What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-08-07 · 165 added, 132 removed, 214 unchanged (58% of the section changed)

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Industry and Business Overview

Our consolidated bookings increased 17% to $251.7 million in the second quarter of 2024 compared to the second quarter of 2023, including a 13% increase from acquisitions and a 5% increase in organic bookings due to strong demand for our parts and consumables products across all segments.

We expect overall demand for our products in the second half of 2024 to be similar to the first half of the year, despite persistent economic headwinds in certain regions.

For 2024, we expect higher annual parts and consumables bookings driven by the high percentage of aftermarket business at our recent acquisitions.

While demand for our parts and consumables products remains strong, we have seen a lengthening in the timing for securing capital

orders as customers are being more cautious with some delaying large capital expenditures to later in the year or into early next year.

Our consolidated bookings increased 15% to $240.3 million in the third quarter of 2024 compared to the third quarter of 2023, due to strong contributions from our recent acquisitions and increased demand for our parts and consumables products.

While demand for our parts and consumables products remains strong, we have seen a lengthening in the timing for securing capital orders as customers are being more cautious with some delaying large capital expenditures to later in the year or into 2025.

This is due to several factors, including economic uncertainty surrounding actions by central banks, macroeconomic conditions abroad, and the consolidation of some of our large customers.

These sluggish market conditions led to a 2% decrease

in organic bookings, which is defined as bookings excluding the effect of foreign currency translation and acquisitions, compared to the third quarter of 2023.

We anticipate stronger capital bookings in the fourth quarter of 2024 as customers prepare for 2025 projects, which we expect will result in sequentially higher bookings.

However, the timing of securing capital orders can be uncertain and could shift by quarter due to macroeconomic uncertainty or other factors.

The high percentage of aftermarket business at our recent acquisitions is expected to lead to increased annual bookings from our parts and consumables products in 2024.

Looking beyond 2024, we see long-term strength in our end markets as customers continue to turn to our products to help maximize productivity with more efficient production processes.

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An overview of our business by segment is as follows:

• Flow Control – Our Flow Control segment bookings increased 7%, including 5% from organic bookings, compared to the second quarter of 2023 primarily resulting from increased demand in Europe for our parts and consumables products due to improvements in the paper market.

Despite higher bookings in the quarter in Europe, there is continued uncertainty in the end markets we serve primarily due to geopolitical tensions and weak macroeconomic conditions.

In North America, economic conditions and the consolidation of several of our large customers has created some uncertainty on the timing for securing capital orders.

While we expect demand to follow its historical pattern and moderate slightly in the second half of 2024, the strength of our end markets and a record backlog at the end of the second quarter has placed the Flow Control segment in a solid position as we enter the second half of the year.

• Industrial Processing – Our Industrial Processing segment bookings increased 22% compared to the second quarter of 2023, including 18% from acquisitions and 5% from organic bookings.

Our parts and consumables bookings were a record in the second quarter, but we expect demand to moderate in the second half of the year, especially at our wood processing business with mill curtailments anticipated in response to low lumber prices.

Demand for our capital equipment increased 37% sequentially and we expect comparatively higher capital bookings in the second half of the year compared to the first half of 2024.

We expect steady demand in our Industrial Processing segment for the remainder of the year and higher annual bookings in 2024.

• Material Handling – Our Material Handling segment bookings increased 28% compared to the second quarter of 2023, including 22% from acquisitions and 6% from organic bookings.

The majority of our conveying and vibratory business is in North America where market conditions have caused customers to be more cautious with large capital expenditures.

However, the long-term outlook for the aggregates industry remains strong fueled by new infrastructure projects as a result of significant federal and state investment.

The largest concentration in our baling business is in Europe, where a growing need for efficient waste handling and packing solutions across various industries is increasing demand for our baling products.

We expect steady demand in our Material Handling segment to continue for the remainder of 2024.

• Flow Control – Our Flow Control segment bookings increased 7% compared to the third quarter of 2023, including a 12% increase from acquisitions.

Organic bookings decreased 5% compared to the third quarter of 2023 led by decreased demand for our capital equipment products in Europe as a result of challenging market conditions and a slowdown in manufacturing activity.

In Europe, there is continued uncertainty in the end markets we serve primarily due to geopolitical tensions and weak macroeconomic conditions.

In North America, demand for our capital equipment in 2024 has been impacted by mill shutdowns and the consolidation of some of our large customers.

We expect steady demand in our Flow Control segment in the fourth quarter of 2024.

• Industrial Processing – Our Industrial Processing segment bookings increased 27% compared to the third quarter of 2023, including 20% from acquisitions and 7% from organic bookings.

The increase in organic bookings was led by increased demand for our parts and consumables products, especially in North America.

We had stable demand for our capital equipment products in this segment in the third quarter of 2024 with increases at our stock-preparation business, offset in part by softness at our wood processing business.

