Financial Data and Key Metrics Changes - Bookings in Q2 increased by 7% to $269 million, driven by strong capital performance and stable aftermarket demand [9] - Revenue decreased by 7% compared to the record revenue in 2024, primarily due to softer capital orders [9] - Adjusted EBITDA was $52 million, down 15% from the previous year, with adjusted EPS at $2.31, down 18% [10][20] - Gross margin improved to 45.9%, up 150 basis points from 44.4% in Q2 2024, attributed to a higher percentage of aftermarket parts [18] Business Line Data and Key Metrics Changes - Flow Control segment revenue increased by 4% to $96 million, with aftermarket revenue making up 75% of total revenue [12] - Industrial Processing segment bookings rose by 9% to $105 million, but revenue decreased by 16% due to weaker capital shipments [14] - Material Handling segment bookings were $71 million, a 16% increase, but revenue declined by 6% [15] Market Data and Key Metrics Changes - Overall market demand in North America was near historical highs, despite ongoing trade policy uncertainties [6][7] - The integration of Dynamic Ceiling Technologies was completed, enhancing market access and growth opportunities [13] Company Strategy and Development Direction - The company aims to capitalize on strong cash flows and improve backlog, with expectations for industrial demand to strengthen in the latter half of the year [16] - The acquisition of Babini is expected to enhance the company's technology offerings in dewatering equipment [16][70] Management's Comments on Operating Environment and Future Outlook - Management noted that trade policy uncertainties and tariff changes have created a cautious environment for capital investment [11][28] - There is optimism for a strong second half of 2025, with expectations for improved capital project activity [28][62] Other Important Information - The company reported a significant increase in operating cash flow by 44% to $40.5 million compared to the previous year [21] - The backlog improved by 16% to $299 million, with a book-to-bill ratio over one for the second consecutive quarter [25] Q&A Session Summary Question: Expectations for sequential order improvement - Management confirmed expectations for strong third and fourth quarters, with capital orders anticipated to increase [33][34] Question: Sustainability of aftermarket parts revenue - Management believes the strong aftermarket revenue is due to the age of the installed base, with a modest decline expected in Q3 [37] Question: Current assets and liabilities - Current assets were approximately $475 million, and current liabilities were about $200 million [41] Question: Impact of capital equipment orders on aftermarket parts - Management anticipates a moderation in aftermarket parts as capital equipment orders increase, affecting gross margins [47] Question: Characterization of underlying demand for capital equipment - Management noted a cautious but improving demand environment, with significant project activity expected as uncertainties clear [59][62] Question: Contributions from acquisitions - The Babini acquisition is expected to have a small impact on the top line, with potential dilution in the short term [68][70]

Financial Data and Key Metrics Changes - Bookings in Q2 increased by 7% to $269 million, driven by strong capital performance and stable aftermarket demand [8] - Revenue decreased by 7% compared to the record revenue in 2024, largely due to softer capital orders [9] - Adjusted EBITDA was $52 million, down 15% from the prior year, while adjusted EPS was $2.31, down 18% [9][18] - Gross margin improved to 45.9%, up 150 basis points from 44.4% in Q2 2024, primarily due to a higher percentage of aftermarket parts [16] Business Line Data and Key Metrics Changes - Flow Control segment revenue increased by 4% to $96 million, with aftermarket revenue making up 75% of total revenue [11] - Industrial Processing segment bookings were up 9% to $105 million, but revenue decreased by 16% due to weaker capital shipments [12] - Material Handling segment bookings increased by 16% to $71 million, although revenue declined by 6% [14] Market Data and Key Metrics Changes - Overall market demand in North America was near historical highs, despite ongoing trade policy uncertainty [6] - The integration of Dynamic Ceiling Technologies is complete, expanding opportunities within the Flow Control segment [12] - The company noted that the economic environment remains uncertain, impacting capital investment activity [10] Company Strategy and Development Direction - The company aims to capitalize on strong cash flows and improve backlog, with expectations for industrial demand to strengthen in the second half of the year [15] - The acquisition of Babini is