Kadant Inc

Good day, and thank you for standing by. Welcome to the Canon Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are on 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 1-1 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 revise that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Michael McKinney, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, Marvin. Good morning, everyone, and welcome to CADEN's fourth quarter and full year 2025 earnings call. With me on the call today is Jeff Pollar, 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 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 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 cadent.com. Finally, I want 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'll 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. Today, I'll review our fourth quarter and full year 2025 results and our outlook for 2026. Let me begin with our operational highlights. We closed the year with solid performance despite a challenging macro background that included tariff volatility and continued cost pressures. Our performance led to solid margin results and strong cash flow in the fourth quarter, which I will outline in the next slide. Additionally, at the end of 2025, Newsweek recognized us as one of America's most responsible companies for the sixth straight year, and we're honored to be included on that list once again. Our fourth quarter performance benefited from the acquisitions we completed in 2025 and solid demand in our flow control and material handling segments. Revenue increased 11% to a record $286 million, led by contributions from our recent acquisitions and record aftermarket parts business. Demand remained solid across all three operating segments, with bookings increasing 12% compared to the same period last year. While acquisitions accounted for most of the growth, in the new orders, organic demand was stable year over year and improved sequentially. Adjusted EBITDA was up 11% compared to the same period last year. Our adjusted EBITDA margin was 20.3%. Strong execution by our global operations teams played an important role in delivering value to our customers and driving our fourth quarter operating performance. Our Q4 operating cash flow was excellent at $61 million. Next, I'd like to review our full-year financial metrics with slide seven. Stable demand combined with contributions from our two recent acquisitions drove solid revenue performance of $1.05 billion in fiscal 2025, with aftermarket parts making up a record 71% of our total revenue. Softness in capital project activity combined with rising tariffs and other cost pressures resulted in adjusted EPS of $9.26 a share compared to the prior year record of $10.28 per share. Despite ongoing economic and geopolitical headwinds, our free cash flow increased 15% to a record $154 million. The volatility and magnitude of the tariffs proved to be quite challenging for us in 2025. I'm proud of our employees for the innovative work done to maximize value for our customers and our stockholders. Next, I'd like to review our performance for three operating segments. I'll begin with our flow control segment. Q4 revenue increased 5% to $100 million with strong performance in North America, offsetting weaker performance in Europe. After markets, parts revenue was up 9% compared to the prior year period and made up 73% of total revenue. Adjusted EBITDA and margin were down compared to the same period last year due to weaker gross margins related to tariffs and product mix. While bookings were up 7% compared to the same period last year, softness in manufacturing sector persisted, particularly in Europe and Asia. We believe the long-term market trends impacting industrial markets, such as automation, defense, and energy, will continue to drive new opportunities for growth if business activity continues to be influenced by geopolitical and macroeconomic challenges around the globe. In our industrial processing segment, capital project activity remained relatively soft throughout 2025, and continued at similar levels in the fourth quarter. Our performance in this segment, however, benefited from the additions of Clyde Industries and Bambini, both of which were acquired in the second half of the year. Integration efforts for these businesses are progressing well, and they are expected to contribute positively in the years ahead. Revenue rose 16% to $118 million compared to the same period last year, and aftermarket parts revenue grew 31% in the fourth quarter and represented 76% of revenue. Adjusted EBITDA margin improved by 90 basis points year-over-year, driven largely by a more favorable product mix. As we look ahead to 2026, there's increasing project activity, and we expect demand for our capital equipment to strengthen as customers move forward with planned capital projects. In our material handling segment, we delivered solid year-over-year performance improvement in bookings, revenue, and margins. Fourth quarter revenue increased 11% to $69 million, driven by strong growth in capital revenue compared to the prior year period. Aftermarket parts made up 53% of total revenue and remained steady throughout the year. Margin performance strengthened as well, with adjusted EBITDA margin increasing by 130 basis points to 22.1%. Looking ahead to 2026, we are encouraged by the high level of project activity and are well positioned to secure new business. Ongoing modernization efforts in the recycling and waste management sectors, as well as infrastructure and data center construction, are expected to drive the anticipated increase in order activity. Looking to 2026, capital project activity is looking to improve demand for aftermarket parts and continues to be steady as we start the new year. Additional, although industrial demand is projected to pick up, Uncertainty persists regarding the timing of capital orders due to ongoing economic and geopolitical instability. Overall, our healthy balance sheet and ability to generate significant cash flow position us well to pursue new opportunities that develop, and we are committed to achieving improved financial results this year. With that, I'll turn the call over to Mike for a review of our financial results and our 2026 outlook.

