KADANT INC 10-Q

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. 21 Table of Contents KADANT INC. Industry and Business Overview Our consolidated bookings increased 3% to $256.2 million in the first quarter of 2025 compared to the first quarter of 2024 due to record demand for our parts and consumables products, which increased to 74% of total bookings. Within our segments, both our Flow Control and Industrial Processing segments had record demand for parts and consumables products as customers focused on critical parts and maintenance requirements. While demand for our parts and consumables products remains strong, a lengthening in quote to order times for capital orders has resulted in a decline in capital bookings. The Trump administration introduced new tariffs, subsequently modified and expanded them, and later reduced them for 90 days for most countries. In addition, the Trump administration imposed a very high tariff rate on imports from China, with China initiating a retaliatory tariff on imports from the U.S. These tariff changes have created significant uncertainty in the markets and impacted our customers’ decision-making process related to capital projects. 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 the average capital order size is significantly higher than in our other segments. Our operations teams have been assessing their exposure to the currently enacted and proposed tariffs and are working on implementing mitigation measures. From a geographic perspective, in North America the tariff situation has created uncertainty in the markets, which may lead to inflationary pressures. In China, supportive government policies helped stimulate domestic demand and manufacturing activity, but the escalating trade tensions with the U.S. are generally expected to have a negative effect. In Europe, in addition to the trade policy uncertainty, sluggish market conditions have also been impacted by high interest rates and energy costs. Overall, we expect stronger capital bookings in 2025 compared to 2024, especially in our Industrial Processing segment. However, the timing for securing capital orders can be uncertain and could shift by quarter and into 2026 due in part to the outcome of the tariff negotiations and the timing of any tariff changes. We expect steady demand for our aftermarket products to continue for the remainder of 2025. We see long-term strength in our end markets as customers continue to rely on our products to help maximize productivity through more efficient production processes. In addition, we see growth opportunities from proposed and adopted legislation in the U.S. and abroad aimed at fueling investment. An overview of our business by reportable segment is as follows: • Flow Control – Our Flow Control segment bookings increased 6% in the first quarter of 2025 compared to the first quarter of 2024 driven by record demand for our parts and consumables products. Excluding acquisitions and the unfavorable effect of foreign currency translation, organic bookings decreased 1% compared to the prior year primarily due to constrained capital spending due to macroeconomic conditions, especially in North America and China. We expect steady demand for the remainder of 2025 and long-term strength in our end markets. • Industrial Processing – Our Industrial Processing segment bookings increased 3%, while organic bookings increased 6% in the first quarter of 2025 compared to the first quarter of 2024 due to record demand for our aftermarket products, partially offset by weak demand for our capital products at our fiber processing product line. Our wood processing product line had record demand for aftermarket products in the first quarter of 2025 as customers focused their spending on critical parts required to keep machines operational. While demand for our capital equipment at our wood processing product line also increased in the first quarter of 2025 compared to the prior year, it 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 wait for conditions to improve. Some customers in Europe have already delayed capital orders until early 2026. Bookings at our fiber processing product line decreased 7% compared to the first quarter of 2024 due to constrained capital spending related to macroeconomic conditions, especially in North America and Europe. The tariff-related uncertainty has had a bigger impact on this segment due to the higher average order size and our customers’ ability to delay the timing for large capital projects. • Material Handling – Our Material Handling segment bookings were flat compared to the first quarter of 2024, with strong performance at our baling business offset by weaker performance at our conveying and vibratory business. Our baling business experienced record demand for our aftermarket products in the first quarter of 2025 as customers focused their expenditures on maintenance requirements. This compares to relatively weak demand for our capital equipment products compared to the fourth quarter of 2024 as customers were hesitant to commit to capital expenditures. 