expected to enhance the company's technology offerings in dewatering equipment [15][66] - The company is focused on mitigating tariff impacts through supplier collaboration and cost-sharing strategies [24][25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about sequential improvements in bookings and project activity in the latter half of 2025 [9][35] - The ongoing tariff uncertainties are causing customers to delay capital orders, impacting revenue recognition [26][58] - Management anticipates that the second half of the year will be stronger than the first half, with revenue guidance set at $1.02 billion to $1.04 billion for 2025 [27] Other Important Information - The company reported a significant increase in operating cash flow, up 44% to $40.5 million compared to the prior year [19] - Free cash flow increased by 58% to $36.5 million in Q2 2025 [19] - The company maintains a strong liquidity position with $162 million of borrowing capacity available [22] Q&A Session Summary Question: Expectations for sequential order improvement - Management confirmed expectations for strong third and fourth quarters, with capital orders anticipated to increase [32] Question: Sustainability of aftermarket parts revenue - Management indicated that the strong aftermarket revenue is primarily due to the age of the installed base, with a modest decline expected in Q3 [36] Question: Impact of capital equipment orders on aftermarket parts - Management expects a moderate drop in aftermarket parts as capital equipment orders increase, but overall operating rates are anticipated to rise [37] Question: Current assets and liabilities - Current assets were approximately $475 million, and current liabilities were about $200 million [41] Question: Breakdown of parts and consumables revenue - Parts and consumables made up 71% of total revenue this quarter, up from 63% last year [43] Question: Capital equipment bookings and revenue recognition - Management expects capital revenue to pick up in the back half of the year, with some projects recognized over time [44] Question: Tariff impacts on guidance - Management noted that tariff impacts have remained largely unchanged from prior forecasts, with ongoing adjustments being made [72]

SECOND QUARTER 2025 BUSINESS REVIEW JULY 30, 2025 KAI 2Q25 BUSINESS REVIEW– JULY 2025 | © 2025 KADANT INC. ALL RIGHTS RESERVED. 2 Use of Non-GAAP Financial Measures In addition to the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including increases or decreases in revenue excluding the effect of acquisitions and foreign currency translation (organic revenue), adjusted EPS, adjusted earnings before interest, t ...

Financial Data and Key Metrics Changes - The company achieved revenues of $2,890,000,000 in Q2 2025, representing a 21% increase year-over-year and exceeding the high end of guidance [6][8] - Adjusted EPS for the quarter was $1.39, an increase of $0.49 or 54% compared to the previous year [8] - Adjusted operating margin reached 7.4%, marking the highest performance in company history, up 110 basis points year-over-year [6][8] - Adjusted gross margin was 11.7%, up 110 basis points driven by higher volumes and improving mix [8][9] - Adjusted ROIC was 35.5%, compared to 26.6% a year ago, reflecting higher operating profit and strong working capital management [9] Business Line Data and Key Metrics Changes - The ATS segment reported revenues of $819,000,000, up 7% year-over-year, driven by strong demand in capital equipment and industrial businesses [9][10] - The CCS segment generated CAD2.07 billion in revenue, up 28%, primarily due to strong growth in the communications end market [10] - Communications end market revenues increased by 75%, significantly above guidance, driven by demand for HPS networking products [10][11] - The enterprise end market saw a 37% decline in revenue, which was better than the anticipated low 40s percentage decline [10][11] - HPS revenues reached CAD1.2 billion, up 82%, accounting for 43% of total company revenue [11] Market Data and Key Metrics Changes - The company noted minimal impact from tariffs due to exemptions on electronics goods and data center hardware [7] - The cash cycle days during Q2 were CAD66, with a cash balance of CAD314 million at the end of the quarter [12][14] - Free cash flow for Q2 was $120,000,000, an increase of $54,000,000 compared to the prior year [13][14] Company Strategy and Development Direction - The company raised its 2025 annual revenue outlook from $10,850,000,000 to $11,550,000, reflecting a year-over-year growth of 20% [19] - The adjusted EPS outlook for 2025 was increased from $5 to $5.5 per share, representing a year-over-year growth of 42% [19] - The CCS segment is expected to grow nearly 30% for the full year, driven