What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-06 compared with 2025-05-07 · 201 added, 120 removed, 161 unchanged (67% of the section changed)

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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.

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 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.

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 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.

• 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 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

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.

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.

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.

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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

First Quarter 2025 Compared With First Quarter 2024

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.

Second Quarter 2025 Compared With Second Quarter 2024

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.

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generally accepted accounting principles (GAAP) measure.

Revenue by reportable segment in the first quarters of 2025 and 2024 is as follows:

Revenue by reportable segment in the second quarters of 2025 and 2024 is as follows:

Three Months Ended Increase (Decrease)

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Change in Organic Revenue

(In thousands, except percentages) March 29,

2025 March 30,

(In thousands, except percentages) June 28,

2025 June 29,

2024 % Change Increase (Decrease)

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Consolidated $ 255,267 $ 274,765 $ (19,498) (7) % $ 815 $ 2,117 $ (22,430) (8) %

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.

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 first quarters of 2025 and 2024 is as follows:

Gross profit margin by reportable segment in the second quarters of 2025 and 2024 is as follows:

Three Months Ended Basis Point Change

2025 March 30,

2025 June 29,

Flow Control 53.8% 53.0% 80 bps

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Consolidated 45.9% 44.4% 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.

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:

• 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.

• 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.

• 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.

• 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 first quarters of 2025 and 2024 are as follows:

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) March 29,

2025 March 30,

(In thousands, except percentages) June 28,

2025 June 29,

2024 Increase

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.

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

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

% Change Increase (Decrease)

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.

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

2025 June 29,

Flow Control 53.6%

Industrial Processing 43.3%

Material Handling 38.2%

Consolidated 46.0%

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)

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Consolidated as a Percentage of Revenue 29.4% 26.8%

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.

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 20 24 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 $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.

• 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.

• 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 $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.

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 t o decreased borrowings under our revolving credit facility and 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

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 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).

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 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

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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

(In thousands, except percentages) March 29,

2025 March 30,

Three Months Ended Six Months Ended

(In thousands, except percentages) June 28,

2025 June 29,

2024 June 28,

2025 June 29,

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

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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, Net (c)

Indemnification Asset (Provision) Reversal (c)

— (66) (29) 24

Adjusted Operating Income (non-GAAP measure)

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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.

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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,

Three Months Ended Six Months Ended

(In thousands) June 28,

2025 June 29,

2024 June 28,

2025 June 29,

Cash Provided by Operating Activities $ 40,482 $ 28,066 $ 63,317 $ 50,897

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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 flow information in the first quarters of 2025 and 2024 is as follows:

Three Months Ended

(In thousands) March 29,

2025 March 30,

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 o f $75.3 million at June 28, 2025 and $73.8 million at December 28, 2024.

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,

Net Cash Provided by Operating Activities $ 63,317 $ 50,897

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Net Cash (Used in) Provided by Financing Activities (61,476) 222,837

(23,085) 192,905

Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash 6,341 (3,491)

Decrease in Cash, Cash Equivalents, and Restricted Cash

Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash

$ 1,242 $ (31,275)

Operating Activities

Cash provided by operating activities was $22.8 million in both the first quarters of 2025 and 2024.

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 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.

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 $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.

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 $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.

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.

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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 $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.

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 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.

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 March 29, 2025, our leverage ratio was 0.95 and we were in compliance with our debt covenants.

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.

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 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

our board of directors' approval and may be adjusted as business needs or market conditions change.

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 March 29, 2025, we had approximately $121.0 million of total unremitted foreign earnings.

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 quarter of 2025, we recorded withholding taxes on the earnings in certain foreign subsidiaries that we plan to repatriate in the foreseeable future.

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.

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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