The number of dormant or idle lines in the North American lumber industry has remained high as lumber producers await market improvement.

Demand for oriented strand board (OSB) was strong and mill operations drove solid parts and consumables bookings.

Weakness in new home starts in the U.S.

is expected to be offset by an uptick in home improvement projects, which will result in increased demand for OSB.

lumber, and our products.

We expect sequentially higher bookings in the fourth quarter of 2024 due to capital project activity.

• Material Handling – Our Material Handling segment bookings increased 10% compared to the third quarter of 2023, including a 19% increase from acquisitions.

Organic bookings decreased 9% compared to the third quarter of 2023 led by weak demand at our conveying and vibratory business where market conditions have caused customers to be more cautious with large capital expenditures.

However, the long-term outlook for the aggregates industry remains strong, particularly in North America, fueled by new infrastructure projects as a result of significant federal and state investment.

Organic bookings increased at our baling business due to strong demand for our capital products as more industries focus on waste reduction and recycling.

We expect demand in our Material Handling segment to remain stable in the fourth quarter of 2024.

Our global operations have been and continue to be impacted by complex market conditions fueled by inflationary pressures, geopolitical tensions, labor availability and uncertainty in the markets.

While the U.S economy has proven more resilient than predicted, growth in the European economy has slowed due to high interest rates and elevated inflation, and China's manufacturing activity has contracted.

We expect our operating environment to continue to be challenging, which creates continued uncertainty for the remainder of 2024.

We expect our operating environment to continue to be challenging, which creates continued uncertainty in the short-term.

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.

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We expect several synergies in connection with the acquisitions, including expansion of product sales into new markets by leveraging our global sales network and relationships, broadening our product portfolio, and strengthening our position in the various markets we serve.

See Note 2 , Acquisitions, in the accompanying condensed consolidated financial statements for further details.

See Note 2 , Acquisitions, in the accompanying condensed consolidated financial statements for further information related to our 2024 acquisitions.

Results of Operations

Second Quarter 2024 Compared With Second Quarter 2023

The following table presents the change in revenue by segment between the second quarters of 2024 and 2023, and those changes excluding the effect of foreign currency translation and acquisitions which we refer to as change in organic revenue.

Third Quarter 2024 Compared With Third Quarter 2023

The following table presents the change in revenue by segment between the third quarters of 2024 and 2023, and those changes excluding the effect of foreign currency translation and acquisitions 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.

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generally accepted accounting principles (GAAP) measure.

Revenue by segment in the second quarters of 2024 and 2023 is as follows:

Three Months Ended Increase (Decrease)

Revenue by segment in the third quarters of 2024 and 2023 is as follows:

Three Months Ended Increase

Currency Translation Acquisitions

Change in Organic Revenue

(In thousands, except percentages) June 29,

(In thousands, except percentages) September 28,

2024 September 30,

2023 % Change Increase (Decrease)

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Consolidated $ 271,614 $ 244,182 $ 27,432 11% $ (885) $ 30,520 $ (2,203) (1)%

Consolidated revenue increased 12% in the second quarter of 2024, while organic revenue increased 2%.

The increase in organic revenue is largely due to increased demand for our capital equipment products at our Industrial Processing segment,

partially offset by weaker demand for our Flow Control capital equipment products and Material Handling parts and consumables (aftermarket) products.

From a geographic perspective, the majority of the organic revenue increase was driven by higher demand in North America where the U.S.

economy and industrial demand continued to demonstrate resiliency against inflationary pressures, partially offset by softening demand in Europe due to weak macroeconomic conditions.

Revenue at our Flow Control segment decreased 4% in the second quarter of 2024 primarily due to decreased demand for our capital equipment products in Europe as a result of challenging market conditions and a slowdown in manufacturing activity.

Revenue at our Industrial Processing segment increased 28% in the second quarter of 2024, including a 16% increase from acquisitions.

Organic revenue increased 13% in the second quarter of 2024 principally due to increased demand for our capital equipment products at both our wood processing and stock-preparation businesses.

At our wood processing business, capital equipment revenue increased 86% in Europe due to the shipment of several large projects.

At our stock-preparation business, the increased demand primarily related to replacement and refurbishment projects in North America and from mills in China seeking fiber processing solutions with reduced energy consumption.

Revenue at our Material Handling segment increased 14% in the second quarter of 2024, while organic revenue decreased 4% primarily due to weaker demand for our parts and consumable products at our conveying and vibratory business as customers focused on capital investments.

In addition, decreased demand for our capital equipment products at our baling business was due to constrained market conditions in Europe and the delay of several large projects to later in the year.

Consolidated revenue increased 11% in the third quarter of 2024, while organic revenue decreased 1%.

The decrease in organic revenue is largely due to decreased demand for capital equipment products at our Material Handling segment, partially offset by increased demand for our parts and consumables products, especially at our Industrial Processing segment.

