Kadant Inc. KAI reported its financial results for the first quarter ended April 1, 2017.
First Quarter 2017 Highlights
- GAAP diluted EPS increased 29% to $0.80 and adjusted diluted EPS increased 11%
- Net income increased 30% to $9 million
- Adjusted EBITDA increased 11% to $15 million and represented 15% of revenue
- Revenue increased 7% to $103 million
- Gross margin was 47.6%
- Bookings increased 23% to a record $119 million
- Record bookings and revenue for parts and consumables
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.
Management Commentary
"We had a strong start to 2017 with
better-than-expected revenue and excellent EPS performance in the first
quarter," said Jonathan Painter, president and chief executive officer.
"Our EPS performance was driven by a strong gross margin, which
benefited from record parts and consumables revenue. Our parts and
consumables aftermarket business has been a long-standing strategic
focus of ours and I am pleased to see these positive results.
"Another highlight of the quarter was our record bookings of $119 million, which follows our strong bookings performance in the fourth quarter of 2016. Record parts and consumables bookings, continued strong capital bookings in China, and excellent bookings from our Wood Processing and Fluid-Handling product lines in North America fueled this performance. Although we do not expect the high level of capital bookings in China to last indefinitely, we do continue to see an active pipeline of projects, including an order we received in the second quarter of 2017 for over $6 million for two recycled stock-preparation systems for a producer of containerboard."
First Quarter 2017 Results
Revenue increased seven percent
compared to the first quarter of 2016 to $102.9 million, including a
$13.3 million increase from an acquisition and a $1.0 million decrease
from the unfavorable effect of foreign currency translation. Gross
margin was 47.6 percent. Net income was $9.0 million, or $0.80 per
diluted share, compared to $6.9 million, or $0.62 per diluted share, in
the first quarter of 2016, representing increases of 30 percent for net
income and 29 percent for diluted EPS. Adjusted diluted EPS increased 11
percent to $0.80 in the first quarter of 2017, compared to $0.72 in the
first quarter of 2016. Adjusted diluted EPS in the first quarter of 2016
excludes $0.12 of acquisition costs and a $0.02 gain on the sale of
assets. Adjusted EBITDA increased 11 percent to $15.3 million compared
to $13.7 million in the first quarter of 2016, which excludes
acquisition costs of $1.4 million and a gain on the sale of assets of
$0.3 million. Bookings increased 23 percent to $118.9 million compared
to $96.9 million in the first quarter of 2016, including the net effect
of a $12.6 million increase from an acquisition and a $1.4 million
decrease from the unfavorable effect of foreign currency translation.
Summary and Outlook
"We are in a strong position as we move
into 2017 with excellent operating metrics, a robust parts and
consumables business, and strong bookings momentum," Mr. Painter
continued. "Based on our bookings and operating performance in the first
quarter, as well as our outlook for the remainder of the year, we are
increasing our guidance for 2017. We expect to report full year revenue
of $427 to $437 million, revised from our previous guidance of $423 to
$433 million. We expect to achieve GAAP diluted EPS of $3.27 to $3.37 in
2017, revised from our previous guidance of $3.13 to $3.23. The 2017
guidance includes an unfavorable foreign currency translation effect of
$7 million on revenue and $0.09 on diluted EPS compared to 2016. For the
second quarter of 2017, we expect GAAP diluted EPS of $0.87 to $0.91 on
revenue of $107 to $110 million."
Conference Call
Kadant will hold a webcast with a slide
presentation for investors on Tuesday, May 2, 2017, at 4:30 p.m. eastern
time to discuss its first 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 5511079. 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 Web site
until June 2, 2017.
Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the first quarter results on its Web site 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 $13.3 million from an acquisition and a $1.0 million unfavorable foreign currency translation effect in the first quarter of 2017. We present increases or decreases in revenue excluding the effect of acquisitions and foreign currency translation to provide investors insight into underlying revenue trends.
Adjusted operating income, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and adjusted diluted EPS exclude acquisition costs and other income. 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.
Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude:
- A pre-tax gain on the sale of assets of $0.3 million in the first quarter of 2016.
- Pre-tax acquisition costs of $1.4 million in the first quarter of 2016.
Adjusted net income and adjusted diluted EPS exclude:
- An after-tax gain on the sale of assets of $0.2 million ($0.3 million net of tax of $0.1 million) in the first quarter of 2016.
- After-tax acquisition costs of $1.3 million ($1.4 million net of tax of $0.1 million) in the first quarter of 2016.
