KAI 10-Q
Kadant Inc (KAI)
10-Q
2025-08-06
For: 2025-06-28
View Original
Added on
April 10, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 28, 2025
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ________ to _________
Commission file number 001-11406
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
(Address of principal executive offices, including zip code)
(978 ) 776-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 25, 2025, the registrant had 11,777,467 shares of common stock outstanding.
Kadant Inc.
Report on Form 10-Q
For the Quarterly Period Ended June 28, 2025
Table of Contents
| Page | ||||||||
| PART I: Financial Information | ||||||||
| PART II: Other Information | ||||||||
PART 1 – FINANCIAL INFORMATION
Item 1 – Financial Statements
KADANT INC.
Condensed Consolidated Balance Sheet
(Unaudited)
| June 28, 2025 | December 28, 2024 | |||||||||||||
| (In thousands, except share and per share amounts) | ||||||||||||||
| Assets | ||||||||||||||
| Current Assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Restricted cash | ||||||||||||||
Accounts receivable, net of allowances of $ | ||||||||||||||
| Inventories | ||||||||||||||
| Contract assets | ||||||||||||||
| Other current assets | ||||||||||||||
| Total Current Assets | ||||||||||||||
Property, Plant, and Equipment, net of accumulated depreciation of $ | ||||||||||||||
| Other Assets | ||||||||||||||
Intangible Assets, Net (Note 1) | ||||||||||||||
Goodwill (Note 1) | ||||||||||||||
| Total Assets | $ | $ | ||||||||||||
| Liabilities and Stockholders' Equity | ||||||||||||||
| Current Liabilities: | ||||||||||||||
Current maturities of long-term obligations (Note 4) | $ | $ | ||||||||||||
| Accounts payable | ||||||||||||||
| Accrued payroll and employee benefits | ||||||||||||||
Accrued warranty costs | ||||||||||||||
| Customer deposits | ||||||||||||||
| Advanced billings | ||||||||||||||
| Other current liabilities | ||||||||||||||
| Total Current Liabilities | ||||||||||||||
Long-Term Obligations (Note 4) | ||||||||||||||
| Long-Term Deferred Income Taxes | ||||||||||||||
| Other Long-Term Liabilities | ||||||||||||||
Commitments and Contingencies (Note 9) | ||||||||||||||
| Stockholders' Equity: | ||||||||||||||
Preferred stock, $ | ||||||||||||||
Common stock, $ | ||||||||||||||
| Capital in excess of par value | ||||||||||||||
| Retained earnings | ||||||||||||||
Treasury stock at cost, | ( | ( | ||||||||||||
Accumulated other comprehensive items (Note 6) | ( | ( | ||||||||||||
| Total Kadant Stockholders' Equity | ||||||||||||||
Noncontrolling interests | ||||||||||||||
| Total Stockholders' Equity | ||||||||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
KADANT INC.
Condensed Consolidated Statement of Income
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 28, 2025 | June 29, 2024 | June 28, 2025 | June 29, 2024 | |||||||||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Costs and Operating Expenses: | ||||||||||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||||
| Selling, general, and administrative expenses | ||||||||||||||||||||||||||
| Research and development expenses | ||||||||||||||||||||||||||
| Operating Income | ||||||||||||||||||||||||||
| Interest Income | ||||||||||||||||||||||||||
| Interest Expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Other Expense, Net | ( | ( | ( | ( | ||||||||||||||||||||||
| Income Before Provision for Income Taxes | ||||||||||||||||||||||||||
Provision for Income Taxes (Note 3) | ||||||||||||||||||||||||||
| Net Income | ||||||||||||||||||||||||||
Net Income Attributable to Noncontrolling Interests | ( | ( | ( | ( | ||||||||||||||||||||||
| Net Income Attributable to Kadant | $ | $ | $ | $ | ||||||||||||||||||||||
Earnings per Share Attributable to Kadant (Note 2) | ||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||||||||||||
Weighted Average Shares (Note 2) | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
KADANT INC.
Condensed Consolidated Statement of Comprehensive Income
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 28, 2025 | June 29, 2024 | June 28, 2025 | June 29, 2024 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||||||||||||
| Other Comprehensive Items: | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | ||||||||||||||||||||||||
Post-retirement liability adjustments, net (net of tax of $ | ||||||||||||||||||||||||||
Deferred gain on cash flow hedges (net of tax of $ | ||||||||||||||||||||||||||
| Other comprehensive items | ( | ( | ||||||||||||||||||||||||
| Comprehensive Income | ||||||||||||||||||||||||||
Comprehensive Income Attributable to Noncontrolling Interests | ( | ( | ( | ( | ||||||||||||||||||||||
| Comprehensive Income Attributable to Kadant | $ | $ | $ | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
KADANT INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
| Six Months Ended | ||||||||||||||
| June 28, 2025 | June 29, 2024 | |||||||||||||
| (In thousands) | ||||||||||||||
| Operating Activities | ||||||||||||||
| Net income attributable to Kadant | $ | $ | ||||||||||||
Net income attributable to noncontrolling interests | ||||||||||||||
| Net income | ||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Stock-based compensation expense | ||||||||||||||
(Recovery of) provision for bad debts | ( | |||||||||||||
| Other items, net | ||||||||||||||
| Changes in assets and liabilities, net of effects of acquisitions: | ||||||||||||||
| Accounts receivable | ( | ( | ||||||||||||
| Contract assets | ( | |||||||||||||
| Inventories | ( | |||||||||||||
| Other assets | ( | ( | ||||||||||||
| Accounts payable | ( | |||||||||||||
| Customer deposits | ( | |||||||||||||
| Other liabilities | ( | ( | ||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| Investing Activities | ||||||||||||||
Acquisitions, net of cash acquired | ( | |||||||||||||
| Purchases of property, plant, and equipment | ( | ( | ||||||||||||
| Proceeds from sale of property, plant, and equipment | ||||||||||||||
| Other investing activities | ||||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||
| Financing Activities | ||||||||||||||
Proceeds from issuance of long-term obligations | ||||||||||||||
| Repayment of short- and long-term obligations | ( | ( | ||||||||||||
| Tax withholding payments related to stock-based compensation | ( | ( | ||||||||||||
| Dividends paid | ( | ( | ||||||||||||
Proceeds from issuance of Company common stock | ||||||||||||||
Dividends paid to noncontrolling interests | ( | ( | ||||||||||||
Acquisition of subsidiary shares from noncontrolling interest | ( | |||||||||||||
Net cash (used in) provided by financing activities | ( | |||||||||||||
| Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash | ( | |||||||||||||
Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | ( | |||||||||||||
| Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | ||||||||||||||
| Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | $ | ||||||||||||
under the heading Supplemental Cash Flow Information for further details.
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
KADANT INC.
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
| Three Months Ended June 28, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except share and per share amounts) | Common Stock | Capital in Excess of Par Value | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Items | Noncontrolling Interests | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 29, 2025 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividend declared – Common Stock, $ | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Activity under stock plans | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive items | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 28, 2025 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 28, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except share and per share amounts) | Common Stock | Capital in Excess of Par Value | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Items | Noncontrolling Interests | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 28, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared – Common Stock, $ | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Activity under stock plans | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividend paid to noncontrolling interest | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive items | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 28, 2025 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 29, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except share and per share amounts) | Common Stock | Capital in Excess of Par Value | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Items | Noncontrolling Interests | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividend declared – Common Stock, $ | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Activity under stock plans | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of subsidiary shares | — | — | ( | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividend paid to noncontrolling interest | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive items | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 29, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 29, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except share and per share amounts) | Common Stock | Capital in Excess of Par Value | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Items | Noncontrolling Interests | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared – Common Stock, $ | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Activity under stock plans | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests acquired | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of subsidiary shares | — | — | ( | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividend paid to noncontrolling interest | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive items | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 29, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Kadant Inc. was incorporated in Delaware in November 1991 and trades on the New York Stock Exchange under the ticker symbol "KAI."
Kadant Inc. (together with its subsidiaries, the Company) is a global supplier of technologies and engineered systems that drive Sustainable Industrial Processing®. Its products and services play an integral role in enhancing efficiency, optimizing energy utilization, and maximizing productivity in process industries while helping customers advance their sustainability initiatives with products that reduce waste or generate more yield with fewer inputs, particularly fiber, energy, and water. Producing more while consuming less is a core aspect of Sustainable Industrial Processing and a major element of the strategic focus of the Company's three reportable segments consisting of the Flow Control segment, Industrial Processing segment, and Material Handling segment.
Interim Financial Statements
The interim condensed consolidated financial statements and related notes presented have been prepared by the Company, are unaudited, and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the Company's financial position at June 28, 2025, its results of operations, comprehensive income, and stockholders' equity for the three- and six-month periods ended June 28, 2025 and June 29, 2024, and its cash flows for the six-month periods ended June 28, 2025 and June 29, 2024. Interim results are not necessarily indicative of results for a full year or for any other interim period.
The condensed consolidated balance sheet presented as of December 28, 2024 has been derived from the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2024 (Annual Report). The condensed consolidated financial statements and related notes are presented as permitted by the rules and regulations of the Securities and Exchange Commission (SEC) for Form 10-Q and do not contain certain information included in the annual consolidated financial statements and related notes of the Company. The condensed consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report.
Use of Estimates and Critical Accounting Policies
Note 1 to the consolidated financial statements in the Annual Report describes the significant accounting estimates and policies used in preparation of the consolidated financial statements. There have been no material changes in the Company’s significant accounting policies during the six months ended June 28, 2025.
Supplemental Cash Flow Information
| Six Months Ended | ||||||||||||||
| (In thousands) | June 28, 2025 | June 29, 2024 | ||||||||||||
| Cash Paid for Interest | $ | $ | ||||||||||||
| Cash Paid for Income Taxes, Net of Refunds | $ | $ | ||||||||||||
Non-Cash Investing Activities: | ||||||||||||||
Fair value of assets acquired | $ | $ | ||||||||||||
Fair value of liabilities assumed | $ | $ | ||||||||||||
Fair value of noncontrolling interest acquired | $ | $ | ||||||||||||
| Purchases of property, plant, and equipment in accounts payable | $ | $ | ||||||||||||
8
| Six Months Ended | ||||||||||||||
| (In thousands) | June 28, 2025 | June 29, 2024 | ||||||||||||
| Non-Cash Financing Activities: | ||||||||||||||
| Issuance of Company common stock upon vesting of restricted stock units | $ | $ | ||||||||||||
| Dividends declared but unpaid | $ | $ | ||||||||||||
Restricted Cash
The Company's restricted cash generally serves as collateral for bank guarantees associated with providing assurance to customers that the Company will fulfill certain customer obligations entered into in the normal course of business and for certain banker's acceptance drafts issued to vendors. The majority of these restrictions will expire over the next twelve months .