Mike. Thank you, Jeff. I'll start with some key financial metrics from our fourth quarter. Revenue was a record 286.2 million, up 11% compared to the fourth quarter of 24, including an 8% increase from acquisitions and a 3% increase from the favorable effect of foreign currency translation. Gross margin increased 50 basis points to 43.9% in the fourth quarter of 25, compared to 43.4% in the fourth quarter of 24, due to a favorable increase in the proportion of aftermarket parts, which increased to 70% of total revenue compared to 67% in the prior period. There was a 40 basis point negative impact from the amortization of acquired profit and inventory in both periods. As a percentage of revenue, SG&A expense increased to 28.3% in the fourth quarter of 25 compared to 27.3% in the prior year period. SG&A expenses were $80.9 million in the fourth quarter 25, increasing $10.3 million, or 15%, compared to $70.6 million in the fourth quarter 24. The increase in SG&A expenses includes $7 million in SG&A expense related to our 2025 acquisitions and a $1.7 million unfavorable effect of foreign currency translation. Our GAAP EPS was $2.04 in both periods, and our adjusted EPS increased to $2.27 and was just above the high end of our guidance range of $2.05 to $2.25 in the fourth quarter. Adjusted EBITDA increased 11% to $58 million and represented 20.3% of revenue. For the full year, revenue was $1,052,000,000 compared to $1,053,024, including a 3% increase from acquisitions and a 1% increase from the favorable effect of foreign currency. Gross margin increased 90 basis points to 45.2% compared to 44.3% in 24 due to a favorable increase in the proportion of aftermarket parts which increased to a record 71 percent of total revenue compared to 66 percent in 2024. Gross margin included a negative impact from the amortization of acquired profit and inventory of 20 basis points in 25 and 40 basis points in 24. Excluding this impact, gross margin was up 70 basis points over 24. As a percentage of revenue, SG&A expenses increased to 28.7% in 25 compared to 26.6% in 24. SG&A expenses were $301.9 million in 25, increasing $21.9 million, or 8%, compared to $279.9 million in 24. Approximately 60% of this increase relates to our acquisitions. which had SG&A expenses of $13.2 million in 25. The remainder was primarily due to a $2.2 million unfavorable effect of foreign currency translation and higher compensation-related costs. Our GAAP EPS was $8.65 in 25, down 9% compared to $9.48 in 24, and our adjusted EPS was $9.26 down from $10.28 and 24. Now turning to our cash flow performance. We finished the year with very strong cash flow. As you can see from the chart, we had stronger operating cash flow in the last two quarters of 25 compared to the first two quarters. For the full year, operating cash flow increased 10% to a record 171.3 million compared to 155.3 million and 24. Our free cash flow was also a record at 154.3 million and 25, increasing 15% over 24. We had several notable non-operating uses of cash in the fourth quarter of 25. We paid 173.7 million for the acquisition of Clyde Industries, net of cash acquired. We borrowed 170 million to fund this acquisition and we repaid $53.7 million of debt in the quarter. In addition, we paid $6.1 million for capital expenditures and a $4 million dividend on our common stock. We continue to focus on utilizing our strong cash flows to accelerate the pay down of debt, and I'm pleased we were able to repay $122.2 million this year, or approximately 42 percent of our outstanding debt at the end of 24. Turning to adjusted EBITDA. In the fourth quarter of 25, adjusted EBITDA increased 11% to $58 million compared to $52.4 million in the fourth quarter of 24. As a percentage of revenue, adjusted EBITDA was 20.3% in both periods. For the full year of 25, adjusted EBITDA decreased 6% to $216.3 million or 20.6% of revenue compared to record adjusted EBITDA of $229.7 million or 21.8% of revenue in 24. The weaker performance in 25 is due in large part to lower capital