Kadant Inc · NYSE:KAI

Kadant — Investor Day (March 2019)

99 slides from Kadant's investor day presentation, Mar 6, 2019

  1. Slide 1: Investor Presentation March 7, 2019 NYC

    Exhibit 99 Investor Presentation March 7, 2019 NYC 1

  2. Slide 2: Forward-Looking Statements

    Forward-Looking Statements The following constitutes a “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: This presentation contains forward-looking statements that involve a number of risks and uncertainties, including forward-looking statements about Kadant Inc.’s

  3. Slide 3: Use of Non-GAAP Financial Measures and Company Estimates

    Use of Non-GAAP Financial Measures and Company Estimates 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 revenues exclud

  4. Slide 4: Agenda

    Agenda 2:00 – 2:20 Welcome / Kadant Today Jon Painter 2:20 – 2:40 Building on our Success Jeff Powell 2:40 – 3:10 Operational Discipline Eric Langevin 3:10 – 3:30 BREAK 3:30 – 4:00 Acquisition Strategy Dara Mitchell 4:00 – 4:15 Financial Priorities Mike McKenney 4:15 – 4:30 The Next Five Years Jeff

  5. Slide 5: Management Team

    Management Team Jonathan Painter Jeffrey Powell Eric Langevin Dara Mitchell Michael McKenney President and CEO EVP and Co-COO EVP and Co-COO VP, Corp. Development EVP and CFO Bilal Mehmood Stacy Krause Deborah Selwood Chief Technology Officer VP, Gen. Counsel & Secretary VP and CAO Wesley Martz Orri

  6. Slide 6: Investment Highlights

    Investment Highlights • Sustainable business model with recurring revenue of high-impact solutions, and “sticky” customer relationships • Stable and growing end markets driven by key global macro trends • Focused capital allocation and proven record of value-creating acquisitions • Superior financia

  7. Slide 7: Who is Kadant?

    Who is Kadant? Global supplier of high-value, critical components and engineered systems used in process industries worldwide Wood Processing Pulp and Paper Equipment Material Handling • Recycling Systems • Stranders for OSB • Idler rolls, control and • Balers production transfer equipment for conve

  8. Slide 8: Examples of High Impact Products

    Examples of High Impact Products Reduce Input Costs Our ISK disposable knives helped a large OSB producer reduce fiber and resin cost by $2.0 million per year Impact End Product Quality Our RadicloneTM system allowed our linerboard customer to relocate longer fibers to achieve higher strength and st

  9. Slide 9: Our Recurring Revenue Model Underpins Our High Margins and Supports Sustainable Cash Flow

    Our Recurring Revenue Model Underpins Our High Margins and Supports Sustainable Cash Flow • Extensive installed base supports Aftermarket Parts and Consumables vs. Capital Equipment • Many Razor/Razorblade opportunities • Regulatory requirements • Benefits Capital Parts & – Reduced revenue volatilit

  10. Slide 10: Effective Capital Allocation

    Effective Capital Allocation Uses of Cash 2008 – 2018 (in $ Millions) $72.2$82.8 $116.7 $122.0 $71.2$75.8 $34.8 $44.4 $380.3 $377.2 Share Buyback Cash Dividends Acquisitions R&D Capex KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserved. 10

  11. Slide 11: Acquisition Performance

    Acquisition Performance AVERAGE ADJUSTED ROIC* FOR 2018: 14% $347M INVESTED** NII FPG Screen Baskets *Adjusted return on invested capital (Adjusted ROIC) is calculated based on adjusted net income, excluding intangible amortization, over consideration paid. Average adjusted ROIC is calculated using

  12. Slide 12: Kadant 2010 vs 2018

    Kadant 2010 vs 2018 +670bp +660bp +279% +258% +270% +135% Revenue Diluted Adj. Diluted Adj. EBITDA* Adj. EBITDA Adj. ROIC* EPS EPS* Margin* 17% ( excluding 2017 * Adjusted diluted EPS , adjusted EBITDA, adjusted EBITDA margin, and adjusted net income are non-GAAP financial measures that exclude cert

  13. Slide 13: Kadant has Broadened its End Markets Beyond Pulp and Paper

    Kadant has Broadened its End Markets Beyond Pulp and Paper 2018 Pro Forma* MATERIAL 2016* HANDLING INDUSTRIAL WOOD INDUSTRIAL 2009* PROCESSING 12% 14% INDUSTRIAL 9% 17% WOOD 17% PROCESSING 21% 83% 74% PULP & PAPER 53% PULP & PAPER PULP & PAPER $226M $414M $723M** * Based on Company estimates of reve