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the accompanying condensed consolidated balance sheet that are shown in aggregate in the accompanying condensed consolidated statement of cash flows:
| (In thousands) | June 28, 2025 | June 29, 2024 | December 28, 2024 | December 30, 2023 | ||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||||||||||||
| Restricted cash | ||||||||||||||||||||||||||
| Total Cash, Cash Equivalents, and Restricted Cash | $ | $ | $ | $ | ||||||||||||||||||||||
Inventories
The components of inventories are as follows:
| June 28, 2025 | December 28, 2024 | |||||||||||||
| (In thousands) | ||||||||||||||
| Raw Materials | $ | $ | ||||||||||||
| Work in Process | ||||||||||||||
Finished Goods (includes $ | ||||||||||||||
| $ | $ | |||||||||||||
Intangible Assets, Net
Acquired intangible assets by major asset class are as follows:
| (In thousands) | Gross | Accumulated Amortization | Currency Translation | Net | ||||||||||||||||||||||
| June 28, 2025 | ||||||||||||||||||||||||||
| Definite-Lived | ||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||
| Product technology | ( | ( | ||||||||||||||||||||||||
| Tradenames | ( | ( | ||||||||||||||||||||||||
| Other | ( | ( | ||||||||||||||||||||||||
| ( | ( | |||||||||||||||||||||||||
| Indefinite-Lived | ||||||||||||||||||||||||||
| Tradenames | — | ( | ||||||||||||||||||||||||
| Acquired Intangible Assets | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||
9
| (In thousands) | Gross | Accumulated Amortization | Currency Translation | Net | ||||||||||||||||||||||
| December 28, 2024 | ||||||||||||||||||||||||||
| Definite-Lived | ||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||
| Product technology | ( | ( | ||||||||||||||||||||||||
| Tradenames | ( | ( | ||||||||||||||||||||||||
| Other | ( | ( | ||||||||||||||||||||||||
| ( | ( | |||||||||||||||||||||||||
| Indefinite-Lived | ||||||||||||||||||||||||||
| Tradenames | — | ( | ||||||||||||||||||||||||
| Acquired Intangible Assets | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||
Goodwill
The changes in the carrying amount of goodwill by reportable segment are as follows:
| (In thousands) | Flow Control | Industrial Processing | Material Handling | Total | ||||||||||||||||||||||
| Balance at December 28, 2024 | ||||||||||||||||||||||||||
| Gross balance | $ | $ | $ | $ | ||||||||||||||||||||||
| Accumulated impairment losses | ( | ( | ||||||||||||||||||||||||
| Net balance | ||||||||||||||||||||||||||
2025 Activity | ||||||||||||||||||||||||||
| Measurement period adjustments for 2024 acquisitions | ( | |||||||||||||||||||||||||
| Currency translation | ||||||||||||||||||||||||||
| Total 2025 activity | ||||||||||||||||||||||||||
| Balance at June 28, 2025 | ||||||||||||||||||||||||||
| Gross balance | ||||||||||||||||||||||||||
| Accumulated impairment losses | ( | ( | ||||||||||||||||||||||||
| Net balance | $ | $ | $ | $ | ||||||||||||||||||||||
Measurement period adjustments for the Company's acquisitions completed in the second and third quarters of 2024 were not material to its financial position or results of operations in the first six months of 2025.
Warranty Obligations
The Company's contracts covering the sale of its products include warranty provisions that provide assurance to its customers that the products will comply with agreed-upon specifications during a defined period of time. The Company provides for the estimated cost of product warranties at the time of sale based on historical occurrence rates and repair costs, as well as knowledge of any specific warranty problems that indicate projected warranty costs may vary from historical patterns. The Company negotiates the terms regarding warranty coverage and length of warranty depending on the products and applications.
10
The changes in the carrying amount of product warranty obligations are as follows:
| Six Months Ended | ||||||||||||||
| (In thousands) | June 28, 2025 | June 29, 2024 | ||||||||||||
| Balance at Beginning of Year | $ | $ | ||||||||||||
| Provision charged to expense | ||||||||||||||
| Usage | ( | ( | ||||||||||||
| Acquisitions | ||||||||||||||
| Currency translation | ( | |||||||||||||
| Balance at End of Period | $ | $ | ||||||||||||
Revenue Recognition
Most of the Company’s revenue relates to products and services that require minimal customization and is recognized at a point in time for each performance obligation under the contract when the customer obtains control of the goods or service. The remaining portion of the Company’s revenue is recognized over time based on an input method that compares the costs incurred to date to the total expected costs required to satisfy the performance obligation. Contracts are accounted for on an over time basis when they include products which have no alternative use and an enforceable right to payment over time. Most of the contracts recognized on an over time basis are for large capital equipment projects. These projects are highly customized for the customer and, as a result, would include a significant cost to rework in the event of cancellation.
The following table presents revenue by revenue recognition method:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 28, | June 29, | June 28, | June 29, | |||||||||||||||||||||||
| (In thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Point in Time | $ | $ | $ | $ | ||||||||||||||||||||||
| Over Time | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
The Company disaggregates its revenue from contracts with customers by reportable segment, product type and geography as this best depicts how its revenue is affected by economic factors.
The following table presents the disaggregation of revenue by product type and geography:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 28, | June 29, | June 28, | June 29, | |||||||||||||||||||||||
| (In thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
Revenue by Product Type: | ||||||||||||||||||||||||||
| Parts and consumables | $ | $ | $ | $ | ||||||||||||||||||||||
| Capital | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Revenue by Geography (based on customer location): | ||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||||||||||||
| Europe | ||||||||||||||||||||||||||
| Asia | ||||||||||||||||||||||||||
| Rest of world | ||||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
See Note 8, Business Segment Information, for information on the disaggregation of revenue by reportable segment.
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The following table presents contract balances from contracts with customers:
| June 28, 2025 | December 28, 2024 | |||||||||||||
| (In thousands) | ||||||||||||||
| Contract Assets | $ | $ | ||||||||||||
| Contract Liabilities | $ | $ | ||||||||||||
The Company recognized revenue of $13,238,000 in the second quarter of 2025 and $23,473,000 in the second quarter of 2024, and $30,797,000 in the first six months of 2025 and $57,139,000 in the first six months of 2024 that was included in the contract liabilities balance at the beginning of 2025 and 2024, respectively. The majority of the Company's contracts for capital equipment have an original expected duration of one year or less. Certain capital equipment contracts require longer lead times and could take up to 24 months to complete. For contracts with an original expected duration of over one year, the aggregate amount of the transaction price allocated to the remaining unsatisfied or partially unsatisfied performance obligations was $34,055,000 as of June 28, 2025. The Company will recognize revenue for these performance obligations as they are satisfied, approximately 51 % of which is expected to occur within the next twelve months and the remaining 49 % thereafter.
Note Receivable - China Transaction
The Company entered into several agreements with the local government in China, which became effective in the first quarter of 2022, to sell its then existing manufacturing building and land use rights at one of its subsidiaries in China within its Industrial Processing segment for $25,159,000 and relocate to a new facility (China Transaction). The Company received a 31 % down payment and the remaining amount was due on the earlier of the sale of the property by the local government or two years from the effective date of the agreements. Since December 2024, the government has paid $1,383,000 13,942,000 as of June 28, 2025, which is included in other current assets in the accompanying condensed consolidated balance sheet. The Company expects this receivable will be repaid in full, although the timing is uncertain.
Banker's Acceptance Drafts Included in Accounts Receivable
Income Taxes
In accordance with Accounting Standards Codification (ASC) 740, Income Taxes (ASC 740), the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which these differences are expected to reverse. A tax valuation allowance is established, as needed, to reduce deferred tax assets to the amount expected to be realized. In the period in which it becomes more likely than not that some or all of the deferred tax assets will be realized, the valuation allowance will be adjusted.
It is the Company's policy to provide for uncertain tax positions and the related interest and penalties based upon management's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes.
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At June 28, 2025, the Company believes that it has appropriately accounted for any liability for unrecognized tax benefits. To the extent the Company prevails in matters for which a liability for an unrecognized tax benefit is established, the statute of limitations expires for a tax jurisdiction year, or the Company is required to pay amounts in excess of the liability, its effective tax rate in a given financial statement period may be affected.
In December 2021, the Organisation for Economic Co-operation and Development (OECD) released model rules introducing a new 15% global minimum tax for large multinational enterprises with an annual global revenue exceeding 750,000,000 euros (Pillar Two Rules). Since the release of the Pillar Two Rules, the OECD has issued four tranches of administrative guidance, as well as guidance on transitional safe harbor relief. Various countries, including the member states of the European Union, have adopted the Pillar Two Rules into their domestic laws, with certain rules coming into effect beginning in fiscal 2024. Some countries are in the process of drafting legislation for adoption in future years. While the Pillar Two Rules serve as a framework for implementing the minimum tax, countries may enact domestic laws that vary slightly from the Pillar Two Rules and may also adjust domestic tax incentives to align with the Pillar Two Rules on different timelines. The Company continues to monitor developments of the Pillar Two Rules and evaluate the potential impact they may have on the jurisdictions in which it operates, including eligibility to qualify for transitional safe harbor relief. To date, the Pillar Two Rules have not had a material impact on the Company's effective tax rate or consolidated financial statements, and the Company does not expect the Pillar Two Rules to have a material impact on its effective tax rate or consolidated financial statements for the fiscal year ending January 3, 2026.
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The Company is currently assessing the impact of OBBBA on its consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
Income Taxes – Improvements to Income Tax Disclosures (Topic 740). In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09, to improve income tax disclosure requirements, primarily through enhanced disclosures related to the income tax rate reconciliation and income taxes paid. This ASU is effective for fiscal year-end 2025, with early adoption permitted and may be applied retrospectively. The Company is currently evaluating the effects that the adoption of this ASU will have on its consolidated financial statements.
2. Earnings per Share
Basic and diluted earnings per share (EPS) were calculated as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| (In thousands, except per share amounts) | June 28, 2025 | June 29, 2024 | June 28, 2025 | June 29, 2024 | ||||||||||||||||||||||
| Net Income Attributable to Kadant | $ | $ | $ | $ | ||||||||||||||||||||||
| Basic Weighted Average Shares | ||||||||||||||||||||||||||
| Effect of Restricted Stock Units and Employee Stock Purchase Plan Shares | ||||||||||||||||||||||||||
| Diluted Weighted Average Shares | ||||||||||||||||||||||||||
| Basic Earnings per Share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted Earnings per Share | $ | $ | $ | $ | ||||||||||||||||||||||
The effect of outstanding and unvested restricted stock units (RSUs) of the Company’s common stock totaling 27,000 shares in the second quarter of 2025, 25,000 shares in the second quarter of 2024, 26,000 in the first six months of 2025 and 29,000 in the first six months of 2024 were not included in the computation of diluted EPS for the respective periods as the
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effect would have been antidilutive or, for unvested performance-based RSUs, the performance conditions had not been met as of the end of the respective reporting periods.
3. Provision for Income Taxes
The provision for income taxes was $17,650,000 in the first six months of 2025 and $19,846,000 in the first six months of 2024.
The effective tax rate of 26 % in the first six months of 2025 was higher than the Company’s statutory rate of 21% primarily due to nondeductible expenses, the distribution of the Company’s worldwide earnings, and state taxes. These items were offset in part by net excess income tax benefits from stock-based compensation arrangements.
The effective tax rate of 26 % in the first six months of 2024 was higher than the Company's statutory rate of 21% primarily due to the distribution of the Company's worldwide earnings, nondeductible expenses, state taxes, and the cost of repatriating the earnings of certain foreign subsidiaries. These items were offset in part by foreign tax credits and net excess income tax benefits from stock-based compensation arrangements.
