KADANT INC Q3 FY2024 earnings call

• Hosted an Investor Day on December 12 in New York City to present new 5 - year financial targets and outline growth initiatives in each of the 3 operating segments.
• Third quarter was a record - setting performance with record adjusted EBITDA, margin, and EPS. Market demand was stronger in the Americas, while sluggish in Europe and Asia.
• Operating segments performed well: Flow Control had strong aftermarket parts revenue and bookings; Industrial Processing had significant revenue and adjusted EBITDA growth; Material Handling benefited from acquisitions and had strong demand for aftermarket parts and capital project bookings.

Flow Control segment

• Revenue: Up 7% compared to the same period last year, reaching a certain amount. Bookings were $89 million, up 7%, with aftermarket parts making up 78% of new order activity. Adjusted EBITDA was a record, and the adjusted EBITDA margin was 29.4%. Many end - markets remain strong in the Americas, while project activity in Europe and Asia has moderated due to economic headwinds.

Industrial Processing segment

• Revenue: Increased 17% to $111 million, led by a record aftermarket parts business which accounted for 67% of total revenue in Q3. Bookings were up 27% compared to the same period last year. Adjusted EBITDA was up 41%, and the adjusted EBITDA margin was a record 28.7%. Capital project activity is strengthening, and long - term growth drivers of end - markets remain strong.

Material Handling segment

• Revenue: Up 7% to $63 million, benefited from latest acquisitions. There was high demand for aftermarket parts and capital project bookings, and the high - performance biller product line was strong. However, the adjusted EBITDA margin declined by 210 basis points compared to Q3 of last year, largely due to product mix and lower revenue volume in some businesses. Activity in the aggregate material handling sector, particularly in North America, remained high.

• Full - year 2024 revenue guidance: $1.047 billion to $1.055 billion. Adjusted EPS guidance: $9.93 to $10.13. GAAP EPS guidance: $9.25 to $9.45.
• Fourth quarter 2024 revenue guidance: $252 million to $260 million. Adjusted EPS guidance: $1.90 to $2.10.
• 2024 gross margins expected to be 44% to 44.5%. SG&A expected to be approximately 26.7% of revenue. Net interest expense expected to be approximately $18.5 million. Fourth quarter gross margin expected to be in the low to mid 43% range.

• Forward - looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially.
• Foreign currency translation may impact guidance as future actions by central banks may affect the U.S. dollar and other currencies.
• Timing of capital projects can shift due to macroeconomic uncertainty or other factors, which could impact new order activity and financial results.

Q: For the various divisions, can you give us the percentage of aftermarket parts that were in the prior year's Q3?

A: For Flow Control, it was 70% versus 68% in the comparing quarter last year. In Industrial Processing, it was 67% compared to 60% last year. And in Material Handling, it was 55% compared to 53% last year.

Q: As you're looking at the fourth quarter, can you go over some of the puts and takes that you're seeing out there as it regards to the 3 segments?

A: We're being conservative in case some capital shipments are delayed into '25. There's a little bit of uncertainty as to whether customers will continue buying as they have through the year or buy extra due to maintenance budgets. Parts and consumables performance has been good year - to - date, but the fourth quarter can be a wildcard.

Q: How does the pipeline look for any future acquisitions at this point?

A: Our corporate development group has been quite busy. There's been very strong activity. The challenge is finding something that's a good strategic fit that meets our attributes and getting it at a reasonable price.

Q: It sounds like you do expect a pickup in capital equipment bookings in Q4. Wondering if you could maybe just directionally talk about kind of the magnitude that you're anticipating, as well as whether there's any kind of seasonal factors in there or if you think that might represent, I don't want to be too dramatic, but an inflection and something that could sustain going into next year?

A: We think things are strengthening. We expect an increase, but it's going to be an incremental increase and should continue to build as people start to get comfortable. The back half of next year is expected to be stronger.

Q: Just two quick ones. First, it looked like FX was maybe a $1 million headwind or so in Q3. Is that right, Mike? And how are you thinking about -- or I guess, assuming an impact in terms of Q4?

A: Yes, it was unfavorable $1 million. Right now, with the rates we're using, we're actually anticipating Q4 to be favorable.