by strong demand for networking products [20] - The ATS segment is anticipated to remain flat compared to 2024, with growth in industrial business offset by lower volumes in A and D business [21] - The company is focused on expanding its service offerings and enhancing its capabilities in response to customer demand [100][102] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the current macro environment, supported by a globally diversified manufacturing network [23][24] - The demand outlook remains strong, with expectations for continued growth in both communications and enterprise segments [57] - The company is prepared to support growth north of 20% per year, with sufficient capacity to meet demand [70] Other Important Information - The company repurchased approximately 600,000 shares for cancellation at a cost of $40,000,000 during the quarter [15] - The gross debt to non-GAAP trailing 12-month adjusted EBITDA leverage ratio improved to 0.9 turns [14] Q&A Session Summary Question: Can you speak to the breadth of customers and platforms for 800 gig switch ports? - Management indicated that every 400G customer has transitioned to 800G, with significant market share gains in the 800G segment [28][30] Question: What is the manufacturing capacity at your campuses to handle growing demand? - The company confirmed sufficient capacity to support an additional $3 billion to $4 billion in revenue, with ongoing investments in key locations [34] Question: Can you discuss the implications of Q3 guidance and full-year guidance for Q4? - Management noted that while Q4 may see growth at 18%, the overall demand outlook remains strong, with higher confidence in customer forecasts [40] Question: What is the status of the 1.6T timing and its impact on future growth? - The company is ramping new programs and expects significant revenue contributions from these initiatives in 2026 and beyond [42][92] Question: How is pricing factoring into discussions with customers? - Pricing is a consideration, but the primary focus is on supply certainty and technology leadership [76] Question: What is the outlook for cash cycle improvements as CCS grows? - Management expressed confidence in cash generation and inventory management, anticipating ongoing improvements in cash cycle days [53] Question: Can you elaborate on the new program pipeline and opportunities with existing and new hyperscalers? - The company is focused on increasing share with existing hyperscalers and exploring new opportunities with digital natives [75]

Financial Data and Key Metrics Changes - Revenue in Q1 2025 declined by 4% compared to the same period last year, primarily due to weaker capital shipments in the Industrial Processing segment [10][20] - Free cash flow increased by 15% to $19 million in Q1 2025 compared to $16.6 million in Q1 2024 [21] - Adjusted EBITDA decreased by 8% to $48 million, with an adjusted EBITDA margin of 20%, down from 21% in the prior year [20][10] - GAAP EPS decreased by 3% to $2.04, while adjusted EPS decreased by 12% to $2.10, exceeding the high end of guidance by $0.05 [20][10] Business Line Data and Key Metrics Changes - In the Flow Control segment, bookings increased by 6% to $100 million, with Q1 revenue up 7% to $92 million, driven by strong demand for aftermarket parts [11] - The Industrial Processing segment saw a revenue decline of 15% to $90 million, primarily due to a significant drop in capital shipments, although aftermarket parts revenue made up a record 80% of total revenue in this segment [12][13] - The Material Handling segment experienced stable demand for aftermarket parts, with revenue slightly up to $57 million, while overall bookings remained flat [14][15] Market Data and Key Metrics Changes - Aftermarket parts bookings represented 74% of total bookings, reaching a record $190 million, benefiting from a large installed base [10] - The geopolitical climate and trade policy uncertainties have created a challenging environment, impacting customer decision-making and capital project timing [6][29] Company Strategy and Development Direction - The company is focused on adapting to changing economic circumstances and exploring alternative supply sources in response to tariffs [6][7] - Despite uncertainties, the company remains confident in its ability to deliver value and maintain strong free cash flow [16][17] - The revised guidance for 2025 reflects anticipated revenue of $1.02 billion to $1.04 billion, down from previous estimates due to tariff impacts and delayed capital orders [29][30] Management's Comments on Operating Environment and Future Outlook - Management noted that while there is strong demand for aftermarket parts, the uncertainty surrounding tariffs has delayed capital equipment orders [9][28] - The company believes it is well-positioned to respond to changes in trade policy while continuing to support customers [7][16] - Management expressed confidence that the underlying fundamentals of the markets remain strong despite current challenges [16][17] Other Important Information - Gross margin in Q1 2025 was 46.1%, the highest since 2017, up 150 basis points from the previous year [18] - The effective tax rate for Q1 was 24.3%, including benefits from equity awards [20] - The company has a healthy balance sheet with $133 million of borrowing capacity available under its revolving credit facility [24] Q&A Session Summary Question: What is the outlook for deferred orders and project activity? - Management indicated that while there is a pause in project timing, discussions and activity levels remain strong, with no significant cancellations observed [35][37] Question: How are tariffs impacting capital projects? - Management noted that while tariffs have created uncertainty, they do not expect a large number of projects to be canceled, although some may be delayed [49][50] Question: What is the expected mix of parts versus capital sales? - The company anticipates a continued strong performance in parts and consumables, with expectations for capital revenues to improve in the second half of the year [66][67] Question: How is the company addressing tariff-related cost increases? - Management is implementing surcharges and exploring alternative suppliers to mitigate the impact of tariffs, aiming for cost neutrality by the end of the year [73][75]

Financial Data and Key Metrics Changes - Revenue in Q1 2025 declined by 4% compared to the same period last year, primarily due to weaker capital shipments in the Industrial Processing segment [11][18] - Adjusted EBITDA decreased by 8% to $48 million, with an adjusted EBITDA margin decline of 100 basis points compared to the prior year [11][20] - Free cash flow increased by 15% to $19 million in Q1 2025 compared to $16.6 million in Q1 2024 [21] Performance by Business Segment - **Flow Control Segment**: Bookings increased by 6% to $100 million, with Q1 revenue up 7% to $92 million, driven by strong demand for aftermarket parts [12][13] - **Industrial Processing Segment**: Q1 revenue declined by 15% to $90 million, largely due to a significant drop in capital shipments, although aftermarket parts revenue made up a record 80% of total revenue in this segment [14][15] - **Material Handling Segment**: Revenue was slightly up to $57 million, with aftermarket parts comprising 65% of Q1 revenue, despite a decline in capital equipment demand [15][16] Market Data and Key Metrics Changes - Aftermarket parts bookings represented 74% of total bookings, reaching a record $190 million in Q1 2025 [11] - The company noted that the geopolitical climate and trade policy uncertainties have introduced transitory headwinds, particularly affecting capital project timing [12][16] Company Strategy and Industry Competition - The company is exploring alternative supply sources to mitigate the impact of tariffs and is well-positioned to respond to changes in trade policy [6][7] - Management emphasized the importance of maintaining high levels of customer support while navigating the challenges posed by tariffs and geopolitical uncertainties [7][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver value despite ongoing uncertainties, highlighting strong fundamentals in the markets served [16][17] - The company anticipates that the second half of 2025 will be significantly stronger than the first half, with expectations for improved capital order activity [30][31] Other Important Information - The effective tax rate for Q1 was 24.3%, influenced by tax benefits related to equity awards [20] - The company revised its full-year 2025 revenue guidance to $1.02 billion to $1.04 billion, down from previous estimates due to tariff impacts and delays in capital orders [29][30] Q&A Session Summary Question: What is the outlook for deferred orders and project activity? - Management indicated that while there is a pause in project activity due to tariffs, discussions and quote activity remain strong, with no significant project cancellations observed [36][40] Question: How does the company view the impact of tariffs on capital projects? - Management noted that while tariffs have caused delays, they do not expect a significant number of projects to be canceled, emphasizing the need for customers to eventually invest in new equipment [52][56] Question: What is the expected mix of parts versus capital sales for the year? - The company anticipates a parts and consumables revenue percentage of around 69% for the year, with expectations for improved capital revenues in the second half [67][69]