4. Long-Term Obligations
Long-term obligations are as follows:
| June 28, 2025 | December 28, 2024 | |||||||||||||
| (In thousands) | ||||||||||||||
| Revolving Credit Facility, due 2027 | $ | $ | ||||||||||||
Senior Promissory Notes, due 2025 to 2028 | ||||||||||||||
Finance Leases, due 2025 to 2029 | ||||||||||||||
Other Borrowings, due 2025 to 2028 | ||||||||||||||
| Total | ||||||||||||||
Less: Current Maturities of Long-Term Obligations | ( | ( | ||||||||||||
| Long-Term Obligations | $ | $ | ||||||||||||
See Note 7, Fair Value Measurements and Fair Value of Financial Instruments, for the fair value information related to the Company's long-term obligations.
Revolving Credit Facility
The Company's unsecured multi-currency revolving credit facility, originally entered into on March 1, 2017 (as amended and restated to date, the Credit Agreement) matures on November 30, 2027 and has a borrowing capacity of $400,000,000 , in addition to an uncommitted, unsecured incremental borrowing facility of $200,000,000 . Interest on borrowings outstanding accrues and is payable in arrears calculated at one of the following rates selected by the Company: (i) the Base Rate, as defined, plus an applicable margin of 0 % to 1.25 %, or (ii) Eurocurrency Rate, Term SOFR (plus a 10 basis point credit spread adjustment), Term CORRA, and RFR, as applicable and defined, plus an applicable margin of 1.0 % to 2.25 %. The margin is determined based upon the ratio of the Company's total debt, net of unrestricted cash up to $50,000,000 , to earnings before interest, taxes, depreciation, and amortization as defined in the Credit Agreement. Additionally, the Credit Agreement requires the payment of a commitment fee payable in arrears on the available borrowing capacity under the Credit Agreement, which ranges from 0.125 % to 0.350 %.
Obligations under the Credit Agreement, which includes customary events of default under such financing arrangements, may be accelerated upon the occurrence of an event of default. In addition, the Credit Agreement contains negative covenants applicable to the Company and its subsidiaries, including financial covenants requiring the Company to maintain a maximum consolidated leverage ratio of 3.75 to 1.00, or, if the Company elects, for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, 4.25 to 1.00, and limitations on making certain restricted payments (including dividends and stock repurchases).
Loans under the Credit Agreement are guaranteed by certain domestic subsidiaries of the Company.
As of June 28, 2025, the outstanding balance under the Credit Agreement was $239,214,000 , which included $80,214,000 of euro-denominated borrowings. The Company had $161,554,000 of borrowing capacity available as of June 28, 2025, which was calculated by translating its foreign-denominated borrowings using the administrative agent's borrowing date foreign exchange rates, in addition to the $200,000,000 uncommitted, unsecured incremental borrowing facility.
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The weighted average interest rate for the outstanding balance under the Credit Agreement was 4.59 % as of June 28, 2025 and 5.27 % as of December 28, 2024.
Senior Promissory Notes
In 2018, the Company entered into an uncommitted, unsecured Multi-Currency Note Purchase and Private Shelf Agreement (Note Purchase Agreement). Simultaneously with the execution of the Note Purchase Agreement, the Company issued senior promissory notes (Initial Notes) in an aggregate principal amount of $10,000,000 , with a per annum interest rate of 4.90 % payable semiannually, and a maturity date of December 14, 2028. The Company is required to prepay a portion of the principal of the Initial Notes beginning on December 14, 2023 and each year thereafter, and may optionally prepay the principal on the Initial Notes, together with any prepayment premium, at any time in accordance with the Note Purchase Agreement. The obligations of the Initial Notes may be accelerated upon an event of default as defined in the Note Purchase Agreement, which includes customary events of default under such financing arrangements.
The Initial Notes are pari passu with the Company’s indebtedness under the Credit Agreement, and any other senior debt of the Company, subject to certain specified exceptions, and participate in a sharing agreement with respect to the obligations of the Company and its subsidiaries under the Credit Agreement. The Initial Notes are guaranteed by certain of the Company’s domestic subsidiaries.
Debt Compliance
As of June 28, 2025, the Company was in compliance with the covenants related to its debt obligations.
5. Stock-Based Compensation
The Company recognized stock-based compensation expense of $3,063,000 in the second quarter of 2025, $2,884,000 in the second quarter of 2024, $5,820,000 in the first six months of 2025 and $5,299,000 in the first six months of 2024 within selling, general and administration (SG&A) expenses in the accompanying condensed consolidated statement of income. The Company recognizes compensation expense for all stock-based awards granted to employees and directors based on the grant date estimate of fair value for those awards. The fair value of RSUs is based on the grant date price of the Company's common stock, reduced by the present value of estimated dividends foregone during the requisite service period. For time-based RSUs, compensation expense is recognized ratably over the requisite service period for the entire award based on the grant date fair value, and net of actual forfeitures recorded when they occur. For performance-based RSUs, compensation expense is recognized ratably over the requisite service period for each separately vesting portion of the award based on the grant date fair value, net of actual forfeitures recorded when they occur, and remeasured each reporting period until the total number of RSUs to be issued is known. Unrecognized compensation expense related to stock-based compensation totaled $13,950,000 at June 28, 2025, which will be recognized over a weighted average period of 1.8 years.
Non-Employee Director RSUs
On May 14, 2025, the Company granted an aggregate of 2,635 RSUs to its non-employee directors with an aggregate grant date fair value of $850,000 , of which 50 % vested on June 1, 2025, 25 % will vest on the last day of the third fiscal quarter of 2025 and the remaining 25 % will vest on the last day of the fourth fiscal quarter of 2025, subject to continued service as a director on the applicable vesting dates.
Performance-based RSUs
On March 4, 2025, the Company granted performance-based RSUs to certain of its officers, which represented, in aggregate, the right to receive 14,626 shares (target RSU amount), with an aggregate grant date fair value of $5,406,000 . The RSUs are subject to adjustment based on the achievement of the performance measure selected for the fiscal year, which is a specified target for adjusted earnings before interest, taxes, depreciation, and amortization (target adjusted EBITDA) generated from operations for the fiscal year. The RSUs are adjusted by comparing the actual adjusted EBITDA for the performance period to the target adjusted EBITDA. Actual adjusted EBITDA between 50 % and 100 % of the target adjusted EBITDA results in an adjustment of 50 % to 100 % of the target RSU amount. Actual adjusted EBITDA between 100 % and 115 % of the target adjusted EBITDA results in an adjustment using a straight-line linear scale between 100 % and 150 % of the target RSU amount. Actual adjusted EBITDA in excess of 115 % results in an adjustment capped at 150 % of the target RSU amount. If actual adjusted EBITDA is below 50 % of the target adjusted EBITDA for the 2025 fiscal year, these performance-based RSUs will be forfeited. The Company recognizes compensation expense based on the probable number of performance-based RSUs expected to vest. Following the adjustment, the performance-based RSUs will be subject to additional time-based vesting, and will vest
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in equal annual installments on March 10 of 2026, 2027, and 2028, provided that the officer is employed by the Company on the applicable vesting dates.
Time-based RSUs
On March 4, 2025, the Company granted time-based RSUs representing 11,199 shares to certain of its officers and employees with an aggregate grant date fair value of $4,139,000 . These time-based RSUs vest in equal annual installments on March 10 of 2026, 2027, and 2028, provided that a recipient is employed by the Company on the applicable vesting dates.
6. Accumulated Other Comprehensive Items
Comprehensive income combines net income and other comprehensive items, which represent certain amounts that are reported as components of stockholders' equity in the accompanying condensed consolidated balance sheet.
Changes in each component of accumulated other comprehensive items (AOCI), net of tax, are as follows:
| (In thousands) | Foreign Currency Translation Adjustment | Post-Retirement Benefit Liability Adjustments | Total | |||||||||||||||||
| Balance at December 28, 2024 | $ | ( | $ | $ | ( | |||||||||||||||
| Other comprehensive items before reclassifications | ||||||||||||||||||||
| Reclassifications from AOCI | ||||||||||||||||||||
Net current period other comprehensive items | ||||||||||||||||||||
| Balance at June 28, 2025 | $ | ( | $ | $ | ( | |||||||||||||||
7. Fair Value Measurements and Fair Value of Financial Instruments
Fair value measurement is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
•Level 1—Quoted prices in active markets for identical assets or liabilities.
•Level 2—Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
•Level 3—Unobservable inputs based on the Company's own assumptions.
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis:
| Fair Value as of June 28, 2025 | ||||||||||||||||||||||||||
| (In thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Money market funds and time deposits (a) | $ | $ | $ | $ | ||||||||||||||||||||||
| Banker's acceptance drafts (b) | $ | $ | $ | $ | ||||||||||||||||||||||
| Forward currency-exchange contracts (c) | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
Contingent consideration (d) | $ | $ | $ | $ | ||||||||||||||||||||||
| Fair Value as of December 28, 2024 | ||||||||||||||||||||||||||
| (In thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Money market funds and time deposits (a) | $ | $ | $ | $ | ||||||||||||||||||||||
| Banker's acceptance drafts (b) | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
Forward currency-exchange contracts (c) | $ | $ | $ | $ | ||||||||||||||||||||||
Contingent consideration (d) | $ | $ | $ | $ | ||||||||||||||||||||||
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(a)Included in cash and cash equivalents in the accompanying condensed consolidated balance sheet.
(b)Included in accounts receivable in the accompanying condensed consolidated balance sheet.
(c)Included in other current assets at June 28, 2025 and other current liabilities at December 28, 2024 in the accompanying condensed consolidated balance sheet.
(d)Included in other long-term liabilities in the accompanying condensed consolidated balance sheet.
In connection with the acquisition of a technology company in August 2024, the Company assumed contingent consideration with a fair value of $1,785,000 measured at the date of acquisition. The contingent consideration is payable upon the achievement of certain revenue performance targets earned between June 30, 2025 and June 30, 2027. The maximum future value of the contingent consideration subject to payment is approximately $11,443,000 , calculated using the foreign currency spot rate at June 28, 2025.
The Company uses the income approach technique to estimate the fair value of its Level 3 contingent consideration, including valuation models that incorporate probability adjusted assumptions and simulations related to the achievement of milestones and the likelihood of making the related payment. The unobservable inputs used in the fair value measurements include the probability of successful achievement of certain revenue targets, forecasted revenue, revenue volatility, and discount rates. These assumptions were estimated based on a review of historical and projected results. Projected contingent consideration related to revenue-based payments are discounted back to the current period using a discounted cash flow model. Changes to the fair value of contingent consideration can result from changes to one or multiple inputs, including the discount rate, projected revenue, revenue volatility, and the assumed probabilities of successful achievement of certain revenue targets.