  14. Slide 14: Within Pulp & Paper, Greater Exposure to the Growing Paper Grades

    Within Pulp & Paper, Greater Exposure to the Growing Paper Grades 2009* 2018* Printing & Other Paper Other Paper Writing Printing & 18% Writing 8% 11% Tissue Newsprint Tissue 21% 27% 10% 0.05 Newsprint/Other 44% 61% Packaging Packaging Tissue, Packaging & Other Paper 73% Tissue, Packaging & Other Pa

  15. Slide 15: Strong Long Term Revenue and Earnings Growth

    Strong Long Term Revenue and Earnings Growth Ten-Year Revenue and Adjusted Diluted EPS CAGR $5.34 Revenue: 12.2% Adj. Diluted EPS*: 51.1% $4.49 $634 $2.78 $3.13 $3.10 $2.24 $2.10 $2.29 $515 US$ (millions) US$ $414 share per US$ $1.41 $402 $390 $226 $345 $336 $332 $270 $0.13 2009 2010 2011 2012 2013

  16. Slide 16: Strong Adjusted EBITDA Growth and Margin Improvement

    Strong Adjusted EBITDA Growth and Margin Improvement Full-Year Adjusted EBITDA 20% 18.2% $120 17.8% 15.8% 15.2% $100 15% 13.5% 14.0% 13.4% 13.0% $80 11.6% 10% $115.2 $60 $91.7 % of Revenue of % $40 (Millions) US$ 5% $56.3 $61.5 $63.0 5.1% $44.8 $44.8 $44.7 $20 $31.2 $11.4 0% $0 2009 2010 2011 2012 2

  17. Slide 17: Kadant Performance Surpasses Most Industrial Companies

    KADANT PERFORMANCE SURPASSES MOST INDUSTRIAL COMPANIES KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserved. 17

  18. Slide 18: Benchmarking vs. Baird Industrial Composite Metrics

    Benchmarking vs. Baird Industrial Composite Metrics Baird* Industrial Company Composite represents 496 companies which Baird views as indicative of the publicly traded industrial company universe. All numbers are as of December 31, 2017. *All other product names, trademarks and registered trademarks

  19. Slide 19: Revenue Growth (2016 – 2017)

    Revenue Growth (2016 – 2017) 24.4% 20.8% 15.0% 7.3% 3.4% -0.4% 10th Percentile 25th Percentile 50th Percentile 75th Percentile 90th Percentile Kadant Source: 2017 Baird Industrial Composite Metrics. KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserved. 19

  20. Slide 20: Revenue Growth (2014 – 2017)

    Revenue Growth (2014 – 2017) 13.5% 8.6% 6.5% 1.6% -3.0% -7.5% 10th Percentile 25th Percentile 50th Percentile 75th Percentile Kadant 90th Percentile Source: 2017 Baird Industrial Composite Metrics. KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserved. 20

  21. Slide 21: Adjusted EPS Growth (2014 – 2017)

    Adjusted EPS Growth (2014 – 2017) 22.5% 16.0% 17.3% 5.6% -11.8% -26.1% 10th Percentile 25th Percentile 50th Percentile 75th Percentile Kadant 90th Percentile Source: 2017 Baird Industrial Composite Metrics. KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserved. 21

  22. Slide 22: Gross Margin (2017)

    Gross Margin (2017) 45.8% 45.9% 35.8% 26.5% 18.3% 11.9% 10th Percentile 25th Percentile 50th Percentile 75th Percentile 90th Percentile Kadant* Source: 2017 Baird Industrial Composite Metrics. * Based on adjusted gross margin. See reconciliation in the Appendix of this presentation. KAI INVESTOR MEE

  23. Slide 23: EBITDA Margin (2017)

    EBITDA Margin (2017) 23.7% 18.7% 17.8% 13.6% 9.2% 5.0% 10th Percentile 25th Percentile 50th Percentile Kadant 75th Percentile 90th Percentile Source: 2017 Baird Industrial Composite Metrics. KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserved. 23

  24. Slide 24: Return on Invested Capital (2017)

    Return on Invested Capital (2017) 14.4% 10.6% 8.2% 4.7% 1.3% -4.5% 10th Percentile 25th Percentile 50th Percentile 75th Percentile Kadant * 90th Percentile Source: 2017 Baird Industrial Composite Metrics. ROIC is defined as net income less dividends divided by the average of the last four quarters t

