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WESTFORD, Mass.----Oct. 31, 2017-- Kadant Inc. (NYSE: KAI) reported its financial results for the third quarter ended September 30, 2017.

Third Quarter 2017 Highlights

Acquired the businesses of NII FPG Company and Unaflex, LLC
Revenue increased 45% to a record $153 million
Gross margin was 42.3%
GAAP diluted EPS increased 43% to a record $1.17
Adjusted diluted EPS increased 84% to a record $1.49
Net income increased 45% to a record $13 million
Adjusted EBITDA increased 85% to a record $30 million and represented 20% of revenue
Bookings increased 43% to a record $135 million

Note: Adjusted diluted EPS, adjusted EBITDA, adjusted EBITDA margin, and revenues excluding acquisitions and the effect of foreign currency translation are non-GAAP financial measures that exclude certain items as detailed later in this press release.

Management Commentary
“Following our strong first half of 2017, we had another outstanding quarter with a number of record-setting performances across a broad range of metrics contributing to a strong EPS and revenue beat,” said Jonathan Painter, president and chief executive officer of Kadant. “Our third quarter financial results were driven by a combination of better than expected performance from our Wood Processing acquisition and significant internal growth, particularly in China.

“Our record bookings of $135 million in the third quarter extended our strong bookings performance beyond the previous three quarters and was led by our Wood-Processing product line. Also contributing to the record performance were our Stock-Preparation and Fluid-Handling product lines, each of which achieved over 25 percent growth in bookings compared to the same period last year. From a geographic perspective, bookings in China were exceptionally strong in the third quarter, while North America saw the largest impact from our two acquisitions completed during the quarter.”

Third Quarter 2017 Results
Revenue increased 45 percent to $152.8 million compared to the third quarter of 2016, including $29.2 million from acquisitions and a $2.6 million increase from the favorable effect of foreign currency translation. Excluding the impact of acquisitions and foreign currency translation, revenue was up 15 percent compared to the third quarter of 2016. Gross margin was 42.3 percent, including a negative 220 basis point impact from the amortization of acquired profit in inventory. Net income was $13.3 million, or $1.17 per diluted share, compared to $9.2 million, or $0.82 per diluted share, in the third quarter of 2016. Adjusted diluted EPS increased 84 percent to $1.49 in the third quarter of 2017, compared to $0.81 in the third quarter of 2016. Adjusted diluted EPS in the third quarter of 2017 excludes $0.28 of amortization from acquired profit in inventory and backlog and $0.04 of acquisition costs. Adjusted diluted EPS in the third quarter of 2016 excludes a $0.02 benefit from discrete tax items and $0.01 of acquisition costs.

Adjusted EBITDA increased 85 percent to $29.9 million compared to $16.2 million in the third quarter of 2016. Adjusted EBITDA excludes $4.3 million of amortization from acquired profit in inventory and backlog in the third quarter of 2017 and $0.6 million and $0.2 million of acquisition costs in the third quarters of 2017 and 2016, respectively. Cash flows from operations were $7.0 million in the third quarter of 2017 and were impacted by the high level of shipments, which increased accounts receivable and the payment of acquisition-related expenses. Bookings increased 43 percent to $135.5 million compared to $94.8 million in the third quarter of 2016 and includes $20.5 million from acquisitions and a $2.3 million increase from the favorable effect of foreign currency translation. Excluding the impact of acquisitions and foreign currency translation, bookings increased 19 percent compared to the third quarter of 2016.

Guidance
“While we began the year with a fairly optimistic outlook, steadily improving global market conditions combined with contributions from our acquisitions and excellent execution by our operations teams have further raised our expectations for 2017,” Mr. Painter continued. “We now expect to report full year revenue of $509 to $512 million, revised from our previous guidance of $488 to $494 million. We expect to achieve GAAP diluted EPS of $3.56 to $3.60 in 2017, revised from our previous guidance of $3.18 to $3.26. The revised 2017 guidance includes pre-tax acquisition costs of $5.0 million, or $0.38 per diluted share, and pre-tax amortization expense associated with acquired profit in inventory and backlog of $6.6 million, or $0.43 per diluted share. Excluding these acquisition-related expenses, we expect adjusted diluted EPS of $4.37 to $4.41 for 2017. For the fourth quarter of 2017, we expect GAAP diluted EPS of $0.87 to $0.91 on revenue of $143 to $146 million, including $0.15 of amortization expense associated with acquired profit in inventory and backlog. Excluding the amortization expense, we expect adjusted diluted EPS of $1.02 to $1.06 for the fourth quarter of 2017.”