From a geographic perspective, the majority of the organic revenue decrease was driven by softening demand in Europe due to weak macroeconomic conditions, offset in part by higher demand in North America where the U.S.

economy and industrial demand continued to demonstrate resiliency against inflationary pressures.

Revenue at our Flow Control segment increased 7% in the third quarter of 2024, including a 6% increase from acquisitions.

Organic revenue increased 2% in the third quarter of 2024 due to higher demand for our capital equipment products in North America driven by continued strength in the U.S.

economy and underlying packaging industry and, to a lesser extent, in China where the government has implemented initiatives to encourage investment activity.

This increase was offset by decreased demand for our capital equipment products in Europe as a result of challenging market conditions and a slowdown in manufacturing activity.

Revenue at our Industrial Processing segment increased 17% in the third quarter of 2024, including a 16% increase from acquisitions.

Organic revenue increased 2% due to increased demand for our parts and consumables products in North America.

Demand for replacement parts at our wood processing business remains strong, offsetting lower capital project activity resulting from continued weakness in new home starts.

At our stock-preparation business, increased demand for capital equipment products, primarily related to replacement and refurbishment projects in North America, was partially offset by decreased demand for our parts and consumable products in China and Europe.

Revenue at our Material Handling segment increased 7% in the third quarter of 2024, including a 17% increase from acquisitions.

Organic revenue decreased 10% due to weaker demand for our products in both North America and Europe.

At our vibratory and conveying business in North America, several large projects in the third quarter of 2023 resulted in comparatively lower revenue in the third quarter of 2024.

Constrained market conditions in Europe resulted in decreased demand for our baling products, especially our parts and consumables products.

Gross Profit Margin

Gross profit margin by segment in the second quarters of 2024 and 2023 is as follows:

Gross profit margin by segment in the third quarters of 2024 and 2023 is as follows:

Three Months Ended Basis Point Change

September 28,

2024 September 30,

Flow Control 51.8% 52.2% (40) bps

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Consolidated 44.7% 43.3% 140 bps

Consolidated gross profit margin increased to 44.4% in the second quarter of 2024 compared with 43.5% in the second quarter of 2023 due to higher margins achieved on our capital equipment products across all our segments, especially at our Industrial Processing segment.

Consolidated gross profit margin increased to 44.7% in the third quarter of 2024 compared with 43.3% in the third quarter of 2023 due to higher margins achieved on our capital equipment products across all our segments, especially at our Industrial Processing segment.

This increase was partially offset by the inclusion of $1.2 million of amortization expense related to acquired profit in inventory, which lowered consolidated gross profit margin in 2024 by 0.5 percentage points.

Within our operating segments, gross profit margin:

• Increased to 53.0% at our Flow Control segment from 51.4% in the 2023 period primarily due to higher margins achieved on our capital equipment products and, to a lesser extent, a higher proportion of parts and consumables revenue.

These increases were partially offset by 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.

• Increased to 41.3% at our Industrial Processing segment from 39.5% in the 2023 period due to higher margins achieved on our capital equipment products.

This was partially offset by lower margins achieved on our parts and consumables products and, to a lesser extent, the inclusion of $0.3 million of amortization expense related to acquired profit in inventory, which lowered gross profit margin in 2024 by 0.2 percentage points.

• Increased to 37.8% at our Material Handling segment from 36.8% in the 2023 period primarily due to higher margins achieved on capital equipment revenue, partially offset by a lower proportion of parts and consumables revenue.

• Decreased to 51.8% at our Flow Control segment from 52.2% in the 2023 period primarily due to the inclusion of $0.7 million of amortization expense related to acquired profit in inventory, which lowered gross profit margin in 2024 by 0.8 percentage points.

• Increased to 44.0% at our Industrial Processing segment from 39.5% in the 2023 period due to higher margins achieved on both our capital equipment and parts and consumable products, and, to a lesser extent, a higher proportion of parts and consumables revenue.

This was partially offset by the inclusion of $0.5 million of amortization expense related to acquired profit in inventory, which lowered gross profit margin in 2024 by 0.4 percentage points.

• Decreased to 35.0% at our Material Handling segment from 35.7% in the 2023 period primarily due to lower margins achieved on our parts and consumable products, partially offset by higher margins achieved on our capital equipment.

Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses by segment in the second quarters of 2024 and 2023 are as follows:

Selling, general, and administrative (SG&A) expenses by segment in the third quarters of 2024 and 2023 are as follows:

Three Months Ended

(In thousands, except percentages) June 29,

(In thousands, except percentages) September 28,

2024 September 30,

2023 Increase % Change

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Consolidated as a Percentage of Revenue 25% 24%

Consolidated SG&A expenses as a percentage of revenue increased to 25% in 2024 from 24% in 20 23 due to the impact of our acquisitions and acquisition-related costs.