  25. Slide 25: Kadant Total Shareholder Return vs. Benchmarks

    Kadant Total Shareholder Return vs. Benchmarks Total Return % 27.60 16.50 10.50 9 7.9 3.30 -5.2 -16.70 -18.1 1 YEAR 3 YEAR 5 YEAR GICS 2010 TSR Russell 3000 TSR KAI Source: Compustat. As of last day of calendar 2018: 12/31/2018. KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserve

  26. Slide 26: Prior Five-Year Plans

    PRIOR FIVE-YEAR PLANS KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserved. 26

  27. Slide 27: 2012 Five Year Goals vs. 2017 Actual

    2012 Five Year Goals vs. 2017 Actual US$(millions) 2012 Forecast 2017 Actual Revenue $500 -$550 $515 Adjusted EBITDA* $60 - $80 $91.7 Adjusted Diluted EPS* $4.00 - $5.00 $4.49 Operating Cash Flow $45 - $60 $65.2 * Adjusted EBITDA and adjusted diluted EPS are non-GAAP financial measures that exclude

  28. Slide 28: 2016 Five Year Goals vs. 2018 Actual

    2016 Five Year Goals vs. 2018 Actual US$(millions) Target for 2021 2018 % Midpoint of Target Revenue $700 - $800 million $634 million 85% Adjusted EBITDA* $100 - $125 million $115 million 102% Adjusted Diluted EPS* $5.00 - $6.00 $5.34 97% Free Cash Flow* $70 - $80 million $46.4 Million 62% Net Debt

  29. Slide 29: Building on Our Success

    Building on Our Success Jeff Powell

  30. Slide 30: Kadant strategic pillars

    DECENTRALIZED STRUCTURE DISCIPLINED MARKET ACQUIRER LEADER PARTS & DEEP CONSUMABLES CUSTOMER FOCUS RELATIONSHIPS ASSET “LITE” GLOBAL MODEL FOOTPRINT TECHNOLOGY INNOVATION KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserved. 30

  31. Slide 31: Decentralized Operating Model

    Decentralized Operating Model • Customer focused • Quick reacting • Decision-making closest to the customer • Promotes cross-divisional cooperation • Attractive structure for acquisition target OPPORTUNITY Leverage SG&A by sharing resources, services, and best practices across divisions KAI INVESTOR

  32. Slide 32: Market Leader

    Market Leader • Number 1 in most markets served Businesses Market Position* • Strong economies of scale Stock Preparation #1 • Value pricing power Fluid Handling #1 Doctoring & Cleaning #1 • Strong defensible market positions Wood Processing #1 • Large installed base Material Handling #1 and #2 • We

  33. Slide 33: Long Standing, Deep Customer Relationships

    Long Standing, Deep Customer Relationships Many of our businesses We invented High risk, low incentive are more than 100 most of our for our customers years old technologies to switch OPPORTUNITY Implement the 80/20 program to better focus resources on key customers KAI INVESTOR MEETING–March 2019 |

  34. Slide 34: Global Footprint

    Global Footprint • Located in every major industrial center • Well-positioned to grow in developing regions • Leading market share in China for many products • Strong international distribution • Geographic diversity acts as buffer OPPORTUNITY Build-out our operations in India, Russia, and Southeast

  35. Slide 35: Global Platform Serving Customers Worldwide

    Global Platform Serving Customers Worldwide* North America Europe China 2018 Revenue: $306M 2018 Revenue: $175M 2018 Revenue: $90M South America Other Locations Other Asia 2018 Revenue: $24M 2018 Revenue: $19M 2018 Revenue: $20M KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserve

  36. Slide 36: First-to-Market Innovation

    First-to-Market Innovation • Deep history of technology development • Creating new solutions to help our customers • Extend components’ operating life • Leverage enabling technologies (e.g., IoT) Iii • Simplify repair and installation • Leverage installed base OPPORTUNITY Develop ‘Smart Connected Te

  37. Slide 37: “Asset Light” Model Strong Free Cash Flow

    “Asset Light” Model Strong Free Cash Flow* • Long Product Life Cycles 90 $80.0 • CAPEX Investments Less Than 2% of Revenue 80 70 • Working Capital 11% to 13% of Revenue 60 $47.9 • 2010-2018 Free Cash Flow averaged 116% of 50 $44.4 $46.4 $33.7 Adjusted Net Income 40 $45.2 US$ (millions) US$ 30 $26.3

