When we use the terms "we," "us," "our," and the "Company," we meanKadant Inc. , aDelaware corporation, and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates. This Quarterly Report on Form 10-Q and the documents we incorporate by reference in this report include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements are not statements of historical fact and may include statements regarding possible or assumed future results of operations. Forward-looking statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management, using information currently available to our management. When we use words such as "believes," "expects," "anticipates," "intends," "plans," "estimates," "seeks," "should," "likely," "will," "would," "may," "continue," "could," or similar expressions, we are making forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions. Our future results of operations may differ materially from those expressed in the forward-looking statements. Many of the important factors that will determine these results and values are beyond our ability to control or predict. You should not put undue reliance on any forward-looking statements. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. For a discussion of important factors that may cause our actual results to differ materially from those suggested by the forward-looking statements, you should read carefully Risk Factors included in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year endedJanuary 2, 2021 , as filed with theSecurities and Exchange Commission (SEC) and as may be further amended and/or restated in subsequent filings with theSEC .
Overview
Company Background We are a global supplier of high-value, critical components and engineered systems used in process industries worldwide. Our products, technologies, and services play an integral role in enhancing process efficiency, optimizing energy utilization, and maximizing productivity in resource-intensive industries. Our financial results are reported in three reportable operating segments: Flow Control, Industrial Processing, and Material Handling. The Flow Control segment consists of our fluid-handling and doctoring, cleaning, & filtration product lines; the Industrial Processing segment consists of our wood processing and stock-preparation product lines; and the Material Handling segment consists of our conveying and screening, baling, and fiber-based product lines. A description of each segment is as follows: •Flow Control - Custom-engineered products, systems, and technologies that control the flow of fluids used in industrial and commercial applications to keep critical processes running efficiently in the packaging, tissue, food, metals, and other industrial sectors. Our primary products include rotary sealing devices, steam systems, expansion joints, doctor systems, roll and fabric cleaning devices, and filtration and fiber recovery systems. •Industrial Processing - Equipment, machinery, and technologies used to recycle paper and paperboard and process timber for use in the packaging, tissue, wood products, and alternative fuel industries, among others. Our primary products include stock-preparation systems and recycling equipment, chemical pulping equipment, debarkers, stranders, chippers, and logging machinery. In addition, we provide industrial automation and digitization solutions to process industries. •Material Handling - Products and engineered systems used to handle bulk and discrete materials for secondary processing or transport in the aggregates, mining, food, and waste management industries, among others. Our primary products include conveying and vibratory equipment and balers. In addition, we manufacture and sell biodegradable, absorbent granules used as carriers in agricultural applications and for oil and grease absorption. Industry and Business Overview We had record bookings of$204 million in the first quarter of 2021 due to strong demand for our parts and consumables products, as well as a high level of capital project activity. This follows the previous bookings record set in the fourth quarter of 2020 as our businesses rebounded from the impact of the COVID-19 pandemic, which began to affect our Chinese operations inFebruary 2020 and our other major operations late in the first quarter of 2020. As a result, our bookings and revenue were adversely impacted for a substantial part of 2020 due to reduced or delayed spending by our customers. 20
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Table of Contents
KADANT INC. However, many of the markets in which we operate began to normalize in the latter part of 2020. We ended the first quarter of 2021 with a record backlog of$223 million . An overview of our business by segment is as follows: •Flow Control - Orders for our parts and consumables products at all our Flow Control businesses began to recover in the latter part of 2020 and this trend continued through the first quarter of 2021. This was partially due to pent-up demand resulting from the adverse effect of COVID-19 pandemic-related downtimes and shutdowns, as well as visitation restrictions at many customer facilities earlier in 2020. Capital equipment bookings increased from depressed levels encountered during most of 2020, with capital equipment revenue anticipated to increase in the second quarter of 