Consolidated SG&A expenses as a percentage of revenue increased to 25% in the third quarter of 2024 from 24% in the third quarter of 20 23 due to the impact of our acquisitions and acquisition-related costs.

Consolidated SG&A expenses increased $11.2 million, or 19%, primarily due to the inclusion of $9.7 million of SG&A expenses from acquisitions and an incremental $1.2 million of acquisition-related costs.

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Within our operating segments, SG&A expenses:

• Increased $1.8 million at our Flow Control segment principally due to the inclusion of $0.6 million of SG&A expenses from an acquisition, $0.8 million of acquisition-related costs and increased compensation expense.

• Increase d $5.2 million at our Industrial Processing segment due to the inclusion of $4.8 million of SG&A expenses from acquisitions and increased compensation expense associated with new and existing personnel.

• Increased $2.7 million at our Material Handling segment principally due to the inclusion of $2.7 million of SG&A expenses from acquisitions and $0.7 million of acquisition-related costs, partially offset by a decrease of $0.3 million in external commissions.

• Increased $0.3 million at Corporate due to increased compensation expense.

Other costs of $0.1 million were incurred in the second quarter of 2023 within our Industrial Processing segment related to the write-down of certain fixed assets that were not moved to a new manufacturing facility in China and facility moving costs.

• Increased $3.3 million at our Flow Control segment principally due to the inclusion of $2.2 million of SG&A expenses from acquisitions, $0.7 million of acquisition-related costs and increased compensation expense.

• Increase d $5.4 million at our Industrial Processing segment due to the inclusion of $4.8 million of SG&A expenses from acquisitions, $0.2 million of acquisition-related costs and increased compensation costs and travel expenses.

• Increased $2.5 million at our Material Handling segment principally due to the inclusion of $2.7 million of SG&A expenses from acquisitions and $0.3 million of acquisition-related costs, partially offset by a decrease in expense from sales incentives.

Other costs of $1.0 million in the third quarter of 2023 included the following:

• Relocation costs of $0.5 million within our Industrial Processing segment related to the write-down of certain fixed assets that were not moved to a new manufacturing facility in China and facility moving costs.

• Restructuring and impairment costs of $0.4 million within our Flow Control segment related to the consolidation of a small manufacturing operation into a larger facility in Germany (2023 Restructuring Plan).

This charge consisted of severance costs for the termination of 10 employees, asset write-downs, and facility and other closure costs.

Interest Expense

Interest expense increased to $5.2 million in the second quarter of 2024 from $2.2 million in the second quarter of 2023 due to increased borrowings under our revolving credit facility, which were primarily used to fund our acquisitions and, to a lesser extent, a higher weighted-average interest rate.

Interest expense increased to $5.5 million in the third quarter of 2024 from $2.1 million in the third quarter of 2023 due to increased borrowings under our revolving credit facility, which were primarily used to fund our acquisitions and, to a lesser extent, a higher weighted-average interest rate.

Provision for Income Taxes

Provision for income taxes increased to $12.0 million in the second quarter of 2024 from $11.2 million in the second quarter of 2023.

The effective tax rate of 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.

Provision for income taxes increased to $12.0 million in the third quarter of 2024 from $10.8 million in the third quarter of 2023.

The effective tax rate of 27% in the third quarter of 2024 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, nondeductible expenses, the cost of repatriating the earnings of certain foreign subsidiaries, and tax expense associated with the Global Intangible Low-Taxed Income provisions.

These items were offset in part by foreign tax credits.

The effective tax rate of 27% in the second quarter of 2023 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, nondeductible expenses, and tax expense associated with the Global Intangible Low-Taxed Income provisions.

Net income increased to $31.6 million in the second quarter of 2024 from $29.9 million in the second quarter of 2023 primarily due to a $5.3 million increase in operating income, offset in part by a $3.0 million increase in interest expense and a $0.8 increase in provision for income taxes (see discussions above for further details).

First Six Months 2024 Compared With First Six Months 2023

The following table presents changes in revenue and organic revenue by segment between the first six months of 2024 and 2023.

Organic revenue is a non-GAAP measure as defined above in the results of operations for the second quarter of 2024 compared with the second quarter of 2023.

Revenue by segment in the first six months of 2024 and 2023 is as follows:

Six Months Ended Currency Translation Acquisitions (Non-GAAP)

The effective tax rate of 26% in the third quarter of 2023 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings and state taxes.

Net income increased to $31.9 million in the third quarter of 2024 from $31.0 million in the third quarter of 2023 primarily due to a $5.4 million increase in operating income, offset in part by a $3.4 million increase in interest expense and a $1.1 million increase in provision for income taxes (see discussions above for further details).