  38. Slide 38: Parts & Consumables Model

    Parts & Consumables Model • Strong, Predictable Revenue Stream % Spare Parts & Consumables for • Market Strategies Center Around Parts & Businesses 2018 Consumables Stock Preparation 46% • R&D Focus is Weighted Towards Supporting Fluid Handling 71% Aftermarket Business Doctoring, Cleaning & Filtrati

  39. Slide 39: Disciplined M&A

    Disciplined M&A • Highly selective acquisition strategy • Well-defined criteria for acquisition targets with strong requirement for aftermarket sales • Conservative assumptions; acquisition model assumes little or no synergies • Profitable, well-managed, with stable growth OPPORTUNITY Continue to Cr

  40. Slide 40: Trends are Positive…

    Trends are Positive… • E-Commerce Driving Demand for Container Board • Growing Demand for Sustainable Materials • Demographics and Pent-Up Housing Demand Driving Wood Industry • Need for global infrastructure to support economic growth • Rising global standard of living 40

  41. Slide 41: E-Commerce Means More Containerboard

    E-Commerce Means More Containerboard E-commerce Share of Total Global Sales • E-Commerce is estimated to be 12% of from 2015 to 20211 Global retail sales in 2018 20% • Growing at 10-15% annually 18% • Order of magnitude increase in 16% containerboard usage retail Sales retail - 14% 12% Percent of e

  42. Slide 42: Growing Demand for Sustainable Materials

    Growing Demand for Sustainable Materials • Greenhouse gas emissions and plastic pollution is driving the markets toward environmentally friendly and sustainable alternatives • European and local U.S. Regulations Banning Non Bio-degradable Materials • Migration from plastic to cellulous-based materia

  43. Slide 43: Demographics, Sustainability and Housing Needs Driving Wood Sector

    Demographics, Sustainability and Housing Needs Driving Wood Sector • Housing demand continues to outpace new starts • Lower carbon footprint than concrete or steel • Growing use of laminated veneer in taller buildings • China is moving from medium density fiber board to OSB IMPLICATION FOR KADANT Wo

  44. Slide 44: Building Infrastructure

    Building Infrastructure • An estimated $6.8 trillion dollars is needed for road and bridge infrastructure in the US* • Building that infrastructure requires materials and minerals • Kadant’s material handling products increase the efficiency in mining and material processing – saving considerable Ii

  45. Slide 45: Key “Take-Aways”

    Key “Take-Aways” • Top Financial Performer • Asset-Light Model • Strong Free Cash Flow • Successful Acquirer • Favorable Long-Term Secular Trends • Disciplined Allocator of Capital KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserved. 45

  46. Slide 46: Operational Discipline

    Operational Discipline Eric Langevin

  47. Slide 47: How Kadant Drives Customer Value

    How Kadant Drives Customer Value Monitoring Focused Operations Customer Service Tools “Collaborative” Decentralized Model “80/20” Operating Technology Efficiency and Program Product Innovation KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserved. 47

  48. Slide 48: Kadant's Approach to R&D

    Kadant‘s Approach to R&D Patterns5 of Innovation* 1 2 3 4 5 Subtraction Multiplication Division Attribute Task Dependency Unification KADANT Rotoflex Double DMS Steam Proflake ISK Scoring Examples Filter Doctor Controller Blade Knife * Adopted from Drew Boyd’s Systematic Inventive Thinking (SIT) Pri

  49. Slide 49: Technology Investments Yielding Tangible Results

    Technology Investments Yielding Tangible Results • Efficient R&D spending – approx. 1.5% of sales • History of first-to-market innovations • Long product cycles • Focus on razor-razorblade model • High value to customer 49

  50. Slide 50: Pioneering Products and Long Product Life Cycles

    Pioneering Products and Long Product Life Cycles Product Year Intro Industrial roll and belt cleaning 1880 - Composite doctor blades for cleaning 1931 Stock Preparation System 1926 Rotary steam joint 1935 - High-speed PTX joint 2000 High-speed rotary debarker 1955 Creping Doctor for high-speed tissu

  51. Slide 51: Focused Efforts and Tangible Results

    Focused Efforts and Tangible Results Nanotechnology ISK Knives for Equipment and BoosTEKTM VeriliteTM roll for Packaging Oriented Strand Systems for Screen cleaning for Board (OSB) Corrugators Optimizer Carbon Fiber, Etc. Introduced in Introduced in Entered market in Introduced in Introduced in 2014

