Kadant Inc

Good day, and thank you for standing by. Welcome to the CADENT second quarter 2023 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 11 on your telephone, and you will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. 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, Abigail. Good morning, everyone, and welcome to CADEN's second quarter 2023 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 CADEN's future plans and expectations financial and operating results, and prospects are forward-looking statements for purposes of 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 our annual report on Form 10-K for the fiscal year ended December 31st, 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 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 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.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, 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 2023. I'll begin by reviewing our operational highlights for the second quarter. I'm pleased to report we had another well-executed quarter with solid aftermarket demand for parts, combined with strong capital business leading to record revenue, record-adjusted EBITDA, and record-adjusted EPS. Our operations teams around the globe continue to deliver value for our customers and perform at a high level as shown by our strong financial performance. They have done a great job in meeting our customers' needs in a challenging environment, and I want to thank them for their outstanding work and the results they've generated. Turning next to slide six, I'd like to review our Q2 financial performance. We achieved a number of new financial records in the second quarter, driven by large capital shipments along with strong contribution from aftermarket parts. Revenue increased 11% to a record $245 million with solid growth across all regions and all operating segments. Strong execution contributed to a record adjusted EBITDA of $52 million, up 12% compared to last year, and representing 21% of revenue in the second quarter. Our adjusted EPS was also a record at $2.54 a share. As economic headwinds strengthen, second quarter bookings decline, from the record set in the first quarter of this year. Capital project activity remains healthy, but as the scope of these projects is refined, the execution timeline has, in some cases, been pushed out to a later date. While the general slowdown in industrial activity over the past few months is reflected in our second quarter new order activity, we have a strong backlog and expect bookings in the second half of 2023 to be similar to the second half of last year. I'll provide more details on that when I review our operating segments. Next, I'd like to discuss our three operating segments beginning with flow control. As you can see on slide seven, our flow control segment had solid bookings coming off of a record first quarter in 2023. Revenue in the second quarter increased 12% to a record $96 million with a strong contribution from capital projects. Our after markets parts revenue remained robust in the second quarter and made up 68% of total revenue. Excellent operating performance led to record adjusted EBITDA and an adjusted EBITDA margin of 29.3%. Our flow control segments bookings performance in the first half of 2023 provided a good start to the year. We expect business to moderate in the second half, reflecting the overall softening in industrial production. That said, the fundamentals of our end markets remain healthy and we are well positioned to capitalize on new projects and opportunities. Our industrial processes segments revenue in the second quarter grew 7% compared to the same period last year. Relative to our other operating segments, our industrial processing segment was more impacted by foreign currency translation in the second quarter, and when excluding the impact of FX, our revenue was up 9%. Strong operating leverage boosted EBITDA margin 40 basis points to 22.2%. As you can see on slide 8, our year-over-year bookings comparison is challenging for the second quarter as we had historic demand in the prior year period. The decline in capital business was largely in our wood processing product line, while demand for parts in this segment was comparable to the same period last year. In our material handling segment, we achieved our best revenue performance since creating this segment, with strong contributions from our bulk material handling equipment leading to record revenue of $59 million in the quarter. Aftermarket parts demand for our high-performance bailing systems, particularly in Europe, was also notable. Bookings in our material handling segment were down 19% compared to the same period last year, largely due to reduced capital project activity in our bailing product line. The record-setting revenue volume, combined with solid execution by our businesses in this segment, helped boost adjusted EBITDA margin to a record 22.9% in the quarter. We are encouraged by the number of infrastructure projects already underway and the additional projects being planned since the passage of the infrastructure bill in the U.S. Inquiries for our material handling equipment continue to increase as infrastructure projects gain traction, and we are well positioned to take advantage of this growing demand. As we look ahead to the second half of 2023, the ongoing economic challenges lead us to believe demand for our products will be similar to that of the second half of last year. Our operations teams around the globe are executing well on their strategic initiatives and making positive strides to create and capture more value. Our robust backlog and ability to generate strong cash flows continue to have 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 23 revenue and EPS guidance. 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. Thank you, Jeff.