When we use the terms "we," "us," "our," and the "Company," we mean Kadant Inc.,
a Delaware 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 ended January 2, 2021, as
filed with the Securities and Exchange Commission (SEC) and as may be further
amended and/or restated in subsequent filings with the SEC.

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 in February 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.
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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 robust U.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 our U.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 in Asia surrounding our customers' response to China'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 ended January 2, 2021.

International Sales
Slightly more than half of our sales are to customers outside the United States,
mainly in Europe, Asia, and Canada. As a result, our financial performance can
be materially affected by currency exchange rate fluctuations between the U.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 the U.S. dollar of our foreign
subsidiaries' results that are in functional currencies other than the U.S.
dollar.

Global Trade
In 2018, the United States began imposing tariffs on certain imports from China,
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 ended January 2, 2021.


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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. In June 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 corresponding U.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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