  52. Slide 52: Deepening Customer Relationships Through the Use of Technology: Smart Connected Products

    Deepening Customer Relationships Through the Use of Technology Smart Connected Products (IoT) • Parts and Spares Replacement – Blade replacement – Seal replacement • Inventory Tracking and Reordering – Disposable knives – High-volume spare parts • Maintenance Alerts 52

  53. Slide 53: Deepening Customer Relationships Through the Use of Technology

    Deepening Customer Relationships Through the Use of Technology • Touching customers without cost of travel • Intellectual capital is in the West: 1. Maintenance and service tutorial videos on demand 2. Remote troubleshooting and support with Augmented Reality 3. Online monitoring of key systems with

  54. Slide 54: 80/20'ing the Organization

    80/20’ing the Organization to The Pareto Principle, Otherwise Known as the Focus on the Critical 80-20 RULE • Reduce number of products sold The majority of results tend to come from a minority of causes. • Reduce inventory Applies to multiple facets of business: • Identify White Space growth opport

  55. Slide 55: Things We Do to Monitor and Improve Businesses

    Things We Do to Monitor and Improve Businesses • Strategic pricing review • Apply Lean principles including Balanced Scorecard (BSC) • Use of common platforms for collaboration – Salesforce.com (CRM) – Epicor (ERP) • Executive Leadership Training • Data Gathering/Data Mining • Facilitate resource sh

  56. Slide 56: Material Handling Market Leadership

    Market Leadership In: Strong Financial Performer • Movement of bulk materials • Disciplined LEAN operations over short and long distances • Strong aftermarket / (conveyors) Installed base • Effective dewatering in food • Experienced leadership operations (screens) • Vibratory feeders for food, pharm

  57. Slide 57: Diversified Industrial Markets for Material Handling

    Diversified Industrial Markets for Material Handling Diverse End Markets(1) Pulp & Paper Met Coal Minerals (Steel) 4% 10% 16% Aggregates, Cement & Asphalt 13% 16% Mining(2) 13% Thermal Coal 15% 14% Food & (1) Based on estimates of revenue by industrial category using 2017 financials Industrial Packa

  58. Slide 58: Integration Plan

    Integration Plan • Syntron’s management team will continue to operate the business within Kadant’s decentralized structure • Potential Synergies: – Expand current Kadant product portfolio into new markets through Syntron – Strengthen Syntron’s relationships in Pulp & Paper – Leverage Kadant’s relati

  59. Slide 59: Operational Discipline – Take-Aways

    Operational Discipline – Take-Aways • Close relationships with customers • Disciplined approach to operations and product development and sales • Opportunities to: – Grow market share – Improve margins – Optimize operations • Strategically located, expertly operated low-cost sourcing and manufacturi

  60. Slide 60: Acquisition Strategy

    Acquisition Strategy Dara Mitchell

  61. Slide 61: Proven Track Record of Successful M&A

    Proven Track Record of Successful M&A 1990 1993 2005 2010 2013 2013 2014 2016 2017 2019 Deal Value: Deal Value: Deal Value: Deal Value: Deal Value: Deal Value: Deal Value: Deal Value: Deal Value: Deal Value: 1.4M shares of $26M $109M $4M $9M $52M $4M $59M $31M $179M TMO stock 1990 2019 Deal Value: D

  62. Slide 62: Evolution of Kadant

    Evolution of Kadant 2018 Pro Forma* MATERIAL HANDLING INDUSTRIAL 2016* WOOD INDUSTRIAL 2009* PROCESSING 12% 14% 12% 15% INDUSTRIAL 9% 17% WOOD PROCESSING 17% 21% 20% 83% 74% PULP & PAPER 53% 53% PULP & PAPER PULP & PAPER $226M $414M $723M** NII FPG Screen Baskets * Based on Company estimates of reve

  63. Slide 63: Acquisition Performance

    Acquisition Performance AVERAGE ADJUSTED ROIC* FOR 2018: 14% $347M INVESTED** NII FPG Screen Baskets *Adjusted return on invested capital (Adjusted ROIC) is calculated based on adjusted net income, excluding intangible amortization, over consideration paid. Average adjusted ROIC is calculated using

  64. Slide 64: Success Factors

    Success Factors Executive team involved 2 early to establish strategic fit and valuation Stable financials leading to 1 greater predictability STRONG ACQUISITION PERFORMANCE 3 Decentralized model minimizes disruption and is attractive to sellers and management Synergies from access to low 4 cost man

