Kadant (KAI) Q4 2025 Earnings Call Transcript

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DATE

Thursday, February 19, 2026 at 11:00 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Jeffrey L. Powell
• Executive Vice President and Chief Financial Officer — Michael J. McKenney

TAKEAWAYS

• Revenue -- $286 million in Q4, an 11% increase, with 8% from acquisitions and 3% from favorable foreign currency translation.
• Organic Revenue -- Q4 parts revenue up 3%; capital revenue down 7%; total organic revenue flat.
• Bookings -- Q4 total bookings up 12%; organic bookings up 1% with parts bookings up 4% and capital bookings down 6%.
• Adjusted EBITDA -- $58 million in Q4, up 11% year over year, representing 20.3% of revenue.
• Gross Margin -- Increased 50 basis points to 43.9% (Q4) due to a higher share of aftermarket parts (70% of revenue).
• SG&A Expense -- $80.9 million in Q4, up 15%, with $7 million from acquisitions and $1.7 million from unfavorable foreign currency translation; SG&A was 28.3% of revenue.
• Adjusted EPS -- Q4 adjusted EPS was $2.27, slightly above guidance range upper end of $2.25.
• GAAP EPS -- $2.04 in Q4, unchanged from prior year; $8.65 full-year, down 9% from $9.48 in 2024.
• Operating Cash Flow -- Q4 operating cash flow of $61 million; full-year operating cash flow rose 10% to $171.3 million.
• Free Cash Flow -- Record $154.3 million for full-year, up 15% year over year.
• Aftermarket Parts Revenue -- 71% of full-year revenue, a record high; Q4 aftermarket parts made up 73% (Flow Control), 76% (Industrial Processing), and 53% (Material Handling) of segment revenue.
• Flow Control Segment Revenue -- $100 million in Q4, up 5%, with strong North America performance offsetting Europe weakness.
• Industrial Processing Segment Revenue -- $118 million in Q4, up 16%, supported largely by Clyde Industries and Bimini acquisitions.
• Material Handling Segment Revenue -- $69 million in Q4, up 11%, driven by capital revenue gains; adjusted EBITDA margin up 130 basis points to 22.1%.
• Backlog -- $288 million at Q4-end, with 60% capital and 40% parts; Clyde Industries contributed $30 million to this backlog.
• Leverage Ratio -- 1.33 at 2025 year-end, up from 0.94 at Q3-end, due to Clyde Industries acquisition borrowing; expected to exceed 2.0 after the pending Volstipine Bowler Profile acquisition.
• Working Capital -- 18.5% of revenue at Q4-end; excluding 2025 acquisitions, this would be 15.5%.
• 2026 Guidance -- Revenue targeted at $1.16 billion to $1.185 billion; adjusted EPS guided to $10.40-$10.75 before accounting for planned adjustment for recurring intangible amortization expense ($2.13/sh impact).
• Adjusted EPS Redefinition -- Beginning in 2026, recurring intangible amortization expense ($2.13 per share) will be excluded from adjusted EPS, increasing reported adjusted EPS guidance to $12.53-$12.88 for 2026 (and restating 2025 to $11.01).
• Quarterly Guidance -- Q1 2026 revenue expected at $270-$280 million and adjusted EPS at $1.78-$1.88, excluding $0.09 amortization impact.
• Tax Rate -- Q4 tax rate was 30%, above expectations due to global minimum tax regulations and altered geographic earnings distribution.
• Cash Conversion Cycle -- Increased to 130 days at Q4-end from 122 at prior year-end, driven by higher inventory days.
• Pending Acquisition -- Definitive agreement in place to acquire Volstipine Bowler Profile GmbH for approximately €157 million, pending Austrian regulatory approval.
• Capital Allocation -- $173.7 million spent on Clyde Industries acquisition and $53.7 million debt repaid in Q4; $122.2 million total debt repaid for the year (42% of year-end 2024 balance).
• Borrowing Capacity -- $383 million available under revolving facility at 2025 year-end, to be reduced after pending acquisition.
• 2026 Margin Guidance -- Gross margin expected at 45.2%-45.7%; SG&A at 27.7%-28.3%; R&D expense at 1.4% of revenue; interest expense forecast at $15.5-$16 million, excluding the pending acquisition impact.

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RISKS

• Adjusted EPS declined to $9.26 for 2025 from $10.28 the prior year, with management citing "Softness in capital project activity" and explicit references to tariff volatility and other cost pressures as drivers.
• Management stated, "The volatility and magnitude of the tariffs proved to be quite challenging for us in 2025," and cited "rising tariffs and other cost pressures" impacting results.
• Cash conversion days increased to 130 due to higher inventory levels, and working capital as a percentage of revenue rose to 18.5%.
• CFO McKenney indicated that "bookings have been as slow and soft as they have been anytime in history when we have not had a significant recession," attributing unusual capital order sluggishness to geopolitical uncertainty and tariff instability.
• Q4 tax rate was 30%, exceeding expectations because of global minimum tax changes and shifting geographic earnings.

SUMMARY

Kadant (NYSE:KAI) reported record Q4 and full-year revenue and cash flow, but experienced declining adjusted and GAAP EPS due to weak capital project activity and persistent tariff-related headwinds. Year-end backlog reached $288 million, with a heavy weighting toward capital projects, while management guided for improved project activity in 2026 yet built conservatism into guidance, citing ongoing customer delays in capital order commitments. The company continues to prioritize aftermarket parts, now contributing a record 71% of revenue, and began excluding recurring intangible amortization expense from adjusted EPS to harmonize with cash flow and peer reporting.

