Kadant Inc

Good day and thank you for standing by. Welcome to the Q2 2021 CAIDA, Inc. Earnings Conference Call. At this time, our participants 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. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Michael McKinney. Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, Misty. Good morning, everyone, and welcome to CADEN's second quarter 2021 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 the 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 January 2, 2021, 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 will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is contained in our second quarter 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.caden.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'll turn the call over to Jeff Powell, who will give you an update on Cadence Business and future prospects. Following Jeff's remarks, I will give an overview of our financial results for the quarter, and we will then have a Q&A session. Jeff? Thanks, Mike. Hello, everyone.

And thank you for joining us this morning to review our second quarter results and discuss our business outlook for the second half of 2021. I'll begin by reviewing our operational highlights for the second quarter. I'm pleased to report that we had our best quarter ever with strong demand and excellent execution across all of our operating segments. Widespread business reopenings and pent-up demand led to a high level of economic activity and our record financial performance in the second quarter. Our aftermarket parts and consumables business was exceptional in the second quarter, and capital project activity was also moving at a record-setting pace. Our new order activity was driven by strong demand for our stock preparation and wood processing product lines, both of which are included in our industrial processing segment, and this led to another great quarterly performance for the segment. I'll provide more details on this when I review our operating segments. I'd like to thank our operations teams around the globe for doing a fantastic job in managing the flow of our materials and ensuring our products get to our customers when needed, despite the supply chain challenges. They've done a superb job. Before moving on to review our second quarter financial performance, I wanted to update you on the progress of our recent acquisition of Clues that was announced in June. I am pleased to tell you that last week we completed the acquisition of Clues and most of its related companies and are moving forward with integrating this business into Cadent. CLUTH's first-class management team has built a solid reputation in its core markets, and their quality products complement and extend our Dr. Blade offerings. I'm delighted to welcome CLUTH employees to the Cadent family, and I look forward to the contributions they will make to Cadent. Turning now to slide six and our Q2 financial performance, You can see we had significant increases across all of these financial metrics compared to Q2 of last year. Our bookings were up 60 percent compared to Q2 2020 and were a new record for the third consecutive quarter. Q2 revenue was up 28 percent compared to the second quarter of 2020 and up 14 percent sequentially to a record $196 million. Our aftermarket parts and consumables revenue was also up 28 percent compared to the same period last year and up 6 percent sequentially to a record 125 million in Q2. The consistently high operating rates of our customers combined with lower store room inventory of parts contributed to this record after market performance. Solid execution contributed to boosting our adjusted EBITDA margin to 21 percent, which led to record operating cash flows of 44 million in Q2. We continue to benefit from strengthening industrial activity in Q2 especially in North America and Europe. Our businesses executed well, and our global workforce continued to safely meet our customers' needs, despite challenging circumstances in many areas of the world. All three of our operating segments experienced improved adjusted EBITDA margin performance, despite the growing inflationary pressures from materials and supply chain constraints. Next, I'd like to discuss our three operating segments, beginning with our flow control segment. Our flow control segment had record revenue and strong bookings in the second quarter with a solid revenue contribution with capital projects. Bookings and revenue were up 45 percent and 38 percent respectively compared to the same period last year and parts made up 65 percent of total revenue in the second quarter. Improved operating leverage led to a record adjusted EBITDA and an adjusted EBITDA margin of nearly 30 percent. Our flow control segment's strong start to the first half of the year is expected to moderate somewhat in the second half. However, with our record backlog and strong bookings heading into Q3, we still expect a strong second half of the year. Our recent acquisition of Clues will further add to our overall performance and will be included in this segment going forward. Our industrial processing segment continued to experience strong demand with bookings in this segment up 92 percent to a record 102 million. New orders for our fiber processing systems in China led this increase in bookings in the second quarter. Strong in-market demand for wood products continued throughout the quarter as U.S. housing starts increased 23 percent in June 2021 compared to June 2020. Although housing starts were down 5 percent from May to June of this year, overall demand for housing and wood products is high and is expected to remain strong throughout the second half of 2021. Revenue in this segment increased 26 percent to $83 million, with parts and consumables leading the growth, up 32 percent compared to the same period last year and 11 percent sequentially. A favorable product mix and good execution led to a 340 basis point improvement in our adjusted EBITDA margin. We ended the quarter with another record backlog, and this positions us well for the remainder of the year. In our material handling segment, We had strong demand for our aftermarket parts and saw a strong uptick in orders for our high-performance balers that prepare materials for secondary processing and transport. European markets led the way to our record revenue performance in Q2. Revenue in the second quarter was up 18% to $42 million, and parts and consumables revenue was strong, making up 60% of total revenue. Capital bookings and our material handling segment were up compared to the same period last year and are back to pre-pandemic levels. Although not a record, total bookings were up 29% at the top end of our historical bookings. Solid execution by our businesses in this segment helped boost our EBITDA by 30% and adjusted EBITDA margin by 180 basis points to its highest level since Q4 of 2019. Capital project activity remains at a good level, and we expect capital projects in the second half of 2021 to be similar to the strong performance of the first half of the year. As we look ahead to the second half of 2021, we continue to see signs of healthy project activity and an optimism in our customers as economic recovery takes hold. As more regions of the world begin to experience an improved economic outlook, we expect to see strong demand for our products and technologies. With the extent of the spread of COVID-19 Delta variant still a big unknown, our record backlog has us well positioned as we look ahead to the second half of the year. I'd like to pass the call now over to Mike to review our Q2 performance. Thank you, Jeff.