The following table provides a rollforward of the change in the fair value of the contingent consideration as determined by Level 3 inputs during the first six months of 2025:
(In thousands) | Total | |||||||
Balance at December 28, 2024 | $ | |||||||
Currency translation | ||||||||
Balance at June 28, 2025 | $ | |||||||
The carrying value and fair value of debt obligations, excluding lease obligations, are as follows:
| June 28, 2025 | December 28, 2024 | |||||||||||||||||||||||||
| (In thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||
| Debt Obligations: | ||||||||||||||||||||||||||
| Revolving credit facility | $ | $ | $ | $ | ||||||||||||||||||||||
| Senior promissory notes | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
The carrying value of the Company's revolving credit facility approximates the fair value as the obligation bears variable rates of interest, which adjust frequently, based on prevailing market rates. The fair value of the senior promissory notes is primarily calculated based on quoted market rates plus an applicable margin available to the Company at the respective period end, which represent Level 2 measurements.
8. Business Segment Information
The Company is a global supplier of technologies and engineered systems that drive Sustainable Industrial Processing and operates in three reportable segments consisting of its Flow Control segment, Industrial Processing segment, and Material Handling segment. The Company aggregated its operating segments into its reportable segments where they contained similar
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products and economic characteristics, and shared similar types of customers, and production and distribution methods. The Flow Control segment is comprised of its fluid-handling and its doctoring, cleaning, & filtration operating segments, and the Industrial Processing segment is comprised of its wood processing and its fiber processing operating segments.
A description of each reportable segment follows:
•Flow Control – Custom-engineered products, systems, and technologies that control the flow of fluids used in industrial and commercial applications to keep critical processes running efficiently in the packaging, tissue, food, metals, energy, and other industrial sectors. The Company's primary products include rotary sealing devices, steam systems, expansion joints, doctor systems, roll and fabric cleaning devices, and filtration and fiber recovery systems.
•Industrial Processing – Equipment, machinery, and technologies used to recycle paper and paperboard and process timber for use in the packaging, tissue, wood products and alternative fuel industries, among others. The Company's primary products include fiber processing systems and recycling equipment, chemical pulping equipment, debarkers, stranders, chippers and custom engineered knife systems. In addition, the Company provides industrial automation and digitization solutions to process industries.
•Material Handling – Products and engineered systems used to handle bulk and discrete materials for secondary processing or transport in the aggregates, mining, food, and waste management industries, among others. The Company's primary products include conveying and vibratory equipment and balers. In addition, the Company manufactures and sells biodegradable, absorbent granules used as carriers in agricultural applications and for oil and grease absorption.
The following tables present financial information for the Company's reportable segments:
| Three Months Ended June 28, 2025 | ||||||||||||||||||||||||||
| (In thousands) | Flow Control | Industrial Processing | Material Handling | Total | ||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||||||||||||
Cost of revenue | ||||||||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||
| Gross Profit Margin | ||||||||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||
| Selling expenses | ||||||||||||||||||||||||||
| General and administrative expenses | ||||||||||||||||||||||||||
Research and development expenses | ||||||||||||||||||||||||||
| Intangible asset amortization expense | ||||||||||||||||||||||||||
| Other segment items (a) | ( | ( | ||||||||||||||||||||||||
Segment Operating Income | $ | $ | $ | $ | ||||||||||||||||||||||
Segment Operating Income Margin | ||||||||||||||||||||||||||
Corporate Expenses (b) | ( | |||||||||||||||||||||||||
Interest Expense, Net | ( | |||||||||||||||||||||||||
Other Expense, Net | ( | |||||||||||||||||||||||||
Income Before Provision for Income Taxes | $ | |||||||||||||||||||||||||
| (In thousands) | Flow Control | Industrial Processing | Material Handling | Corporate | Total | |||||||||||||||||||||||||||
| Other Segment Disclosures | ||||||||||||||||||||||||||||||||
Depreciation expense (c) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
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| Three Months Ended June 29, 2024 | ||||||||||||||||||||||||||
| (In thousands) | Flow Control | Industrial Processing | Material Handling | Total | ||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||||||||||||
Cost of revenue | ||||||||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||
| Gross Profit Margin | —% | |||||||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||
| Selling expenses | ||||||||||||||||||||||||||
| General and administrative expenses | ||||||||||||||||||||||||||
Research and development expenses | ||||||||||||||||||||||||||
| Intangible asset amortization expense | ||||||||||||||||||||||||||
| Other segment items (a) | ||||||||||||||||||||||||||
Segment Operating Income | $ | $ | $ | $ | ||||||||||||||||||||||
Segment Operating Income Margin | ||||||||||||||||||||||||||
Corporate Expenses (b) | ( | |||||||||||||||||||||||||
Interest Expense, Net | ( | |||||||||||||||||||||||||
Other Expense, Net | ( | |||||||||||||||||||||||||
Income Before Provision for Income Taxes | $ | |||||||||||||||||||||||||
| (In thousands) | Flow Control | Industrial Processing | Material Handling | Corporate | Total | |||||||||||||||||||||||||||
| Other Segment Disclosures | ||||||||||||||||||||||||||||||||
Depreciation expense (c) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Six Months Ended June 28, 2025 | ||||||||||||||||||||||||||
| (In thousands) | Flow Control | Industrial Processing | Material Handling | Total | ||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||
| Gross Profit Margin | ||||||||||||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||||
| Selling expenses | ||||||||||||||||||||||||||
| General and administrative expenses | ||||||||||||||||||||||||||
| Research and development expenses | ||||||||||||||||||||||||||
| Intangible asset amortization expense | ||||||||||||||||||||||||||
| Other segment items (a) | ( | |||||||||||||||||||||||||
| Segment Operating Income | $ | $ | $ | $ | ||||||||||||||||||||||
| Segment Operating Income Margin | ||||||||||||||||||||||||||
| Corporate Expenses (b) | ( | |||||||||||||||||||||||||
| Interest Expense, Net | ( | |||||||||||||||||||||||||
| Other Expense, Net | ( | |||||||||||||||||||||||||
| Income Before Provision for Income Taxes | $ | |||||||||||||||||||||||||
| (In thousands) | Flow Control | Industrial Processing | Material Handling | Corporate | Total | |||||||||||||||||||||||||||
| Other Segment Disclosures | ||||||||||||||||||||||||||||||||
Depreciation expense (c) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
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| Six Months Ended June 29, 2024 | ||||||||||||||||||||||||||
| (In thousands) | Flow Control | Industrial Processing | Material Handling | Total | ||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||||||||||||
Cost of revenue | ||||||||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||
| Gross Profit Margin | ||||||||||||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||||
| Selling expenses | ||||||||||||||||||||||||||
| General and administrative expenses | ||||||||||||||||||||||||||
Research and development expenses | ||||||||||||||||||||||||||
| Intangible asset amortization expense | ||||||||||||||||||||||||||
| Other segment items (a) | ||||||||||||||||||||||||||
Segment Operating Income | $ | $ | $ | $ | ||||||||||||||||||||||
Segment Operating Income Margin | ||||||||||||||||||||||||||
Corporate Expenses (b) | ( | |||||||||||||||||||||||||
Interest Expense, Net | ( | |||||||||||||||||||||||||
Other Expense, Net | ( | |||||||||||||||||||||||||
Income Before Provision for Income Taxes | $ | |||||||||||||||||||||||||
| (In thousands) | Flow Control | Industrial Processing | Material Handling | Corporate | Total | |||||||||||||||||||||||||||
| Other Segment Disclosures | ||||||||||||||||||||||||||||||||
Depreciation expense (c) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| June 28, 2025 | December 28, 2024 | |||||||||||||
| (In thousands) | ||||||||||||||
| Total Assets (d) | ||||||||||||||
| Flow Control | $ | $ | ||||||||||||
Industrial Processing | ||||||||||||||
Material Handling | ||||||||||||||
Corporate (e) | ||||||||||||||
| $ | $ | |||||||||||||
(a)Includes acquisition costs, indemnification asset provisions and reversals associated with uncertain tax positions, and certain gains and losses.
(b)Primarily consists of general and administrative expenses.
(c)Depreciation expense by reportable segment is included within cost of revenue and selling, general and administrative, and research and development expenses.
(d)Excludes intercompany receivables or payables and investment in subsidiary balances as the CODM uses total assets excluding these amounts as the measurement for the Company's segment assets.
(e)Corporate assets primarily consist of cash and cash equivalents, tax assets, right-of-use assets, and property, plant, and equipment, net.
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9. Commitments and Contingencies
Right of Recourse
In the ordinary course of business, the Company's Chinese subsidiaries may receive banker's acceptance drafts from customers as payment for their trade accounts receivable. The drafts are non-interest bearing obligations of the issuing bank and generally mature within six months of the origination date. The Company's Chinese subsidiaries may use these banker's acceptance drafts prior to the scheduled maturity date to settle outstanding accounts payable with vendors. Banker's acceptance drafts transferred to vendors are subject to customary right of recourse provisions prior to their scheduled maturity dates. The Company had $6,777,000 at June 28, 2025 and $7,952,000 at December 28, 2024 of banker's acceptance drafts subject to recourse, which were transferred to vendors and had not reached their scheduled maturity dates. Historically, the banker's acceptance drafts have settled upon maturity without any claim of recourse against the Company.
Litigation
From time to time, the Company is subject to various claims and legal proceedings covering a range of matters that arise in the ordinary course of business. Such litigation may include, but is not limited to, claims and counterclaims by and against the Company for breach of contract or warranty, canceled contracts, product liability, or bankruptcy-related claims. For legal proceedings in which a loss is probable and estimable, the Company accrues a loss based on the low end of the range of estimated loss when there is no better estimate within the range. If the Company were found to be liable for any of the claims or counterclaims against it, the Company would incur a charge against earnings for amounts in excess of legal accruals.
10. Subsequent Events
Acquisition
On July 9, 2025, the Company acquired all the outstanding equity securities of Babbini S.p.A and G.P.S. Engineering S.r.l (collectively, Babbini), two Italy-based companies specializing in industrial dewatering and engineered power transmission solutions, for approximately $18,700,000 , net of cash acquired, and subject to certain adjustments. The Company expects several synergies in connection with this acquisition, including expansion of product sales by leveraging Kadant's global sales network and sourcing and manufacturing efficiencies. This acquisition is also expected to enhance the Company's upcycling solutions for its fiber processing product lines. Babbini is part of the Company's Industrial Processing segment.
Borrowings Under the Credit Agreement
The Company borrowed approximately $21,100,000 of euro-denominated funds under its revolving credit facility to finance the acquisition of Babbini.
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Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations
When we use the terms "we," "us," "our," and the "Company," we mean Kadant Inc., a Delaware corporation, and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates.
This Quarterly Report on Form 10-Q and the documents we incorporate by reference in this report include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements are not statements of historical fact and may include statements regarding possible or assumed future results of operations. Forward-looking statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management, using information currently available to our management. When we use words such as "believes," "expects," "anticipates," "intends," "plans," "estimates," "seeks," "should," "likely," "will," "would," "may," "continue," "could," or similar expressions, we are making forward-looking statements.
Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions. Our future results of operations may differ materially from those expressed in the forward-looking statements. Many of the important factors that will determine these results are beyond our ability to control or predict. You should not put undue reliance on any forward-looking statements. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. For a discussion of important factors that may cause our actual results to differ materially from those suggested by the forward-looking statements, you should read carefully the section captioned Risk Factors, included in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 28, 2024 (Annual Report), as further amended in Part II, Item 1A, within this report, and as may be further amended and/or restated in subsequent filings with the SEC.