• Management confirmed that capital project orders have faced extended delays, stating some proposals remain outstanding longer than typical but few projects have been canceled outright.
• Company anticipates leverage ratio will temporarily rise above 2.0 following the closing of the €157 million Volstipine Bowler Profile GmbH acquisition, which is omitted from current 2026 guidance.
• Segment-level analysis highlighted continued competitiveness and customer retention in aftermarket despite pressure from both large European and smaller regional rivals, with pricing as the main vector of competition.
• Material Handling business sees support from rising data center construction and resource-related infrastructure spending, directly linking segment growth drivers to visible macro trends in end-markets.
• New 2026 reporting treatment increases adjusted EPS guidance to $12.53-$12.88 by excluding $2.13 per share in recurring intangible amortization expense, with historical periods also restated for comparability.
• Inventory levels and working capital metrics reflect the impact of recent acquisitions and capital order deferrals, which may influence near-term operating efficiency.

INDUSTRY GLOSSARY

• Aftermarket Parts: Replacement components and consumables sold to end-users for maintenance of installed systems, distinct from original capital equipment sales.
• Backlog: Value of orders received but not yet fulfilled or recognized as revenue by financial period end.
• EBITDA Margin: Adjusted EBITDA expressed as a percentage of revenue, used internally and by investors to assess underlying operating profitability excluding non-cash and non-operational items.
• SG&A: Selling, general, and administrative expenses, including the corporate overhead and all sales costs not included in COGS.
• Free Cash Flow: Cash generated by business operations less capital expenditures, used as a measure of liquidity available for dividends, debt repayment, and acquisitions.

Full Conference Call Transcript

Michael J. McKenney: While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views or estimates change. During this webcast, we will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our fourth quarter and full year earnings press release and the slides presented on the webcast and discussed in the conference call, which are available in the investors section of our website at investors.kadant.com.

Finally, I want to note that when we refer to GAAP earnings per share or EPS and adjusted EPS on this call, we are referring to each of these measures as calculated on a diluted basis. With that, I will turn the call over to Jeffrey L. Powell, who will give you an update on Kadant Inc.’s business and future prospects. Following Jeffrey’s remarks, I will give an overview of our financial results for the quarter and the year, and we will then have a Q&A session.

Jeffrey L. Powell: Thanks, Mike. Hello, everyone. Thank you for joining us.

Jeffrey L. Powell: Today, I will review our fourth quarter and full year 2025 results

Jeffrey L. Powell: and our outlook for 2026. Let me begin with our operational highlights.

Jeffrey L. Powell: We closed the year with solid performance despite a challenging macro background

Jeffrey L. Powell: that included tariff volatility and continued cost pressures.

Jeffrey L. Powell: Our performance led to solid margin results and strong cash flow in the fourth quarter, which I will outline in the next slide. Additionally, in 2025, Newsweek recognized us as one of America’s Most Responsible Companies for the sixth straight year, and we are honored to be included on that list once again. Our fourth quarter performance benefited from the acquisitions we completed in 2025 and solid demand in our Flow Control and Material Handling segments. Revenue increased 11% to a record $286 million, led by contributions from our recent acquisitions and record aftermarket parts business. Demand remained solid across all three operating segments with bookings increasing 12% compared to the same period last year.

While acquisitions accounted for most of the growth in the new orders, organic demand was stable year over year and improved sequentially. Adjusted EBITDA was up 11% compared to the same period last year. Our adjusted EBITDA margin was 20.3%. Strong execution by our global operations teams played an important role in delivering value to our customers and driving our fourth quarter operating. Our Q4 operating cash flow was excellent at $61 million. Next, I would like to review our full year financial metrics with Slide Seven. Stable demand combined with contributions from our two recent acquisitions drove solid revenue performance of $1,050,000,000.00 in fiscal 2025 with aftermarket parts making up a record 71% of our total revenue.

Jeffrey L. Powell: Softness in capital project activity

Jeffrey L. Powell: combined with rising tariffs and other cost pressures resulted in adjusted EPS of $9.26 a share compared to the

Jeffrey L. Powell: prior year record of $10.28 per share.

Jeffrey L. Powell: Despite ongoing economic and geopolitical headwinds, our free cash flow increased 15% to a record $154 million. The volatility and magnitude of the tariffs proved to be quite challenging for us in 2025. I am proud of our employees for the innovative work done to maximize value for our customers and our stockholders. Next, I would like to review our performance for our three operating segments. Beginning with our Flow Control segment, Q4 revenue increased 5% to $100 million, strong performance in North America offsetting weaker performance in Europe.

Jeffrey L. Powell: Aftermarket parts revenue was up 9% compared to the prior year period,

Jeffrey L. Powell: and made up 73% of total revenue. Adjusted EBITDA and margin were down compared to the same period last year due to weaker gross margins related to tariffs and product mix. Bookings were up 7% compared to the same period last year. Softness in the manufacturing sector persisted, particularly in Europe and Asia. We believe the long-term market trends impacting industrial markets such as automation, defense, and energy will continue to drive new opportunities for growth, but business activity continues to be influenced by geopolitical and macroeconomic challenges around the globe. Our Industrial Processing segment capital project activity remained relatively soft throughout 2025 and continued at similar levels in the fourth quarter.

Our performance in this segment, however, benefited from the additions of Clyde Industries and Bimini, both of which were acquired in the second half of the year.