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 competitive advantage at our North American baling business as customers evaluate the incremental tariff costs on foreign-made balers. Our conveying and vibratory business had comparatively lower bookings in the first quarter of 2025 due to several large projects in the first quarter of 2024. Bookings at this business increased sequentially, led by increased demand for our capital equipment products. However, ongoing tariff-related uncertainty in the markets has tempered demand for our 22 Table of Contents KADANT INC. capital equipment products, and we anticipate customers shifting their capital expenditures from larger capital projects to smaller aftermarket products in the short-term. For the overall Material Handling segment, planned infrastructure projects and asset modernization in the recycling and waste management sectors are expected to lead to increased demand in 2025. Our global operations have been and continue to be impacted by complex market conditions fueled by tariff-related uncertainty in the markets, inflationary pressures, geopolitical tensions, and labor availability. 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 o ur 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. Results of Operations First Quarter 2025 Compared With First Quarter 2024 Revenue The following table presents the change in revenue by segment between the first 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. 23 Table of Contents KADANT INC. Revenue by reportable segment in the first 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) March 29, 2025 March 30, 2024 % Change Increase (Decrease) % Change Flow Control $ 92,441 $ 86,682 $ 5,759 7 % $ 7,512 $ (2,533) $ 780 1 % Industrial Processing 89,524 105,861 (16,337) (15) % — (2,833) (13,504) (13) % Material Handling 57,245 56,432 813 1 % 500 (406) 719 1 % Consolidated $ 239,210 $ 248,975 $ (9,765) (4) % $ 8,012 $ (5,772) $ (12,005) (5) % Consolidated revenue decreased 4% in the first quarter of 2025, including a 3% increase from acquisitions and a 2% decrease from the unfavorable effect of foreign currency translation. Organic revenue decreased 5% primarily due to weaker demand at our Industrial Processing segment, especially for our capital equipment products. From a geographic perspective, organic revenue was impacted by softening demand, especially in Europe and Asia, due to weak macroeconomic conditions. Revenue at our Flow Control segment increased 7%, including a 9% increase from acquisitions and a 3% decrease from the unfavorable effect of foreign currency translation. Organic revenue increased 1% in the first quarter of 2025 driven by higher demand for our parts and consumable products at our doctoring, cleaning & filtration product line. This increase was partially offset by lower demand for our capital equipment products in North America and Europe due to challenging market conditions. Revenue at our Industrial Processing segment decreased 15% in the first quarter of 2025, while organic revenue decreased 13% primarily driven by reduced demand for our capital equipment products at both our wood processing and fiber processing businesses. Capital equipment revenue decreased at our wood processing business, especially in North America, as economic uncertainty caused customers to delay major capital expenditures and focus their spending on critical parts. As a result, our wood processing product line had record parts and consumables revenue in the first quarter of 2025. Capital equipment revenue decreased at our fiber processing business due to depressed conditions, especially in China, which resulted in more cautious capital spending in the first quarter of 2025. Revenue at our Material Handling segment increased 1% in the first quarter of 2025 led by higher demand for our parts and consumables products, especially at our baling business. This increase was partially offset by a decrease in capital equipment revenue at our conveying and vibratory business in North America due in part to several large projects in the first quarter of 2024, which resulted in comparatively lower revenue in the first quarter of 2025. Gross Profit Margin Gross profit margin by reportable segment in the first quarters of 2025 and 2024 is as follows: Three Months Ended Basis Point Change March 29, 2025 March 30, 2024 Flow Control 53.3% 53.9% (60) bps Industrial Processing 44.1% 41.7% 240 bps Material Handling 37.7% 35.6% 210 bps Consolidated 46.1% 44.6% 150 bps Consolidated gross profit margin increased to 46.1% in the first quarter of 2025 from 44.6% in the first quarter of 2024 due to an increase in the proportion of higher-margin parts and consumables revenue, which increased to 75% of total revenue in the first quarter of 2025 compared to 69% in in the first quarter of 2024, and the inclusion of $2.3 million of amortization expense related to acquired profit in inventory in the first quarter of 2024, which decreased consolidated gross profit margin in the first quarter of 2024 by 0.9 percentage points. Within our reportable segments, gross profit margin: • Decreased to 53.3% at our Flow Control segment from 53.9% in the 2024 period primarily due to lower margins achieved on our capital equipment products, partially offset by an increase in the proportion of higher-margin parts and consumables revenue in 2025. 