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 | ||||||||||||||||||
Consolidated Statement of Income | April 1, 2017 |
April 2, 2016 |
||||||||||||||||
Revenues | $ | 102,857 | $ | 96,538 | ||||||||||||||
Costs and Operating Expenses: | ||||||||||||||||||
Cost of revenues | 53,865 | 52,562 | ||||||||||||||||
Selling, general, and administrative expenses | 34,799 | 32,496 | ||||||||||||||||
Research and development expenses | 2,147 | 1,704 | ||||||||||||||||
Other income | - | (317 | ) | |||||||||||||||
90,811 | 86,445 | |||||||||||||||||
Operating Income | 12,046 | 10,093 | ||||||||||||||||
Interest Income | 104 | 55 | ||||||||||||||||
Interest Expense | (348 | ) | (269 | ) | ||||||||||||||
Income Before Provision for Income Taxes | 11,802 | 9,879 | ||||||||||||||||
Provision for Income Taxes | 2,735 | 2,888 | ||||||||||||||||
Net Income | 9,067 | 6,991 | ||||||||||||||||
Net Income Attributable to Noncontrolling Interest | (116 | ) | (115 | ) | ||||||||||||||
Net Income Attributable to Kadant | $ | 8,951 | $ | 6,876 | ||||||||||||||
Earnings per Share Attributable to Kadant: | ||||||||||||||||||
Basic | $ | 0.82 | $ | 0.64 | ||||||||||||||
Diluted | $ | 0.80 | $ | 0.62 | ||||||||||||||
Weighted Average Shares: | ||||||||||||||||||
Basic | 10,952 | 10,793 | ||||||||||||||||
Diluted | 11,205 | 11,018 | ||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||
Adjusted Net Income and Adjusted Diluted EPS (b) | April 1, 2017 | April 1, 2017 | April 2, 2016 | April 2, 2016 | ||||||||||||||
Net Income and Diluted EPS Attributable to Kadant, as Reported | $ | 8,951 | $ | 0.80 | $ | 6,876 | $ | 0.62 | ||||||||||
Adjustments for the Following: | ||||||||||||||||||
Acquisition Costs, Net of Tax | - | - | 1,342 | 0.12 | ||||||||||||||
Other Income, Net of Tax | - | - | (247 | ) | (0.02 | ) | ||||||||||||
Adjusted Net Income and Adjusted Diluted EPS | $ | 8,951 | $ | 0.80 | $ | 7,971 | $ | 0.72 | ||||||||||
Increase | ||||||||||||||||||
Excluding Effect |
||||||||||||||||||
Three Months Ended | of Currency | |||||||||||||||||
Revenues by Product Line | April 1, 2017 | April 2, 2016 | Increase | Translation (a,b) | ||||||||||||||
Stock-Preparation | $ | 41,153 | $ | 38,418 | $ | 2,735 | $ | 3,261 | ||||||||||
Doctoring, Cleaning, & Filtration | 25,350 | 23,839 | 1,511 | 2,113 | ||||||||||||||
Fluid-Handling | 22,047 | 21,770 | 277 | 463 | ||||||||||||||
Papermaking Systems | 88,550 | 84,027 | 4,523 | 5,837 | ||||||||||||||
Wood Processing Systems | 9,943 | 8,707 | 1,236 | 888 | ||||||||||||||
Fiber-Based Products | 4,364 | 3,804 | 560 | 560 | ||||||||||||||
$ | 102,857 | $ | 96,538 | $ | 6,319 | $ | 7,285 | |||||||||||
Increase | ||||||||||||||||||
(Decrease) | ||||||||||||||||||
Excluding Effect | ||||||||||||||||||
Three Months Ended | Increase | of Currency | ||||||||||||||||
Sequential Revenues by Product Line | April 1, 2017 | Dec. 31 2016 | (Decrease) | Translation (a,b) | ||||||||||||||
Stock-Preparation | $ | 41,153 | $ | 39,220 | $ | 1,933 | $ | 2,242 | ||||||||||
Doctoring, Cleaning, & Filtration | 25,350 | 25,564 | (214 | ) | (219 | ) | ||||||||||||
Fluid-Handling | 22,047 | 21,241 | 806 | 854 | ||||||||||||||
Papermaking Systems | 88,550 | 86,025 | 2,525 | 2,877 | ||||||||||||||
Wood Processing Systems | 9,943 | 11,413 | (1,470 | ) | (1,551 | ) | ||||||||||||
Fiber-Based Products | 4,364 | 2,803 | 1,561 | 1,561 | ||||||||||||||
$ | 102,857 | $ | 100,241 | $ | 2,616 | $ | 2,887 | |||||||||||
Increase | ||||||||||||||||||
(Decrease) | ||||||||||||||||||
Excluding Effect | ||||||||||||||||||
Three Months Ended | Increase | of Currency | ||||||||||||||||
Revenues by Geography (c) | April 1, 2017 | April 2, 2016 | (Decrease) | Translation (a,b) | ||||||||||||||