revenue, which was down 16% compared to the prior year. Let me turn to our EPS results for the quarter. Our adjusted EPS increased two cents from $2.25 in the fourth quarter of 24 to $2.27 in the fourth quarter of 25. This includes increases of 17 cents due to higher revenue, 15 cents from the operating results of our acquisitions, excluding the associated borrowing costs, and 9 cents due to higher gross margins. These increases were partially offset by 22 cents due to higher operating expenses, 10 cents due to a higher tax rate, $0.04 due to higher interest expense, and $0.03 due to higher non-controlling interest. Our tax rate was 30% in the fourth quarter of 25, higher than we anticipated due to the impact of global minimum tax regulations, as well as a change in geographic distribution of earnings. Collectively included in all the categories I just mentioned was a favorable foreign currency translation effect of 4 cents in the fourth quarter of 25 compared to the fourth quarter of last year. Now turning to our EPS results for the full year on slide 17. Our adjusted EPS decreased $1.02 from $10.28 in 24 to $9.26 in 25. This includes decreases of $1.06 from revenue, 70 cents due to higher operating expenses, 13 cents due to a higher tax rate, 7 cents from higher non-controlling interest, and 2 cents due to higher weighted average shares outstanding. These decreases were partially offset by 46 cents from higher gross margin, 27 cents in lower interest expense, and 25 cents from the operating results of our acquisitions, excluding the associated borrowing costs. Collectively included in all the categories I just mentioned was an unfavorable foreign currency translation effect of one cent in 25 compared to 24. Now let's turn to our liquidity metrics on slide 18. Our cash conversion days measured, I calculated by taking days in receivables plus days in inventory and subtracting days in accounts payable, increased to 130 at the end of the fourth quarter of 25 from 122 days at the end of 24. The increase in cash conversion days was principally driven by a higher number of days in inventory. Working capital as a percentage of revenue increased to 18.5% in the fourth quarter of 25 compared to 15% in the fourth quarter of 24 due to the lack of full year of revenue for our 25 acquisitions. If you exclude the impact of our 25 acquisitions from this calculation, would be 15.5%, which is slightly above the end of 24. Net debt, which is debt less cash at the end of 25, was $251.8 million compared to net debt of $131.1 million at the end of the third quarter of 25. Our leverage ratio, calculated as defined in our credit agreement, increased to 1.33 at the end of 25 compared to 0.94 at the end of the third quarter of 25. At the end of January, we announced that we had entered into a definitive agreement to acquire a Volstappen-Bohler profile GMBH for approximately 157 million euros, subject to certain customary adjustments. The closing is subject to certain Austrian regulatory approvals and the satisfaction of customary closing conditions. We anticipate that our leverage ratio will increase to just above two with the increase in our outstanding debt once this transaction closes. We had $383 million of borrowing capacity available under our revolving credit facility at the end of 25, which will be reduced by the anticipated acquisition borrowing. Before I review our guidance, I want to remind you that our 26 guidance does not incorporate any assumptions related to the pending acquisition. We anticipate that the closing will occur in the first quarter of 26, and we will revise our 26 guidance as part of our next earnings call. For the full year 26, our revenue guidance is $1,160,000,000 to $1,185,000,000, and our adjusted EPS guidance is $10.40 to $10.75. which excludes 13 cents related to the amortization of acquired profit and inventory. Looking at our quarterly revenue and EPS performance in 26, we expect that the first quarter will be the weakest quarter of the year. This is primarily related