Kadant reports third quarter 2021 results and record bookings : Kadant Inc. (NYSE: KAI) reported its financial results for the third quarter ended October 2, 2021.
Kadant Third Quarter Financial Highlights
- Bookings increased 71% to a record $245 million.
- Revenue increased 29% to a record $200 million.
- Operating cash flow increased 56% to $38 million.
- Free cash flow increased 53% to $35 million.
- Net income increased 38% to $20 million.
- GAAP diluted EPS increased 37% to $1.75.
- Adjusted diluted EPS increased 50% to $1.97.
- Adjusted EBITDA increased 36% to $41 million and represented 20.5% of revenue.
- Backlog was a record $299 million.
Note: Percent changes above are based on comparison to the prior year period. Free cash flow, adjusted diluted EPS, adjusted EBITDA, adjusted EBITDA margin, and changes in organic revenue 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
“Record revenue combined with excellent execution by our operations teams led to another quarter of strong performance,” said Jeffrey L. Powell, president and chief executive officer of Kadant Inc. “End-market demand was exceptional in the third quarter with record parts demand and robust capital order activity, particularly in our Industrial Processing segment. These results contributed to solid margin performance and improved operating leverage across all our segments.
“Despite an increasingly challenging operating environment resulting from supply chain constraints and inflationary pressures, our global workforce performed extremely well in fulfilling our customer commitments and delivering value. Our end markets continue to show signs of strength as we enter the final quarter of the year and we are well positioned for a strong finish to 2021.”
Third Quarter 2021 compared to 2020
Revenue increased 29 percent to a record $199.8 million compared to $154.6 million in 2020. Organic revenue increased 18 percent, which excludes an eight percent increase from acquisitions and a three percent increase from the favorable effect of foreign currency translation. Gross margin was 41.9 percent, which included a negative 110 basis point impact from the amortization of acquired profit in inventory, compared to 44.2 percent in 2020, which included a positive 110 basis point impact from the receipt of government assistance benefits related to the pandemic.
GAAP diluted earnings per share (EPS) increased 37 percent to a $1.75 compared to $1.28 in 2020. Adjusted diluted EPS increased 50 percent to $1.97 compared to $1.31 in 2020. Adjusted diluted EPS excludes $0.17 of amortization expense from acquired profit in inventory and backlog and $0.05 of acquisition costs in 2021 and $0.03 of restructuring costs, $0.03 of acquisition-related costs, and a $0.03 discrete tax benefit in 2020. Net income increased 38 percent to $20.5 million compared to $14.9 million in 2020. Adjusted EBITDA increased 36 percent to $40.9 million and 20.5 percent of revenue compared to $30.0 million and 19.4 percent of revenue in the prior year quarter. Operating cash flow increased 56 percent to $37.9 million compared to $24.4 million in 2020.
Bookings increased 71 percent to a record $244.7 million compared to $143.3 million in 2020. Organic bookings increased 57 percent, which excludes a ten percent increase from acquisitions and a four percent increase from the favorable effect of foreign currency translation.
Summary and Outlook
“The strong momentum built up during the first three quarters of 2021 has led to record backlog, and we expect a solid finish to the year,” Mr. Powell continued. “While we continue to see strong demand for our products, supply chain constraints, delays in shipments, and the timing of capital orders are moderating our outlook for the fourth quarter. As a result, we are decreasing our revenue expectation to $778 to $783 million for 2021 from our previous range of $783 to $793 million.”
Conference Call
Kadant will hold a webcast with a slide presentation for investors on Wednesday, November 3, 2021, 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 9476904. 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 December 3, 2021.
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 (organic revenue), adjusted operating income, adjusted net income, adjusted diluted EPS, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin, and free cash flow.
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 in the third quarter of 2021 included $12.8 million from acquisitions and a $4.6 million favorable foreign currency translation effect. Revenue in the first nine months of 2021 included a $22.2 million favorable foreign currency translation effect and $13.3 million from acquisitions. We present increases or decreases in organic revenue, which excludes 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 profit in inventory and backlog, and discrete tax items. 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. Free cash flow presents cash flow from operations excluding capital expenditures.
Third Quarter
Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude:
- Pre-tax expense related to amortization of acquired profit in inventory of $2.2 million in 2021.
- Pre-tax acquisition costs of $0.7 million in 2021 and $0.1 million in 2020.
- Pre-tax expense related to amortization of acquired backlog of $0.6 million in 2021 and $0.3 million in 2020.
- Pre-tax restructuring costs of $0.5 million in 2020.
Adjusted net income and adjusted diluted EPS exclude:
- After-tax expense related to amortization of acquired profit in inventory of $1.5 million ($2.2 million net of tax of $0.7 million) in 2021.
- After-tax acquisition costs of $0.6 million in 2021 ($0.7 million net of tax of $0.1 million) in 2021 and $0.1 million in 2020.
- After-tax expense related to amortization of acquired backlog of $0.4 million ($0.6 million net of tax of $0.2 million) in 2021 and $0.2 million ($0.3 million net of tax of $0.1 million) in 2020.
- After-tax restructuring costs of $0.3 million ($0.5 million net of tax of $0.2 million) in 2020.
- A discrete tax benefit of $0.3 million in 2020.
Free cash flow is calculated as cash flow from operations less:
- Capital expenditures of $3.4 million in 2021 and $1.8 million in 2020.
First Nine Months
Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude:
- Pre-tax acquisition costs of $2.6 million in 2021 and $0.5 million in 2020.
- Pre-tax expense related to acquired profit in inventory of $2.2 million in 2021.
- Pre-tax expense related to amortization of acquired backlog of $0.7 million in 2021 and $0.4 million in 2020.
- Pre-tax restructuring costs of $0.9 million in 2020.
Adjusted net income and adjusted diluted EPS exclude:
- After-tax acquisition costs of $2.3 million ($2.6 million net of tax of $0.3 million) in 2021 and $0.4 million ($0.5 million net of tax of $0.1 million) in 2020.
- After-tax expense related to acquired profit in inventory of $1.5 million ($2.2 million net of tax of $0.7 million) in 2021.
- After-tax expense related to acquired backlog of $0.5 million ($0.7 million net of tax of $0.2 million) in 2021 and $0.3 million ($0.4 million net of tax of $0.1 million) in 2020.
- After-tax restructuring costs of $0.7 million ($0.9 million net of tax of $0.2 million) in 2020.
- A discrete tax benefit of $0.3 million in 2020.
Free cash flow is calculated as cash flow from operations less:
- Capital expenditures of $7.7 million in 2021 and $5.4 million in 2020.
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