First Nine Months 2024 Compared With First Nine Months 2023

The following table presents changes in revenue and organic revenue by segment between the first nine months of 2024 and 2023.

Organic revenue is a non-GAAP measure as defined above in the results of operations for the third quarter of 2024 compared with the third quarter of 2023.

Revenue by segment in the first nine months of 2024 and 2023 is as follows:

Nine Months Ended Currency Translation Acquisitions (Non-GAAP)

Change in Organic Revenue

(In thousands, except percentages) June 29,

2023 Increase (Decrease)

(In thousands, except percentages) September 28,

2024 September 30,

2023 Increase

% Change Increase (Decrease)

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Consolidated $ 795,354 $ 718,993 $ 76,361 11% $ (2,373) $ 82,265 $ (3,531) —%

Consolidated revenue in the first six months of 2024 increased 10%, while organic revenue remained flat.

Stronger demand at our Industrial Processing segment, especially for our capital equipment products, was offset by weaker demand for our products at our other segments.

From a geographic perspective, the majority of the change in organic revenue was driven by softening demand in Europe due to weak macroeconomic conditions, largely offset by strong industrial demand in North America.

Revenue at our Flow Control segment decreased 3% in the first six months of 2024 due to decreased demand for our capital equipment products in Europe and China reflecting the challenging market conditions and slowdown in manufacturing activity.

Consolidated revenue in the first nine months of 2024 increased 11%, while organic revenue remained flat.

Weaker demand at our Material Handling and Flow Control segments was largely offset by stronger demand at our Industrial Processing segment, especially for our capital equipment products.

From a geographic perspective, organic revenue was impacted by softening demand in Asia and Europe due to weak macroeconomic conditions, largely offset by stronger industrial demand in North America.

Revenue at our Flow Control segment remained flat while organic revenue decreased 2% in the first nine months of 2024 due to decreased demand for our capital equipment products in Europe reflecting the challenging market conditions and slowdown in manufacturing activity.

This decrease was partially offset by higher demand for our capital equipment products in North America driven by continued strength in the U.S.

economy and underlying packaging industry.

Revenue at our Industrial Processing segment increased 27% in the first six months of 2024, including an 18% increase from acquisitions.

Organic revenue increased 10% in the first six months of 2024 primarily due to increased demand for our capital equipment products at both our wood processing and stock-preparation businesses.

At our wood processing business, capital equipment revenue increased 20% due to higher demand for debarking products in Europe and the shipment of a large capital project for oriented strand board in North America.

Revenue at our Industrial Processing segment increased 24% in the first nine months of 2024, including a 17% increase from acquisitions.

Organic revenue increased 7% in the first nine months of 2024 primarily due to increased demand for our capital equipment products at our stock-preparation and wood processing businesses and for our aftermarket products at our wood processing business.

Revenue from parts and consumables products increased 8% at our wood processing business due to maintenance requirements for our customers in North America.

At our stock-preparation business, capital equipment revenue increased 24% due to higher completion rates on large projects recognized on an over time basis in China and increased replacement and refurbishment projects in North America.

Revenue at our Material Handling segment increased 7% in the first six months of 2024 due to our acquisitions.

Revenue at our Material Handling segment increased 7% in the first nine months of 2024, including a 17% increase from acquisitions.

Organic revenue decreased 10% driven by weaker demand for our products in North America and Europe.

At our baling business in Europe, decreased demand for our capital equipment products was due to weaker market conditions, which have lengthened quote-to-order times and delayed several large projects to later in the year.

At our conveying and vibratory business, several large parts orders associated with capital projects in the first half of 2023 resulted in comparatively lower organic parts and consumables revenue in the first half of 2024.

At our baling business in Europe, decreased demand for our capital equipment products resulted from weaker market conditions, which have lengthened quote-to-order times and delayed several large projects to later in the year.

At our conveying and vibratory business, several large parts orders associated with capital projects in the first nine months of 2023 resulted in comparatively lower organic parts and consumables revenue in the first nine months of 2024.

Gross Profit Margin

Gross profit margin by segment in the first six months of 2024 and 2023 is as follows:

Six Months Ended Basis Point Change

Gross profit margin by segment in the first nine months of 2024 and 2023 is as follows:

Nine Months Ended Basis Point Change

September 28,

2024 September 30,

Flow Control 52.9% 52.3% 60 bps

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Consolidated 44.5% 43.7% 80 bps

Consolidated gross profit margin increased to 44.5% in the first six months of 2024 compared with 43.9% in the first six months of 2023 due to higher margins achieved on our capital equipment products across all our segments, especially at our Industrial Processing segment.

Consolidated gross profit margin increased to 44.5% in the first nine months of 2024 compared with 43.7% in the first nine months of 2023 due to higher margins achieved on our capital equipment products across all our segments, especially at our Industrial Processing segment.

