Kadant Inc

Good day and thank you for standing by. Welcome to the fourth quarter 2023 CADENT 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 a session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1. Again, please be advised that today's conference is being recorded. I will now attend the conference. Over to your first speaker today, Michael McKinney, Executive Vice President and CFO. Please go ahead.

Thank you, Victor. Good morning, everyone, and welcome to CADEN's fourth quarter and full year 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 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 December 31, 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 due 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 fourth quarter and full-year 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 Cade's business and future prospects. Following Jeff's remarks, I will give an overview of our financial results for the quarter and the year, 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 2024. I'm pleased to report the fourth quarter was a solid finish to a record-setting year for Cato. Despite the slowdown in overall manufacturing activity and continued macroeconomic headwinds in many regions, we had another well-executed quarter. This led to solid adjusted EBITDA performance and excellent cash flow in the fourth quarter. Organic bookings were steady in the fourth quarter with solid demand as we delivered on our mission to provide technologies and engineered solutions that help our customers operate more efficiently. At the end of 2023, we were honored to once again be named by Newsweek Magazine as one of America's most responsible companies. This marks the fourth consecutive year of being included on this list, and it is rewarding to be recognized for our efforts in this area. With that, I would like to review our Q4 financial performance. Our fourth quarter performance overall was solid and better than expected in several areas. Q4 revenue and adjusted EPS were both up 3% compared to the same period last year, while bookings were comparable with the prior year period. Although a large portion of our Q4 revenue was from capital shipments, excellent execution resulted in an adjusted EBITDA margin of 20.3%. I'm particularly pleased with our operating cash flow. which was the second highest in our company history at $59 million. Our fourth quarter earnings performance contributed to exceptional full-year financial results, which I will review next with slide seven. The record demand we experienced in the first quarter of 2023 provided an excellent start to the year and contributed to our record-setting revenue performance for the full year. Adjusted EPS increased 9% to a record $10.04, exceeding the prior record set last year at $9.24 per share. Our full-year adjusted EBITDA was a record $201 million and a record 21 percent of revenue. Our strategic focus on improving our margin performance continues to deliver results, and we are pleased with the progress of ongoing initiatives to grow our businesses. Our workforce around the globe deserves tremendous credit for these results, as they performed exceptionally well throughout the year. 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. I'll begin with our flow control segment. Q4 revenue declined 4% to $87 million compared to the then record fourth quarter of 2022. Aftermarket parts revenue was up slightly compared to the prior period and made up 68% of total revenue. Product mix within both parts and capital negatively affected gross margin, and this led to an adjusted EBITDA margin of 27% in the fourth quarter. Bookings were up 8% compared to the same period last year. This strong finish to the year positions us well entering 2024. We believe the fundamental drivers of rent markets remain healthy, so business activity continues to be influenced by geopolitical and macroeconomic challenges around the globe. Turning now to our industrial processing segment, our performance in the fourth quarter was solid despite the softening in some of our core end markets. Revenue declined 3% compared to the same period last year due largely to fewer capital shipments of our stock prep equipment used to process recycled fiber. Aftermarket parts revenue, however, was up 5% and represented 64% of total revenue in the fourth quarter. Adjusted EBITDA margin declined to 110 basis points compared to the prior year, but remained strong at 23.8% of revenue. This decline was largely attributed to a decrease in operating leverage associated with lower capital revenue. Looking ahead to 2024, we expect demand in this segment to shift towards aftermarket parts versus capital, particularly with the addition of our recently announced acquisition of KeyKnife. KeyKnife is a manufacturer of engineered knife systems used in various wood processing applications. More than 90% of its revenue is aftermarket parts. In addition, a key knife to our industrial processing segment is expected to further strengthen our aftermarket position in this segment. In our material handling segment, revenue increased 27% in the fourth quarter to a record $64 million. Strong bookings in the first half of the year contributed to this record-setting performance. Capital equipment revenue was exceptionally strong and represented 55% of total revenue in the quarter, led by our conveying product line. Despite the large portion of revenue attributed to capital business, we achieved excellent operating leverage and adjusted EBITDA margin increased 350 basis points to 22.1% in the fourth quarter. The integration of KWS manufacturing acquired a few weeks ago is underway and progressing well. We are pleased to have this leading manufacturer of screw conveyors and related equipment a part of KM. Looking ahead to 2024, we believe this segment will continue to see good business activity, particularly as new infrastructure projects are executed and demand for KM main equipment remains strong. As we look ahead to the first quarter of 2024 in the full year, ongoing project activity is healthy and demand has been solid as we've entered the year. That said, we are seeing continuing economic uncertainty around the globe and expect demand in 2024 to be similar to 2023. Our strong 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 solid financial performance again this year. I'd now like to pass the call over to Mike for his review of our financial performance and outlook for 2024.