Kadant Inc

Thank you for standing by, and welcome to the fourth quarter of 2021 Caden, Inc. Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Michael McKinney, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, Jonathan. Good morning, everyone, and welcome to Cadence fourth quarter and full year 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 Cadence 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 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 the non-GAAP financial measures to most directly comparable GAAP measures is contained in our fourth quarter earnings press release and 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 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 to 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 fourth quarter and full year results and discuss our business outlook for 2022. The fourth quarter was a solid finish to an exceptional year. Despite the uncertainties, brought about by the pandemic, supply chain constraints, and macroeconomic headwinds, we had another well-executed quarter and generated record cash flow among several other financial records. Good capital project activity across all our operating segments and robust aftermarket demand led to strong bookings and record backlog. I'll provide more details about this activity when I discuss the results of our operating segments. Our balance sheet remains healthy and we finished the year well-positioned to capitalize on new opportunities as they develop. As many of you know, our technologies play a pivotal role in helping our customers advance their sustainability initiatives with product innovations that reduce waste or generate more yield with fewer inputs, particularly fiber, energy, and water. This is what we refer to as sustainable industrial processing, producing more while consuming less, and it is a major element of our strategic focus and value proposition. At the end of 2021, we were honored to be named by Newsweek Magazine as one of America's most responsible companies for a second consecutive year. We were also selected as a winner of the 2021 SEAL Business Sustainability Award in the Environmental Initiatives category. It's rewarding to be recognized for our sustainability efforts and our work towards driving sustainable industrial processing. Turning now to slide six and our Q4 financial performance, You can see we had significant increases across all our key financial metrics and achieved new records in essentially every metric shown in the slide. Q4 revenue was up 30 percent compared to the fourth quarter of 2020 to a record of $219 million. Excluding acquisitions and the favorable impact of FX, revenue was up 18 percent compared to the same period last year. Our aftermarket parts revenue was up 22 percent to a record $137 million. Improved operating performance drove our adjusted EBITDA margin to 20.5 percent, which contributed to our record operating cash flow of $61 million in Q4. All our operating segments delivered excellent adjusted EBITDA margin performance despite the continuing inflationary pressures from material and ongoing supply chain constraints. Our Q4 GAAP EPS and adjusted EPS were up 48 percent and 50 percent expectantly. The record quarterly earnings performance contributed to an exceptional full-year performance, which I'll review next, slide seven. A strong economic momentum at the beginning of the year continued throughout 2021. While the challenges shifted from primarily pandemic-focused issues to supply chain, labor availability, and inflation, we experienced solid demand from our customers and a general feeling of increasing optimism in most regions of the world. Our four-year revenue increased 24% to a record $787 million, while our net income reached a new record at $84 million, up 52% compared to the prior year. As a result, adjusted diluted EPS increased to $7.83, exceeding the prior record set in 2019 at $5.36 per share. As many of you will recall, We set an adjusted EBITDA margin goal of 20% at our Investor Day event in March 2019. At that time, our adjusted EBITDA margin was around 18%. I'm pleased to say we achieved this in 2021 with our full year adjusted EBITDA margin a record 20.3%. This contributed to our record operating cash flow of $162 million and free cash flow of $150 million. Our workforce around the globe deserves tremendous credit for these results as they performed exceptionally well under challenging circumstances. I'm extremely proud of our employees for the innovative work they have done and continue to do to serve our customers. Next, I'd like to review our performance in our three operating segments. Our flow control segment continued its upward revenue trend with solid contributions from our recent acquisition. Revenue increased 30% to a record $78 million in the fourth quarter, aftermarket parts revenue made up 74% of total revenue. Organic revenue, which excludes acquisitions and effects, increased 8% compared to the same period last year. Our integrations business, which we acquired in the third quarter of 2021, is going as planned. While their operating margins are currently lower than our other flow control companies, management is implementing margin improvement initiatives outlined at the time of the acquisition. This includes, among other items, our 80-20 initiatives, which we have launched at a number of our businesses across our operating segments. We are excited about the contributions this acquisition is expected to make in the coming years. Looking ahead, we expect the first half of 2022 to show solid demand for both capital and aftermarket parts. We believe the fundamental drivers of our end markets remain strong, though business activity continues to be influenced by challenges in the supply chain around as well. Turning now to our industrial processing segment, We continue to experience strong demand for our wood processing equipment, both for capital and parts. Our reported bookings were 95 million, which included a booking reversal of 10 million associated with a stock preparation capital project that was booked in the third quarter. The project has recently been put on hold and may not occur in 2022, so we thought it prudent to remove it from our current backlog. New orders for Q4 were 105 million as our customers continue to add capacity and invest in upgrading their operations. Revenue in this segment increased 38 percent to $95 million year-over-year, with capital business driving this surge. Parts revenue was up 9 percent compared to the same period last year and made up 56 percent of total revenue in the fourth quarter. Improved operating leverage and good execution led to a 270 basis point improvement in our adjusted EBITDA margin. Looking ahead to 2022, we expect capital project activity to moderate as many of the new wood processing systems are or will be fully operational this year. That said, we expect this segment to continue to be active in terms of new projects and demand for aftermarket parts. In our material handling segment, we achieved solid gains in our profitability despite the dramatic increases in steel cost and the unpredictability in the supply chain. Demand for our high performance fillers was very strong, as municipalities, box plants, and distribution centers continue to invest in their facilities. Our recent acquisition in this segment, Bell Master, significantly contributed to our fourth quarter results. Revenue increased 15 percent to $45 million. Parts revenue in the fourth quarter made up 59 percent of total revenue. Excluding our acquisition in FX, Q4 revenue was flat due to lower capital revenue compared to our relatively strong prior year quarter. Bookings in our material handling segment increased 31% to a record $52 million. While this increase benefited from our recent acquisition, organic bookings were up 12%, with solid parts demand and capital project activity expected to continue. Looking ahead to 2022, we believe this segment will strengthen as the year progresses and capital projects are executed, particularly in bulk material handling, where we are already experiencing increased business activity associated with U.S. infrastructure spending plans. As we look ahead to the first quarter of 2022 in the full year, ongoing project activity is healthy, and we expect industrial production to maintain its momentum. However, supply chain challenges and policy responses to inflationary pressure do introduce some uncertainty in the latter half of the year. Our record backlog and ability to generate robust cash flows have us well positioned to capitalize on opportunities that may emerge as the year unfolds, and we expect to deliver record financial performance again this year. I'd like to pass the call over to Mike now for review of our financial performance and our outlook for 2022. Mike.