Jeffrey L. Powell: Integration efforts for these businesses are progressing well. They are expected to contribute

Jeffrey L. Powell: positively in the years ahead. Revenue rose 16% to $118 million compared to the same period last year, and aftermarket parts revenue grew 31% in the fourth quarter and represented 76% of revenue. Adjusted EBITDA margin improved by 90 basis points year over year

Jeffrey L. Powell: driven largely

Jeffrey L. Powell: by more favorable product mix. As we look ahead to 2026, there is increasing project activity. We expect demand for our capital equipment to strengthen as customers move forward with planned capital projects. In our Material Handling segment, we delivered solid year-over-year performance improvement in bookings, revenue, and margins. Fourth quarter revenue increased 11% to $69 million driven by strong growth in capital revenue compared to the prior year period. Aftermarket parts made up 53% of total revenue and remained steady throughout the year. Margin performance strengthened as well with adjusted EBITDA margin increasing by 130 basis points to 22.1%.

Jeffrey L. Powell: Looking ahead to 2026,

Jeffrey L. Powell: we are encouraged by the high level of project activity and are well positioned to secure new business. Ongoing modernization efforts in the recycling and waste management sectors as well as infrastructure and data center construction are expected to drive the anticipated increase.

Jeffrey L. Powell: Order activity.

Jeffrey L. Powell: Looking to 2026, capital project activity is looking to improve. Demand for aftermarket parts continues to be steady as we start the new year. Additionally, although industrial demand is projected to pick up, uncertainty persists regarding the timing of capital orders due to ongoing economic and geopolitical instability. Overall, our healthy balance sheet and ability to generate significant cash flow

Jeffrey L. Powell: position us well to pursue new opportunities that develop.

Jeffrey L. Powell: And we are committed to achieving improved financial results this year. With that, I will turn the call over to Mike for a review of our financial results

Michael J. McKenney: our 2026 outlook. Bye.

Michael J. McKenney: Thank you, Jeff. I will start with some key financial metrics from our fourth quarter. Revenue was a record $286,200,000.0, up 11% compared to 2024.

Michael J. McKenney: Including

Michael J. McKenney: an 8% increase from acquisitions and a 3% increase from the favorable effect of foreign currency translation. Gross margin increased 50 basis points to 43.9% in ’25 compared to 43.4% in the fourth quarter 2024 due to a favorable increase in the proportion of aftermarket parts, which increased to 70% of total revenue compared to 67% in the prior period. There was a 40 basis point negative impact from the amortization of acquired profit in inventory in both periods. As a percentage of revenue, SG&A expense increased to 28.3% in ’25, compared to 27.3% in the prior year period. SG&A expenses were $80,900,000 in the quarter ’25, increasing 10,300,000.0 or 15% compared to $70,600,000 in the fourth quarter 2024.

Michael J. McKenney: The increase in SG&A expenses

Michael J. McKenney: includes $7,000,000 in SG&A expense related to our 2025 acquisitions, and a $1,700,000 unfavorable effect of foreign currency translation. Our GAAP EPS was $2.04 in both periods, and our adjusted EPS

Michael J. McKenney: increased

Michael J. McKenney: to $2.27 and was just above the high end of our guidance range of $2.05 to $2.25 for the fourth quarter. Adjusted EBITDA increased 11% to $58,000,000 and represented 20.3% of revenue. For the full year, revenue was $1,052,000,000 compared to $1,053,000,000 in 2024, including a 3% increase from acquisitions and a 1% increase from the favorable effect of foreign currency. Gross margin increased 90 basis points to 45.2% compared to 44.3% in 2024 due to a favorable increase in the proportion of aftermarket parts, which increased to a record 71% of total revenue compared to 66% in 2024.

Gross margin included a negative impact from the amortization of acquired profit in inventory of 20 basis points in 2025 and 40 basis points in 2024. Excluding this impact, gross margin was up 70 basis points over 2024. As a percentage of revenue, SG&A expenses increased to 28.7% in ’25, compared to 26.6% in 2024. SG&A expenses were $301,900,000 in 2025, increasing $21,900,000 or 8% compared to $279,900,000 in 2024. Approximately 60% of this increase relates to our acquisitions, which had SG&A expenses of $13,200,000 in 2025. The remainder was primarily due to a 2,200,000.0 unfavorable effect of foreign currency translation and higher compensation-related costs.

Michael J. McKenney: Our GAAP EPS

Michael J. McKenney: was $8.65 in 2025, down 9% compared to $9.48 in 2024, and our adjusted EPS was $9.26, down from $10.28 in 2024. Now turning to our cash flow performance. We finished the year with very strong cash flow. As you can see from the chart, we had stronger operating cash flow in the last February ’25, compared to the first two quarters. For the full year, operating cash flow increased 10% to a record 171,300,000.0 compared to 155,300,000.0 in 2024. Our free cash flow was also a record at $154,300,000 in 2025, increasing 15% over 2024. We had several notable non-operating uses of cash in the fourth quarter 2025.

We paid 173,700,000.0 for the acquisition of Clyde Industries, net of cash acquired. We borrowed $170,000,000 to fund this acquisition, and we repaid $53,700,000 of debt in the quarter. In addition, we paid $6,100,000 for capital expenditures and a $4,000,000 dividend on our common stock. We continue to focus on utilizing our strong cash flows to accelerate the paydown of debt and I am pleased we were able to repay 122,200,000.0 this year, or approximately 42% of our outstanding debt at the end of 2024. Turning to adjusted EBITDA. In the fourth quarter 2025, adjusted EBITDA increased 11% to $58,000,000 compared to $52,400,000 in the fourth quarter 2024. As a percentage of revenue, adjusted EBITDA was 20.3% in both periods.