  65. Slide 65: Finding Acquisitions

    Finding Acquisitions CORE ANCILLARY Tuck In and Standalone New Platforms • Work closely with operations to • Educate intermediaries on attributes that identify synergistic targets excite Kadant to maintain diverse deal flow • 250+ potential targets • Involve executive team early on in process to bui

  66. Slide 66: Acquisition Criteria

    Acquisition Criteria Provides highly Serves stable and Market leading History of stable Large installed engineered products attractive end position revenue and attractive base of customers with mission critical markets margins with role in an industrial significant parts and process consumables reve

  67. Slide 67: Syntron Acquisition

    Syntron Acquisition • Deal rationale: material handling is a logical fit with the Kadant growth strategy and significantly broadens how we can grow by add-on acquisitions. • Purchase price $179M* • Closed January 2, 2019 • Strong fit with our acquisition criteria * Subject to customary adjustments.

  68. Slide 68: Why Syntron is Attractive to Us

    Why Syntron is Attractive to Us High cost of failure Opens up a range Leading market Very stable Entrenched Strong if material of new positions for revenue streams relationships with financial handling doesn’t opportunities – vibratory and with aftermarket a large number of metrics perform, yet low

  69. Slide 69: Approach to Synergies

    Approach to Synergies Low Cost Manufacturing Global Footprint Best Practices 1 Bottom-up rather than top- 2 Extremely conservative in modeling down approach driven by local any synergies. Bonus return rather team rather than corporate. than required for price to work. KAI INVESTOR MEETING–March 2019

  70. Slide 70: Manufacturing Synergies Case Study: Kadant Carmanah Design

    Manufacturing Synergies Case Study: Kadant Carmanah Design • Objective: to achieve cost savings that will improve margins in some regions and make Carmanah more competitive in the growing market in China • Example Case: Kadant Carmanah Chippers, which serves a competitive market in which the applica

  71. Slide 71: Sales Synergies Case Study: Kadant PAAL in the US

    Sales Synergies Case Study: Kadant PAAL in the US • Established leader in European market but had no share in US market before its acquisition. • Kadant facilitated partnership with large US EPC, resulting in major installation in new recycling plant in Monterey, CA. • PAAL now has 6 major US instal

  72. Slide 72: The Next Years: Acquisition Strategy

    The Next 5 Years: Acquisition Strategy • Continue to add tuck in acquisitions to leverage core markets • Selectively acquire new platforms in ancillary markets that strengthen the depth and breadth of Kadant • Maintain decentralized operating model • Maintain our discipline in acquisition criteria K

  73. Slide 73: Financial Priorities

    Financial Priorities Mike McKenney

  74. Slide 74: Financial Priorities

    Financial Priorities • Drive Strong Free Cash flow • Remain an “Asset-Light” Business • Continue to Improve Operating Leverage • Increase EBITDA Margins to 20% • Maintain Discipline on Acquisitions • Disciplined Capital Allocation KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reser

  75. Slide 75: Drive Strong Free Cash Flow

    Drive Strong Free Cash Flow Adjusted Free Cash Flow* as a % of Adjusted Net Income* 200% 180% 160% 142% 142% 140% 132% 131% 132% 120% 112% 100% 103% 98% 100% 87% 80% 60% 40% 20% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F** * Adjusted net income and adjusted free cash flow are non-GAAP fin

  76. Slide 76: Remain an “Asset-Light” Business: Capital Expenditures

    Remain an “Asset-Light” Business Maintain Target for Capital Expenditures at < 2% of Revenue Adjusted Capital Expenditures*as a % of Revenue 3.0% 2.4% 2.0% 1.8% 1.7% 1.6% 1.6% 1.2% 1.3% 1.3% 1.4% 1.4% 1.0% 0.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 * Adjusted Capital expenditures, a non-

  77. Slide 77: Remain an “Asset-Light” Business: Working Capital Management

    Remain an “Asset-Light” Business Continue to Focus on Working Capital Management Working Capital *as a % of Revenue 20% 16.6% 15% 13.9% 12.8% 12.0% 12.5% 11.0% 11.2% 10.5% 9.9% 10% 9.1% 5% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 * Working capital is defined as current assets excluding cash

  78. Slide 78: Capitalize on Opportunities to Improve Operating Leverage

    Capitalize on Opportunities to Improve Operating Leverage • Use existing support infrastructure on smaller acquisitions • Expansion of low-cost manufacturing • Combine back office infrastructure in certain geographic regions • Streamline certain processes via use of automated solutions • Lean manufa

