Kadant Inc

Ladies and gentlemen, thank you for standing by and welcome to Q3 2021 Cadence Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touch-tone telephone. I would like to turn the conference over to your host, Mr. Michael McKinney, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, Grace. Good morning, everyone, and welcome to Caden's third quarter 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 courts with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our third 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.cadent.com. Finally, I want to note that when we refer to GAAP 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'll give an overview of our financial results for the quarter, and we will then have a Q&A session. Jeff? Thanks, Mike.

Hello, everyone. Thank you for joining us this morning to review our third quarter results and discuss our outlook for the remainder of the year. We had another quarter of record revenue and bookings, along with strong EBITDA margin performance and free cash flow. positioning us well for a strong finish to the year. I'd like to begin by reviewing our operational highlights for the third quarter. The robust demand for aftermarket parts and a high level of capital project activity in the third quarter led to an all-time high for revenue and bookings. Our aftermarket parts and consumable business was exceptionally strong in most regions of the world, and new order activity was driven by solid demand across all of our operating segments. In the third quarter, we announced the closing of two acquisitions, one in our flow control segment and another in our material handling segment. The integration of these businesses is going well, and their financial results contributed to our third quarter performance. Just after the third quarter closed, we completed an acquisition of a small manufacturing business in India. It is a well-established manufacturer of engineered stock preparation equipment used to process recycled and virgin fiber for paper packaging and tissue production. Our acquisition of this business will create a new manufacturing base for us in India where we have market position and have been active for more than 20 years. It also provides a strategic platform to accelerate new business opportunities in the fast-growing Indian packaging and tissue markets. Before moving on to our Q3 financial performance, I want to comment on the global supply chain and how we are managing in this complex environment. The headwinds found within the global supply chain continue to be a challenge, pushing out expected deliveries of materials and creating a significant amount of work to keep our delivery promises to our customers. I'm pleased to say it is a challenge that our operations teams around the globe are managing successfully. Our employees are doing a great job in navigating through a highly dynamic and uncertain environment that looks to be with us for some time. While there is little expectation for a sudden return to normalcy, I am confident we will work through these immediate supply chain challenges and continue to meet our customers' needs. Turning now to slide six in our Q3 financial performance, you can see we had significant increases across all of these financial metrics compared to Q3 of last year. Q3 revenue was up 29% compared to the third quarter of 2020 to a record $200 million. Excluding acquisitions and the favorable impact of FX, Revenue was up 18% compared to the same period last year. Our aftermarket parts consumables revenue was up 28% to a record $131 million in Q3. The consistently high operating rates of our customers and strong in-market demand contributed to our record aftermarket performance. Solid execution contributed to boosting our adjusted EBITDA margin to 20.5%, which led to our excellent operating cash flow of $38 million in Q3. All of our operating segments delivered excellent adjusted EBITDA margin performance despite the continuing inflationary pressures from materials and the ongoing supply chain constraints. Bookings were exceptional in the quarter, up 71% to a record $245 million. Excluding acquisitions and FX, bookings were up 57% with contributions from all three of our operating segments. I'll review the performance of these segments next, beginning with our flow control group. Flow control segment achieved its fifth consecutive increase in quarterly revenue, reaching a record $76 million in the third quarter, up 34% compared to Q3 of last year. Aftermarket parts revenue was exceptionally strong and made up 72% of total Q3 revenue. Bookings were also a record at $77 million, up 55% compared to last year. Organic bookings, which excludes acquisitions and FX, were up 32% compared to the same period. Strong performance in Europe and North America led our bookings growth in Q3. Improved operating leverage led to record-adjusted EBITDA and our adjusted EBITDA margin of 29.1%. While our recent acquisition of Clues contributed to our overall performance, organic growth within our flow control group continued to demonstrate the strength of this segment. Our industrial processing segment continued to experience strong demand, with bookings nearly doubling from the same period last year to a record 119 million. New orders for our fiber processing systems in the U.S. and Europe led this increase in the third quarter. Overall demand for housing and wood products remained high, and our wood processing product line capitalized on strong in-market demand. Revenue in this segment increased 31 percent to 82 million, with strong performance in aftermarket parts and capital business. adjusted EBITDA was up 24% while adjusted EBITDA margin declined compared to Q3 of last year when we received employee retention benefits related to the pandemic. As you may have read in the press, China is experiencing power supply issues. This has created a challenge for us with production schedules, and it is uncertain how long this will impact our operations. We are also seeing an increasing number of requests from our customers to delay shipments as they manage supply chain constraints. In spite of these headwinds, We entered the quarter with another record backlog that positions us well for the remainder of the year. Moving to our material handling segment, we experienced healthy demand for our capital equipment and aftermarket parts. Revenue was up 17% to $42 million with parts revenue making up 59% of total revenue in the quarter. Bookings in this segment were up compared to the same period last year to a record $49 million in Q3. We saw increased order activity and strong demand for high-performance bailers which contributed to our record bookings in the third quarter. Our recent acquisition, Bell Master, is also experiencing record demand, and integration of that business in the cadence is proceeding well. Solid execution by our billing businesses, including our recent acquisition, helped boost adjusted EBITDA by 26% and adjusted EBITDA margin by 120 basis points compared to the same period last year. Despite the supply chain issues I mentioned earlier, we remain optimistic for improved capital investment environment as infrastructure spending and industrial demand for raw bulk materials grow. As we look ahead to the remainder of 2021, we continue to see signs of healthy project activity. Our decentralized structure continues to serve us well during these rapidly evolving times, allowing us to respond quickly to local and regional developments. Our record backlog has us well positioned for the remainder of the year. However, delays in shipments and the timing of orders have shifted some expected revenue bookings from Q4 into 2022, which Mike will comment on in his remarks. With that, I'd like to pass the call over to Mike to review our Q3 performance.