24 Table of Contents KADANT INC. • Increased to 44.1% at our Industrial Processing segment from 41.7% in the 2024 period due to the inclusion of $1.3 million of amortization expense related to acquired profit in inventory in the 2024 period, which decreased gross profit margin in 2024 by 1.2 percentage points, and an increase in the proportion of higher-margin parts and consumables revenue in 2025. • Increased to 37.7% at our Material Handling segment from 35.6% 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 1.8 percentage points and, to a lesser extent, higher margins achieved on our capital equipment products in 2025. Based on our assessment of the newly implemented tariffs currently in effect in the markets in which we operate, we anticipate our consolidated gross margins will be negatively impacted by incremental material costs of approximately $5.0 to $6.0 million in 2025, primarily affecting the second and third quarters, associated with tariffs costs that cannot be mitigated in the short-term. This estimate is subject to change pending the outcome of ongoing tariff negotiations. Selling, General, and Administrative Expenses Selling, general, and administrative (SG&A) expenses by reportable segment and corporate in the first quarters of 2025 and 2024 are as follows: Three Months Ended (In thousands, except percentages) March 29, 2025 March 30, 2024 Increase (Decrease) % Change Flow Control $ 25,170 $ 23,424 $ 1,746 7% Industrial Processing 21,010 22,518 (1,508) (7)% Material Handling 13,508 14,040 (532) (4)% Corporate 11,533 10,323 1,210 12% Consolidated $ 71,221 $ 70,305 $ 916 1% Consolidated as a Percentage of Revenue 29.8% 28.2% Consolidated SG&A expenses as a percentage of revenue increased to 29.8% in 2025 compared to 28.2% in 2024 principally due to the decrease in revenue. Consolidated SG&A expenses increased $0.9 million, or 1%, primarily due to the inclusion of $3.2 million of SG&A expenses from acquisitions made during the second and third quarters of 2024, partially offset by a $1.4 million favorable effect of foreign currency translation and a decrease of $1.2 million of acquisition-related costs. Acquisition-related costs included in SG&A consist of amortization expense associated with acquired backlog and acquisition costs. Within our reportable segments and corporate, SG&A expenses: • Increased $1.7 million at our Flow Control segment principally due to the inclusion of $2.6 million of SG&A expenses from acquisitions and an increase of $0.3 million of acquisition-related costs, partially offset by a $0.7 million favorable effect of foreign currency translation. • Decreased $1.5 million at our Industrial Processing segment due to a $0.6 million favorable effect of foreign currency translation and a decrease of $0.3 million of acquisition-related costs and $0.3 million in bad debt expense. • Decreased $0.5 million at our Material Handling segment principally due to a decrease of $1.2 million of acquisition-related costs, partially offset by an increase of $0.6 million of SG&A expenses from acquisitions. • Increased $1.2 million at Corporate due to annual wage increases and consulting costs. Interest Expense Interest expense decreased to $3.8 million in the first quarter of 2025 from $4.7 million in the first quarter of 2024 due to decreased borrowings under our revolving credit facility and, to a lesser extent, a lower weighted-average interest rate. Provision for Income Taxes Provision for income taxes was $7.8 million in the first quarter of 2025 and $7.9 million in the first quarter of 2024. The effective tax rate of 24% in the first quarter 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 25 Table of Contents KADANT INC. excess income tax benefits from stock-based compensation arrangements, the reversal of tax reserves associated with uncertain tax positions, and foreign tax credits. The effective tax rate of 24% in the first quarter of 2024 was higher than our statutory rate of 21% primarily due to nondeductible expenses, the distribution of our worldwide earnings, state taxes, 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 net excess income tax benefits from stock-based compensation arrangements, foreign tax credits, and a tax benefit associated with a foreign exchange loss recognized upon our repatriation of certain previously taxed foreign earnings. Net Income Net income decreased to $24.4 million in the first quarter of 2025 from $25.0 million in the first quarter of 2024 primarily due to a $1.3 million decrease in operating income, offset in part by a $0.8 million decrease in interest expense (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. 26 Table of Contents KADANT INC. A reconciliation of adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin from net income attributable to Kadant is as follows: Three Months Ended (In thousands, except percentages) March 29, 2025 March 30, 2024 Net Income Attributable to Kadant $ 24,063 $ 24,689 Net Income Attributable to Noncontrolling Interests 374 296 Provision for Income Taxes 7,828 7,854 Interest Expense, Net 3,305 4,058 Other Expense, Net 16 30 Operating Income 35,586 36,927 Acquired Profit in Inventory Amortization (a) 11 2,331 Acquired Backlog Amortization (b) 379 799 Acquisition Costs 337 1,124 Indemnification Asset (Provision) Reversal, Net (c) (29) 90 Adjusted Operating Income (non-GAAP measure) 36,284 41,271 Depreciation and Amortization 11,634 10,940 Adjusted EBITDA (non-GAAP measure) $ 47,918 $ 52,211 Adjusted EBITDA Margin (non-GAAP measure) 20.0% 21.0% (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 (In thousands) March 