For the full year 2025, adjusted EBITDA decreased 6% to 216,300,000.0 or 20.6% of revenue compared to record adjusted EBITDA of $229,700,000 or 21.8% of revenue in 2024. The weaker performance in 2025 is due in large part to lower capital revenue, which was down 16% compared to the prior year. Let me turn to our EPS results for the quarter.

Michael J. McKenney: Our adjusted EPS increased $0.02 from $2.25 in Q4 to $2.27 in the fourth quarter 2025.

Michael J. McKenney: This includes increases of $0.17 due to higher revenue, $0.015 from the operating results of our acquisitions, excluding the associated borrowing costs, $0.09 due to higher gross margins. These increases were partially offset by $0.22 due to higher operating expenses, $0.010 due to a higher tax rate, $0.04 due to higher interest expense, and $0.03 due to higher noncontrolling interest. Our tax rate was 30% in the fourth quarter 2025, higher than we anticipated due to the impact of global minimum tax regulations as well as a change in geographic distribution of earnings.

Collectively, included in all the categories I just mentioned, was a favorable foreign currency translation effect of $0.04 in the fourth quarter 2025 compared to the fourth quarter of last year. Now turning to our EPS results for the full year on Slide 17. Our adjusted EPS decreased $1.02 from $10.28 in 2024 to $9.26 in 2025. This includes decreases of $1.06 from revenue, $0.070 due to higher operating expenses, $0.013 due to a higher tax rate, $0.07 from higher noncontrolling interest, and $0.02 due to higher weighted average shares outstanding.

These decreases were partially offset by $0.46 from higher gross margin, $0.027 in lower interest expense, and $0.25 from the operating results of our acquisitions, excluding the associated borrowing costs. Collectively, included in all the categories I just mentioned, was an unfavorable foreign currency translation effect of $0.0125 compared to 2024. Now let us turn to our liquidity metrics on Slide 18. Our cash conversion days, calculated by taking days in receivables plus days in inventory and subtracting days in accounts payable, increased to 130 at the end of the fourth quarter 2025 from 122 days at the end of 2024. The increase in cash conversion days was principally driven by a higher number of days in inventory.

Working capital as a percentage of revenue increased to 18.5% in the fourth quarter 2025 compared to 15% in Q4 2024 due to the lack of full-year revenue for our 2025 acquisitions. If you exclude the impact of our 2025 acquisitions from this calculation, it would be 15.5%, which is slightly above the end of 2024.

Michael J. McKenney: Net debt

Michael J. McKenney: which is debt less cash at the end of 2025, was 251,800,000.0 compared to net debt of $131,100,000 at the end of the third quarter 2025. Our leverage ratio calculated as defined in our credit agreement increased to 1.33 at the end of 2025 compared to 0.94 at the end of the third quarter 2025. In January, we announced that we had entered into a definitive agreement to acquire a VOL Volstipine Bowler Profile, GmbH, for approximately €157,000,000, subject to certain customary adjustments. The closing is subject to certain Austrian regulatory approvals and the satisfaction of customary closing conditions.

We anticipate that our leverage ratio will increase to just above two with the increase in our outstanding debt once this transaction closes. We had $383,000,000 of borrowing capacity available under our revolving credit facility at the end of 2025, which will be reduced by the anticipated acquisition borrowing. Before I review our guidance, I want to remind you that our 2026 guidance does not incorporate any assumptions related to the pending acquisition. We anticipate that the closing will occur in 2026 and we will revise our 2026 guidance as part of our next earnings call.

For the full year 2026, our revenue guidance is $1,160,000,000 to $1,185,000,000 and our adjusted EPS guidance is $10.40 to $10.75, which excludes $0.13 related to the amortization of acquired profit in inventory. Looking at our quarterly revenue and EPS performance in 2026, we expect that the first quarter will be the weakest quarter of the year. This is primarily related to soft capital bookings in the back half of 2025. Our revenue guidance for Q1 2026 is $270,000,000 to $280,000,000 and our adjusted EPS guidance for the first quarter is $1.78 to $1.88, which excludes $0.09 related to the amortization of acquired profit in inventory.

I should caution here that there could be some variability in our quarterly results due to several factors, including the variability of order flow and the timing of capital shipments. I wanted to highlight that due to the delayed timing of capital orders, we have a number of large capital projects where we have been actively working with customers and have provided proposals with a Kadant Inc. solution to meet their needs. We have taken a conservative approach to our 2026 guidance given the order delays we experienced in 2025. These orders are waiting for customers to have enough clarity with the economic environment to commit to these capital expenditures.

As soon as the customers place these pending orders, we will be able to determine the timing of the associated revenue recognition, which provides upside potential for our 2026 guidance. We anticipate gross margins for 2026 will be approximately 45.2% to 45.7%. As a percentage of revenue, we anticipate SG&A will be approximately 27.7% to 28.3% and R&D expense will be approximately 1.4% of revenue. In addition, we anticipate net interest expense of approximately $15,500,000 to $16,000,000 for 2026, which does not include any estimated interest expense related to our proposed acquisition. We expect our recurring tax rate will be approximately 27.3% to 27.8% in 2026. And we expect depreciation and amortization expense will be approximately $60 to $61,000,000.

We anticipate CapEx spending in 2026 will be approximately $23 to $27,000,000. That concludes my review of the financials. But before we go to our Q&A session, I want to discuss our plan starting in 2026 to add back recurring intangible amortization expense in our adjusted EPS calculation. Many of you have suggested that we add back noncash amortization expense in our adjusted EPS calculation.

