rest of World		13,857			12,735			1,122			2,219
		$	165,745		$	152,794		$	12,951		$	15,806

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								Increase
								(Decrease)
								Excluding
		Nine Months Ended				Increase		Acquisitions
		Sept. 29, 2018		Sept. 30, 2017		Increase		and FX (b,c)
North America		$	227,080	$	170,092	$	56,988	$	10,131
Europe		131,437		113,178		18,259		523
Asia		78,537		53,658		24,879		21,649
Rest of World		32,797		28,965		3,832		(513		)
		$	469,851	$	365,893	$	103,958	$	31,790

								Increase
								Excluding
		Three Months Ended						Acquisitions
Bookings by Product Line		Sept. 29, 2018		Sept. 30, 2017		Increase		and FX (c)
Stock-Preparation		$	69,341	$	50,797	$	18,544	$	19,348
Fluid-Handling		29,671		28,426		1,245		732
Doctoring, Cleaning, & Filtration		27,788		27,656		132		967
	Papermaking Systems	126,800		106,879		19,921		21,047
	Wood Processing Systems	36,080		26,548		9,532		11,022
	Fiber-Based Products	2,120		2,030		90		90
		$	165,000	$	135,457	$	29,543	$	32,159

								Increase
								(Decrease)
								Excluding
		Nine Months Ended				Increase		Acquisitions
		Sept. 29, 2018		Sept. 30, 2017		Increase		and FX (c)
Stock-Preparation		$	187,073	$	149,285	$	37,788	$	31,027
Fluid-Handling		107,363		79,752		27,611		11,581
Doctoring, Cleaning, & Filtration		86,603		86,354		249		(780		)
	Papermaking Systems	381,039		315,391		65,648		41,828
	Wood Processing Systems	133,213		50,172		83,041		18,489
	Fiber-Based Products	9,088		8,999		89		89
		$	523,340	$	374,562	$	148,778	$	60,406

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			Three Months Ended						Nine Months Ended
Business Segment Information (a)			Sept. 29, 2018			Sept. 30, 2017			Sept. 29, 2018			Sept. 30, 2017
Gross Margin:
		Papermaking Systems	44.6		%	45.6		%	45.1		%	47.1		%
		Wood Processing Systems	42.6		%	33.5		%	40.4		%	37.1		%
		Fiber-Based Products	36.6		%	35.7		%	50.1		%	50.1		%
			44.1		%	42.3		%	44.1		%	45.5		%

Operating Income:
		Papermaking Systems	$	25,919		$	21,684		$	61,402		$	53,247
		Wood Processing Systems	8,704			4,418			21,380			6,511
		Corporate and Other	(7,248		)	(6,428		)	(19,008		)	(16,174		)
			$	27,375		$	19,674		$	63,774		$	43,584

Adjusted Operating Income (b, e):
		Papermaking Systems	$	26,297		$	21,962		$	63,119		$	53,840
		Wood Processing Systems	8,704			9,043			21,632			15,238
		Corporate and Other	(7,248		)	(6,428		)	(19,008		)	(16,174		)
			$	27,753		$	24,577		$	65,743		$	52,904

Capital Expenditures:
		Papermaking Systems	$	1,348		$	3,790		$	9,837		$	6,567
		Wood Processing Systems	1,026			1,358			2,586			1,649
		Corporate and Other	232			135			394			502
			$	2,606		$	5,283		$	12,817		$	8,718

			Three Months Ended						Nine Months Ended
Cash Flow and Other Data			Sept. 29, 2018			Sept. 30, 2017			Sept. 29, 2018			Sept. 30, 2017
Cash Provided by Operations			$	16,979		$	6,952		$	52,550		$	32,328
Depreciation and Amortization Expense			5,796			6,525			17,739			13,056

Balance Sheet Data									Sept. 29, 2018			Dec. 30, 2017
Assets
Cash, Cash Equivalents, and Restricted Cash									$	58,059		$	76,846
Accounts Receivable, net									96,326			89,624
Inventories									91,736			84,933
Unbilled Revenues									8,315			2,374
Property, Plant and Equipment, net									79,458			79,723
Intangible Assets									119,246			133,036
Goodwill									262,081			268,001
Other Assets									26,541			26,557
									$	741,762		$	761,094
Liabilities and Stockholders' Equity
Accounts Payable									$	34,761		$	35,461
Debt Obligations									189,052			237,011
Capital Lease Obligations									4,563			5,069
Other Liabilities									154,947			151,049
	Total Liabilities								383,323			428,590
	Stockholders' Equity								358,439			332,504
									$	741,762		$	761,094

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Adjusted Operating Income and Adjusted EBITDA		Three Months Ended						Nine Months Ended
Reconciliation (a, b)		Sept. 29, 2018			Sept. 30, 2017			Sept. 29, 2018			Sept. 30, 2017
Consolidated
	Net Income Attributable to Kadant	$	18,784		$	13,285		$	41,991		$	30,332
	Net Income Attributable to Noncontrolling Interest	195			125			487			343
	Provision for Income Taxes	6,443			4,860			15,575			10,550
	Interest Expense, Net	1,708			1,188			4,985			1,722
	Other Expense, Net	245			216			736			637
	Operating Income	27,375			19,674			63,774			43,584
	Restructuring Costs	378			—			1,717			—
	Acquisition Costs	—			585			—			5,002
	Acquired Backlog Amortization (f)	—			958			252			958
	Acquired Profit in Inventory (g)	—			3,360			—			3,360
	Adjusted Operating Income (b)	27,753			24,577			65,743			52,904
	Depreciation and Amortization	5,796			5,567			17,487			12,098
	Adjusted EBITDA (b)	$	33,549		$	30,144		$	83,230		$	65,002

	Adjusted EBITDA Margin (b, h)	20.2		%	19.7		%	17.7		%	17.8		%

Papermaking Systems
	Operating Income	$	25,919		$	21,684		$	61,402		$	53,247
	Restructuring costs	378			—			1,717			—
	Acquisition Costs	—			172			—			487
	Acquired Profit in Inventory (g)	—			106			—			106
	Adjusted Operating Income (b)	26,297			21,962			63,119			53,840
	Depreciation and Amortization	3,132			2,894			9,407			8,105
	Adjusted EBITDA (b)	$	29,429		$	24,856		$	72,526		$	61,945

Wood Processing Systems
	Operating Income	$	8,704		$	4,418		$	21,380		$	6,511
	Acquisition Costs	—			413			—			4,515
	Acquired Backlog Amortization (f)	—			958			252			958
	Acquired Profit in Inventory (g)	—			3,254			—			3,254
	Adjusted Operating Income (b)	8,704			9,043			21,632			15,238
	Depreciation and Amortization	2,505			2,527			7,585			3,547
	Adjusted EBITDA (b)	$	11,209		$	11,570		$	29,217		$	18,785

Corporate and Other
	Operating Loss	$	(7,248	)	$	(6,428	)	$	(19,008	)	$	(16,174	)
	Depreciation and Amortization	159			146			495			446
	EBITDA (b)	$	(7,089	)	$	(6,282	)	$	(18,513	)	$	(15,728	)

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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)

Represents expense within cost of revenues associated with acquired profit in inventory.

(h)

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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