Overview
Company Background
We are a global supplier of technologies and engineered systems that drive Sustainable Industrial Processing®. Our products and services play an integral role in enhancing efficiency, optimizing energy utilization, and maximizing productivity in process industries while helping our customers advance their sustainability initiatives with products that reduce waste or generate more yield with fewer inputs, particularly fiber, energy, and water. Producing more while consuming less is a core aspect of Sustainable Industrial Processing and a major element of the strategic focus of our business.
Our financial results are reported in three reportable segments consisting of our Flow Control segment, Industrial Processing segment, and Material Handling segment. We have aggregated our operating segments into reportable segments where they contained similar products and economic characteristics, and shared similar types of customers, and production and distribution methods. Our Flow Control segment consists of our fluid-handling and doctoring, cleaning, & filtration operating segments and our Industrial Processing segment consists of our wood processing and fiber processing operating segments. A description of each reportable segment is as follows:
•Flow Control – Custom-engineered products, systems, and technologies that control the flow of fluids used in industrial and commercial applications to keep critical processes running efficiently in the packaging, tissue, food, metals, energy, and other industrial sectors. Our primary products include rotary sealing devices, steam systems, expansion joints, doctor systems, roll and fabric cleaning devices, and filtration and fiber recovery systems.
•Industrial Processing – Equipment, machinery, and technologies used to recycle paper and paperboard and process timber for use in the packaging, tissue, wood products, and alternative fuel industries, among others. Our primary products include fiber processing systems and recycling equipment, chemical pulping equipment, debarkers, stranders, chippers and custom engineered knife systems. In addition, we provide industrial automation and digitization solutions to process industries.
•Material Handling – Products and engineered systems used to handle bulk and discrete materials for secondary processing or transport in the aggregates, mining, food, and waste management industries, among others. Our primary products include conveying and vibratory equipment and balers. In addition, we manufacture and sell biodegradable, absorbent granules used as carriers in agricultural applications and for oil and grease absorption.
See Note 8, Business Segment Information, in the accompanying condensed consolidated financial statements for financial information on our reportable segments.
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Industry and Business Overview
Our consolidated bookings increased 7% to $269.4 million in the second quarter of 2025 compared to the second quarter of 2024, driven by a 25% increase in demand for our capital equipment products. Notably, this strong bookings performance led to an increase in our quarter-end backlog to $299.1 million, representing a 16% increase from year-end 2024. Part of the increased demand in the second quarter of 2025 resulted from orders delayed from the first quarter as customers awaited more clarity on the impact of tariffs. While there has been some clarification on certain country-specific tariffs, newly announced tariffs, such as the recent steel import tariff increase, continue to create unease and uncertainty in the market. This environment of evolving trade policies has impacted our customers' decision-making process and resulted in a lengthening in quote-to-order times for capital orders, with some customers delaying capital projects into 2026. While investments in maintenance and mission-critical equipment continue, customers with flexibility in project timing are deferring capital expenditures until there is greater clarity regarding the tariff situation and the economy. This impact is more pronounced in our Industrial Processing segment, where average capital order values are significantly higher compared to our other segments. In response, our operations teams have been assessing our exposure to both existing and proposed tariffs and continue to develop and implement mitigation measures.
From a geographic perspective, tariff-related developments in North America have created market uncertainty, which may lead to inflationary pressures. In Europe, uncertainty surrounding trade tensions and geopolitical risks continue to impact the market. In China, government-led initiatives seek to stimulate domestic demand and manufacturing activity, but escalating trade tensions with the United States are generally expected to have a negative impact.
Overall, we anticipate stronger bookings in 2025 compared to 2024, especially in our Industrial Processing segment. However, the timing for securing capital orders remains uncertain and may shift between quarters or extend into 2026, depending in part by the outcome of ongoing tariff negotiations and the implementation of any tariff changes. Despite this near-term variability, we see long-term strength in our end markets as customers continue to depend on our products to enhance productivity through more efficient production processes. Additionally, we see growth opportunities from both proposed and enacted legislation in the U.S. and internationally aimed at fueling investment.
An overview of our business by reportable segment is as follows:
•Flow Control – Our Flow Control segment bookings were essentially flat compared to the second quarter of 2024, with strong demand for our parts and consumables products in North America, offset by weaker bookings in Europe where constrained market conditions and geopolitical tensions have dampened spending. In certain European markets, excess production capacity and declining demand for graphic paper have led to the closure of several mills, which negatively impacted demand for our capital equipment products. In North America, while quote activity related to capital projects remains strong, there have been delays in the timing for securing orders. We expect overall demand in this segment to improve as the year progresses, especially with increased clarity related to trade discussions and tariffs.
•Industrial Processing – Our Industrial Processing segment bookings increased 9% compared to the second quarter of 2024 driven by strong demand for our capital equipment products at our wood processing product line. This growth was primarily fueled by the engineered wood industry in North America where customers selected our products for their ability to maximize wood fiber utilization. Despite these positive results, overall demand for our capital equipment in the wood processing product line was constrained by uncertain market conditions. Although there is ongoing quote activity for large capital projects, tariff-related uncertainty has led to a lengthening in quote-to-order times as customers await improved market conditions, with some customers in Europe already delaying capital orders into early 2026. Bookings at our fiber processing product line decreased 19% compared to the second quarter of 2024 due to constrained capital spending related to macroeconomic conditions, especially in China. These conditions resulted in several pending capital orders delayed into the third quarter of 2025. Tariff-related uncertainty has had a larger impact on this segment due to the higher average capital order value and our customers’ ability to delay the timing of large capital projects. Despite this, demand for our aftermarket parts in this segment has remained strong, and we expect steady demand to continue for the remainder of 2025. Additionally, we expect demand for our capital equipment in this segment to strengthen in the second half of 2025, with the anticipated receipt of a number of orders in the pipeline.
•Material Handling – Our Material Handling segment bookings increased 16% compared to the second quarter of 2024, due to increased demand for our capital equipment products at our conveying and vibratory business. This increase was driven by underground mineral mining projects where customers placed substantial equipment orders to meet their operational needs. Our baling business also experienced increased demand for our capital equipment products, especially in the European market. Despite the overall increase in demand at our baling businesses, market conditions remain constrained, driven by a decline in used paper prices, market uncertainty related to tariffs and concerns over borrowing costs, all of which impact the timing of capital orders. From a tariff perspective, we anticipate some
23
competitive advantage at our North American baling business as customers evaluate the incremental tariff costs on foreign-made balers. However, ongoing tariff-related market uncertainty has tempered demand for our capital equipment products, and we anticipate customers shifting their capital expenditures from larger capital projects to smaller aftermarket products in the short-term. Demand for our parts and consumables products in this segment was consistent with the first quarter of 2025, and we expect stable demand to continue for the remainder of the year.
Our global operations have been and continue to be impacted by complex market conditions fueled by tariff-related uncertainty, inflationary pressures, and geopolitical tensions. We expect our operating environment to continue to be challenging, which creates continued uncertainty for the remainder of 2025. However, we believe that the fundamentals of our business remain strong, particularly given our solid market position in key product lines, solid global operations teams, and long-term strength of our end markets. For more information related to these challenges, and other factors impacting our business, please see Risk Factors, included in Part I, Item 1A, of our Annual Report, as further amended in Part II, Item IA, within this report, and as may be further amended and/or restated in subsequent filings with the SEC.
International Sales
Approximately half of our sales are to customers outside the United States, mainly in Europe, Asia, and Canada. As a result, our financial performance can be materially affected by currency exchange rate fluctuations between the U.S. dollar and foreign currencies. To mitigate the impact of foreign currency transaction fluctuations, we generally seek to charge our customers in the same currency in which our operating costs are incurred. Additionally, we may enter into forward currency exchange contracts to hedge certain firm purchase and sale commitments denominated in currencies other than our subsidiaries' functional currencies. We currently do not use derivative instruments to hedge our exposure to exchange rate fluctuations created by the translation into the U.S. dollar of our foreign subsidiaries' results that are in functional currencies other than the U.S. dollar.
Global Trade
The United States has imposed tariffs in the past and more recently proposed and implemented new tariffs on certain imports, which has and will continue to increase the cost of some of the parts and equipment we import. In addition, foreign countries have implemented and may in the future implement additional retaliatory tariffs in response to these actions by the United States, which have negatively impacted and may in the future negatively impact our operations. Although we are working to mitigate the impact of tariffs through pricing and sourcing strategies, we cannot be sure these strategies will effectively mitigate the impact of these costs. For more information on risks associated with our global operations, including tariffs, please see Risk Factors, included in Part I, Item 1A, of our Annual Report, as further amended in Part II, Item IA, within this report, and as may be further amended and/or restated in subsequent filings with the SEC.
Acquisitions
We expect that a significant driver of our long-term growth will be through the acquisition of businesses and technologies that complement or augment our existing products and services or may involve entry into a new process industry. We have acquired several businesses in recent years and continue to pursue acquisition opportunities.
On July 9, 2025, we acquired Babbini S.p.A and G.P.S. Engineering S.r.l (collectively, Babbini), two Italy-based companies specializing in industrial dewatering and engineered power transmission solutions, for approximately $18.7 million, net of cash acquired, and subject to certain adjustments. Babbini is part of our Industrial Processing segment.
Results of Operations
Second Quarter 2025 Compared With Second Quarter 2024
Revenue
The following table presents the change in revenue by segment between the second quarters of 2025 and 2024, and those changes excluding the effect of acquisitions and foreign currency translation which we refer to as change in organic revenue. Organic revenue excludes the effect of acquisitions for the four quarterly reporting periods following the date of the acquisition. The presentation of the change in organic revenue is a non-GAAP measure. We believe this non-GAAP measure helps investors gain an understanding of our underlying operations consistent with how management measures and forecasts its performance, especially when comparing such results to prior periods. This non-GAAP measure should not be considered superior to or a substitute for the corresponding U.S. generally accepted accounting principles (GAAP) measure.
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Revenue by reportable segment in the second quarters of 2025 and 2024 is as follows:
| Three Months Ended | Increase (Decrease) | Acquisitions | Currency Translation | (Non-GAAP) Change in Organic Revenue | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | June 28, 2025 | June 29, 2024 | % Change | Increase (Decrease) | % Change | |||||||||||||||||||||||||||||||||||||||||||||
| Flow Control | $ | 95,947 | $ | 92,290 | $ | 3,657 | 4 | % | $ | 704 | $ | 785 | $ | 2,168 | 2 | % | ||||||||||||||||||||||||||||||||||
| Industrial Processing | 95,937 | 114,753 | (18,816) | (16) | % | — | 455 | (19,271) | (17) | % | ||||||||||||||||||||||||||||||||||||||||
Material Handling | 63,383 | 67,722 | (4,339) | (6) | % | 111 | 877 | (5,327) | (8) | % | ||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 255,267 | $ | 274,765 | $ | (19,498) | (7) | % | $ | 815 | $ | 2,117 | $ | (22,430) | (8) | % | ||||||||||||||||||||||||||||||||||
Consolidated revenue decreased to $255.3 million, or 7%, in the second quarter of 2025 compared to record revenue achieved in the second quarter of 2024, which was driven by record revenue at our Industrial Processing segment. Significant economic uncertainty impacted our customers’ decision-making process leading to a slowdown in capital orders in the second half of 2024 and the first quarter of 2025. As a result, capital revenue decreased 28% in the second quarter of 2025 compared to the prior year period. However, we experienced a sequential increase in our consolidated revenue across all segments compared to the first quarter of 2025. Demand for our parts and consumables products has remained steady and notably, we had record parts and consumables revenue of $181.8 million, or 71% of consolidated revenue, in the second quarter of 2025.