Michael J. McKenney: Historically, we

Michael J. McKenney: have only added back intangible amortization expense related to acquired backlog, which amortizes relatively quickly in the post-acquisition period. Recurring intangible amortization expense has grown steadily given our significant acquisition activity, with a projected annual increase of 22% in 2026. These acquired intangible assets are initially recorded as part of purchase accounting and then reduced via a noncash amortization expense for periods which can extend over fifteen years. With this change, our adjusted EPS will be more consistent with our adjusted EBITDA and cash flow metrics, which are not impacted by intangible amortization expense.

We believe that the exclusion of this expense from adjusted EPS will allow for more consistent comparisons of our operating results over time and to peer companies. Now I will summarize the 2026 adjusted EPS guidance and comparative 2025 information with this change. For 2026, recurring amortization expense is $33,400,000 or $25,100,000 net of tax, and represents $2.13 per share. Our adjusted EPS guidance presented today and in yesterday’s earnings release was $10.40 to $10.75. After adding back recurring intangible amortization expense, our adjusted EPS guidance for 2026 is now $12.53 to $12.88. For 2025, recurring intangible amortization expense was 27,400,000.0 or $20,600,000 net of tax and represented $1.75 per share.

Our previously reported EPS of $9.26 for 2025 is now $11.01. Recurring intangible amortization expense is $0.53 and $0.40 for 2026 and 2025, respectively. Our adjusted EPS guidance for the first quarter 2026 is now $2.31 to $2.41 and our previously reported adjusted EPS for Q4 2025 of $2.10 per share is now $2.50. We will be issuing an SEC Form 8-K filing shortly with formal reconciliations of prior period information. I will now turn the call back over to the operator for our Q&A session.

Operator: Marvin? Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. First question comes from the line of Gary Frank Prestopino of Barrington. Your line is now open. Oh, hey. Good morning, everyone. Good morning, Gary. Mike, just a couple of housekeeping things here. Do you have the

Gary Frank Prestopino: the numbers for current assets and current liabilities at year-end? Andy? Yep.

Michael J. McKenney: Yep. I do. Hang in there and let me

Michael J. McKenney: look that up. Current assets

Michael J. McKenney: are $542,000,000, and current liabilities are $228,000,000.

Gary Frank Prestopino: Okay. Thank you. And just I was going through this as you were talking, giving your narrative, but consumables in Flow Control were 73% of revenues, Industrial 76% of revenues, and Material Handling 53% of revenues. Is that right?

Michael J. McKenney: Yep. Yep.

Gary Frank Prestopino: Okay. That is thank you. And then you know, you are seeing a lot more increased demand for consumable products. Now some of that is a function of your acquisitions, right? But are you still seeing that you know, the customers are running their equipment really hard and using a lot more consumables in their processes, and that leads you to feel that, you know, the capital projects will get better as the year goes on in 2026.

Michael J. McKenney: Yeah, Gary, you know, we have said actually most throughout a lot of last year as we reported that

Michael J. McKenney: the parts for aftermarket was slightly overperforming our expectations based on the operating rates

Michael J. McKenney: as you know, we tend to say traditionally,

Michael J. McKenney: our aftermarket is a function of operating rates, and operating rates

Michael J. McKenney: really around the world have been quite low in 2025. And the parts business really outperformed that. And

Michael J. McKenney: they did it consistently. And so it clearly was a case where

Gary Frank Prestopino: there

Michael J. McKenney: running the equipment harder. There has been a lot you know, there has been some capacity taken offline.

Michael J. McKenney: They are trying to make up for that. You know, overall demand, of course, increased last year

Michael J. McKenney: in most of our markets. And even though some capacity was taken offline in certain markets, and so because of that, they had to run the existing equipment harder, and it is older. You know, they because they have been underinvesting now for

Gary Frank Prestopino: for nearly three years. And so

Michael J. McKenney: that, you know, that is the only explanation you are going to have for aftermarket overperforming consistently for such a

Michael J. McKenney: extended period of time with these lower operating rates is that they are making up for that capacity taken offline by pushing everything harder and the equipment is just older.

Gary Frank Prestopino: And then lastly, what you know, obviously, there is a lot of confusion on tariffs as we entered 2025 last year. What is the thought process of your customers now? I mean, you know, you are saying that you are going to see the capital projects start increasing in 2026. I mean, have they basically just got the mindset that, hey, this is going to square out to maybe a 10% to 20% tariff and, you know, let us reinvigorate our capital projects. Yeah. I mean, I think, you know, it was the volatility

Michael J. McKenney: you know, and, you know, the weekly changes

Gary Frank Prestopino: that really and the breadth of the implementation, you know, in early last year that really shocked everybody and really caused everybody to you know, to take a wait-and-see attitude.

Michael J. McKenney: But things are a little more stable now and, you know, people realize that they have to continue running their business. You cannot stop running your business. You cannot stop

Michael J. McKenney: investing in your business.

Michael J. McKenney: You will lose your competitiveness. And so you know, as things have started to stabilize a little bit and people have absorbed whatever tariff impact, you know, for their respective businesses, they have

Michael J. McKenney: absorbed that. Things are starting to rationalize. And they have to get back to, you know, increasing efficiency, increasing outputs. You know, everybody would say right now, the main focus is on

Michael J. McKenney: improving productivity and driving down cost, not so much on adding new capacity.

Gary Frank Prestopino: That tends to be where we are at. Now with a few exceptions in a couple of markets we are in where they are adding capacity. But most places now, it is really trying to squeeze more out of their existing operations. It would just be more efficient, more productive. Okay. Thank you very much.