to soft capital bookings in the back half of 25. Our revenue guidance for the first quarter of 26 is 270 to 280 million, and our adjusted EPS guidance for the first quarter is $1.78 to $1.88, which excludes nine cents related to the amortization of acquired profit and inventory. I should caution here that there could be some variability in our quarterly results due to several factors, including the variability of order flow and the timing of capital shipments. I wanted to highlight that due to the delayed timing of capital orders, we have a number of large capital projects where we have been actively working with customers and have provided proposals with a cadence solution to meet their needs. We have taken a conservative approach to our 26 guidance given the order delays we experienced in 25. These orders are waiting for customers to have enough clarity with the economic environment to commit to these capital expenditures. As soon as the customers place these pending orders, we will be able to determine the timing of the associated revenue recognition, which provides upside potential for our 26 guidance. We anticipate gross margins for 26 will be approximately 45.2 to 45.7%. As a percentage of revenue, we anticipate SG&A will be approximately 27.7 to 28.3%, and R&D expense will be approximately 1.4% of revenue. In addition, we anticipate net interest expense of approximately $15.5 to $16 million for 26, which does not include any estimated interest expense related to our proposed acquisition. We expect our recurring tax rate will be approximately 27.3 to 27.8 percent in 26, and we expect depreciation and amortization expense will be approximately $60 to $61 million. We anticipate capex spending in 26 will be approximately $23 to $27 million. That concludes my review of the financials, but before we go to our Q&A session, I want to discuss our plan starting in the first quarter of 26 to add back recurring intangible amortization expense in our adjusted EPS calculation. Many of you have suggested that we add back non-cash amortization expense in our adjusted EPS calculation. Historically, we have only added back intangible amortization expense related to acquired backlog, which amortizes relatively quickly in the post-acquisition period. Recurring intangible amortization expense has grown steadily given our significant acquisition activity with a projected annual increase of 22% in 26. These acquired intangible assets are initially recorded as part of purchase accounting and then reduced via a non-cash amortization expense for periods which can extend over 15 years. With this change, our adjusted EPS will be more consistent with our adjusted EBITDA and cash flow metrics, which are not impacted by intangible amortization expense. We believe that the exclusion of this expense from adjusted EPS will allow for more consistent comparisons of our operating results over time and to peer companies. Now I will summarize the 26 adjusted EPS guidance and comparative 25 information with this change. For 26, recurring amortization expense is $33.4 million, or $25.1 million, not a tax, and represents $2.13 per share. our adjusted EPS guidance presented today and in yesterday's earnings release was $10.40 to $10.75. After adding back recurring intangible amortization expense, our adjusted EPS guidance for 26 is now $12.53 to $12.88. For 25, recurring intangible amortization expense was $27.4 million, or $22. .6 million net of tax and represented $1.75 per share. Our previously reported EPS of $9.26 for 25 is now $11.01. The recurring intangible amortization expense is 53 cents and 40 cents for the first quarters of 26 and 25, respectively. Our adjusted EPS guidance for the first quarter of 26 is now $2.31 to $2.41, and our previously reported adjusted EPS for the first quarter of 25 of $2.10 per share is now $2.50. We will be issuing an SEC Form 8K filing shortly with formal reconciliations of prior period information. I'll now turn the call back over to the operator for our Q&A session. Marvin?