Revenue at our Flow Control segment increased 4%, while organic revenue increased 2% in the second quarter of 2025, driven by higher demand for our parts and consumables products with strength in North America more than offsetting weakness in Europe.
Revenue at our Industrial Processing segment decreased 16% in the second quarter of 2025 compared to record revenue achieved in the 2024 period, primarily driven by comparatively weaker demand for our capital equipment products at our wood processing business in the 2025 period. Ongoing market uncertainty in both North America and Europe has resulted in a lengthening of the quote-to-order times as customers await improved market conditions, causing some capital equipment orders to be delayed. Despite this, demand for our aftermarket products has remained steady as customers focus their spending on critical parts, resulting in a 7% increase in parts and consumables revenue in the second quarter of 2025 compared to 2024.
Revenue at our Material Handling segment decreased 6% in the second quarter of 2025 due to lower capital equipment revenue at our conveying and vibratory business driven by tariff-related market uncertainty.
Gross Profit Margin
Gross profit margin by reportable segment in the second quarters of 2025 and 2024 is as follows:
| Three Months Ended | Basis Point Change | ||||||||||||||||||||||
| June 28, 2025 | June 29, 2024 | ||||||||||||||||||||||
| Flow Control | 53.8% | 53.0% | 80 | bps | |||||||||||||||||||
| Industrial Processing | 42.6% | 41.3% | 130 | bps | |||||||||||||||||||
| Material Handling | 38.7% | 37.8% | 90 | bps | |||||||||||||||||||
| Consolidated | 45.9% | 44.4% | 150 | bps | |||||||||||||||||||
Consolidated gross profit margin increased to 45.9% in the second quarter of 2025 from 44.4% in the second quarter of 2024 due to an increase in the proportion of higher-margin parts and consumables revenue, which increased to 71% of consolidated revenue in the second quarter of 2025 compared to 63% in in the second quarter of 2024.
Within our reportable segments, gross profit margin:
•Increased to 53.8% at our Flow Control segment from 53.0% in the 2024 period primarily due to an increase in the proportion of higher-margin parts and consumables revenue in 2025 and, to a lesser extent, the inclusion of $0.2 million of amortization expense related to acquired profit in inventory, which lowered gross profit margin in 2024 by 0.3 percentage points. These increases were partially offset by lower margins achieved on our capital equipment products.
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•Increased to 42.6% at our Industrial Processing segment from 41.3% in the 2024 period due to an increase in the proportion of higher-margin parts and consumables revenue in 2025, partially offset by lower margins achieved on our capital equipment products.
•Increased to 38.7% at our Material Handling segment from 37.8% in the 2024 period due to higher margins achieved on our parts and consumables products.
Selling, General, and Administrative Expenses
Selling, general, and administrative (SG&A) expenses by reportable segment and corporate in the second quarters of 2025 and 2024 are as follows:
| Three Months Ended | ||||||||||||||||||||||||||
| (In thousands, except percentages) | June 28, 2025 | June 29, 2024 | Increase | % Change | ||||||||||||||||||||||
| Flow Control | $ | 25,885 | $ | 23,971 | $ | 1,914 | 8% | |||||||||||||||||||
| Industrial Processing | 23,561 | 21,866 | 1,695 | 8% | ||||||||||||||||||||||
| Material Handling | 14,004 | 13,758 | 246 | 2% | ||||||||||||||||||||||
| Corporate | 10,491 | 10,409 | 82 | 1% | ||||||||||||||||||||||
| Consolidated | $ | 73,941 | $ | 70,004 | $ | 3,937 | 6% | |||||||||||||||||||
| Consolidated as a Percentage of Revenue | 29.0% | 25.5% | ||||||||||||||||||||||||
Consolidated SG&A expenses as a percentage of revenue increased to 29.0% in 2025 compared to 25.5% in 2024 largely due to the comparatively lower revenue in 2025. Consolidated SG&A expenses increased $3.9 million, or 6%, compared to 2024. The weakening of the U.S. dollar resulted in a $1.9 million increase in SG&A expenses, including a $1.2 million shift from foreign currency gains in the 2024 period to losses in the 2025 period, and a $0.7 million unfavorable effect of foreign currency translation. In addition, the increase in SG&A expenses includes $2.3 million of SG&A expenses from acquisitions, partially offset by a decrease of $0.5 million of acquisition-related costs. Acquisition-related costs consist of amortization expense associated with acquired backlog and acquisition costs.
Within our reportable segments and corporate, SG&A expenses:
•Increased $1.9 million at our Flow Control segment principally due to the inclusion of $1.9 million of SG&A expenses from acquisitions, partially offset by a decrease of $0.6 million of acquisition-related costs. In addition, SG&A expenses increased $0.7 million as foreign currency gains of $0.3 million in the prior quarter shifted to $0.4 million of foreign currency losses in the 2025 period.
•Increased $1.7 million at our Industrial Processing segment principally due to increases of $0.8 million in acquisition-related costs, $0.6 million in foreign currency transaction and translation expense, and $0.3 million in legal expenses.
•Increased $0.2 million at our Material Handling segment principally due to $0.4 million of SG&A expenses from acquisitions, $0.2 million unfavorable foreign currency translation effect and a $0.2 million increase in external commission expense. These increases were partially offset by a decrease of $0.7 million in acquisition-related costs.
•Increased $0.1 million at Corporate due to a $0.7 million increase in compensation expense and $0.5 million increase in insurance expense, largely offset by a decrease in legal costs primarily due to an intellectual property settlement.
Interest Expense
Interest expense decreased to $3.3 million in the second quarter of 2025 from $5.2 million in the second quarter of 2024 due to decreased borrowings under our revolving credit facility and a lower weighted-average interest rate.
Provision for Income Taxes
Provision for income taxes decreased to $9.8 million in the second quarter of 2025 from $12.0 million in the second quarter of 2024.
The effective tax rate of 27% in the second quarter of 2025 and 28% in the second quarter of 2024 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, nondeductible expenses, and the cost of repatriating the earnings of certain foreign subsidiaries. These items were offset in part by foreign tax credits.
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Net Income
Net income decreased to $26.6 million in the second quarter of 2025 from $31.6 million in the second quarter of 2024 primarily due to a $9.0 million decrease in operating income, offset in part by a $1.9 million decrease in interest expense and a $2.2 million decrease in provision for income taxes (see discussions above for further details).
First Six Months 2025 Compared With First Six Months 2024
Revenue
The following table presents changes in revenue and organic revenue by segment between the first six months of 2025 and 2024. Organic revenue is a non-GAAP measure as defined above in the results of operations for the second quarter of 2025 compared with the second quarter of 2024.
Revenue by segment in the first six months of 2025 and 2024 is as follows:
| Six Months Ended | Acquisitions | Currency Translation | (Non-GAAP) Change in Organic Revenue | |||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | June 28, 2025 | June 29, 2024 | Increase (Decrease) | % Change | Increase (Decrease) | % Change | ||||||||||||||||||||||||||||||||||||||||||||
| Flow Control | $ | 188,388 | $ | 178,972 | $ | 9,416 | 5% | $ | 8,216 | $ | (1,748) | $ | 2,948 | 2% | ||||||||||||||||||||||||||||||||||||
| Industrial Processing | 185,461 | 220,614 | (35,153) | (16)% | — | (2,378) | (32,775) | (15)% | ||||||||||||||||||||||||||||||||||||||||||
| Material Handling | 120,628 | 124,154 | (3,526) | (3)% | 611 | 471 | (4,608) | (4)% | ||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 494,477 | $ | 523,740 | $ | (29,263) | (6)% | $ | 8,827 | $ | (3,655) | $ | (34,435) | (7)% | ||||||||||||||||||||||||||||||||||||
Consolidated revenue in the first six months of 2025 decreased to $494.5 million, or 6%, while organic revenue decreased 7% primarily due to weaker demand for our capital equipment products. Significant economic uncertainty impacted our customers’ decision-making process leading to a slowdown in capital orders in the second half of 2024 and the first quarter of 2025. As a result, capital revenue was comparatively lower in 2025. From a geographic perspective, organic revenue was impacted by softening demand across all regions due to weak macroeconomic conditions fueled by trade tensions. While customers delayed large capital expenditures, the demand for our parts and consumables was steady, resulting in a 5% increase in parts and consumables revenue compared to the first six months of 2024.
Revenue at our Flow Control segment increased 5%, including a 4% increase from acquisitions and a 1% decrease from the unfavorable effect of foreign currency translation. Organic revenue increased 2% in the first six months of 2025 driven by higher demand for parts and consumable products with strength in North America offsetting weaker market conditions in Europe. This increase was partially offset by lower demand for our capital equipment products in North America due to challenging market conditions.
Revenue at our Industrial Processing segment decreased 16% in the first six months of 2025 due to reduced demand for our capital equipment products, especially at our wood processing businesses in the latter half of 2024 and the first quarter of 2025. While there is active quote activity for large capital projects, tariff-related uncertainty has increased the time for securing orders with certain orders being delayed to later in 2025 or into 2026. Capital revenue also decreased at our fiber processing businesses in the first six months of 2025, especially in China, where trade tensions were further compounded by sluggish economic conditions resulting in more cautious capital spending. Given the delay in committing to major capital expenditures, many customers focused their spending on critical parts. As a result, there was solid demand for our parts and consumables products in this segment with a 3% increase in aftermarket revenue in the first six months of 2025 compared to the first six months of 2024.
Revenue at our Material Handling segment decreased 3%, led by weaker demand for our capital equipment products at our conveying and vibratory business in North America. This decline was partly driven by the tariff-related market uncertainty, which tempered demand and delayed the execution of capital projects. However, this decrease was partially offset by stronger demand at our baling business in North America.
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Gross Profit Margin
Gross profit margin by segment in the first six months of 2025 and 2024 is as follows:
| Six Months Ended | Basis Point Change | ||||||||||||||||||||||
| June 28, 2025 | June 29, 2024 | ||||||||||||||||||||||
| Flow Control | 53.6% | 53.4% | 20 | bps | |||||||||||||||||||
| Industrial Processing | 43.3% | 41.5% | 180 | bps | |||||||||||||||||||
| Material Handling | 38.2% | 36.8% | 140 | bps | |||||||||||||||||||
| Consolidated | 46.0% | 44.5% | 150 | bps | |||||||||||||||||||
Consolidated gross profit margin increased to 46.0% in the first six months of 2025 from 44.5% in the first six months of 2024 due to an increase in the proportion of higher-margin parts and consumables revenue, which increased to 73% of consolidated revenue in the first six months of 2025 compared to 66% in in the first six months of 2024, and the inclusion of $2.9 million of amortization expense related to acquired profit in inventory in the first six months of 2024, which decreased consolidated gross profit margin in the first six months of 2024 by 0.5 percentage points.