Conference Call
Kadant will hold a webcast with a slide presentation for investors on Tuesday, October 31, 2017, at 11:00 a.m. eastern time to discuss its third quarter performance, as well as future expectations. To access the webcast, including the slideshow and accompanying audio, go to www.kadant.com and click on “Investors”. To listen to the webcast via teleconference, call 888-326-8410 within the U.S., or +1-704-385-4884 outside the U.S. and reference participant passcode 90222803. Prior to the call, our earnings release and the slides used in the webcast presentation will be filed with the Securities and Exchange Commission and will be available at www.sec.gov. An archive of the webcast presentation will be available on our website until December 1, 2017.

Shortly after the webcast, Kadant will post its updated general investor presentation incorporating the third quarter results on its website at www.kadant.com under the “Investors” section.

Use of Non-GAAP Financial Measures
In addition to the financial measures prepared in accordance with 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, adjusted operating income, adjusted net income, adjusted diluted earnings per share (EPS), adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA), and adjusted EBITDA margin.

We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our core business, operating results, or future outlook. We believe that the inclusion of such measures helps investors gain an understanding of our underlying operating performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts and to the performance of our competitors. Such measures are also used by us in our financial and operating decision-making and for compensation purposes. We also believe this information is responsive to investors' requests and gives them an additional measure of our performance.

The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for the results of operations prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release have limitations associated with their use as compared to the most directly comparable GAAP measures, in that they may be different from, and therefore not comparable to, similar measures used by other companies.

Revenue in the third quarter and first nine months of 2017 included $29.2 million from acquisitions completed in 2017. Revenue in the first nine months of 2017 also included $13.3 million from an acquisition completed in April 2016. Revenue included a $2.6 million favorable and a $1.1 million unfavorable foreign currency translation effect in the third quarter and first nine months of 2017, respectively, compared to the same periods in 2016. We present increases or decreases in revenue excluding the effect of acquisitions and foreign currency translation to provide investors insight into underlying revenue trends.

Adjusted operating income, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and adjusted diluted EPS exclude acquisition costs, amortization of acquired profit in inventory and backlog, and other income. These items are excluded as they are not indicative of our core operating results and may not be comparable to other periods, which have differing levels of incremental costs or income or none at all.

Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude:

Pre-tax acquisition costs of $0.6 million in the third quarter and $5.0 million in the first nine months of 2017. Pre-tax acquisition costs of $0.2 million in the third quarter and $1.8 million in the first nine months of 2016.
Pre-tax expense related to acquired profit in inventory and backlog of $4.3 million in the third quarter and first nine months of 2017. Pre-tax expense related to acquired profit in inventory and backlog of $1.9 million in the first nine months of 2016.
Pre-tax gain on the sale of assets of $0.3 million in the first nine months of 2016.

Adjusted net income and adjusted diluted EPS exclude:

After-tax acquisition costs of $0.4 million ($0.6 million net of tax of $0.2 million) in the third quarter of 2017 and $4.3 million ($5.0 million net of tax of $0.7 million) in the first nine months of 2017. After-tax acquisition costs of $0.1 million ($0.2 million net of tax of $0.1 million) in the third quarter of 2016 and $1.6 million ($1.8 million net of tax of $0.2 million) in the first nine months of 2016.
After-tax expense related to acquired profit in inventory and backlog of $3.2 million ($4.3 million net of tax of $1.1 million) in the third quarter and first nine months of 2017. After-tax expense related to acquired profit in inventory and backlog of $1.4 million ($1.9 million net of tax of $0.5 million) in the first nine months of 2016.
After-tax gain on the sale of assets of $0.2 million ($0.3 million net of tax of $0.1 million) in the first nine months of 2016.
Benefit from discrete tax items of $0.3 million in the third quarter and first nine months of 2016. The benefit from discrete tax items was primarily due to the reversal of valuation allowances on certain deferred tax assets in the U.S.

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