Thank you. At this time, we'll conduct a question and answer session. As a reminder to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Gary Prestofino of Barrington. Your line is now open.

Oh, hey. Good morning, everyone. Good morning, Gary. Mike, just a couple of housekeeping things here. Do you have the numbers for current assets and current liabilities at year end, Andy?

Yeah, I do. Hang in there and let me look that up. Current assets are $542 million and current liabilities are $228 million.

Okay, thank you. And I was going through this as you were talking, giving your narrative, but consumables in flow control were 73% of revenues, industrial 76% of revenues, and material handling 53% of revenues. Is that right? Yep, yep. Okay, thank you. And then... you're seeing a lot more increased demand for consumable products. Now, some of that is a function of your acquisitions, right? But are you still seeing that your customers are running their equipment really hard and using a lot more consumables in their processes? And that leads you to feel that the capital projects will get better as the year goes on in 2026?

Yeah, Gary, you know, we've kind of said actually most throughout a lot of last year, as we reported that the parts for aftermarket was slightly overperforming our expectations based on the operating rates. As you know, we tend to say that traditionally, for aftermarket, the function of operating rates and operating rates really around the world have been quite, quite low in 25. And the parts business really outperformed that and the, you know, and they did it consistently. And so It clearly was a case where they're running the equipment harder. There's been some capacity taken offline, and they're trying to make up for that. The overall demand, of course, increased last year in most of our markets, even though some capacity was taken offline in certain markets. And so because of that, they had to run the existing equipment harder, and it's older, because they've been under-investing now for nearly three years. That's the only explanation you can have for aftermarket overperforming consistently for such an extended period of time with these lower operating rates is that they're making up for that capacity taken offline by pushing everything harder, and the equipment's just older.

And then lastly, obviously there was a lot of confusion on tariffs as we entered 2025 last year. What's the thought process of your customers now? I mean, you know, you're saying that you're going to see the capital projects start increasing in 2026. I mean, have they basically just got the mindset that, hey, this is going to square out to maybe a 10 to 20% tariffs and, you know, let's reinvigorate our capital projects?

Yeah, I mean, I think, you know, it was the volatility, you know, and, you know, the weekly changes that really, and the breadth of the implementation, you know, in early last year that really shocked everybody and really caused everybody to, you know, to take a wait and see attitude. But things are a little more stable now. And, you know, people realize that they have to continue running their business. You can't stop running your business. You can't stop investing in your business. You'll lose your competitiveness. And so, you know, as things have started to stabilize a little bit and people have absorbed, you know, whatever, whatever tariff impact, you know, for their respective businesses. They've kind of absorbed that. Things are starting to rationalize, and they've got to get back to, you know, increasing efficiency, increasing outputs. You know, everybody, I would say right now the main focus is on improving productivity and driving down costs, not so much on adding new capacity. That tends to be where we're at, with a few exceptions and a couple markets we're in where they are adding capacity. But most places now, it's really trying to squeeze more out of their existing operations and just be more efficient, more productive.

Okay.

Thank you very much.

Thank you. One moment for our next question. Our next question comes from the line of Ross of William Blair. Your line is not open.

Hey. Good morning, gentlemen.

Morning, Ross.

Hey. A couple from me here, and then I'll pass it along. Did you guys give a backlog figure? I may have missed it. And then also, you know, the equipment backlog when we include the client acquisition.

Yep, I can give you a number here. Yeah, when we brought in Clyde, they had a backlog of about 30 million, just as a reference point for you. Our backlog currently at the end of the fourth quarter was 288 million, and the split on that is 60-40, 60% capital, 40% parts. Okay, that's helpful.

And then, I mean, did you guys give organic assumptions within the 2026 guidance?

We didn't, but I'm happy to do that. What, you know, it was really, I would say, kind of flat, a little less than one to 3% was what we modeled. And the point I was trying to stress is that, as you know, Ross, through 2025, We had line of sight on some nice capital projects, and the customers have yet to place the orders for those. So the approach we're taking for 26 is those orders are there. We think the customers will place those. They're significant orders. There would be meaningful upside for us, but we did not bake that into our guidance. Of course, you know, 1% to 3% organic. There's not a lot of, you know, big capital jobs in there. But there are big capital jobs that are ready to go. And we're hoping that we're going to get to mid-year and customers will have placed some of those orders and we'll be able to take our guidance up.

Okay. So, I mean, I get the sense that most of that organics and the guide is just your confidence around the parts and materials business.

Yeah, capital is up, but, you know, not substantially. You're correct. We're really, it's confidence in parts and consumables. But we do anticipate the kind of, I'd say, single unit capital business to still keep plugging along.

Okay. So that seems to imply then that the capital equipment orders is kind of 290, 300 million run rate we've had the last two years. That's kind of the static base case with potential for upside from there. No expectation that that's going to be going lower? Okay. Awesome. Thank you, guys. I'll pass it along.

