Kadant Inc (KAI)

[AISI304]

Kadant Reports 4th Quarter 2016 and FY 2016 Results

Q4 Bookings Increase 20% Sequentially

http://www.businesswire.com/news/home/20170223006617/en/

February 23, 2017 04:07 PM Eastern Standard Time

WESTFORD, Mass.--(BUSINESS WIRE)--Kadant Inc. (NYSE: KAI) reported its financial results for the fourth quarter and fiscal year ended December 31, 2016.

“Adjusted Operating Income and Adjusted EBITDA Reconciliation.”

Fourth Quarter Financial Highlights

Revenue was $100 million vs. $108 million
Gross margin was 46%
Diluted EPS was $0.69 vs. $0.94
Net Income was $8 million vs. $10 million
Adjusted EBITDA was $14.1 million vs. $17.2 million
Bookings were $114 million vs. $76 million
Cash flows from operations were $16 million vs. $12 million

Fiscal Year Financial Highlights

Revenue was a record $414 million vs. $390 million
Gross margin was 45.5%
Diluted EPS was $2.88 vs. $3.10; Adjusted Diluted EPS was $3.10 vs. $3.13
Net Income was $32 million vs. $34 million
Adjusted EBITDA was a record $61.9 million vs. $61.5 million
Bookings were $403 million vs. $376 million
Cash flows from operations were $51 million vs. $40 million

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

Management Commentary

“We are pleased to report fourth quarter earnings that exceeded our guidance and represented a strong finish to 2016 with record full year revenue and adjusted EBITDA,” said Jonathan W. Painter, president and chief executive officer. “Although revenue was down from a record performance in last year’s fourth quarter, we had a 10 percent increase in revenue from parts and consumables, which represented 64 percent of fourth quarter revenue. This favorable revenue mix led to a 290 basis point increase in gross margin.

“One of the highlights of the quarter was our bookings which increased 20 percent sequentially and 50 percent year-on-year, representing the third best bookings quarter in our history. Importantly, our parts and consumables bookings were up 11 percent over the fourth quarter of last year and 6 percent sequentially, driven by a strong performance in North America. We also had strong capital bookings in China in the fourth quarter and see a fairly active market for capital projects in China in 2017.

“As was the case with the fourth quarter, we faced difficult comparisons with the full year 2015, which was an exceptionally strong year for Kadant. Within that context, we were pleased with our overall performance in 2016. We achieved record revenue of $414 million, despite over $8 million in negative foreign currency translation impact, and we maintained a strong gross margin of 45.5 percent. 2016 was also a very strong year for operating cash flows, which reached a near-record $51 million, up from $40 million in 2015.”

Fourth Quarter 2016 Financials

Revenue was $100.2 million, a 7 percent decline compared to the fourth quarter of 2015, inclusive of $12.0 million from an acquisition and a negative impact of $1.7 million from foreign currency translation. Revenue was $107.6 million in the fourth quarter of 2015. Gross margin was 46.0 percent. Net income was $7.7 million, or $0.69 per diluted share, compared to $10.4 million, or $0.94 per diluted share, in the fourth quarter of 2015. Adjusted EBITDA was $14.1 million, a decrease of 18 percent from $17.2 million in the fourth quarter of 2015. Operating income was $10.7 million versus $14.4 million in the fourth quarter of 2015. Cash flows from operations were $16.3 million, up 32 percent from $12.3 million in the comparable quarter of 2015. Bookings increased 50 percent to $113.6 million from $75.5 million in the comparable period of 2015, inclusive of the net effect of a $12.1 million increase from an acquisition, a $16.1 million booking reversal in the fourth quarter of 2015, and a negative impact of $2.3 million from foreign currency translation.