This increase was partially offset by the inclusion of $4.1 million of amortization expense related to acquired profit in inventory, which lowered consolidated gross profit margin in 2024 by 0.6 percentage points.

1 unchanged sentence

• Increased to 52.9% at our Flow Control segment from 52.3% in the 2023 period primarily due to higher margins achieved on our capital equipment products.

This increase was partially offset by the inclusion of $1.0 million of amortization expense related to acquired profit in inventory, which lowered gross profit margin in 2024 by 0.3 percentage points.

• Increased to 42.3% at our Industrial Processing segment from 39.8% in the 2023 period due to higher margins achieved on our capital equipment products and, to a lesser extent, a higher proportion of parts and consumables revenue.

These increases were partially offset by the inclusion of $2.1 million of amortization expense related to acquired profit in inventory, which lowered gross profit margin in 2024 by 0.7 percentage points.

• Increased to 36.8% at our Material Handling segment from 36.4% in the 2023 period primarily due to higher margins achieved on our capital equipment products.

• Remained flat at 36.2% at our Material Handling segment.

The impact of a higher proportion of parts and consumables revenue in 2024 was offset by the inclusion of $1.0 million of amortization expense related to acquired profit in inventory, which lowered gross profit margin in 2024 by 0.6 percentage points.

Selling, General, and Administrative Expenses

SG&A expenses by segment in the first six months of 2024 and 2023 are as follows:

Six Months Ended

(In thousands, except percentages) June 29,

SG&A expenses by segment in the first nine months of 2024 and 2023 are as follows:

Nine Months Ended

(In thousands, except percentages) September 28,

2024 September 30,

2023 Increase % Change

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Consolidated as a Percentage of Revenue 26% 25%

Consolidated SG&A expenses as a percentage of revenue increased to 27% in the first six months of 2024 compared with 25% in the first six months of 20 23 principally due to the impact of our acquisitions and acquisition-related costs.

Consolidated SG&A expenses as a percentage of revenue increased to 26% in the first nine months of 2024 compared with 25% in the first nine months of 20 23 principally due to the impact of our acquisitions and acquisition-related costs.

Consolidated SG&A expenses increased $32.9 million, or 19%, primarily due to the inclusion of $25.3 million of SG&A expenses from acquisitions, $4.7 million of acquisition-related costs and increased compensation expense associated with new and existing personnel.

Within our operating segments, SG&A expenses:

• Increased $3.0 million at our Flow Control segment principally due to the inclusion of $0.6 million of SG&A expenses from an acquisition, $0.8 million of acquisition-related costs and increased compensation expense.

• Increased $11.4 million at our Industrial Processing segment due to the inclusion of $9.9 million of SG&A expenses from acquisitions and $0.7 million of acquisition-related costs.

• Increased $6.1 million at our Material Handling segment primarily due to the inclusion of $4.9 million of SG&A expenses from acquisitions and $2.1 million of acquisition-related costs, partially offset by a decrease of $0.4 million in external commissions.

• Increased $1.3 million at Corporate d ue to increased consulting costs and compensation expense.

Other costs of $0.1 million were incurred in the first six months of 2023 within our Industrial Processing segment related to the write-down of certain fixed assets that were not moved to a new manufacturing facility in China and facility moving costs.

• Increased $6.2 million at our Flow Control segment principally due to the inclusion of $2.9 million of SG&A expenses from acquisitions, $1.5 million of acquisition-related costs and increased compensation expense.

• Increased $16.8 million at our Industrial Processing segment due to the inclusion of $14.7 million of SG&A expenses from acquisitions, $0.8 million of acquisition-related costs and increased compensation expense associated with new and existing personnel.

These increases were partially offset by a $0.4 million favorable effect of foreign currency translation.

• Increased $8.6 million at our Material Handling segment primarily due to the inclusion of $7.7 million of SG&A expenses from acquisitions and $2.4 million of acquisition-related costs, partially offset by a decrease in expense related to external commissions and sales incentives.

• Increased $1.3 million at Corporate d ue to increased compensation expense and consulting costs.

Other costs of $1.0 million in the first nine months of 2023 included the following:

• Relocation costs of $0.6 million within our Industrial Processing segment related to the write-down of certain fixed assets that were not moved to a new manufacturing facility in China and facility moving costs.

• Restructuring and impairment costs of $0.4 million within our Flow Control segment related to the 2023 Restructuring Plan.

This charge consisted of severance costs for the termination of 10 employees, asset write-downs, and facility and other closure costs.

Interest Expense

Interest expense increased to $9.9 million in the first six months of 2024 from $4.6 million in the first six months of 2023 due t o increased borrowings under our revolving credit facility, which were primarily used to fund our acquisitions and, to a lesser extent, a higher weighted-average interest rate.