Within our reportable segments, gross profit margin:
•Increased to 53.6% at our Flow Control segment from 53.4% in the 2024 period primarily due to an increase in the proportion of higher-margin parts and consumables revenue in 2025.
•Increased to 43.3% at our Industrial Processing segment from 41.5% in the 2024 period due to an increase in the proportion of higher-margin parts and consumables revenue in 2025 and the inclusion of $1.6 million of amortization expense related to acquired profit in inventory in the 2024 period, which decreased gross profit margin in 2024 by 0.7 percentage points. These increases were partially offset by lower margins achieved on our capital equipment products.
•Increased to 38.2% at our Material Handling segment from 36.8% in the 2024 period due to the inclusion of $1.0 million of amortization expense related to acquired profit in inventory in the 2024 period, which decreased gross profit margin in 2024 by 0.8 percentage points and, to a lesser extent, higher margins achieved on our capital equipment products in 2025.
Selling, General, and Administrative Expenses
SG&A expenses by reportable segment and corporate in the first six months of 2025 and 2024 are as follows:
| Six Months Ended | ||||||||||||||||||||||||||
| (In thousands, except percentages) | June 28, 2025 | June 29, 2024 | Increase (Decrease) | % Change | ||||||||||||||||||||||
| Flow Control | $ | 51,055 | $ | 47,395 | $ | 3,660 | 8% | |||||||||||||||||||
| Industrial Processing | 44,571 | 44,384 | 187 | —% | ||||||||||||||||||||||
| Material Handling | 27,512 | 27,798 | (286) | (1)% | ||||||||||||||||||||||
| Corporate | 22,024 | 20,732 | 1,292 | 6% | ||||||||||||||||||||||
| Consolidated | $ | 145,162 | $ | 140,309 | $ | 4,853 | 3% | |||||||||||||||||||
| Consolidated as a Percentage of Revenue | 29.4% | 26.8% | ||||||||||||||||||||||||
Consolidated SG&A expenses as a percentage of revenue increased to 29.4% in the first six months of 2025 compared with 26.8% in the first six months of 2024 due in large part to the comparatively lower revenue in 2025. Consolidated SG&A expenses increased $4.9 million, or 3%, primarily due to the inclusion of $5.5 million of SG&A expenses from acquisitions made during the second and third quarters of 2024 and higher compensation-related costs. These increases were partially offset by a decrease of $1.7 million of acquisition-related costs.
Within our reportable segments and corporate, SG&A expenses:
•Increased $3.7 million at our Flow Control segment principally due to the inclusion of $4.5 million of SG&A expenses from acquisitions, partially offset by a decrease of $0.3 million in acquisition-related costs.
•Increased $0.2 million at our Industrial Processing segment due to an increase of $0.5 million of acquisition costs, partially offset by a decrease of $0.2 million in bad debt expense.
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•Decreased $0.3 million at our Material Handling segment principally due to a decrease of $1.9 million of acquisition-related costs, partially offset by an increase of $1.0 million of SG&A expenses from acquisitions and an increase in compensation-related costs.
•Increased $1.3 million at Corporate due to a $1.4 million increase in compensation expense and a $0.6 million increase in insurance expense, largely offset by a decrease in legal costs primarily due to an intellectual property settlement.
Interest Expense
Interest expense decreased to $7.2 million in the first six months of 2025 from $9.9 million in the first six months of 2024 due to decreased borrowings under our revolving credit facility and a lower weighted-average interest rate.
Provision for Income Taxes
Provision for income taxes decreased to $17.7 million in the first six months of 2025 from $19.8 million in the first six months of 2024.
The effective tax rate of 26% in the first six months of 2025 was higher than our statutory rate of 21% primarily due to nondeductible expenses, the distribution of our worldwide earnings, and state taxes. These items were offset in part by net excess income tax benefits from stock-based compensation arrangements.
The effective tax rate of 26% in the first six months of 2024 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, nondeductible expenses, state taxes, and the cost of repatriating the earnings of certain foreign subsidiaries. These items were offset in part by foreign tax credits and net excess income tax benefits from stock-based compensation arrangements.
Net Income
Net income decreased to $51.1 million in the first six months of 2025 from $56.6 million in the first six months of 2024 primarily due to a $10.4 million decrease in operating income, offset in part by a $2.7 million decrease in interest expense and a $2.2 million decrease in provision for income taxes (see discussions above for further details).
Non-GAAP Key Performance Indicators
In addition to the financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures, including organic revenue (defined as revenue excluding the effect of acquisitions and foreign currency translation), adjusted operating income, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin (defined as adjusted EBITDA divided by revenue), and free cash flow (defined as cash flow provided by operations less capital expenditures).
We use organic revenue to understand our trends and to forecast and evaluate our financial performance and compare revenue to prior periods (see discussion in Revenue above). Adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin exclude amortization expense related to acquired profit in inventory and backlog, acquisition costs, and other income or expense, as indicated. These items are excluded as they are not indicative of our core operating results and are not comparable to other periods, which have differing levels of incremental costs, expenditures or income, or none at all. Additionally, we use free cash flow in order to provide insight on our ability to generate cash for acquisitions and debt repayments, as well as for other investing and financing activities.
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 additional measures of our performance.
Our non-GAAP financial measures are not meant to be considered superior to or a substitute for the results of operations or cash flows prepared in accordance with GAAP. In addition, our non-GAAP financial measures 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.
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A reconciliation of adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin from net income attributable to Kadant is as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| (In thousands, except percentages) | June 28, 2025 | June 29, 2024 | June 28, 2025 | June 29, 2024 | ||||||||||||||||||||||
| Net Income Attributable to Kadant | $ | 26,159 | $ | 31,291 | $ | 50,222 | $ | 55,980 | ||||||||||||||||||
Net Income Attributable to Noncontrolling Interests | 480 | 283 | 854 | 579 | ||||||||||||||||||||||
| Provision for Income Taxes | 9,822 | 11,992 | 17,650 | 19,846 | ||||||||||||||||||||||
| Interest Expense, Net | 2,899 | 4,833 | 6,204 | 8,891 | ||||||||||||||||||||||
| Other Expense, Net | 17 | 2 | 33 | 32 | ||||||||||||||||||||||
| Operating Income | 39,377 | 48,401 | 74,963 | 85,328 | ||||||||||||||||||||||
Acquired Profit in Inventory Amortization (a) | 24 | 529 | 35 | 2,860 | ||||||||||||||||||||||
Acquired Backlog Amortization (b) | 202 | 695 | 581 | 1,494 | ||||||||||||||||||||||
| Acquisition Costs | 908 | 940 | 1,245 | 2,064 | ||||||||||||||||||||||
Indemnification Asset (Provision) Reversal (c) | — | (66) | (29) | 24 | ||||||||||||||||||||||
Adjusted Operating Income (non-GAAP measure) | 40,511 | 50,499 | 76,795 | 91,770 | ||||||||||||||||||||||
| Depreciation and Amortization | 11,867 | 11,296 | 23,501 | 22,236 | ||||||||||||||||||||||
Adjusted EBITDA (non-GAAP measure) | $ | 52,378 | $ | 61,795 | $ | 100,296 | $ | 114,006 | ||||||||||||||||||
Adjusted EBITDA Margin (non-GAAP measure) | 20.5% | 22.5% | 20.3% | 21.8% | ||||||||||||||||||||||
(a) Represents amortization expense within cost of revenue associated with acquired profit in inventory.
(b) Represents intangible amortization expense associated with acquired backlog.
(c) Represents the provision for or reversal of indemnification assets related to the establishment or release of tax reserves associated with uncertain tax positions.
A reconciliation of free cash flow from cash flow provided by operating activities is as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| (In thousands) | June 28, 2025 | June 29, 2024 | June 28, 2025 | June 29, 2024 | ||||||||||||||||||||||
| Cash Provided by Operating Activities | $ | 40,482 | $ | 28,066 | $ | 63,317 | $ | 50,897 | ||||||||||||||||||
Capital Expenditures | (3,968) | (4,974) | (7,804) | (11,245) | ||||||||||||||||||||||
Free Cash Flow (non-GAAP measure) | $ | 36,514 | $ | 23,092 | $ | 55,513 | $ | 39,652 | ||||||||||||||||||
Liquidity and Capital Resources
Consolidated working capital was $274.9 million at June 28, 2025, compared with $250.8 million at December 28, 2024. Cash and cash equivalents were $95.3 million at June 28, 2025, compared with $94.7 million at December 28, 2024, which included cash and cash equivalents held by our foreign subsidiaries of $75.3 million at June 28, 2025 and $73.8 million at December 28, 2024.
Cash Flow
Cash flow information in the first six months of 2025 and 2024 is as follows:
| Six Months Ended | ||||||||||||||
| (In thousands) | June 28, 2025 | June 29, 2024 | ||||||||||||
| Net Cash Provided by Operating Activities | $ | 63,317 | $ | 50,897 | ||||||||||
| Net Cash Used in Investing Activities | (6,940) | (301,518) | ||||||||||||
| Net Cash (Used in) Provided by Financing Activities | (61,476) | 222,837 | ||||||||||||
| Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash | 6,341 | (3,491) | ||||||||||||
Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $ | 1,242 | $ | (31,275) | ||||||||||
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Operating Activities
Cash provided by operating activities increased to $63.3 million in the first six months of 2025 from $50.9 million in the first six months of 2024 due in large part to the increase in cash received from customer deposits. Our operating cash flows are primarily generated from cash received from customers, offset by cash payments for items such as inventory, employee compensation, operating leases, income taxes, and interest payments on outstanding debt obligations.
Significant operating cash outflows associated with working capital in the six months of 2025 related to inventory and other current liabilities. Purchases of inventory used cash of $14.8 million and other current liabilities used cash of $13.4 million primarily related to incentive compensation payments. These uses of cash were offset in part by cash received from customer deposits of $9.4 million associated with an increase in capital equipment orders and cash received from contract assets of $7.7 million related to contracts accounted for on an over time basis.
Significant cash outflows associated with working capital in the first six months of 2024 related to accounts receivable, customer deposits and other current liabilities. An increase in accounts receivable used cash of $7.3 million primarily due to our revenue growth, and a decrease in customer deposits used cash of $17.7 million due to a reduction in capital equipment orders. Other current liabilities used cash of $15.2 million primarily related to incentive compensation payments. These uses of cash were offset in part by cash provided by an increase in accounts payable of $14.0 million related to inventory purchases and the timing of payments.
Investing Activities
Cash used in investing activities was $6.9 million in the first six months of 2025, compared with $301.5 million in the first six months of 2024. Cash used in investing activities in the first six months of 2025 consisted of capital expenditures of $7.8 million. Cash used in investing activities in the first six months of 2024 included consideration paid for acquisitions, net of cash acquired, of $291.6 million and capital expenditures of $11.2 million.