Thank you. One moment for our next question. Our next question comes from the line of Kurt Yinger of DA Davidson. Your line is now open.

Great. Thanks. Good morning, everyone. Good morning, Kurt. Mike, you had talked about a large number of capital orders where you've provided proposals and you're sort of waiting to hear back from customers. Maybe just talk a little bit about how unique that is in terms of the time that proposals have been outstanding or maybe the typical timeline where you would expect a proposal to turn into a booking and how that's different today than what you've seen in the past.

Yeah, Kurt. So I would say the, you know, the discussions have been ongoing. A lot of projects that we thought were going to be released in the back half of last year, you know, didn't go away. But again, people, you know, because of the constant changes in, you know, the geopolitical, you know, kind of discussions around tariffs and things really just caused them to say, well, we're just going to wait another quarter. We're going to wait another two quarters here before we do anything. So we really haven't seen any projects kind of go away. We have some projects that we've actually gotten the order, but we're waiting for letters of credit or down payments before it becomes a booking. So there is some activity that has started to move forward, but it's taking longer in some cases to get the bank set up and get the letters of credit and the down payments. And others are just proceeding more slowly. You know, it's just one of caution. I think everybody's looking to see if we've bottomed out and we're going to start to see some growth from a macro level. And so it's probably been, I would say, the capital business has been, the bookings have been as slow, as soft as they've been any time in history when we haven't had a significant recession. We normally, the bookings we've seen the last kind of two and a half years have been stuff we saw back in 08, 09, back when you have a real recession. So it's really unusual to see this kind of softness when the economies are still growing. And I think it's just because of all the uncertainty. The tariff thing, notwithstanding what the current administration says, the tariff thing has been highly chaotic for our customers to manage and to plan and to budget around. It just created a tremendous amount of instability. but as I said earlier when Gary was asking the question, they are starting now to say, okay, things seem to have calmed down a little bit. I mean, we don't like where we're at, but at least we know where we are now so we can start to plan around that. And so that's what we're seeing. But we do know our companies are, many of our companies are over 100 years old. We know history tells us they cannot go forever without investing in the business. The markets we're in are still growing. Even the paper and packaging business, which is a, you know, a chunk of our business right now, you know, it's growing low single digits, but it's still growing. So you cannot underinvest forever in that. So they will have to start to make some investments.

Okay. That's super helpful. And then thinking about, you know, last quarter you talked about some of those larger fiber processing orders that you could kind of recognize on an overtime basis. Is that kind of the main component that you know, maybe element of conservatism where you just have assumed that those won't necessarily come in in the guidance? Or are there other, you know, percolating areas of kind of capital activity across the portfolio that, you know, might be beneficial in there as well?

Yeah, you've really hit it exactly, Kurt. You know, we're just, we're being cautious here as we move into 26. And as I said, hopefully, we'll get some good traction here. And if we get to mid-year, we'll be able to raise guidance if some of these capital bookings are placed.

We are a little bit gun-shy because we thought things were going to strengthen. You remember back when they were talking about things improving at the end of 24, then it moved to the end of 25. And so we're just being, you know, trying to be as cautious as possible. As you know, we tend to always try to and traditionally have always kind of under-promised and over-delivered, and we want to continue that trend. And so we just said, look, it's early in the year. You know, we're going to go out of the gate cautiously, and hopefully, you know, some of these things that are out there that we believe will come in will come in, and we'll be able to, you know, then kind of update you guys accordingly.

Got it. Okay. And You know, you talked about how aftermarket has kind of outperformed expectations and it's maybe been consistently surprising. You know, it's interesting, some of the European peers have talked about a greater focus on that area, arts and services. Are you seeing that or hearing from your teams about that kind of showing up and kind of meaningful change in the competitive environment and maybe any of these smaller kind of parts and consumables category or any commentary on that just in general?