2021. •Industrial Processing - Our wood processing business continues to experience strong demand for its products, fueled by a robustU.S. housing market and high demand for lumber, oriented strand board and plywood, which increased mill run rates resulting in higher parts consumption and capital equipment investment by our customers at our North American operations. Additionally, our European wood processing operation is experiencing a similar impact. While bookings for both parts and consumables products and capital equipment have been strong, revenue related to capital equipment orders will not accelerate until the second quarter of 2021. Conversely, despite several large project orders at ourU.S. and Chinese operations in the fourth quarter of 2020, our stock-preparation business continues to be negatively impacted by delays on large capital projects and reductions in capital equipment spending due to the COVID-19 pandemic, as well as uncertainty inAsia surrounding our customers' response toChina's recovered paper import restriction. The continued strength for our stock-preparation parts and consumables products, due in part to the ongoing recovery from a significant downturn in mid-2020 as a result of the COVID-19 pandemic, partially mitigated the effects of depressed capital equipment orders. •Material Handling - Bookings for parts and consumables products rebounded in the first quarter of 2021 primarily due to increased customer spending as a result of the relaxation of COVID-19 pandemic-related shutdowns and visitation restrictions, which we expect to continue. Demand for our capital equipment has increased in the last few quarters driven by our baling business, which has experienced improved business conditions, including the recovery of recycled commodity prices. While we have seen improved market conditions and increased demand for our products over the last two quarters, there is uncertainty surrounding the continued recovery in certain regions of the world due to variability around vaccine availability and COVID-19 infection rates. Travel and visitation restrictions continue to have an impact on our ability to interact with our customers, which affects the timing of orders. For more information on risks related to health epidemics to our business, including COVID-19, please see Part I, Item 1A, Risk Factors, included in our Annual Report on Form 10-K for the fiscal year endedJanuary 2, 2021 . International Sales Slightly more than half of our sales are to customers outsidethe United States , mainly inEurope ,Asia , andCanada . As a result, our financial performance can be materially affected by currency exchange rate fluctuations between theU.S. dollar and foreign currencies. To mitigate the impact of foreign currency fluctuations, we generally seek to charge our customers in the same currency in which our operating costs are incurred. Additionally, we may enter into forward currency exchange contracts to hedge certain firm purchase and sale commitments denominated in currencies other than our subsidiaries' functional currencies. We currently do not use derivative instruments to hedge our exposure to exchange rate fluctuations created by the translation into theU.S. dollar of our foreign subsidiaries' results that are in functional currencies other than theU.S. dollar. Global Trade In 2018,the United States began imposing tariffs on certain imports fromChina , which has and will continue to increase the cost of some of the equipment that we import. Although we have worked to mitigate the impact of tariffs through pricing and sourcing strategies, we cannot be sure these strategies will effectively mitigate the impact of these costs. For more information on risks associated with our global operations, including tariffs, please see Part I, Item 1A, Risk Factors, included in our Annual Report on Form 10-K for the fiscal year endedJanuary 2, 2021 . 21
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Table of ContentsKADANT INC. Acquisitions We expect that a significant driver of our growth over the next several years will be the acquisition of businesses and technologies that complement or augment our existing products and services or may involve entry into a new process industry. We continue to pursue acquisition opportunities. InJune 2020 , we made an acquisition in our Industrial Processing segment for approximately$6.9 million , net of cash acquired.
Results of Operations
First Quarter 2021 Compared With First Quarter 2020
Revenue
The following table presents the change in revenue by segment between the first quarters of 2021 and 2020, and those changes excluding the effect of foreign currency translation and an acquisition which we refer to as change in organic revenue. The presentation of the change in organic revenue is a non-GAAP measure. We believe this non-GAAP measure helps investors gain an understanding of our underlying operations consistent with how management measures and forecasts its performance, especially when comparing such results to prior periods. This non-GAAP measure should not be considered superior to or a substitute for the correspondingU.S. generally accepted accounting principles (GAAP) measure. Revenue by segment in the first quarters of 2021 and 2020 was as follows: (Non-GAAP)
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