Financing Activities
Cash used in financing activities was $61.5 million in the six months of 2025, compared with cash provided by financing activities of $222.8 million in the first six months of 2024. Borrowings under our revolving credit facility were $8.0 million in 2025 compared to $295.2 million in 2024, which was primarily used to fund our 2024 acquisitions. Repayments of short- and long-term obligations were $56.9 million in 2025 and $59.1 million in 2024. Cash dividends paid to stockholders were $7.8 million in 2025 and $7.2 million in 2024. In addition, taxes paid related to the vesting of equity awards were $6.1 million in 2025 and $5.9 million in 2024.
Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash
The exchange rate effect on cash, cash equivalents, and restricted cash represents the impact of translation of cash balances at our foreign subsidiaries. The $6.3 million increase in cash, cash equivalents, and restricted cash in the first six months of 2025 related to exchange rates was primarily attributable to the weakening of the U.S. dollar against the euro and, to a lesser extent, the Swedish krona, and the Canadian dollar. The $3.5 million decrease in cash, cash equivalents, and restricted cash in the first six months of 2024 was primarily attributable to the strengthening of the U.S. dollar against the euro and, to a lesser extent, the Canadian dollar, the Chinese renminbi and Brazilian real.
Borrowing Capacity and Debt Obligations
Our unsecured multi-currency revolving credit facility originally entered into on March 1, 2017 (as amended and restated to date, the Credit Agreement) matures on November 30, 2027 and has a total borrowing capacity of $400.0 million.
As of June 28, 2025, our outstanding balance under the Credit Agreement was $239.2 million, which included $80.2 million of euro-denominated borrowings, and we had $161.6 million of available borrowing capacity, in addition to a $200.0 million uncommitted, unsecured incremental borrowing facility. Under our debt agreements, our leverage ratio must be less than 3.75 or, if we elect, for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, must be less than 4.25. As of June 28, 2025, our leverage ratio was 0.86 and we were in compliance with our debt covenants.
See Note 4, Long-Term Obligations, in the accompanying condensed consolidated financial statements for additional information regarding our debt obligations.
In July 2025, we borrowed $21.1 million of euro-denominated funds under our revolving credit facility to finance our acquisition of Babbini.
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Additional Liquidity and Capital Resources
On May 15, 2025, our board of directors approved the repurchase of up to $50.0 million of our equity securities during the period from May 15, 2025 to May 15, 2026. We did not repurchase any shares of our common stock under this authorization or our previous $50.0 million authorization that expired on May 16, 2025.
We paid cash dividends of $7.8 million in the first six months of 2025. On May 15, 2025, we declared a quarterly cash dividend of $0.34 per share totaling $4.0 million that will be paid on August 7, 2025. Future declarations of dividends are subject to our board of directors' approval and may be adjusted as business needs or market conditions change. The declaration of cash dividends is subject to our compliance with the covenant in our Credit Agreement related to our consolidated leverage ratio.
We plan to make expenditures of approximately $16.0 to $18.0 million during the remainder of 2025 for property, plant, and equipment.
As of June 28, 2025, we had approximately $130.0 million of total unremitted foreign earnings. It is our intent to indefinitely reinvest $71.7 million of these earnings to support the current and future capital needs of our foreign operations, including debt repayments, if any. In the first six months of 2025, we recorded withholding taxes on the earnings in certain foreign subsidiaries that we plan to repatriate in the foreseeable future. The foreign withholding taxes that would be required if we were to remit the indefinitely-reinvested foreign earnings to the United States would be approximately $1.8 million.
We believe that existing cash and cash equivalents, along with future cash generated from operations, and our existing borrowing capacity will be sufficient to meet the capital requirements of our operations for the next 12 months and the foreseeable future.
Application of Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities, and the reported amounts of revenue and expenses during the reporting period. Our critical accounting policies are defined as those that entail significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. Management evaluates its estimates on an ongoing basis based on historical experience, current economic and market conditions, and other assumptions management believes are reasonable. We believe that our most critical accounting policies which are significant to our consolidated financial statements, and which involve the most complex or subjective decisions or assessments, are those described in Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading Application of Critical Accounting Estimates in Part II, Item 7, of our Annual Report. There have been no material changes to these critical accounting policies since the end of fiscal 2024 that warrant disclosure.
Recent Accounting Pronouncements
See Note 1, under the heading Recent Accounting Pronouncements Not Yet Adopted, in the accompanying condensed consolidated financial statements for details.
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk from changes in interest rates and foreign currency exchange rates has not changed materially from our exposure as disclosed in Part II, Item 7A, of our Annual Report.
Item 4 – Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 28, 2025. The term "disclosure controls and procedures," as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and
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procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon the evaluation of our disclosure controls and procedures as of June 28, 2025, our Chief Executive Officer and Chief Financial Officer concluded that as of June 28, 2025, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
Management's assessment of the effectiveness of internal control over financial reporting includes internal controls over financial reporting systems and internal processes at Key Knife, Inc., KWS Manufacturing Company, Ltd. and Dynamic Sealing Technologies LLC, which were excluded from management's assessment in 2024. There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter ended June 28, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1A – Risk Factors
Careful consideration should be given to the factors discussed in Part I, Item 1A, Risk Factors, in our Annual Report for the fiscal year ended December 28, 2024, which could materially affect our business, financial condition or future results, in addition to the information set forth in this Quarterly Report on Form 10-Q. Except for the revised risk factor below regarding "Operating globally subjects us to changes in government regulations and policies in multiple jurisdictions around the world, including those related to tariffs and trade barriers, taxation, exchange controls and political risks," there have been no material changes from the risk factors disclosed in our Annual Report.
Operating globally subjects us to changes in government regulations and policies in multiple jurisdictions around the world, including those related to tariffs and trade barriers, taxation, exchange controls and political risks.
Changes in government policies, political unrest, economic sanctions, trade embargoes, or other adverse trade regulations can negatively impact our business. Non-U.S. markets contribute a substantial portion of our revenues, and we intend to continue expanding our presence in these regions. For example, we operate businesses in Mexico and Canada, and we benefited from the North American Free Trade Agreement, which has been replaced by the United States-Mexico-Canada Agreement (USMCA), from which we also benefit. If the United States were to withdraw from or materially modify the USMCA or impose significant tariffs or taxes on goods imported into the United States, the cost of our products could significantly increase or no longer be priced competitively, which in turn could have a material adverse effect on our business and results of operations.
Since February 2025, the Trump administration has announced or imposed a series of tariffs on U.S. trading partners. In February 2025, the Trump administration imposed a 25% tariff on Canada and Mexico for goods not covered by the USMCA, and a 20% tariff on China. On April 2, 2025, President Trump announced a 10% "baseline" reciprocal tariff on all U.S. trading partners effective April 5, 2025, and higher, country-specific reciprocal tariffs on 57 countries. The Trump administration subsequently paused the additional country-specific reciprocal tariffs for all countries except China. As of July 25, 2025, imports from most countries, excluding those from Canada, Mexico, and China, are subject to an additional 10% tariff; imports from China are subject to an additional 30% tariff; and non-USMCA compliant imports from Canada and Mexico are subject to an additional 25% tariff (except for Canadian energy and energy resources and potash, which are subject to a 10% tariff). In addition, President Trump announced trade agreements with several countries, including the European Union and the United Kingdom, with baseline tariffs ranging from 10% to 20%. On July 31, 2025, President Trump announced new reciprocal tariffs on nearly all countries, ranging from 10% to 41%. In response to the U.S. tariff changes, certain foreign countries, such as China, increased their tariffs on certain U.S. imports. Our business has been negatively affected by these tariffs and may be negatively affected in the future by this quickly evolving tariff situation and the economic uncertainty created thereby.
Our business is also affected by various product or sector-specific tariffs that the United States imposes on trading partners. Certain products imported from China, including pulp and paper machinery, are subject to tariffs imposed by the Office of the United States Trade Representative, pursuant to Section 301 of the Trade Act of 1974. The tariffs on pulp and paper machinery are set at 25%. In addition, the U.S. Department of Commerce has imposed tariffs of 50% on numerous categories of steel and aluminum imports, under Section 232 of the Trade Expansion Act of 1962, and has expanded these tariffs to include certain derivative steel and aluminum products. On July 30, 2025, President Trump announced the results of a Section 232 investigation on copper, imposing a 50% tariff on imports of semi-finished copper and copper derivatives, effective August 1, 2025. We import products that are impacted by these tariffs. While we try to mitigate the impact of the existing and
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other proposed tariffs by the Trump administration through pricing and sourcing strategies, we cannot be certain how our customers and competitors will react to the actions we take. The tariffs have and could in the future negatively affect our ability to compete against competitors who do not manufacture in China and/or are not subject to the tariffs.
The United States has tightened trade sanctions targeting countries like China and Russia. For example, since 2018 the United States has imposed various trade and economic sanctions targeting certain persons in Russia and certain types of business with Russia. The United States has continued to expand export control restrictions applicable to certain Chinese firms and continued its assessment of new controls for "emerging foundational technologies," escalating U.S.-China tension concerning technology. Moreover, tensions between the U.S. and China have increased and future actions by the U.S. or Chinese governments may impact our operations in and imports from China, as well as sales to and from China. In response, Russia and China have begun considering and, in some cases, implementing trade sanctions that could affect U.S.-owned businesses. The imposition of trade sanctions has and may in the future continue to make it generally more difficult to do business in Russia and China and cause delays or prevent shipment of products or services performed by our personnel, or to receive payment for products or services.
Additionally, the military conflict between Russia and Ukraine and the global response to it has and may in the future adversely impact our revenues, gross margins and financial results. The United States, the European Union, and many other countries have imposed sanctions on Russia, individuals in Russia and Russian businesses, including several large banks. In 2024, our sales to Russia were minimal at $2.6 million. As a result of the international sanctions regime in place against Russia, it has become extremely difficult to sell any of our equipment or services into Russia. Any proposed sales into Russia are evaluated on a case-by-case basis, taking into account the risks related to the sale, the costs associated with ensuring compliance with applicable sanctions and the likelihood of receiving payment from either party's banks. It is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. Such geopolitical instability and uncertainty has and could continue to have in the future a negative impact on our ability to sell to, ship products to, collect payments from, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions, and logistics restrictions, and could increase the costs, risks and adverse impacts from these new challenges. The conflict between Russia and Ukraine, as well as other conflicts such as those in the Middle East, may also have the effect of heightening other risks disclosed in our Annual Report, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation and business and consumer spending; disruptions to our global technology infrastructure, including through cyberattack, ransomware attack, or cyber-intrusion; adverse changes in international trade policies and relations; our ability to maintain or increase our prices, including any fuel surcharges in response to rising fuel costs; the energy crisis resulting from the Russia-Ukraine conflict, particularly in Europe; our ability to implement and execute our business strategy; disruptions in global supply chains; our exposure to foreign currency fluctuations; and constraints, volatility, or disruption in the capital markets. Such restrictions have and may in the future continue to have a material adverse impact on our business and operating results.
Item 5 – Other Information
Insider Trading Arrangements
None of our directors or officers adopted terminated
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Item 6 – Exhibits
Exhibit Number | Description of Exhibit | |||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32 | ||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| KADANT INC. | |||||
Date: August 6, 2025 | /s/ Michael J. McKenney | ||||
| Michael J. McKenney | |||||
| Executive Vice President and Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
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