North America | $ | 50,166 | $ | 54,809 | $ | (4,643 | ) | $ | (4,803 | ) | ||||||||
Europe | 32,751 | 20,965 | 11,786 | 12,631 | ||||||||||||||
Asia | 11,898 | 13,005 | (1,107 | ) | (388 | ) | ||||||||||||
Rest of World | 8,042 | 7,759 | 283 | (155 | ) | |||||||||||||
$ | 102,857 | $ | 96,538 | $ | 6,319 | $ | 7,285 | |||||||||||
Increase | ||||||||||||||||||
(Decrease) | ||||||||||||||||||
Excluding Effect | ||||||||||||||||||
Three Months Ended | Increase | of Currency | ||||||||||||||||
Sequential Revenues by Geography (c) | April 1, 2017 | Dec. 31, 2016 | (Decrease) | Translation (a,b) | ||||||||||||||
North America | $ | 50,166 | $ | 47,430 | $ | 2,736 | $ | 2,700 | ||||||||||
Europe | 32,751 | 29,622 | 3,129 | 3,426 | ||||||||||||||
Asia | 11,898 | 17,247 | (5,349 | ) | (5,249 | ) | ||||||||||||
Rest of World | 8,042 | 5,942 | 2,100 | 2,010 | ||||||||||||||
$ | 102,857 | $ | 100,241 | $ | 2,616 | $ | 2,887 | |||||||||||
Increase | ||||||||||||||||||
(Decrease) | ||||||||||||||||||
Excluding Effect | ||||||||||||||||||
Three Months Ended | Increase | of Currency | ||||||||||||||||
Bookings by Product Line | April 1, 2017 | April 2, 2016 | (Decrease) | Translation (a) | ||||||||||||||
Stock-Preparation | $ | 48,322 | $ | 29,037 | $ | 19,285 | $ | 20,128 | ||||||||||
Doctoring, Cleaning, & Filtration | 26,553 | 31,001 | (4,448 | ) | (3,858 | ) | ||||||||||||
Fluid-Handling | 26,119 | 22,495 | 3,624 | 4,036 | ||||||||||||||
Papermaking Systems | 100,994 | 82,533 | 18,461 | 20,306 | ||||||||||||||
Wood Processing Systems | 13,081 | 10,381 | 2,700 | 2,243 | ||||||||||||||
Fiber-Based Products | 4,775 | 3,990 | 785 | 785 | ||||||||||||||
$ | 118,850 | $ | 96,904 | $ | 21,946 | $ | 23,334 | |||||||||||
Three Months Ended | ||||||||||||||||||
Business Segment Information | April 1, 2017 | April 2, 2016 | ||||||||||||||||
Gross Profit Margin: | ||||||||||||||||||
Papermaking Systems | 47.9 | % | 46.6 | % | ||||||||||||||
Other | 46.1 | % | 38.6 | % | ||||||||||||||
47.6 | % | 45.6 | % | |||||||||||||||
Operating Income: | ||||||||||||||||||
Papermaking Systems | $ | 14,258 | $ | 13,497 | ||||||||||||||
Corporate and Other | (2,212 | ) | (3,404 | ) | ||||||||||||||
$ | 12,046 | $ | 10,093 | |||||||||||||||
Adjusted Operating Income (b,e): | ||||||||||||||||||
Papermaking Systems | $ | 14,258 | $ | 14,585 | ||||||||||||||
Corporate and Other | (2,212 | ) | (3,404 | ) | ||||||||||||||
$ | 12,046 | $ | 11,181 | |||||||||||||||
Capital Expenditures: | ||||||||||||||||||
Papermaking Systems | $ | 1,484 | $ | 518 | ||||||||||||||
Corporate and Other | 238 | 6 | ||||||||||||||||
$ | 1,722 | $ | 524 | |||||||||||||||
Three Months Ended | ||||||||||||||||||
Cash Flow and Other Data | April 1, 2017 | April 2, 2016 | ||||||||||||||||
Cash Provided by Operations | $ | 1,683 | $ | 5,518 | ||||||||||||||
Depreciation and Amortization Expense | 3,256 | 2,564 | ||||||||||||||||
Balance Sheet Data | April 1, 2017 | Dec. 31, 2016 | ||||||||||||||||
Assets | ||||||||||||||||||
Cash, Cash Equivalents, and Restricted Cash | $ | 73,083 | $ | 73,569 | ||||||||||||||
Accounts Receivable, net | 71,926 | 65,963 | ||||||||||||||||
Inventories | 59,841 | 54,951 | ||||||||||||||||
Unbilled Contract Costs and Fees | 4,262 | 3,068 | ||||||||||||||||
Other Current Assets | 13,037 | 9,799 | ||||||||||||||||
Property, Plant and Equipment, net | 48,630 | 47,704 | ||||||||||||||||
Intangible Assets | 51,816 | 52,730 | ||||||||||||||||
Goodwill | 153,811 | 151,455 | ||||||||||||||||
Other Assets | 12,421 | 11,452 | ||||||||||||||||
$ | 488,827 | $ | 470,691 | |||||||||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||||
Accounts Payable | $ | 25,218 | $ | 23,929 | ||||||||||||||
Long-term Debt | 65,625 | 61,494 | ||||||||||||||||