No, I would say 25 was a good year for us. We did have a lot of our competitors come at us hard, and we were able to defend that. And in many cases, if they did get their foot in the door, we were able to kind of turn that around as the year progressed. And so from our standpoint, it was a good year, and our customers – relationships tend to be quite sticky. They've been very, you know, we've had them for a very long time. And so it's held steady. And that, you know, many of our companies had, you know, kind of record, you know, if you look at the percentage of revenue aftermarket, it was a very high level. So we, you know, we're quite pleased with the way our guys performed around the world. That is the daily challenge. Every day when our guys get up in the morning, that's what they're focused on. That's the big challenge is serving the customers with that aftermarket piece. You know, they help our customers stay stay as efficient as possible. And so it's our primary focus, and our guys, I think, did a great job in 25. And, you know, there's always people coming after us. If it's not the big guys from Europe, it's the regional players, you know, that can be quite competitive from a cost standpoint. So it's a challenge that we face every day and always have. But we're quite pleased with the way our guys performed.

Perfect. Okay. And just last one, Mike. if you have it in front of you, could you just give us kind of organic parts and consumables versus capital kind of sales and bookings for Q4?

Yeah.

I have... You wanted both revenue and bookings on that, Kurt? Yeah, if possible. I realize it's a lot of numbers, but... No, that's okay. Organically, I have for the fourth quarter, parts on the revenue side up 3%, capital on the revenue side down 7%. So overall, organically, that comes out to flat. And then on the booking side, I have parts up 4% and capital down 6%. But organically, with the weighting on parts, it puts us up 1% on bookings organically.

Great. Okay. Appreciate the call, guys. Thank you. You're welcome.

Thank you. One moment for our next question. Our next question comes from the line of Walter Liptack of Seaport Research. Your line is now open.

Hi. Good morning, guys. Good morning, Walter. I wanted to do a follow-up on that last question about the aftermarket competition coming out of Europe, it sounds like. If that's the case, how do they compete? Are they competing on a quality aftermarket, or is it a pricing thing? Have you seen any changes in the marketplace for aftermarket because of that?

Traditionally, when somebody's coming in trying to steal market share away from you, assuming your customer is happy with your your product, your service, your performance, the only real leverage they have is to try to undercut you on price. And our customers will always take advantage of that to try to lower their overall cost. And so that's typically what they do it. I mean, in the markets we're in, as you know, we tend to be number one or in one or two slight cases, maybe number two, very strong relationship with our customers really serve them well. So the only way they can really make any real entrees into those markets is to try to really reduce pricing. And frankly, European companies, they've got a cost structure that isn't substantially less than ours. So the only way they can really do it is to just make less money. And if you follow our competitors in Europe, you'll find that they often do make a lot less money than us because they try to undercut our price. But there's a lot more to it. That total cost of ownership is so critical. The technical services that we give them are important. You know, we have guys living in the operations supporting our customers. And because of that, you know, we kind of were able to defend our territory and in some cases, you know, pick up market share. So, you know, it's really nothing new. I mean, you know, like I said, if it's not the big guys coming after us, it's the small regional guys actually the ones that can create more havoc for you because they try to come in and really undercut you on price. But it's, you know, you know, We work very hard to understand our clients' operations and how we can help them create value and stay competitive and increase their throughputs and reduce their inputs. I mean, that's our value proposition, and so that's our daily mission. We work it very hard, and our guys do a great job of it.

Okay, great. Okay, thank you for that. And during your prepared comments, Jeff, I think you commented about – a good funnel for projects in recycling and waste, and data center. And I wonder if you could talk a little bit about those, especially the data center part.

Yeah, so as you know, you know, the housing has been down, but, you know, data center construction is booming. You know, there are massive facilities. And, of course, all the materials they use to make those, for instance, our material handling group, you know, is involved with, right? So you're talking about aggregate sand, concrete, copper, aluminum, you know, everything that goes into building those structures starts out as a natural resource that is mined, processed, screened, sized, cleaned, things like that. And, of course, our material handling group is in all those sectors. And so if you look at some of our big customers out there, you know, the Martin Marietta's and people like that on the sand and gravel side, you know, they're doing quite well in part because it's providing the materials required to build these facilities. You know, the amount of copper, for instance, going into these facilities is quite substantial. So, you know, we support the copper mine operations around the world, of course. You know, the amount of concrete that goes into building one of these. If you've ever seen one of those data center farms, it's some of the biggest buildings that I've ever seen, and they just go forever. And so, you know, basically all that material has to get processed by equipment that we build or our competitors build.