  79. Slide 79: Adjusted Full-Year SG&A

    Adjusted Full-Year SG&A Adjusted SG&A*as a % of Revenue 40% 36.0% 35% 33.0% 33.3% 32.0% 31.0% 31.5% 31.8% 30.5% 30% 29.7% 27.7% 25% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 * Adjusted SG&A is a non-GAAP financial measure that excludes certain items as detailed in the Appendix of this presen

  80. Slide 80: Goal: Increase Adjusted EBITDA Margins to 20%

    Goal: Increase Adjusted EBITDA Margins to 20% • Adjusted EBITDA margins have steadily improved over the 20% past 10 years from 5% in 2009 to 18% in 2018. • Further improvements in adjusted EBITDA margins would be achieved by: EBITDA Improved – Targeting EBITDA accretive acquisitions. over past years

  81. Slide 81: Adjusted EBITDA

    Adjusted EBITDA 20% $140 18.4% 18.2% $120 17.8% $15 15.8% 15.2%13 $100 13.4% 13.5% 14.0% 1 13.0% % $80 $129.8 10% 11.6% $115.2 $60 $91.7 %of Revenue %of US$ (Millions) US$ $61.5 $63.0 $40 5% $56.3 5.1% $44.8 $44.8 $44.7 $20 $31.2 $11.4 0% $0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F**

  82. Slide 82: Capital Allocation

    Capital Allocation Capital Allocation Quarterly Dividends Declared per Share 2008 - 2018 $0.25 $83 $117 $0.20 $76 $44 $0.15 $0.10 $0.05 $377 $0.00 2013 2014 2015 2016 2017 2018 2019F* * Our board of directors approved a $0.23 per share cash dividend to be paid on May 7, 2019. Share Buyback Cash Divi

  83. Slide 83: Revenue and Adjusted Diluted EPS Performance

    Revenue and Adjusted Diluted EPS Performance CAGR 2009 - 2018 Revenue: 12.2% Adj. Diluted EPS*: 51.1% US$ (millions) US$ US$ per share per US$ 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F** Revenue Adj. Diluted EPS* * Adjusted diluted EPS is a non-GAAP financial measure that excludes cert

  84. Slide 84: New Five-Year Plan: 2019-2023

    NEW FIVE-YEAR PLAN: 2019-2023 84 KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserved.

  85. Slide 85: Assumptions for Five-Year Targets

    Assumptions for Five-Year Targets Macro-economic Organic Growth Acquisitions Environment • Numerous internal • Goal is 7% to 9% • Slow but steady growth programs revenue growth global growth • Goal is 2.5% to 3.5% • Continued low cost revenue growth of capital KAI INVESTOR MEETING–March 2019 | © 201

  86. Slide 86: Five-Year Financial Targets for 2023

    Five-Year Financial Targets for 2023 FY2018 Target for 2023 Revenue $634 million $1 - $1.2 billion Adjusted EBITDA* $115 million $210 - $230 million Adjusted EBITDA Margin* 18.2% 20% Adjusted Diluted EPS* $5.34 $8.00 - $9.00 Free Cash Flow* $46 million $140 - $160 million Net Debt $130 million $225

  87. Slide 87: Investment Highlights

    Investment Highlights • Sustainable business model with recurring revenue of high-impact solutions, and “sticky” customer relationships • Stable and growing end markets driven by key global macro trends • Focused capital allocation and proven record of value-creating acquisitions • Superior financia

  88. Slide 88: Questions

    QUESTIONS 88 KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserved.

  89. Slide 89: Appendix

    APPENDIX 89 KAI INVESTOR MEETING–March 2019 | © 2019 Kadant Inc. All rights reserved.