29, 2025 March 30, 2024 Cash Provided by Operating Activities $ 22,835 $ 22,831 Capital Expenditures (3,836) (6,271) Free Cash Flow (non-GAAP measure) $ 18,999 $ 16,560 Liquidity and Capital Resources Consolidated working capital was $266.1 million at March 29, 2025, compared with $250.8 million at December 28, 2024. Cash and cash equivalents were $91.7 million at March 29, 2025, compared with $94.7 million at December 28, 2024, which included cash and cash equivalents held by our foreign subsidiaries o f $76.9 million at March 29, 2025 and $73.8 million at December 28, 2024. Cash Flows Cash flow information in the first quarters of 2025 and 2024 is as follows: Three Months Ended (In thousands) March 29, 2025 March 30, 2024 Net Cash Provided by Operating Activities $ 22,835 $ 22,831 Net Cash Used in Investing Activities (3,836) (237,263) Net Cash (Used in) Provided by Financing Activities (23,085) 192,905 Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash 1,945 (2,308) Decrease in Cash, Cash Equivalents, and Restricted Cash $ (2,141) $ (23,835) 27 Table of Contents KADANT INC. Operating Activities Cash provided by operating activities was $22.8 million in both the first quarters of 2025 and 2024. 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 first quarter of 2025 related to other liabilities and inventory. Decreases in other liabilities used cash of $14.3 million primarily related to incentive compensation payments and purchases of inventory used cash of $5.5 million. These uses of cash were offset in part by cash provided from the reduction in contract assets of $6.3 million related to contracts accounted for on an over time basis. Significant cash outflows associated with working capital in the first quarter of 2024 related to other liabilities, accounts receivable, and inventory. Decreases in other liabilities used cash of $15.3 million primarily related to incentive compensation payments. Increases in accounts receivable used cash of $8.0 million mostly due to the timing of payments and purchases of inventory used cash of $6.7 million. These uses of cash were offset in part by cash provided by an increase in accounts payable of $15.0 million related to inventory purchases and the timing of payments. Investing Activities Cash used in investing activities was $3.8 million in the first quarter of 2025, compared with $237.3 million in the first quarter of 2024. Cash used in investing activities in the first quarter of 2025 consisted of capital expenditures of $3.8 million. Cash used in investing activities in the first quarter of 2024 included consideration paid for acquisitions, net of cash acquired, of $232.3 million and capital expenditures of $6.3 million. Financing Activities Cash used in financing activities was $23.1 million in the first quarter of 2025, compared with cash provided by financing activities of $192.9 million in the first quarter of 2024. Borrowings under our revolving credit facility were $8.0 million in 2025 compared to $234.0 million in 2024, which was primarily used to fund our 2024 acquisitions. Repayments of short- and long-term obligations were $22.6 million in 2025 and $33.5 million in 2024. Cash dividends paid to stockholders were $3.8 million in 2025 and $3.4 million in 2024. In addition, taxes paid related to the vesting of equity awards were $6.0 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 $1.9 million increase in cash, cash equivalents, and restricted cash in the first quarter of 2025 related to exchange rates was primarily attributable to the weakening of the U.S. dollar against the euro, the Swedish krona, and the Brazilian real. The $2.3 million decrease in cash, cash equivalents, and restricted cash in the first quarter of 2024 was primarily attributable to the strengthening of the U.S. dollar against the euro, the Canadian dollar, the Chinese renminbi 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. As of March 29, 2025, our outstanding balance under the Credit Agreement was $267.0 million, which included $74.0 million of euro-denominated borrowings, and we had $133.1 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 March 29, 2025, our leverage ratio was 0.95 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. Additional Liquidity and Capital Resources On May 16, 2024, our board of directors approved the repurchase of up to $50.0 million of our equity securities during the period from May 16, 2024 to May 16, 2025. We have not repurchased any shares of our common stock under this authorization. We paid cash dividends of $3.8 million in the first quarter of 2025. On March 5, 2025, we declared a quarterly cash dividend of $0.34 per share totaling $4.0 million that was paid on May 7, 2025. Future declarations of dividends are subject to 28 Table of Contents KADANT INC. 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 $20.0 to $22.0 million during the remainder of 2025 for property, plant, and equipment. As of March 29, 2025, we had approximately $121.0 million of total unremitted foreign earnings. It is our intent to indefinitely reinvest $60.4 million of these earnings to support the current and future capital needs of our foreign operations, including debt repayments, if any. In the first quarter 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 $1.6 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.