Operator: One moment for our next question. Our next question comes from the line of Ross Riley Sparenblek of William Blair. Your line is now open. Hey. Good morning, gentlemen. Morning, Ross. Hey. I

Ross Riley Sparenblek: couple for me here, and I will pass it along. Did you guys give a backlog figure? I may have missed it. And then, also, you know, with the equipment backlog, when we include the Clyde acquisition.

Michael J. McKenney: Yep. I can give you a number here.

Michael J. McKenney: Yeah. When we brought in Clyde, they had a backlog of about

Michael J. McKenney: $30,000,000. Just as a reference point for you.

Michael J. McKenney: Our backlog

Michael J. McKenney: currently at the end of the fourth quarter was $288,000,000 and the split on that is 60/40, 60% capital, 40% parts.

Ross Riley Sparenblek: Okay. That is helpful. And then, I mean, did you guys give organic assumptions within the 2026 guidance?

Michael J. McKenney: We did not, but I am happy to do that. What you know, it was really I would say, kind of flat. A little less than 1% to 3% was what we modeled. And the point I was trying to stress is that you know, as you know, Ross, through 2025, we had line of sight on some nice capital projects

Michael J. McKenney: and

Michael J. McKenney: you know, the customers have yet to place the orders for those. So the approach we are taking for 2026 is those orders are there. We think the customers will place those. They are significant orders. They would be meaningful upside for us, but we did not bake that into our guidance. Of course, at, you know, 1% to 3% organic, there is not a lot of big capital jobs in there, but there are big capital jobs that are ready to go, and we are hoping we are going to get to midyear, and customers will have placed some of those orders, and we will be able to take our guidance up. Okay.

So, I mean, I get the sense that most of that organic

Ross Riley Sparenblek: in the guide is just your confidence around the parts of your renewals business.

Michael J. McKenney: Yeah. Our capital is up,

Michael J. McKenney: but, you know, not substantially. You are correct. It is really confidence in parts and consumables, but we do anticipate the kind of

Michael J. McKenney: I would say,

Michael J. McKenney: single-unit capital business to still keep plugging along.

Ross Riley Sparenblek: Okay. So that seems to imply then that the capital equipment orders is kind of $29,300,000,000 run rate we have had the last two years. That is kind of the static base case with potential for upside from there. No expectation that is going to be going lower? Okay. Awesome. Thank you, guys. I will pass it along.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Kurt Yinger of D.A. Davidson. Your line is now open. Great. Thanks, and good morning, everyone. Good morning, Kurt. Mike, you had talked about

Kurt Yinger: you know, a large number of capital orders where you provided proposals and you are sort of waiting to hear back from customers

Kurt Yinger: you maybe just

Kurt Yinger: talk a little bit about how unique that is in terms of the time that proposals have been outstanding or maybe the typical timeline where you would expect a proposal to turn into a booking and how that is different today than what you have seen in the past.

Michael J. McKenney: Yeah, Kurt. So I would say the discussions have been ongoing. A lot of projects that we thought were going to be released in the back half of last year did not go away. But, again, people

Michael J. McKenney: because of the

Michael J. McKenney: constant changes in

Michael J. McKenney: you know, the geopolitical, you know, kind of discussions around tariffs and things really just caused them to say, well, we are just going to wait another quarter. We are going to wait another two quarters here before we do anything. So we really have not seen any projects kind of go away. We have some projects that we have actually, you know, gotten the order, but we are waiting for letters of credit or down payments before it becomes a booking. So there is some activity that has started to move forward, but, you know, it is taking longer in some cases to get

Kurt Yinger: the bank set up and get the

Michael J. McKenney: you know, letters of credit and the down payments. And others are just proceeding more slowly. You know, it is just one of caution. I think everybody is looking to see if we bottomed out, and then we are going to start to see some growth from a macro level.

Kurt Yinger: And

Michael J. McKenney: and so it has probably been, I would say, the capital business has been as the bookings have been as slow and soft as they have been anytime in history when we have not had a significant recession. Normally, the bookings we have seen the last kind of two and a half years have been stuff that we saw back in 2008/2009,

Michael J. McKenney: you know, when you back when you have a real recession. So it is really unusual to see this kind of softness when the economies are still growing. And I think it is just because of all the uncertainty. The tariff thing, notwithstanding what the current administration says, the tariff thing has been highly

Kurt Yinger: you know,

Michael J. McKenney: chaotic for our

Michael J. McKenney: customers to manage and to plan and to budget around. It just created a tremendous amount of instability.

Kurt Yinger: And but as I said earlier, when

Michael J. McKenney: Gary was asking the question, they are starting now to say, okay. Things seem to

Kurt Yinger: calm down a little bit. I mean, we do not like where we are at, but, you know, at least we know where we are now.

Michael J. McKenney: We can start to plan around that. And so that is what we are seeing. But what we do know is our companies are many of our companies are over 100 years old. We know history tells us

Kurt Yinger: they cannot go forever without investing in the business.

Michael J. McKenney: The markets we are under are still growing. You know, even the paper packaging business, which is a

Michael J. McKenney: chunk of our business right now, you know, it is growing low single digits, but it is still growing. So you cannot underinvest forever in that. So they will have to start to make some investments.

Kurt Yinger: Okay.

Kurt Yinger: That is super helpful. And then thinking about you know, last quarter, you talked about some of those larger fiber processing orders that you could kind of recognize on an overtime basis. Is that kind of the main component that you know, maybe element of conservatism where you just have assumed that those will not necessarily come in, in the guidance? Or are there other percolating areas of kind of capital activity across the portfolio that might be beneficial in there as well?