Capital Lease Obligations | 4,925 | 4,917 | ||||||||||||||||
Other Liabilities | 97,769 | 96,072 | ||||||||||||||||
Total Liabilities | 193,537 | 186,412 | ||||||||||||||||
Stockholders' Equity | 295,290 | 284,279 | ||||||||||||||||
$ | 488,827 | $ | 470,691 | |||||||||||||||
Adjusted Operating Income and Adjusted EBITDA | Three Months Ended | |||||||||||||||||
Reconciliation | April 1, 2017 | April 2, 2016 | ||||||||||||||||
Consolidated | ||||||||||||||||||
Net Income Attributable to Kadant | $ | 8,951 | $ | 6,876 | ||||||||||||||
Net Income Attributable to Noncontrolling Interest | 116 | 115 | ||||||||||||||||
Provision for Income Taxes | 2,735 | 2,888 | ||||||||||||||||
Interest Expense, net | 244 | 214 | ||||||||||||||||
Operating Income | 12,046 | 10,093 | ||||||||||||||||
Other Income | - | (317 | ) | |||||||||||||||
Acquisition Costs (d) | - | 1,405 | ||||||||||||||||
Adjusted Operating Income (b) | 12,046 | 11,181 | ||||||||||||||||
Depreciation and Amortization | 3,256 | 2,564 | ||||||||||||||||
Adjusted EBITDA (b) | $ | 15,302 | $ | 13,745 | ||||||||||||||
Papermaking Systems | ||||||||||||||||||
Operating Income | $ | 14,258 | $ | 13,497 | ||||||||||||||
Other Income | - | (317 | ) | |||||||||||||||
Acquisition Costs (d) | - | 1,405 | ||||||||||||||||
Adjusted Operating Income (b) | 14,258 | 14,585 | ||||||||||||||||
Depreciation and Amortization | 2,593 | 1,876 | ||||||||||||||||
Adjusted EBITDA (b) | $ | 16,851 | $ | 16,461 | ||||||||||||||
Corporate and Other | ||||||||||||||||||
Operating Loss | $ | (2,212 | ) | $ | (3,404 | ) | ||||||||||||
Depreciation and Amortization | 663 | 688 | ||||||||||||||||
EBITDA (b) | $ | (1,549 | ) | $ | (2,716 | ) | ||||||||||||
(a) Represents the increase (decrease) resulting 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.
(b) Represents a non-GAAP financial measure.
(c) Geographic revenues are attributed to regions based on customer location.
(d) Represents transaction costs related to our acquisition of RT Holding GmbH, the parent corporation of a group of companies known as the PAALGROUP.
(e) See reconciliation to the most directly comparable GAAP financial measure under "Adjusted Operating Income and Adjusted EBITDA Reconciliation."
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 2,000
employees in 18 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. Our actual results
may 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 31, 2016 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; the variability and
uncertainties in sales of capital equipment in China; currency
fluctuations; our customers' ability to obtain financing for capital
equipment projects; changes in government regulations and policies; the
oriented strand board market and levels of residential construction
activity; development and use of digital media; price increases or
shortages of raw materials; dependence on certain suppliers;
international sales and operations; economic conditions and regulatory
changes caused by the United Kingdom's likely exit from the European
Union; disruption in production; our acquisition strategy; our internal
growth strategy; competition; soundness of suppliers and customers; our
effective tax rate; future restructurings; soundness of financial
institutions; our debt obligations; restrictions in our credit
agreement; loss of key personnel; reliance on third-party research;
protection of patents and proprietary rights; failure of our information
systems or breaches of data security; fluctuations in our share price;
and anti-takeover provisions. We undertake no obligation to publicly
update any forward-looking statement, whether as a result of new
information, future events, or otherwise.
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