Kadant Inc

Good day and thank you for standing by. Welcome to the Q1 2022 Cadent Inc. Earnings Conference Call. At this time, all 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. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I will now hand the conference over to your first speaker today, Michael McKinney, Executive Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Peter. Good morning, everyone, and welcome to Cadence's first quarter 2022 earnings call. With me on the call today is Jeff Powell, 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 1, 2022 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-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 the most directly comparable GAAP measures is contained in our first 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 wanted to note that when we refer to gap earnings per share or EPS and adjusted EPS on this call, we're 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. Thank you for joining us this morning to review our first quarter results and discuss our business outlook for 2022. We had an excellent start to 2022 with high demand for our parts and robust capital project activity, which led to record bookings, revenue, and adjusted EBITDA in the first quarter. Business activity was strong in most regions of the world, and new order activity was driven by solid demand across all our operating segments. Capital project activity continued its momentum from last quarter, and this was especially true in our industrial processing segment, which had another great quarterly performance. I'll provide more details on that when I review our operating segments. Overall, our healthy balance sheet and strong cash flow have us positioned well to capitalize on growth opportunities. Before moving on to our Q1 financial performance, I want to comment on the global supply chain and how we are continuing to manage this complex situation. Ongoing constraints throughout the global supply chain have continued to push out expected deliveries of materials and components. These challenges have been further affected by the more recent shutdowns in China, with that country's busiest ports severely limited for an extended period. While our decentralized structure helps us to alleviate these temporary shutdowns and logistical delays, The interconnected global supply chain continues to be a challenge, creating significant work to keep our delivery promises to our customers. Operations teams are proactively managing these issues and working tirelessly to meet our customers' needs. This resilience is reflected in our first quarter operating results and the solid execution by our businesses. Turning now to slide six and our Q1 financial performance, You can see we had significant increases across these financial metrics compared to Q1 of last year. One of the more notable highlights was our record bookings performance, up 30 percent compared to last year. Q1 revenue was up 31 percent compared to the first quarter of 2021 to a record $226 million. Excluding acquisitions and the unfavorable impact of FX, revenue was up 22 percent compared to the same period last year. Our aftermarket parts revenue was up 24 percent to a record $146 million and made up 65 percent of Q1 revenue. Improved operating performance led to our adjusted EBITDA margin of 20.2 percent and record adjusted EBITDA of $46 million. All our operating segments delivered excellent adjusted EBITDA margin performance despite inflationary pressures for materials and ongoing supply chain issues. We generated $3.53 of GAAP diluted EPS, which included a gain on the sale of the building. And our adjusted EPS was up 49 percent to $2.28. Cash flow in Q1, which is historically a weaker quarter, increased 24 percent compared to the same period last year to $24 million, while our free cash flow was $21 million. All three of our operating segments experienced increased business activity and delivered solid financial results. I'll review these segments next. Our flow control segment achieved its third consecutive increase in quarterly bookings and set a new bookings record at $100 million. This performance was led by strong contribution from aftermarket parts orders and our recent acquisition. Excluding our acquisition and then favorable impact of FX, bookings were up 18% compared to the same period last year. Q1 revenue was also a record, up 35% compared to the first quarter of last year, $86 million, while organic revenue, which excludes acquisitions and FX is up 18%. Improved operating leverage led to a 33% increase in adjusted EBITDA compared to Q1 of 2021 and an adjusted EBITDA margin of 28%. Although we expect to deliver another record-setting performance this year in our flow control segment, the strong start to the year is expected to moderate as the year progresses for several reasons. The first one is seasonality. As many of you know, the first quarter of the year is historically our strongest quarter in terms of bookings as our customers prepare for annual spring maintenance shutdowns. Second, the strengthening economic headwinds and the Russian-Ukraine conflict lead us to believe business activity in the latter part of the year could moderate. That said, we believe the fundamental drivers of our core end markets remain strong. Turning now to our industrial processing segment, We continue to experience strong demand for both capital and parts in the first quarter. Q1 bookings increased 23% compared to the prior year with robust capital project activity in the recycled packaging and wood processing sectors leading the growth. Revenue in this segment increased 35% to 93 million as our customers continue to experience strong end market demand and maintain the high operating rates to meet that demand. Good execution and improved operating leverage led to a 260 basis point improvement in our adjusted EBITDA margin. Our wood processing and packaging customers have been investing at an accelerated pace over the past 18 months to meet customer demand. As more capacity comes online later this year, capital project activity is expected to return to a more balanced level compared to the record-setting pace we have been experiencing. An area where we are seeing growing interest is the application of OSB as a substitute for medium density fiberboard, also known as MDF, used in furniture. This is particularly evident in China, where a growing number of furniture manufacturers are exploring the use of OSB in furniture production. So far this year, we have booked orders for six stranding systems from producers in China and are in active discussions for several more projects. We currently have nine of our stranders operating in China, and once these six additional machines are up and running, we will have 15 OSB production lines operating in China. This emerging market segment has potential to develop rapidly once the application is proven successful, and we are encouraged by the activity already this year. In our material handling segment, strong demand for our bellars and bulk material handling equipment led to record bookings of $60 million in the first quarter. While this increase benefited from our recent acquisition, organic bookings were up 23%. Demand for our high-performance spellers was excellent, as box plants and distribution centers continued to invest in their facilities. Revenue increased 20% to $48 million, and parts revenue in the first quarter made up 61% of total revenue. Excluding our acquisition and FX, Q1 revenue was up 4% compared to the relatively strong prior year quarter. Adjusted EBITDA margin increased 230 basis points and is expected to benefit from improved operating performance as the year progresses. As we look ahead to the second quarter of 2022 and the full year, ongoing project activity is healthy and we expect industrial production to maintain its momentum. Our record backlog and ability to generate robust cash flows has us well positioned to capitalize on opportunities that may emerge as the year unfolds. We expect to deliver record financial performance again this year and are raising our full year 2022 guidance. Mike will discuss this in more detail, and with that, I'll turn the call over to Mike.