Kadant Inc

Good day, and thank you for standing by. Welcome to the second quarter 2022 Caden, 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'll need to press star 1-1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike McKinney, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, Catherine. Good morning, everyone, and welcome to Cadence's second 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'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 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 statements, 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'll 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 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 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 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 second quarter results and discuss our business outlook for the second half of 2022. I'll begin by reviewing our operational highlights for the second quarter. I'm pleased to report we had a solid quarter with strong demand and excellent execution across all our operating segments. This performance led to record adjusted EBITDA and strong earnings in the second quarter. While our aftermarket demand was very healthy, capital project activity was exceptionally strong, leading to bookings that would have been a new record if not for the negative impact from foreign currency translation associated with the strengthening dollar. Mike will discuss the impact of FX in more detail in his comments. Once again, I'd like to thank our operational teams around the globe for continuing to do a fantastic job in managing our businesses and ensuring that our products get to our customers when needed despite the supply chain disruptions. They've done a great job of meeting our customers' needs in a very challenging environment. Turning now to slide six, I'd like to review our Q2 financial performance. Our top-line performance was supported by excellent aftermarket demand and capital order shipments leading to revenue increase of 13% compared to the same period last year. Aftermarket parts revenue was up 17% and represented 66% of our Q2 revenue. Solid execution contributed to our adjusted EBITDA margin of 20.7% and adjusted EPS of $2.24, up 11% compared to Q2 of last year. We continue to benefit from strong demand in Q2, especially in North America and Europe. Bookings were up 25% to $266 million, with a solid contribution from our material and handling segment, which benefited from our recent acquisition and robust demand for our bulk material handling products. As you know, we typically manufacture and sell in the same currency. This quarter, our bookings were significantly affected by currency translation and reduced our reported bookings by $10 million. Excluding acquisitions and the impact of FX, bookings were up 17% compared to the same period last year and reflect the ongoing demand from our customers. Next, I'd like to discuss our three operating segments, beginning with our flow control. Our flow control segment had excellent bookings and revenue in the second quarter, up 36% and 20% respectively, compared to the same period last year. Our aftermarket parts revenue was a record and made up 73% total revenue in the second quarter. Improved operating leverage led to a record adjusted EBITDA and an adjusted EBITDA margin of 29.3%. Our flow control segment's record setting bookings performance in the first half of the year is expected to moderate some in the second half. However, with our record backlog We expect a strong second half of the year. Moving to our industrial processing segment, we continue to experience healthy demand with bookings in this segment up 8% to $110 million. Excluding the negative impact of FX, bookings were up 12%. New orders for our wood processing and recycled fiber systems in North America led to the increase in bookings in the second quarter. Revenue in this segment increased 2% to $84 million and was affected by an unfavorable currency translation, excluding the impact of FX, revenue growth was 6% compared to the same period last year. Our adjusted EBITDA margin declined 320 basis points to 21.8%, due largely to lower gross margins on capital sales in the second quarter, as anticipated, and the prior period including government assistance programs for COVID relief. Incremental price programs have offset inflationary costs and allowed us to maintain gross margin parity in our aftermarket parts business. We ended the quarter with another record backlog, and this positions us well for the remainder of the year. Like our flow control segment, we are expecting a slowdown in bookings in the back half of the year. In our material handling segment, we had record demand for aftermarket parts and solid top and bottom line contribution from our recent acquisition. Revenue in the second quarter was up 23% to $52 million, and aftermarket parts revenue made up 56% of total revenue. Capital bookings in our materially handling segment were up 93% compared to the same period last year, due largely to contributions from our recent acquisition. Excluding acquisitions and the negative impacts from FX, bookings were up 24%. Solid execution by our business in this segment helped boost adjusted EBITDA by 42% and adjusted EBITDA margin by 300 basis points. Capital project activity remains at a good level yet we expect a moderation in demand, particularly in our European bellar business as the second half of the year unfolds. As we look ahead to the second half of 2022, we continue to see good levels of project activity despite the ongoing macroeconomic challenges. Though, as I mentioned, we do expect industrial demand to moderate to a more balanced level compared to the record levels we've experienced in the recent quarters as consumer demand slows in response to actions taken by central banks to control inflation. Our record backlog and ability to generate robust cash flow continue to 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. With that, I'll turn the call over to Mike for a review of our financial performance in Q2 and our guidance outlook for the remainder of the year. Mike.