Okay, got it. All right, thank you.

Thank you. One moment for our next question. Again, as a reminder, to ask a question, you will need to press star 1-1 on your telephone. And our next question comes from the line of Ross Barenbeck of William and Bear. Your now is not open.

Hey, Jonathan. Just wanted to follow up here. Can you just give us a sense on where the OSB segment shook out within industrial process for the year?

Well, I will say, Ross, we don't bifurcate that. We usually just talk wood and fiber processing. But that's a bright spot for us, frankly, in the wood processing side. The debarking business servicing dimensional lumber and North American housing is fantastic. you know, really on the capital side is quite soft right now. But OSB just keeps plugging along. They're doing fantastic.

They're finding, you know, first of all, we supply them globally, and we're one of only, you know, I guess technically two companies that are doing that. And they're finding more and more applications, more and more uses for the product. So it just continues to grow.

Okay, that's good to hear.

Siding, you know, of course, you know, they're going into higher, higher value, higher dollar applications for it and new applications for it. They're even starting to do it for, you know, for dimensional and structural elements and things like that, you know, looking at it for, you know, things that traditionally would be, you know, laminated product. So we continue to see more and more demand.

Okay. And then one of your competitors recently called out the vertical integration of the pulp and processing market in China as a, you know, secular opportunity of the coming years. Anything you can speak to as to, like, you know, cadence, content, or how you guys view that market today?

Yeah, so when you, you know, when you put pulp mills in, of course, one of the big issues there is the recovery boilers. And Clyde, of course, you know, who joined us recently, serves that market and so they've got you know, they they provide a lot of the technology into the Chinese market as As these pulp mills are being built traditionally China was almost 100% recycled fiber but when they put the China the Chinese government put the ban in the importing of waste paper They had to go out and search for fiber and when things are going of course, they're putting these pulp mills in and so Clyde is Clyde is over there supplying so the um, you know, the boiler cleaning technology for those applications.

Okay. And then maybe just start one last one on your 80, 20 expectations this year. You guys usually target, you know, two to three divisions, uh, anything more material to call out as like the mix, but in the segments.

No, I mean, we're constantly trying to increase the, you know, the size of our, of our team that leads those efforts, uh, and starting more and more companies up. So, but it's, it's continuing to progress. You know, I think, uh, You know, some of the businesses, I think, started the program late last year, and so, you know, we're expecting maybe towards the end of this year to start to see some results from that. And then, of course, there are others that are just entering it or on schedule to enter it. As you know, normally with acquisitions, the first year, we don't like to do anything with them. We like to kind of get them stabilized and integrated, get them, you know, kind of understanding the programs and kind of, you know, deciding when they want to undertake that initiative. So I'd say for some of the newer companies that are out there, they're still to be started. But it's continuing along. Our team, I think, continues to get better and better at implementing it. And it'll continue to be a primary internal initiative of ours for the years to come.

All right. Well, thanks again, guys.

Thank you. I'm showing no further questions at this time. I'll now turn it back to Jeff Powell for closing remarks.

Thanks, Marvin. Before wrapping up the call today, I just wanted to leave you with a couple takeaways. We finished the year with improving business conditions. We acquired two great companies in the second half of 2025, and the integration of business into the Cato family is going well, and I'm confident that they'll make meaningful contributions in 2026 and beyond. Outlook for 2026 is optimistic with expectations of increased project activity and stable aftermarket demand. And we look forward to maximizing the value that we create for our customers and for our stockholders in 2026. And with that, we want to thank you for joining us today.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.