Kadant Inc

Ladies and gentlemen, thank you for standing by and welcome to CADEN first quarter 2025 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you would 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 would like now to turn the conference over to Michael McKinney, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, Michelle. Good morning, everyone, and welcome to Cadence First Quarter 2025 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. The last 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 December 28, 2024, 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 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 cadent.com. Finally, I wanted to note that when we refer to GAAP earnings per share or EPS and adjusted EPS on the 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 Cadent's 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 first quarter results and discuss our business outlook for 2025. Before I get into my remarks on our Q1 performance, I'd like to take a few minutes to outline the actions we've taken so far to understand the implications of the tariffs on our industries, supply lines, customers, and how we might respond based on a variety of scenarios we've considered. Each of our operating teams is assessing their supply chain vulnerability to understand our exposure to potential tariffs and the impact it could have on our operations. This assessment includes potential changes in cost, impacts on production and lead time, and how we would address these factors. I should note that one of the strategic benefits of our decentralized structure is our ability to respond quickly to changing economic circumstances. We're also exploring alternate supply sources with the feasibility of switching suppliers in response to change trade relationships and tariffs. While we have a good handle on the known alternatives, the fluidity in the trade policies make decision-making more complicated in the short term. At Cadence, we are fortunate to have experienced operations leaders around the globe who base decisions on local conditions and information from our global network of companies. Based on our analysis to date, We believe we are well positioned to react to changes in trade policy and relationships while maintaining our high level of support to our customers. As you know, CADA, with few exceptions, manufactures in the regions we sell in. Currently, we do not believe any of our competitors gain a benefit from the tariffs. Later in our review, Mike will provide our estimate of the financial impact tariffs could have on our business. Now, let's go into the first quarter performance. with operational highlights. Despite the high-level uncertainty fueled by the global tariffs and stiff economic headwinds in Europe and China, our first quarter came in as expected across most financial metrics. Demand for aftermarket parts was robust, and our operations teams around the globe once again executed extremely well in a challenging environment and delivered high value to our customers. This led to strong margin performance and solid free cash flow. Turning now to our first quarter financial performance in slide six, I'd like to highlight a few metrics that I believe are fundamental to our growth story. First, our new order activity was up in the first quarter despite the relatively low capital business. The uncertainty created by the rapidly evolving tariff situation has delayed capital equipment orders as our customers assess potential impact on their businesses. Aftermarket parts bookings represented 74% of our total bookings, and was a record 190 million. As many of you know, the first quarter of the year is often our strongest quarter in terms of parts bookings as our customers prepare for annual maintenance shutdowns. This strong demand benefits from our large installed base and our ability to deliver exceptional value to our customers. Second, our free cash flow remained healthy at 19 million. Our asset-light operating model enables us to capture solid cash flows even during challenging and volatile economic times. Revenue in the first quarter declined 4% compared to the same period last year due to weaker capital shipments in our industrial processing segment. Our aftermarket parts revenue made up 75% of Q1 revenue and was up 5% to a record $179 million. While our gross margin performance was excellent, our adjusted EBITDA of $48 million was down 8% and lower operating leverage led to a decline in adjusted EBITDA margin of 100 basis points compared to the same period last year. Next, I'd like to discuss the performance of each of our three operating segments, beginning with the flow control segment. The flow control segment experienced solid demand in the first quarter, led by our North American businesses. Bookings of $100 million were up 6% compared to Q1 of last year. Q1 revenue increased 7% to $92 million with strong performance in our fluid handling product line, which includes our most recent acquisition. Aftermarket parts revenue made up 76% of total Q1 revenue and is expected to remain stable as the year progresses. Our high percentage of aftermarket parts revenue helped drive adjusted EBITDA up 8%, resulting in adjusted EBITDA margin of 28.3%. We expect to deliver strong performance again this year in our flow control segment, despite transitory headwinds being introduced by the current geopolitical climate. Turning now to our industrial processing segment in slide eight, our aftermarket parts business was relatively stable, which helped to offset the weaker capital business in the first quarter. G1 revenue declined 15% compared to then record $106 million set in the same period last year. This was largely due to a significant decline in capital shipments that was expected based on the relative softness in capital projects through 2024, particularly in our wood processing product line. after market parts revenue of Q1 made up a record 80% of total revenue in this segment. Q1 bookings, on the other hand, were up 3% compared to the prior year period, 92 million. There continues to be significant capital project activity developed in this segment, though the current chaotic geopolitical environment makes the timing of these orders even more uncertain. The weaker revenue volume led to reduced operating leverage and adjusted EBITDA margin of 24.2%. Overall, our first quarter performance in this segment was soft. This segment has high exposure to large capital business, and the elevated uncertainty in global trade policy has significantly impacted the timing of capital projects. In our material handling segment, we experienced solid demand for aftermarket parts, which helped to offset a softer capital environment in the first quarter. Revenue of $57 million was up slightly compared to the prior year period, with aftermarket parts making up 65% of Q1 revenue. Demand for capital equipment was down from the prior year period, and overall bookings were flat. We are seeing growing activity in this segment, particularly in our high-performance Beller product line, and expect a number of capital projects to be executed in the coming quarters, although the timing can be somewhat uncertain. Adjusted EBITDA margin of 20.2% of revenue was flat compared to the same period last year. Despite the geopolitical and trade uncertainties, the outlook for this segment remains positive as the end markets we serve, such as aggregates, mining, waste management, recycling, are fundamentally strong. As we look to the second quarter of 2025 and the full year, we remain focused on strengthening our businesses around the world and adapting to navigate these challenging times. Despite the increasing uncertainty that limits our visibility, the longer-term underlying fundamentals of our markets remain strong. Our aftermarket business continues to provide strength and stability, even as capital project activity is affected by global trade and tariff uncertainties. We are confident in our ability to deliver our value proposition. Our balance sheet remains healthy. Our ability to generate strong free cash flow is solid. With that, I'll turn the call over to Mike.