Fiscal Year 2016 Financials

Revenue increased 6 percent year-over-year to a record $414.1 million for fiscal 2016, inclusive of $40.8 million from an acquisition and a negative impact of $8.4 million from foreign currency translation. Full year 2015 revenue was $390.1 million. Gross margin was 45.5 percent. Net income was $32.1 million, or $2.88 per diluted share, compared to $34.4 million, or $3.10 per diluted share, in 2015. Adjusted diluted EPS was $3.10 for the full year 2016, compared to $3.13 in 2015. Adjusted EBITDA increased 1 percent to a record $61.9 million from $61.5 million in 2015. Operating income was $45.6 million in 2016, compared to $50.1 million in the prior year. Cash flows from operations increased 26 percent to $51.0 million compared to $40.4 million last year. Bookings were $403.5 million, up 7 percent, including the net effect of a $39.4 million increase from an acquisition, a $16.1 million booking reversal in 2015, and a $9.1 million decrease from foreign currency translation. In 2015, bookings were $376.1 million.

Summary and Outlook

“2016 was a year of solid execution for Kadant,” Mr. Painter continued. “We moved forward with several product developments and other initiatives designed to support our expectations of modest organic growth over the long term. In addition, we succeeded in completing an important acquisition that brings potential revenue synergies. We intend to supplement our internal growth with acquisitions, but remain disciplined in considering those opportunities that meet our criteria.

“Looking ahead, we expect 2017 to be a record year for both revenue and EPS. Based on our current visibility, we expect to report GAAP diluted EPS of $3.13 to $3.23 on revenue of $423 million to $433 million. The 2017 guidance includes an unfavorable foreign currency translation effect of $7 million on revenue and $0.10 on diluted EPS compared to 2016. For the first quarter of 2017, we expect GAAP diluted EPS of $0.62 to $0.66 on revenue of $97 million to $100 million.”

Conference Call

Kadant will hold a webcast with a slide presentation for investors on Thursday, February 23, 2017, at 4:30 p.m. eastern time to discuss its fourth quarter and fiscal year 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 [phone] outside the U.S. and reference participant passcode 39878251. 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. A replay of the webcast will be available on our website through March 24, 2017.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the fourth quarter and fiscal year results on our 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 EPS, adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA), adjusted EBITDA margin, and free cash flow.

We believe that 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 to 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 $12.0 million and $40.8 million from an acquisition in the fourth quarter and fiscal year 2016, respectively. Revenue also included $1.7 million and $8.4 million unfavorable foreign currency translation effects in the fourth quarter and fiscal year 2016, 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.

Adjusted operating income, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and adjusted diluted EPS exclude acquisition costs, restructuring costs, other income, and expense related to acquired profit in inventory and backlog. 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:

Pre-tax gain on the sale of assets of $0.3 million in 2016 and pre-tax restructuring costs of $0.5 million in 2015.
Pre-tax acquisition costs of $1.8 million in 2016.
Pre-tax expense related to acquired profit in inventory and backlog of $1.9 million in 2016 and $0.2 million in 2015.
Adjusted net income and adjusted diluted EPS exclude:

After-tax gain on the sale of assets of $0.2 million ($0.3 million net of tax of $0.1 million) in 2016 and after-tax restructuring costs of $0.4 million ($0.5 million net of tax of $0.1 million) in 2015.
After-tax acquisition costs of $1.6 million ($1.8 million net of tax of $0.2 million) in 2016.
After-tax expense related to acquired profit in inventory and backlog of $1.4 million ($1.9 million net of tax of $0.5 million) in 2016 and $0.1 million ($0.2 million net of tax of $0.1 million) in 2015.
A benefit from discrete tax items of $0.3 million in 2016. The benefit from discrete tax items was primarily due to the reversal of valuation allowances on certain deferred tax assets in the U.S.
We also report free cash flows, which is calculated as cash flows from continuing operations less capital expenditures of $5.8 million in 2016 and $5.5 million in 2015. This measure provides a view of the continuing operations’ ability to generate cash for use in acquisitions and other investing and financing activities.

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

Financial Highlights (unaudited)(In 1000's, except per share amounts and percentages) [See hyperlink to the 2/23/17 BusinessWire article provided above]