Kadant Inc

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 Cadence, Inc. Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mike McKinney, Executive and Vice President and CFO. Thank you. Please go ahead, sir.

Thank you, Gigi. Good morning, everyone, and welcome to CADEN's fourth quarter and full year 2020 earnings call. With me on the call today is Jeff Paul, our President and Chief Executive Officer. Before we begin, let me read our safe harbor statement. Various remarks that we may make today about CADEN's future plans and expectations financial and operating results and prospects are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. 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 outlined at the beginning of our slide presentation and those discussed under the heading Risk Factors in our annual report, on form 10 K for the fiscal year ended December 28 2019. And subsequent filings with the Securities and Exchange Commission. In addition, any forward looking statements we make during this webcast represent our views and estimates only as of today. While we may elect to update forward looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views or estimates change. During this webcast, we refer to some non gap financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure is contained in our fourth quarter and full-year earnings press release and the slides presented on the webcast and discussed in the conference call, which are available in the investor section of our website at www.cadent.com. Finally, I wanted to note that when we refer to gap earnings per share, or EPS, and adjusted EPS on this call, we are referring to each of these measures as calculated on a diluted basis. With that, I will turn the call over to Jeff Powell, who will give you an update on Cadence business and future prospects. Following the remarks, I will give an overview of our financial results for the quarter and the year, and we will then have a Q&A session. Jeff? Thanks, Mike. Hello, everyone.

Thank you for joining us this morning to review our fourth quarter and full year results and discuss our business outlook for 2021. I'll begin by discussing our operational highlights and our fourth quarter financial results. The fourth quarter was a solid finish to a challenging year. Despite the uncertainties brought about by the pandemic, we had a solid execution during the quarter and generated strong cash flow while safeguarding our employees. Strong capital project activity across all our operating segments and robust demand for our parts and consumables led to record bookings and cash flow in the fourth quarter. I'll provide more details about this activity when I discuss the results of our operating segments. Our balance sheet remains healthy, and our liquidity position has strengthened throughout the year. Robust cash flows have always been a strength of Cajun, and we expect this will continue as economies recover from the effects of the pandemic. Turning now to our Q4 performance, we achieved a notable turnaround from the prior quarter's weak business levels. Our Q4 bookings were a record $197 million, up 23% compared to the prior year, with our industrial processing segment driving this growth. Strong demand led to a 9% sequential increase in parts consumables revenue, which made up 67% of total Q4 revenue. Total revenue was down 8% compared to the fourth quarter of 2019. We were particularly pleased that our adjusted EBITDA margin increased to 19.1%, and our free cash flow was up 7% to a record $38 million in the fourth quarter. Overall, the quarter was better than expected, and I'm pleased with how our employees delivered these solid operating results. While 2019 was a record year, on many fronts, and we began 2020 with positive momentum, no one could have anticipated the full impact the pandemic would have on the world and the global economies. Full year revenue declined 10% to $635 million, while our bottom line performance benefited from a favorable product mix, along with cost containment measures and government assistance programs. Cash flow from operations strengthened throughout the year, and free cash flow was near a record $85 million for the full year of 2020. Our diluted EPS was $4.77 and on adjusted basis declined 7% to $5 compared to our record of $5.36 per share in 2019. Our workforce around the globe deserves a tremendous amount of credit for these results as they adapted to a new way of work and performed exceptionally well under very challenging circumstances. I'm extremely proud of our talent and dedicated employees for the work they have done and continue to do to serve our customers. Next, I'd like to review the performance of our three operating segments. Our flow control segment benefited from a rebound in capital project activity in the fourth quarter, which led to bookings increasing nearly 9% compared to the prior year period. Our quarterly bookings performance moved in the right direction as the year progressed and has positioned us well for a solid start to 2021. Our parts and consumables revenue was up 5% sequentially, and made up 68% of total Q4 revenue. As many of you know, our aftermarket parts business has a more favorable margin profile compared to capital business, and the product mix combined with improved operating leverage led to a 13% increase in adjusted EBITDA compared to Q4 of 2019 and represented 26% of revenue. Looking ahead, we expect the first quarter of 2021 to show stability in terms of both capital project bookings and demand for parts consumables. We believe market conditions are improving and will continue to strengthen as the COVID-19 vaccine becomes more widely available and businesses are permitted to fully reopen. Turning now to our industrial processing segment, we continue to experience strong demand for our wood processing equipment and also for our stock prep equipment. with capital bookings in this segment more than doubling compared to the prior year. This demand was largely driven by two factors. One was a robust U.S. housing market, which saw single-family home building, the largest share of the housing market, increase 12% in December. The other was a significant increase in our stock prep capital project activity in China and North America, which more than doubled compared to the prior year. Revenue in this segment declined 13% to $69 million in year over year, but increased 11% sequentially. Parts and consumables revenue was up 12% compared to the same period last year and made up 70% of total revenue in the fourth quarter. A favorable product mix and good execution led to a 250 basis point improvement in our adjusted EBITDA margin. While government assistance programs were significantly reduced in the fourth quarter, we did have some remaining benefit that helped allow us to retain our talented workforce. In our material handling segment, we continue to see relatively stable yet moderate order activity. Revenue was down 7% to $39 million, and parts consumables revenue in the fourth quarter made up 58% of total revenue. Capital bookings in our material handling segment increased 23% compared to the same period last year and were up 18% sequentially. We are encouraged to see our customers showing increased confidence in their economic outlook by awarding us these larger capital orders. As in all other segments, we are seeing increasing market activity. Looking ahead to 2021, we believe this segment will continue to strengthen throughout the year. As we look ahead to the first quarter of 2021 in the full year, we are seeing signs of increased project activity and expect industrial production to continue its modest rebound. Our strong cash flows combined with a strengthening balance sheet have us well positioned to capitalize on opportunities that may emerge with the improving global economy. While we are hopeful the worst of the pandemic is behind us, there is still a great amount of uncertainty, particularly in Europe, regarding how economies will respond to the pandemic, given the unevenness in the vaccine distribution. This uncertainty limits our ability to forecast the timing of orders. As a result, we will not be providing guidance at this time. I would like to pass the call over to Mike for review of our Q4 performance.