Michael J. McKenney: Yeah. You have really hit it exactly, Kurt. You know, we are just we are being cautious here as we move into 2026. And as I said, hopefully, we will get some good traction here and we get to midyear. We will be able to raise guidance if some of these capital bookings are placed. We are a little bit gun-shy because we thought

Michael J. McKenney: things were going to strengthen, remember back when they were talking about

Kurt Yinger: improving at the end of 2024, then it moved to 2025.

Michael J. McKenney: And so we are just being, you know, trying to be as cautious as possible. As you know, we tend to always try to

Michael J. McKenney: and traditionally have always kind of underpromised and overdelivered, and we

Michael J. McKenney: want to continue that trend. And so we just said, look, it is early in the year.

Kurt Yinger: You know, we are going to we are going to go out of the gate cautiously, and hopefully, you know, some of these things that are out there that we believe will come in will come in

Jeffrey L. Powell: and we will be able to, you know, then kind of update you guys accordingly.

Operator: Got it.

Kurt Yinger: Okay. And you know, you talked about how aftermarket has kind of outperformed expectations, and then maybe been consistently surprising. It is interesting some of the European peers have talked about a greater focus on that area, parts and services. Are you seeing that or hearing from your teams about that kind of showing up and any meaningful change in the competitive environment in any of these smaller kind of parts and consumables categories or any commentary on that just in general?

Jeffrey L. Powell: No. I would say 2025 was a good year for us. We did have a lot of our competitors come at us hard, and we were able to defend that. And in many cases, if they did get their foot in the door, we were able to kind of turn that around as the year progressed. And from our standpoint, it was a good year, and our customer relationships tend to be quite sticky. They have been very you know, we have had them for a very long time. And so it has held steady.

And many of our companies had kind of record, you know, if you look at the percentage of revenue on aftermarket, it was at a very high level. So

Jeffrey L. Powell: we

Jeffrey L. Powell: are quite pleased with the way our guys performed around the world. That is the daily challenge. Every day when our guys get in the morning, that is what they are focused on. That is the big challenge: serving the customers with that aftermarket piece to help our customers stay as efficient as possible. And so it is our primary focus, and our guys, I think, did a great job in 2025. And there are always people coming after us. If it is not the big guys from Europe, it is the regional players that can be quite competitive from a cost standpoint. So it is a challenge that we face every day and always have.

But we are quite pleased with the way our guys performed.

Kurt Yinger: Perfect. Okay. And just last one. Mike, if you have it in front of you, could you just give us kind of organic parts and consumables versus capital kind of sales and bookings for Q4?

Kurt Yinger: Yeah.

Michael J. McKenney: I have

Michael J. McKenney: did you want both revenue and bookings on that, Kurt? Is that what you are

Kurt Yinger: Yeah. If possible. I realize it is a lot of numbers, but yeah, that

Michael J. McKenney: no, that is okay. Organically,

Michael J. McKenney: I have for the fourth quarter,

Michael J. McKenney: parts

Michael J. McKenney: on the revenue side up 3%. Capital on the revenue side down 7%. So

Michael J. McKenney: overall,

Michael J. McKenney: organically, that comes out to flat. And then on the booking side, I have parts up 4% and capital down 6%. But organically, with the weighting on parts, it puts us up 1% on bookings organically.

Kurt Yinger: Right. Okay. Appreciate the color, guys. Thank you.

Michael J. McKenney: Welcome.

Operator: Thank you. One moment for our next question. Next question comes from the line of Walter Scott Liptak of Seaport Research. Your line is now open.

Walter Scott Liptak: Hi. Good morning, guys.

Michael J. McKenney: Hello. Good morning,

Michael J. McKenney: Hi.

Walter Scott Liptak: Wanted to do a follow-up on that last question about the aftermarket competition coming out of Europe, it sounds like. If that is the case, how do they compete? Is it are they competing on a quality aftermarket, or is it, like, a pricing thing? Have you seen any changes in the marketplace for aftermarket because of that?

Jeffrey L. Powell: Traditionally, when somebody is coming in trying to steal market share away from you, assuming your customer is happy with your product, your service, your performance, the only real leverage they have is to try to undercut you on price. And our customers will always take advantage of that to try to lower their overall cost. And so that is typically how they do it. I mean, in the markets we are in, as you know, we tend to be number one or one or two—slight cases, maybe number two. Very strong relations with our customers really serve them well.

So the only way they can really make any real entries into those markets is to try to really reduce pricing. Frankly, European companies, you know, they have a cost structure that is not substantially less than ours. So the only way they can really do it is to just make less money. If you follow our competitors in Europe, you will find that they often do make a lot less money than us because they try to undercut our price. But there is a lot more to it. The total cost of ownership is so critical. The technical services that we give them are important. We have guys living in the operations supporting our customers.

And because of that, we are able to defend our territory. In some cases, pick up market share. So it is really nothing new. I mean, like I said, if it is not the big guys coming after us, it is the small regional guys—actually the ones that can create more havoc for you—because they try to come in and really undercut you on price. But we work very hard to understand our clients’ operations and how we can help them create value and stay competitive and increase their throughputs and reduce their inputs. I mean, that is our value proposition. And so that is our daily mission. We work it very hard.

Our guys do a great job of it.

Walter Scott Liptak: Okay. Great.

