Kadant(KAI) - 2026 Q4 - Annual Report

Financial Performance - Consolidated bookings increased 5% to a record $1.034 billion in 2025 compared to 2024, driven by strong demand for parts and consumables products [191]. - Revenue from capital equipment products decreased 16% in 2025 compared to 2024, primarily due to market uncertainty and trade tensions [206]. - Demand for parts and consumables products represented a record 71% of total revenue in 2025, up from 66% in 2024 [211]. - Industrial Processing segment bookings increased 6% in 2025, with capital equipment bookings in the wood processing product line rising 66% [201]. - Gross profit margin improved to 45.2% in 2025 from 44.3% in 2024, attributed to a higher proportion of parts and consumables revenue [211]. - The Flow Control segment bookings increased 4% in 2025, driven by strong demand for parts and consumables, despite weaker capital equipment demand [194]. - The Material Handling segment bookings increased 6% in 2025, supported by demand from underground mineral mining projects [201]. - Net income decreased to $103.7 million in 2025 from $112.6 million in 2024, attributed to a $14.0 million decrease in operating income [218]. - Adjusted EBITDA for 2025 was $216.3 million, with an adjusted EBITDA margin of 20.6% [227]. Acquisitions and Investments - The company acquired Babbini S.p.A and Clyde Industries Holdings, Inc. for approximately $16.5 million and $173.7 million, respectively, to enhance its Industrial Processing segment [200][202]. - The company entered into an agreement to acquire voestalpine BÖHLER Profil for approximately €157.0 million, subject to regulatory approvals [204]. - Cash used in investing activities decreased to $205.4 million in 2025 from $319.1 million in 2024, with acquisition consideration at $190.0 million in 2025 compared to $300.3 million in 2024 [237]. - Capital expenditures are projected to be between $23.0 million and $27.0 million during 2026 [247]. Expenses and Cash Flow - Consolidated SG&A expenses increased by $21.9 million, or 8%, in 2025 compared to 2024, primarily due to $13.2 million from acquisitions and higher compensation-related costs [212]. - Cash provided by operating activities increased to $171.3 million in 2025 from $155.3 million in 2024, primarily due to reduced cash used for working capital [234]. - Free cash flow for 2025 was $154.3 million, up from $134.3 million in 2024 [227]. - Cash provided by financing activities was $54.0 million in 2025, down from $159.9 million in 2024, with borrowings under the revolving credit facility at $199.0 million in 2025 compared to $305.2 million in 2024 [238]. - Cash dividends paid were $15.8 million in 2025, with a quarterly cash dividend of $0.34 per share declared on November 13, 2025 [246]. Debt and Financing - Interest expense decreased by 22% to $15.6 million in 2025 from $20.0 million in 2024, but is expected to increase significantly in 2026 due to new borrowings for acquisitions [216]. - The company increased its borrowing capacity from $400.0 million to $750.0 million and extended the maturity date to September 26, 2030 [241]. - As of January 3, 2026, the outstanding balance under the Credit Agreement was $366.7 million, with a leverage ratio of 1.33, compliant with debt covenants [242]. Market Risks and Economic Outlook - A prolonged economic downturn and weakness in demand could negatively impact revenue and profitability assumptions, potentially leading to impairment charges [265]. - The company is exposed to market risks from interest rate and foreign currency exchange rate fluctuations, which could impact future financial results [268]. - Long-term debt of $366.7 million bears variable interest rates; a 10% increase in rates would raise annual pre-tax interest expense by $1.2 million [269]. - A 10% decrease in functional currencies relative to the U.S. dollar would reduce stockholders' equity by $87.2 million at year-end 2025 [270]. - Euro-denominated borrowings outstanding at year-end 2025 amount to $92.7 million; a 10% increase in the euro exchange rate would decrease borrowing capacity by approximately $9.3 million [271]. Inventory and Goodwill - Inventory is valued at the lower of actual cost or net realizable value, and changes in demand assumptions may result in write-downs affecting operations [266]. - Goodwill totaled $555.6 million and indefinite-lived intangible assets totaled $29.0 million at year-end 2025, with no impairment indicators identified [263]. - The company recognized $4.4 million in increased SG&A expenses due to the weakening of the U.S. dollar, including $2.2 million from unfavorable foreign currency translation [212].