Interest expense increased to $15.4 million in the first nine months of 2024 from $6.7 million in the first nine months of 2023 due t o increased borrowings under our revolving credit facility, which were primarily used to fund our acquisitions and, to a lesser extent, a higher weighted-average interest rate.

Provision for Income Taxes

Provision for income taxes decreased to $19.8 million in the first six months of 2024 from $20.9 million in the first six months of 2023.

The effective tax rate of 26% in the 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.

The effective tax rate of 26% in the first six months of 2023 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, and nondeductible expenses.

Net income decreased to $56.6 million in the first six months of 2024 from $58.2 million in the first six months of 2023 primarily due to a $5.3 million increase in interest expense, offset in part by a $2.1 million increase in operating income and a $1.1 million decrease in provision for income taxes (see discussions above for further details).

Provision for income taxes was $31.8 million in both the first nine months of 2024 and the first nine months of 2023.

The effective tax rate of 26% in the first nine 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.

The effective tax rate of 26% in the first nine months of 2023 was higher than our statutory rate of 21% primarily due to the distribution of our worldwide earnings, state taxes, and nondeductible expenses.

Net income decreased to $88.5 million in the first nine months of 2024 from $89.2 million in the first nine months of 2023 primarily due to a $8.7 million increase in interest expense, offset in part by a $7.6 million increase in operating income (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 foreign currency translation and acquisitions), 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 in order 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.

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).

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.

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A reconciliation of adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin is as follows:

Three Months Ended Six Months Ended

(In thousands, except percentages) June 29,

2023 June 29,

Three Months Ended Nine Months Ended

(In thousands, except percentages) September 28,

2024 September 30,

2023 September 28,

2024 September 30,

Net Income Attributable to Kadant $ 31,586 $ 30,864 $ 87,566 $ 88,673

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(175) (50) (151) 127

Relocation Costs

Restructuring and Impairment Costs

Adjusted Operating Income (non-GAAP measure)

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(b) Represents intangible amortization expense associated with acquired backlog.

(c) Represents the provision for or reversal of indemnification assets related to the release of tax reserves associated with uncertain tax positions.

(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 29,

2023 June 29,

Three Months Ended Nine Months Ended

(In thousands) September 28,

2024 September 30,

2023 September 28,

2024 September 30,

Cash Provided by Operating Activities $ 52,478 $ 46,967 $ 103,375 $ 106,311

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Liquidity and Capital Resources

Consolidated working capital was $253.4 million at June 29, 2024, compared with $225.8 million at December 30, 2023.

Cash and cash equivalents were $73.8 million at June 29, 2024, compared with $103.8 million at December 30, 2023, which included cash and cash equivalents held by our foreign subsidiaries o f $63.7 million at June 29, 2024 and $94.6 million at December 30, 2023.

Cash flow information in the first six months of 2024 and 2023 is as follows:

Six Months Ended

(In thousands) June 29,

Consolidated working capital was $264.3 million at September 28, 2024, compared with $225.8 million at December 30, 2023.

Cash and cash equivalents were $88.4 million at September 28, 2024, compared with $103.8 million at December 30, 2023, which included cash and cash equivalents held by our foreign subsidiaries o f $74.1 million at September 28, 2024 and $94.6 million at December 30, 2023.

Cash flow information in the first nine months of 2024 and 2023 is as follows:

Nine Months Ended

(In thousands) September 28,

2024 September 30,

Net Cash Provided by Operating Activities $ 103,375 $ 106,311

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Operating Activities

Cash provided by operating activities decreased to $50.9 million in the first six months of 2024 from $59.3 million in the first six months of 2023 primarily due to an increase in cash used for working capital.

Cash provided by operating activities decreased to $103.4 million in the first nine months of 2024 from $106.3 million in the first nine months of 2023 primarily due to an increase in cash used for working capital.

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 cash outflows associated with working capital in the first six months of 2024 related to accounts receivable, customer deposits and other current liabilities.

Significant cash outflows associated with working capital in the first nine months of 2024 related to accounts receivable, customer deposits and other liabilities.

An increase in accounts receivable used cash of $10.4 million primarily due to our revenue growth, and a decrease in customer deposits used cash of $21.6 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.

Significant cash outflows associated with working capital in the first six months of 2023 related to inventory, accounts payable and accounts receivable.

Increases in inventory used cash of $10.8 million primarily related to capital equipment orders that shipped throughout 2023 and early 2024.

Other liabilities used cash of $15.5 million primarily related to incentive compensation payments.

These uses of cash were offset in part by cash provided from the shipment of inventory of $10.2 million and increases in accounts payable of $8.7 million related to inventory purchases and the timing of payments.

Significant cash outflows associated with working capital in the first nine months of 2023 related to accounts payable and accounts receivable.

Decreases in accounts payable used cash of $12.9 million primarily due to the timing of payments.

In addition, an increase in accounts receivable used cash of $4.0 million mainly due to our revenue growth and the timing of shipments.