  90. Slide 90: 2018 Financial Highlights

    2018 Financial Highlights ($ Millions, except per share amounts) 2018 2017 % CHANGE3 Revenue $633.8 $515.0 23.1% Gross Margin 43.9% 44.9% n.m. Adjusted Gross Margin1 43.9% 45.9% n.m. Net Income2 $60.4 $31.1 94.3% Adjusted EBITDA1 $115.2 $91.7 25.6% Adjusted EBITDA Margin1 18.2% 17.8% n.m. Diluted EP

  91. Slide 91: Adjusted Gross Margin Reconciliation

    Adjusted Gross Margin Reconciliation ($ Millions) 2018 2017 Revenues $ 633.8 $ 515.0 Cost of Revenues $(355.5) $(283.9) Gross Margin $ 278.3 $ 231.1 Gross Margin % 43.9% 44.9% Gross Margin $ 278.3 $ 231.1 Amortization of Profit in Inventory $ - $ 5.1 Adjusted Gross Margin* $ 278.3 $ 236.2 Adjusted G

  92. Slide 92: Adjusted Net Income Reconciliation

    Adjusted Net Income Reconciliation 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Net (Loss) Income Attributable to Kadant $ ( 5.9) $ 18.5 $ 33.6 $ 31.6 $ 23.4 $ 28.7 $ 34.4 $ 32.1 $ 31.1 $ 60.4 Net (Loss) Income from Discontinued $ - $ (0.1) $ - $ (0.7) $ 0.1 $ - $ (0.1) $ - $ - $ - Operations N

  93. Slide 93: Free Cash Flow and Adjusted Free Cash Flow Reconciliation

    Free Cash Flow and Adjusted Free Cash Flow Reconciliation ($ Millions, except 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F percentages) Cash Provided by Continuing Operations, $ 28.3 $ 34.3 $ 30.5 $ 39.9 $ 51.1 $ 40.4 $ 51.0 $ 65.2 $ 63.0 $ 93.0 as reported Capital Expenditures, as reported $

  94. Slide 94: Adjusted Capital Expenditures as a % of Revenue Reconciliation

    Adjusted Capital Expenditures as a % of Revenue Reconciliation ($ Millions, except percentages) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Capital Expenditures, as reported $ 2.8 $ 3.4 $ 8.0 $ 4.3 $ 6.2 $ 6.7 $ 5.5 $ 5.8 $ 17.3 $ 16.6 Capital Expenditures for Facility Project $ - $ - $ - $ -

  95. Slide 95: Adjusted Full Year SG&A Reconciliation

    Adjusted Full Year SG&A Reconciliation ($ Millions) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 SG&A $ 81.2 $ 89.2 $ 102.7 $ 103.1 $ 117.6 $ 129.3 $ 122.8 $ 134.8 $ 159.8 $ 177.4 Acquisition Costs $ - $ - $ (0.2) $ (0.2) $ (1.8) $ (0.3) $ - $ (1.8) $ (5.4) $ (1.3) Amortization of Acquired Back

  96. Slide 96: Balance Sheet Data

    Balance Sheet Data ($ Millions) Dec. 29, 2018 Dec. 30, 2017 Cash, Cash Equivalents, and Restricted Cash $ 46.1 $ 76.8 Accounts Receivable, net 92.6 89.6 Inventories 86.4 84.9 Property, Plant, and Equipment, net 80.2 79.7 Intangible Assets 113.3 133.0 Goodwill 258.2 268.0 Other Assets 48.9 29.1 Total

  97. Slide 97: Adjusted EBITDA Reconciliation

    Adjusted EBITDA Reconciliation ($ Millions) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Net Income Attributable to Kadant $ (5.9) $ 18.5 $ 33.6 $ 31.6 $ 23.4 $ 28.7 $ 34.4 $ 32.1 $ 31.1 $ 60.4 Net Income Attributable to Noncontrolling $ - $ 0.3 $ 0.3 $ 0.2 $ 0.2 $ 0.4 $ 0.3 $ 0.4 $ 0.5 $ 0.6 I

  98. Slide 98: Adjusted EBITDA Reconciliation – 2019 Guidance

    Adjusted EBITDA Reconciliation – 2019 Guidance US$ (millions) High End ** Low End** Net Income Attributable to Kadant $ 56.5 $ 54.8 Net Income Attributable to Noncontrolling Interest 0.6 0.6 Provision for Income Taxes 24.2 24.0 Interest Expense, net 14.9 14.9 Other Expense, net 0.1 0.2 Operating Inc

  99. Slide 99: Adjusted Diluted EPS Reconciliation

    Adjusted Diluted EPS Reconciliation 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Diluted EPS, as reported $( 0.48) $ 1.48 $ 2.74 $ 2.73 $ 2.07 $ 2.56 $ 3.10 $ 2.88 $ 2.75 $ 5.30 Income from Discontinued Operation, net of tax $ - $ - $ - $ (0.07) $ - $ - $ (0.01) $ - $ - $ - Diluted EPS from Con

Kadant — Investor Day (March 2019) on 6ix