Walter Scott Liptak: Okay. Thank you for that. And

Jeffrey L. Powell: during your prepared comments,

Walter Scott Liptak: Jeff, I think you commented about a good funnel for projects in recycling and waste.

Walter Scott Liptak: Yes.

Walter Scott Liptak: And data center.

Jeffrey L. Powell: Mhmm.

Walter Scott Liptak: And I wonder if you could talk a little bit about those, especially the data center part.

Jeffrey L. Powell: Yeah. So as you know, the housing has been down. But data center construction is booming. They are massive facilities. And, of course, all the materials they use to make those, for instance, our Material Handling group is involved with, right? So you are talking about aggregate, sand, concrete, copper, aluminum—everything that goes into building those structures starts out as a natural resource that is mined, processed, screened, sized, cleaned, things like that. And, of course, our Material Handling group is in all those sectors.

And so if you look at some of our big customers out there, you know, the Martin Marietta’s and people like that on the sand and gravel side, they are doing quite well, in part because it is providing the materials required to build these facilities. You know, the amount of copper, for instance, going into these facilities is quite substantial. So we support the copper mine operations around the world, of course. You know, the amount of concrete that goes into building one of these—if you have ever seen those data center farms, they are some of the biggest buildings that I have ever seen and they just go forever.

And so all that material has to get processed by equipment that we build or our competitors build.

Walter Scott Liptak: Okay. Got it. Alright. Thank you.

Operator: Thank you. One moment for our next question. Again, as a reminder, to ask a question, you will need to press *11 on your telephone. And our next question comes from the line of Ross Riley Sparenblek of William Blair. Your line is now open. Hey, gentlemen. Just having follow-ups here.

Ross Riley Sparenblek: Can you just give us a sense on where the OSB segment shook out within Industrial Process for the year?

Michael J. McKenney: Well

Jeffrey L. Powell: well, I will say

Jeffrey L. Powell: you know, Ross, we usually do not bifurcate that.

Michael J. McKenney: We, you know, we usually just talk wood and fiber processing.

Jeffrey L. Powell: But

Michael J. McKenney: you know, that is a bright spot for us, frankly, in the wood processing side.

Jeffrey L. Powell: Okay. The

Michael J. McKenney: capital business servicing, you know, dimensional lumber and North American housing is, you know, really on the capital side quite soft right now. But the OSB keeps—just keeps—plugging along. They are doing fantastic.

Jeffrey L. Powell: They are finding you know, first of all, we supply them globally, and we are one of only I guess, technically, two companies that are doing that. And they are finding more and more applications, more and more uses for the product. So it just continues to grow.

Ross Riley Sparenblek: Okay. And that is good to hear.

Jeffrey L. Powell: They are going into siding, you know? Of course, they are going into higher value, higher dollar applications for it. And new applications for it. They are even starting to do it for, you know, for dimensional and structural elements and things like that, you know, looking at it for things that traditionally would be

Michael J. McKenney: you know, laminated

Jeffrey L. Powell: products. So we continue to see more and more demand.

Ross Riley Sparenblek: Okay. And then one of your competitors recently called out vertical integration of the pulp and processing market in China as a

Ross Riley Sparenblek: secular

Ross Riley Sparenblek: opportunity over the coming years.

Ross Riley Sparenblek: Anything you can speak to as to, like, you know, Kadant Inc. content, or how you guys get argue that market today?

Jeffrey L. Powell: Yeah. Well, so when you put pulp mills in, of course, one of the big issues there is the recovery boilers. And Clyde, of course, who joined us recently, serves that market. And so they have

Jeffrey L. Powell: they provide a lot of their technology into the Chinese market as these pulp mills are being built. Traditionally, China was almost 100% recycled fiber. But when the Chinese government put the ban in the importing of waste paper, they had to go out and search for fiber. And one of the things that is going on, of course, is they are putting these pulp mills in.

Ross Riley Sparenblek: And so

Jeffrey L. Powell: Clyde is over there supplying the boiler cleaning technology for those applications. Okay. And then maybe just one last one on your 80/20 expectations this year.

Ross Riley Sparenblek: You guys usually target, you know, two to three divisions. Anything more material to call out

Ross Riley Sparenblek: as, like, to the mix within the segments?

Jeffrey L. Powell: No. I mean, we are constantly trying to increase the size of our team that leads those efforts and starting more and more companies up. But it is continuing to progress. You know, I think some of the businesses started the program late last year. And so we are expecting towards the end of this year to start to see some results from that. And then, of course, there are others that are just entering it or are on schedule to enter it. As you know, normally with acquisitions, the first year, we do not like to do anything with them.

We like to get them stabilized and integrated, get them understanding the programs, and deciding when they want to undertake that initiative. So I would say for some of the newer companies that are out there, they are still to be started. But it is continuing along. Our team, I think, continues to get better and better at implementing it. And it will continue to be a primary internal initiative of ours for the years to come.

Operator: Alright. Well, again, guys.

Jeffrey L. Powell: Okay.

Operator: Thank you. I am showing no further questions at this time. I will now turn it back to Jeffrey L. Powell for closing remarks.

Jeffrey L. Powell: Thanks, Marvin. Before wrapping up the call today, I just wanted to leave you with a couple of takeaways. We finished the year with improving business conditions. We acquired two great companies in 2025, and integrating this business into the Kadant Inc. family is going well. I am confident that they will make meaningful contributions in 2026 and beyond. The outlook for 2026 is optimistic with expectations of increased project activity and stable aftermarket demand, and we look forward to maximizing the value that we create for our customers and for our stockholders in 2026. And with that, we want to thank you for joining us today.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.

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