An increase in accounts receivable used cash of $10.7 million mainly due to our revenue growth and the timing of shipments.

In addition, an increase in other liabilities provided cash of $5.9 million due in part to work performed by subcontractors and outside vendors.

Investing Activities

Cash used in investing activities was $301.5 million in the first six months of 2024, compared with $12.9 million in the first six months of 2023.

Consideration paid for acquisitions, net of cash acquired, was $291.6 million in the first six months of 2024.

Additionally, cash used in investing activities included capital expenditures of $11.2 million in the first six months of 2024 and $13.2 million in the first six months of 2023.

Cash used in investing activities was $315.9 million in the first nine months of 2024, compared with $20.1 million in the first nine months of 2023.

Consideration paid for acquisitions, net of cash acquired, was $302.0 million in the first nine months of 2024.

Additionally, cash used in investing activities included capital expenditures of $15.4 million in the first nine months of 2024 and $22.1 million in the first nine months of 2023.

Financing Activities

Cash provided by financing activities was $222.8 million in the first six months of 2024, compared with cash used in financing activities of $56.6 million in the first six months of 2023.

Borrowings under our revolving credit facility were $295.2 million in 2024, including $291.2 million to fund our 2024 acquisitions.

Cash provided by financing activities was $196.8 million in the first nine months of 2024, compared with cash used in financing activities of $85.7 million in the first nine months of 2023.

Borrowings under our revolving credit facility were $305.2 million in 2024, which were primarily used to fund our 2024 acquisitions.

Repayments of short- and long-term obligations were $91.4 million in 2024 compared to $71.9 million in 2023.

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The exchange rate effect on cash, cash equivalents, and restricted cash represents the impact of translation of cash balances at our foreign subsidiaries.

The $3.5 million decrease in cash, cash equivalents, and restricted cash in the first six months of 2024 related to exchange rates 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.

The $0.6 million increase in cash, cash equivalents, and restricted cash in the first six months of 2023 was primarily attributable to the weakening of the U.S.

dollar against the euro, and to a lesser extent, the Mexican peso, and Brazilian real, partially offset by the strengthening of the U.S.

dollar against the Chinese renminbi.

The $1.0 million decrease in cash, cash equivalents, and restricted cash in the first nine months of 2024 related to exchange rates was primarily attributable to the strengthening of the U.S.

dollar against the Mexican peso and, to a lesser extent, the Brazilian real and the Canadian dollar.

The $1.3 million decrease in cash, cash equivalents, and restricted cash in the first nine months of 2023 was primarily attributable to the strengthening of the U.S.

dollar against the Chinese renminbi and, to a lesser extent, the euro and Swedish krona.

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.

In the first six months of 2024, we borrowed $295.2 million under our revolving credit facility, which was primarily used to fund our acquisitions.

As of June 29, 2024, our outstanding balance under the Credit Agreement was $333.3 million, which included $73.3 million of euro-denominated borrowings, and we had $66.9 million of available borrowing capacity, in addition to a $200.0 million uncommitted, unsecured incremental borrowing facility.

In the first nine months of 2024, we borrowed $305.2 million under our revolving credit facility, which was primarily used to fund our acquisitions.

As of September 28, 2024, our outstanding balance under the Credit Agreement was $314.5 million, which included $76.5 million of euro-denominated borrowings, and we had $85.3 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 29, 2024, our leverage ratio was 1.22 and we were in compliance with our debt covenants.

As of September 28, 2024, our leverage ratio was 1.13 and we were in compliance with our debt covenants.

See Note 6 , Long-Term Obligations, in the accompanying condensed consolidated financial statements for additional information regarding our debt obligations.

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We have not repurchased any shares of our common stock under this authorization or our previous $50.0 million authorization that expired on May 18, 2024.

We paid cash dividends of $7.2 million in the first six months of 2024.

On May 16, 2024, we declared a quarterly cash dividend of $0.32 per share totaling $3.8 million that will be paid on August 8, 2024.

We paid cash dividends of $10.9 million in the first nine months of 2024.

On September 5, 2024, we declared a quarterly cash dividend of $0.32 per share totaling $3.8 million that will be paid on November 7, 2024.

Future declarations of dividends are subject to our board of directors' approval and may be adjusted as business needs or market conditions change.

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We plan to make expenditures of approximately $10.0 to $11.0 million during the remainder of 2024 for property, plant, and equipment.

As of June 29, 2024, we had approximately $273.6 million of total unremitted foreign earnings.

As of September 28, 2024, we had approximately $292.4 million of total unremitted foreign earnings.

It is our intent to indefinitely reinvest $242.3 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 2024, we recorded withholding taxes on the earnings in certain foreign subsidiaries that we plan to repatriate in the foreseeable future.

In the first nine months of 2024, 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 $5.0 million.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis