Kadant Q4 2025 Earnings Call Transcript

Quartr
Provided by Quartr
February 19, 2026

Key Takeaways

  • Positive Sentiment: Record Q4 revenue of $286.2M (up 11%) and bookings +12%, driven by 2025 acquisitions and a strong aftermarket parts business that supported sequential improvement across segments.
  • Negative Sentiment: Full‑year profitability weakened—adjusted EPS fell to $9.26 from $10.28 and adjusted EBITDA declined 6% to $216.3M, with tariffs, lower capital revenue and higher SG&A weighing on margins.
  • Neutral Sentiment: Kadant generated record operating cash flow ($171.3M) and free cash flow ($154.3M) and used proceeds to pay down debt, but net debt and leverage rose (net debt $251.8M; leverage 1.33) and are expected to increase to just above 2x after the pending EUR157M acquisition.
  • Positive Sentiment: 2026 outlook shows growth—company guided to $1.16B–$1.185B revenue and $10.40–$10.75 adjusted EPS (or $12.53–$12.88 after management’s planned add‑back of recurring intangible amortization), while warning Q1 will be the weakest quarter and leaving upside from delayed large capital orders.
  • Positive Sentiment: Aftermarket resilience remains a core strength (aftermarket ~71% of 2025 revenue); management cites sustained parts demand, defensible customer relationships, and end‑market opportunities in recycling, data centers and OSB that support recurring revenues.
AI Generated. May Contain Errors.
Earnings Conference Call
Kadant Q4 2025
00:00 / 00:00

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Operator

Day, and thank you for standing by. Welcome to the Kadant Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are on listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please advise that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Michael McKenney, Executive Vice President and Chief Financial Officer. Please go ahead.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

Thank you, Marvin. Good morning, everyone, and welcome to Kadant's Fourth Quarter and Full Year 2025 Earnings Call. With me on the call today is Jeff Powell, our President and Chief Executive Officer. Before we begin, let me read our Safe Harbor statement. Various remarks that we may make today about Kadant's future plans and expectations, financial and operating results and prospects are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

These forward-looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements as a result of various important factors, including those outlined at the beginning of our slide presentation and those discussed under the heading Risk Factors in our annual report on Form 10-K for the fiscal year ended December 28, 2024, and subsequent filings with the Securities and Exchange Commission. In addition, any forward-looking statements we make during this webcast represent our views and estimates only as of today. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views or estimates change. During this webcast, we will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our fourth quarter and full year earnings press release and the slides presented on the webcast and discussed in the conference call, which are available in the Investor section of our website at kadant.com. Finally, I want to note that when we refer to GAAP earnings per share or EPS and adjusted EPS on this call, we're referring to each of these measures as calculated on a diluted basis. With that, I'll turn the call over to Jeff Powell, who will give you an update on Kadant's business and future prospects. Following Jeff's remarks, I'll give an overview of our financial results for the quarter and the year, and we will then have a Q&A session. Jeff?

Jeff Powell
Jeff Powell
President and CEO at Kadant

Thanks, Mike. Hello, everyone, and thank you for joining us. Today, I'll review our fourth quarter and full year 2025 results and our outlook for 2026. Let me begin with our operational highlights. We closed the year with solid performance, despite a challenging macro background that included tariff volatility and continued cost pressures. Our performance led to solid margin results and strong cash flow in the fourth quarter, which I will outline in the next slide. Additionally, at the end of 2025, Newsweek recognized us as one of America's Most Responsible Companies for the sixth straight year, and we're honored to be included on that list once again. Our fourth quarter performance benefited from the acquisitions we completed in 2025 and solid demand in our flow control and material handling segments.

Jeff Powell
Jeff Powell
President and CEO at Kadant

Revenue increased 11% to a record $286 million, led by contributions from our recent acquisitions and record aftermarket parts business. Demand remained solid across all three operating segments, with bookings increasing 12% compared to the same period last year. While acquisitions accounted for most of the growth in the new orders, organic demand was stable year-over-year and improved sequentially. Adjusted EBITDA was up 11% compared to the same period last year, and our adjusted EBITDA margin was 20.3%. Strong execution by our global operations teams played an important role in delivering value to our customers and driving our fourth quarter operating performance. Our Q4 operating cash flow was excellent at $61 million. Next, I'd like to review our full year financial metrics with slide seven.

Jeff Powell
Jeff Powell
President and CEO at Kadant

Stable demand, combined with contributions from our two recent acquisitions, drove solid revenue performance of $1.05 billion in fiscal 2025, with aftermarket parts making up a record 71% of our total revenue. Softness in capital project activity, combined with rising tariffs and other cost pressures, resulted in an adjusted EPS of $9.26 a share, compared to the prior year record of $10.28 per share. Despite ongoing economic and geopolitical headwinds, our free cash flow increased 15% to a record $154 million. The volatility and magnitude of the tariffs proved to be quite challenging for us in 2025. I'm proud of our employees for the innovative work done to maximize value for our customers and our stockholders. Next, I'd like to review our performance for our three operating segments.

Jeff Powell
Jeff Powell
President and CEO at Kadant

I'll begin with our flow control segment. Q4 revenue increased 5% to $100 million, with strong performance in North America offsetting weaker performance in Europe. Aftermarket parts revenue was up 9% compared to the prior year period and made up 73% of total revenue. Adjusted EBITDA and margin were down compared to the same period last year due to weaker gross margins related to tariffs and product mix. While bookings were up 7% compared to the same period last year, softness in manufacturing sector persisted, particularly in Europe and Asia. We believe the long-term market trends impacting industrial markets such as automation, defense, and energy. We'll continue to drive new opportunities for growth, though business activity continues to be influenced by geopolitical and macroeconomic challenges around the globe.

Jeff Powell
Jeff Powell
President and CEO at Kadant

In our industrial processing segment, capital project activity remained relatively soft throughout 2025 and continued at similar levels in the fourth quarter. Our performance in this segment, however, benefited from the additions of Clyde Industries and Babbini, both of which were acquired in the second half of the year. Integration efforts for these businesses are progressing well, and they are expected to contribute positively in the years ahead. Revenue rose 16% to $118 million compared to the same period last year, and aftermarket parts revenue grew 31% in the fourth quarter and represented 76% of revenue. Adjusted EBITDA margin improved by 90 basis points year-over-year, driven largely by a more favorable product mix.

Jeff Powell
Jeff Powell
President and CEO at Kadant

As we look ahead to 2026, there's increasing project activity, and we expect demand for our capital equipment to strengthen as customers move forward with planned capital projects. In our material handling segment, we delivered solid year-over-year performance improvement in bookings, revenue, and margins. Fourth quarter revenue increased 11% to $69 million, driven by strong growth in capital revenue compared to the prior year period. Aftermarket parts made up 53% of total revenue and remained steady throughout the year. Margin performance strengthened as well, with Adjusted EBITDA margin increasing by 130 basis points to 22.1%. Looking ahead to 2026, we are encouraged by the high level of project activity and are well positioned to secure new business.

Jeff Powell
Jeff Powell
President and CEO at Kadant

Ongoing modernization efforts in the recycling and waste management sectors, as well as infrastructure and data center construction, are expected to drive the anticipated increase in order activity. Looking to 2026, capital project activity is looking to improve demand for aftermarket parts and continues to be steady as we start the new year. Additionally, although industrial demand is projected to pick up, uncertainty persists regarding the timing of capital orders due to ongoing economic and geopolitical instability. Overall, our healthy balance sheet and ability to generate significant cash flow position us well to pursue new opportunities that develop, and we are committed to achieving improved financial results this year. So with that, I'll turn the call over to Mike for a review of our financial results and our 2026 outlook. Mike?

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

Thank you, Jeff. I'll start with some key financial metrics from our fourth quarter. Revenue was a record $286.2 million, up 11% compared to the fourth quarter of 2024, including an 8% increase from acquisitions and a 3% increase from the favorable effect of foreign currency translation. Gross margin increased 50 basis points to 43.9% in the fourth quarter of 2025, compared to 43.4% in the fourth quarter of 2024, due to a favorable increase in the proportion of aftermarket parts, which increased to 70% of total revenue, compared to 67% in the prior period. There was a 40 basis point negative impact from the amortization of acquired profit and inventory in both periods.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

As a percentage of revenue, SG&A expense increased to 28.3% in the fourth quarter of 2025, compared to 27.3% in the prior year period. SG&A expenses were $80.9 million in the fourth quarter of 2025, increasing $10.3 million, or 15% compared to $70.6 million in the fourth quarter of 2024. The increase in SG&A expenses includes $7 million in SG&A expense related to our 2025 acquisitions and a $1.7 million unfavorable effect of foreign currency translation. Our GAAP EPS was $2.04 in both periods, and our adjusted EPS increased to $2.27 and was just above the high end of our guidance range of $2.05-$2.25 in the fourth quarter.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

Adjusted EBITDA increased 11% to $58 million and represented 20.3% of revenue. For the full year, revenue was $1.052 billion, compared to $1.053 billion in 2024, including a 3% increase from acquisitions and a 1% increase from the favorable effect of foreign currency. Gross margin increased 90 basis points to 45.2%, compared to 44.3% in 2024, due to a favorable increase in the proportion of aftermarket parts, which increased to a record 71% of total revenue, compared to 66% in 2024. Gross margin included a negative impact from the amortization of acquired profit and inventory of 20 basis points in 2025 and 40 basis points in 2024. Excluding this impact, gross margin was up 70 basis points over 2024.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

As a percentage of revenue, SG&A expenses increased to 28.7% in 2025, compared to 26.6% in 2024. SG&A expenses were $301.9 million in 2025, increasing $21.9 million, or 8%, compared to $279.9 million in 2024. Approximately 60% of this increase relates to our acquisitions, which had SG&A expenses of $13.2 million in 2025. The remainder was primarily due to a $2.2 million unfavorable effect of foreign currency translation and higher compensation-related costs. Our GAAP EPS was $8.65 in 2025, down 9% compared to $9.48 in 2024, and our adjusted EPS was $9.26, down from $10.28 in 2024. Now turning to our cash flow performance.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

We finished the year with very strong cash flow. As you can see from the chart, we had stronger operating cash flow in the last two quarters of 2025 compared to the first two quarters. For the full year, operating cash flow increased 10% to a record $171.3 million, compared to $155.3 million in 2024. Our free cash flow was also a record at $154.3 million in 2025, increasing 15% over 2024. We had several notable non-operating uses of cash in the fourth quarter of 2025. We paid $173.7 million for the acquisition of Clyde Industries, net of cash acquired. We borrowed $170 million to fund this acquisition, and we repaid $53.7 million of debt in the quarter.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

In addition, we paid $6.1 million for capital expenditures and a $4 million dividend on our common stock. We continue to focus on utilizing our strong cash flows to accelerate the paydown of debt, and I'm pleased we were able to repay $122.2 million this year, or approximately 42% of our outstanding debt at the end of 2024. Turning to adjusted EBITDA. In the fourth quarter of 2025, adjusted EBITDA increased 11% to $58 million, compared to $52.4 million in the fourth quarter of 2024. As a percentage of revenue, adjusted EBITDA was 20.3% in both periods.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

For the full year of 2025, adjusted EBITDA decreased 6% to $216.3 million, or 20.6% of revenue, compared to record adjusted EBITDA of two hundred and twenty-nine point seven million, or 21.8% of revenue in 2024. The weaker performance in 2025 is due in large part to lower capital revenue, which was down 16% compared to the prior year. Let me turn to our EPS results for the quarter. Our adjusted EPS increased $0.02 from $2.25 in the fourth quarter of 2024 to $2.27 in the fourth quarter of 2025. This includes increases of $0.17 due to higher revenue, $0.15 from the operating results of our acquisitions, excluding the associated borrowing costs, and $0.09 due to higher gross margins.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

These increases were partially offset by $0.22 due to higher operating expenses, $0.10 due to a higher tax rate, $0.04 due to higher interest expense, and $0.03 due to higher non-controlling interest. Our tax rate was 30% in the fourth quarter of 2025, higher than we anticipated due to the impact of global minimum tax regulations, as well as a change in geographic distribution of earnings. Collectively, included in all the categories I just mentioned, was a favorable foreign currency translation effect of $0.04 in the fourth quarter of 2025 compared to the fourth quarter of last year. Now turning to our EPS results for the full year on slide 17. Our adjusted EPS decreased $1.02 from $10.28 in 2024 to $9.26 in 2025.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

This includes decreases of $1.06 from revenue, $0.70 due to higher operating expenses, $0.13 due to a higher tax rate, $0.07 from higher non-controlling interest, and $0.02 due to higher weighted average shares outstanding. These decreases were partially offset by $0.46 from higher gross margin, $0.27 in lower interest expense, and $0.25 from the operating results of our acquisitions, excluding the associated borrowing costs. Collectively included in all the categories I just mentioned, was an unfavorable foreign currency translation effect of $0.01 in 2025 compared to 2024. Now let's turn to our liquidity metrics on slide 18.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

Our cash conversion days, measured by—calculated by taking days in receivables, plus days in inventory, and subtracting days in accounts payable, increased to 130 days at the end of the fourth quarter of 2025, from 122 days at the end of 2024. The increase in cash conversion days was principally driven by a higher number of days in inventory. Working capital as a percentage of revenue increased to 18.5% in the fourth quarter of 2025, compared to 15% in the fourth quarter of 2024, due to the lack of full year of revenue for our 2025 acquisitions. If you exclude the impact of our 2025 acquisitions from this calculation, it would be 15.5%, which is slightly above the end of 2024.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

Net debt, which is debt less cash at the end of 2025, was $251.8 million, compared to net debt of $131.1 million at the end of the third quarter of 2025. Our leverage ratio, calculated as defined in our credit agreement, increased to 1.33 at the end of 2025, compared to 0.94 at the end of the third quarter of 2025. At the end of January, we announced that we had entered into a definitive agreement to acquire voestalpine Böhler Profil GmbH for approximately EUR 157 million, subject to certain customary adjustments. The closing is subject to certain Austrian regulatory approvals and the satisfaction of customary closing conditions. We anticipate that our leverage ratio will increase to just above 2, with the increase in our outstanding debt once this transaction closes.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

We had $383 million of borrowing capacity available under our Revolving Credit Facility at the end of 2025, which will be reduced by the anticipated acquisition borrowing. Before I review our guidance, I want to remind you that our 2026 guidance does not incorporate any assumptions related to the pending acquisition. We anticipate that the closing will occur in the first quarter of 2026, and we will revise our 2026 guidance as part of our next earnings call. For the full year 2026, our revenue guidance is $1.16 billion-$1.185 billion, and our adjusted EPS guidance is $10.40-$10.75, which excludes $0.13 related to the amortization of acquired profit and inventory.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

Looking at our quarterly revenue and EPS performance in 2026, we expect that the first quarter will be the weakest quarter of the year. This is primarily related to soft capital bookings in the back half of 2025. Our revenue guidance for the first quarter of 2026 is $270 million-$280 million, and our adjusted EPS guidance for the first quarter is $1.78-$1.88, which excludes $0.09 related to the amortization of acquired profit and inventory. I should caution here that there could be some variability in our quarterly results due to several factors, including the variability of order flow and the timing of capital shipments.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

I wanted to highlight that due to the delayed timing of capital orders, we have a number of large capital projects where we have been actively working with customers and have provided proposals with a Kadant solution to meet their needs. We have taken a conservative approach to our 2026 guidance, given the order delays we experienced in 2025. These orders are waiting for customers to have enough clarity with the economic environment to commit to these capital expenditures. As soon as the customers place these pending orders, we will be able to determine the timing of the associated revenue recognition, which provides upside potential for our 2026 guidance. We anticipate gross margins for 2026 will be approximately 45.2%-45.7%.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

As a percentage of revenue, we anticipate SG&A will be approximately 27.7%-28.3%, and R&D expense will be approximately 1.4% of revenue. In addition, we anticipate net interest expense of approximately $15.5 million-$16 million for 2026, which does not include any estimated interest expense related to our proposed acquisition. We expect our recurring tax rate will be approximately 27.3%-27.8% in 2026, and we expect depreciation and amortization expense will be approximately $60 million-$61 million. We anticipate CapEx spending in 2026 will be approximately $23 million-$27 million. That concludes my review of the financials, but before we go to our Q&A session, I want to discuss our plan, starting in the first quarter of 2026, to add back recurring intangible amortization expense in our adjusted EPS calculation.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

Many of you have suggested that we add back non-cash amortization expense in our adjusted EPS calculation. Historically, we have only added back intangible amortization expense related to acquired backlog, which amortizes relatively quickly in the post-acquisition period. Recurring intangible amortization expense has grown steadily, given our significant acquisition activity, with a projected annual increase of 22% in 2026. These acquired intangible assets are initially recorded as part of purchase accounting and then reduced via a non-cash amortization expense for periods which can extend over 15 years. With this change, our adjusted EPS will be more consistent with our adjusted EBITDA and cash flow metrics, which are not impacted by intangible amortization expense. We believe that the exclusion of this expense from adjusted EPS will allow for more consistent comparisons of our operating results over time and to peer companies.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

Now, I will summarize the 2026 adjusted EPS guidance and comparative 2025 information with this change. For 2026, recurring amortization expense is $33.4 million or $25.1 million net of tax, and represents $2.13 per share. Our adjusted EPS guidance presented today and in yesterday's earnings release was $10.40-$10.75. After adding back recurring intangible amortization expense, our adjusted EPS guidance for 2026 is now $12.53-$12.88. For 2025, recurring intangible amortization expense was $27.4 million-$27.6 million net of tax and represented a $1.75 per share. Our previously reported EPS of $9.26 for 2025 is now $11.01. Current intangible amortization expense is $0.53 and $0.40 for the first quarters of 2026 and 2025 respectively.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

Our adjusted EPS guidance for the first quarter of 2026 is now $2.31-$2.41, and our previously reported adjusted EPS for the first quarter of 2025 of $2.10 per share is now $2.50. We will be issuing an SEC Form 8-K filing shortly with formal reconciliations of prior period information. I'll now turn the call back over to the operator for our Q&A session. Marvin?

Operator

Thank you. At this time, we'll conduct a question-and-answer session. As a reminder, to ask a question, you'll need to press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes on the line of Gary Prestopino of Barrington. Your line is now open.

Gary Prestopino
Gary Prestopino
Managing Director at Barrington

Oh, hey, good morning, everyone.

Jeff Powell
Jeff Powell
President and CEO at Kadant

Good morning, Gary.

Gary Prestopino
Gary Prestopino
Managing Director at Barrington

Mike, just a couple of housekeeping things here. Do you have the numbers for current assets and current liabilities at year-end handy?

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

Yep. Yep, I do. Hang in there and let me look that up. Current assets are $542 million, and current liabilities are $228 million.

Gary Prestopino
Gary Prestopino
Managing Director at Barrington

Okay, thank you.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

You're welcome.

Gary Prestopino
Gary Prestopino
Managing Director at Barrington

And just, I was going through this as you were talking, giving your narrative, but consumables in flow control were 73% of revenues, industrial, 76% of revenues, and material handling, 53% of revenues. Is that right?

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

Yep. Yep.

Gary Prestopino
Gary Prestopino
Managing Director at Barrington

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

Jeff Powell
Jeff Powell
President and CEO at Kadant

Yeah, Gary, you know, we've kind of said actually most throughout a lot of last year, as we reported, that the parts for aftermarket was slightly overperforming our expectations based on the operating rates. As you know, we tend to say that, traditionally, for aftermarket, the function of operating rates and operating rates really around the world have been quite, quite low in 2025, and the parts business really outperformed that. And the, you know, and they did it consistently. And so it clearly was a case where they're, they're running the equipment harder. There's been a lot, you know, there's been some capacity taken offline, and they're trying to make up for that. You know, overall demand, of course, increased last year in most of our markets, and even though some capacity was taken offline in certain markets.

Jeff Powell
Jeff Powell
President and CEO at Kadant

Because of that, they had to run the existing equipment harder, and it's older, you know, because they've been underinvesting now for nearly three years. That, you know, that's the only explanation you can have for aftermarket overperforming consistently for such a, you know, extended period of time with these lower operating rates, is that they're making up for that capacity taken offline by pushing everything harder, and the equipment's just older.

Gary Prestopino
Gary Prestopino
Managing Director at Barrington

Okay, and then lastly, what, you know, obviously was a lot of confusion on tariffs as we entered 2025 last year. What, what's the thought process of your customers now? I mean, you know, you're saying that you're gonna see the capital projects start increasing in 2026. I mean, have they basically just got the mindset that, hey, this is gonna square out to maybe a 10%-20% tariffs and, you know, let's reinvigorate our capital projects?

Jeff Powell
Jeff Powell
President and CEO at Kadant

Yeah, I mean, I think, you know, it was the volatility, you know, and, you know, the weekly changes that really and the breadth of the implementation, you know, in early last year, that really shocked everybody and really caused everybody to, you know, to take a wait and see attitude. But things are a little more stable now, and, you know, people realize that they have to continue running their business. You can't stop running your business. You can't stop investing in your business. You'll lose your competitiveness.

Jeff Powell
Jeff Powell
President and CEO at Kadant

So, you know, as things have started to stabilize a little bit and people have absorbed, you know, whatever, whatever tariff impact, you know, for their respective businesses, they've kind of absorbed that, things are starting to rationalize and they've got to get back to, you know, increasing efficiency, increasing outputs. You know, everybody, I would say right now, the main focus is on improving productivity and driving down costs, not so much on adding new capacity. That tends to be where we're at, with a few exceptions in a couple of markets we're in, where they are adding capacity, but most places now, it's really trying to squeeze more out of their existing operations and just be more efficient, more productive.

Gary Prestopino
Gary Prestopino
Managing Director at Barrington

Okay, thank you very much.

Operator

Q, one moment for our next question. Our next question comes on the line of Ross Sparenblek of William Blair. Your line is now open.

Ross Sparenblek
Ross Sparenblek
Equity Research Analyst at William Blair

Hey, good morning, gentlemen.

Jeff Powell
Jeff Powell
President and CEO at Kadant

Morning, Ross.

Ross Sparenblek
Ross Sparenblek
Equity Research Analyst at William Blair

Hey, a couple from me here, and I'll pass it along. Did you guys give a backlog figure? I may have missed it. And then also, you know, the equipment backlog, when we include the Clyde acquisition?

Jeff Powell
Jeff Powell
President and CEO at Kadant

Yep, I can give you, give you a number here. Yeah, when we brought in Clyde, they had a backlog of about $30 million, just as a reference point for you. Our backlog currently, at the end of the fourth quarter, was $288 million, and the split on that is 60/40, 60% capital, 40% parts.

Ross Sparenblek
Ross Sparenblek
Equity Research Analyst at William Blair

Okay, that, that's helpful. And then, I mean, did you guys give organic assumptions within the 2026 guidance?

Jeff Powell
Jeff Powell
President and CEO at Kadant

We didn't, but I'm happy to do that. You know, it was really, I would say, kinda flat, a little less than 1%-3% was what we modeled. And the point I was trying to stress is that, you know, as you know, Ross, through 2025, we had line of sight on some nice capital projects, and, you know, the customers have yet to place the orders for those. So the approach we're taking for 2026 is those orders are there. We think the customers will place those. They're significant orders. That would be meaningful upside for us, but we did not bake that into our guidance.

Jeff Powell
Jeff Powell
President and CEO at Kadant

Of course, at, you know, 1%-3% organic, there's not a lot of, you know, big capital jobs in there. But there are big capital jobs that are ready to go, and we're hoping that we're gonna get to mid-year, and customers will have placed some of those orders, and we'll be able to take our guidance up.

Ross Sparenblek
Ross Sparenblek
Equity Research Analyst at William Blair

Okay. So, I mean, I get the sense that most of that, the organic in the guide, is just your confidence around the parts and consumables business?

Jeff Powell
Jeff Powell
President and CEO at Kadant

Yeah, the capital is up, but, you know, not substantially. You're correct. We're really, it's confidence in parts and consumables, but we do anticipate the kind of, I'd say, single unit capital business to still keep plugging along.

Ross Sparenblek
Ross Sparenblek
Equity Research Analyst at William Blair

Okay, so that seems to imply then that the capital equipment orders is kind of $290 million-$300 million run rate we've had the last two years. That's kind of the static base case with potential for upside from there?

Jeff Powell
Jeff Powell
President and CEO at Kadant

Yeah.

Ross Sparenblek
Ross Sparenblek
Equity Research Analyst at William Blair

No expectation that that's gonna be going lower. Okay, awesome. Thank you, guys. I'll pass it along.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Kurt Yinger of D.A. Davidson. Your line is now open.

Kurt Yinger
Kurt Yinger
SVP and Research Analyst at D.A. Davidson

Great. Thanks, and good morning, everyone.

Jeff Powell
Jeff Powell
President and CEO at Kadant

Good morning, Kurt.

Kurt Yinger
Kurt Yinger
SVP and Research Analyst at D.A. Davidson

Mike, you had talked about, you know, a large number of capital orders where you've provided proposals and you're sort of waiting to hear back from customers. Can maybe just talk a little bit about how unique that is in terms of the time that proposals have been outstanding or maybe the typical timeline where you would expect a proposal to turn into a booking and how that's different today than what you've seen in the past?

Jeff Powell
Jeff Powell
President and CEO at Kadant

Yeah, Kurt. So I would say the, you know, discussions have been ongoing. A lot of projects that we thought were going to be released in the back half of last year, you know, didn't go away. But again, people, you know, because of the constant changes in, you know, the geopolitical, you know, kind of, discussions around tariffs and things, really just caused them to say, "Well, we're just gonna wait another quarter. We're gonna wait another two quarters here before we do anything." So we really haven't seen any projects, you know, kind of go away. We have some projects that we've actually, you know, gotten the order, but we're waiting for letters of credit or down payments before it becomes a booking.

Jeff Powell
Jeff Powell
President and CEO at Kadant

So, you know, there is some activity that has started to move forward, but, you know, it, it's taking longer in some cases to get the bank set up and get the, you know, letters of credit and the down payments. And others are just proceeding more slowly. You know, it's just one of caution. I think everybody's looking to see if we bottomed out and if we're gonna start to see some growth on from a macro level. And so it's probably been, I would say, the capital business has been as the bookings have been as slow as soft as they've been any time in history when we haven't had a significant recession.

Jeff Powell
Jeff Powell
President and CEO at Kadant

You know, we normally, the bookings we've seen in the last kind of two and a half years have been stuff you would we saw back in 2008, 2009, you know, when you, back when you have a real recession. So it's really unusual to see this kind of softness when the economies are still growing. And I think it's just because of all the uncertainty. The tariff thing, notwithstanding what the current administration says, the tariff thing has been highly, you know, chaotic for our customers to manage and to plan and to budget around. It's just created a tremendous amount of instability.

Jeff Powell
Jeff Powell
President and CEO at Kadant

But I, as I said earlier, when Gary was asking the question, you know, they are starting now to say, Okay, things seem to have calmed down a little bit. I mean, we don't like where we're at, but, you know, at least we know where we are now, so we can start to plan around that. And so that's what we're seeing. But we do know history, you know, many of our companies are over a hundred years old. We know history tells us they cannot go forever without investing in the business. The markets we're under are still growing.

Jeff Powell
Jeff Powell
President and CEO at Kadant

You know, even the paper and packaging business, which is, you know, a chunk of our business right now, you know, it's growing low single digits, but it's still growing, so you cannot underinvest forever in that. So they will have to start to make some investments.

Kurt Yinger
Kurt Yinger
SVP and Research Analyst at D.A. Davidson

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

Jeff Powell
Jeff Powell
President and CEO at Kadant

Yeah, you've really hit it exactly, Kurt. You know, we're just being cautious here as we move into 2026. And as I said, hopefully we'll get some good traction here, and we get to midyear, we'll be able to raise guidance if some of these capital bookings are placed. We're a little bit gun-shy because we thought things were going to strengthen. Well, you remember back when they were talking about things improving at the end of 2024, then it moved to the end of 2025, and so we're just, you know, we're just being, you know, trying to be as cautious as possible. As you know, we tend to always try to and, and traditionally have always kind of underpromised and over-delivered, and we wanna continue that trend.

Jeff Powell
Jeff Powell
President and CEO at Kadant

We just said: Look, it's early in the year. You know, we're going to come out of the gate cautiously, and hopefully, you know, some of these things that are out there that we believe will come in will come in, and we'll be able to, you know, then kind of update you guys accordingly.

Kurt Yinger
Kurt Yinger
SVP and Research Analyst at D.A. Davidson

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

Jeff Powell
Jeff Powell
President and CEO at Kadant

You know, I would say, 2025 was a good year for us. We did have a lot of our competitors come at us hard, and we were able to defend that. And in many cases, if they did get their foot in the door, we were able to kind of turn that around as the year progressed. And you know, and so from our standpoint, it was a good year, and our customers' relationships tend to be quite sticky. They've been very, you know, we've had them for a very long time, and so it's held steady. And that, you know, many of our companies had, you know, kind of record. You know, if you look at the percentage of revenue aftermarket, it was a very high level.

Jeff Powell
Jeff Powell
President and CEO at Kadant

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

Kurt Yinger
Kurt Yinger
SVP and Research Analyst at D.A. Davidson

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

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

Yeah. I have what you wanted, both revenue and bookings on that, Kurt? Is that what you're-

Kurt Yinger
Kurt Yinger
SVP and Research Analyst at D.A. Davidson

Yeah, if possible. I realize-

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

Yeah.

Kurt Yinger
Kurt Yinger
SVP and Research Analyst at D.A. Davidson

It's a lot of numbers, but yeah.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

No, that's, that's okay. Organically, I have, for, for the fourth quarter, parts on the revenue side, up 3%, capital on the revenue side, down 7%. So overall, organically, that comes out to flat. And then on the booking side, I have parts up 4% and capital down 6%. But, organically, the, with the weighting on parts, it puts us up 1% on bookings organically.

Kurt Yinger
Kurt Yinger
SVP and Research Analyst at D.A. Davidson

Great. Okay. Appreciate the color, guys. Thank you.

Michael McKenney
Michael McKenney
EVP and CFO at Kadant

You're welcome.

Operator

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

Walter Liptak
Walter Liptak
Industry Analyst at Seaport Research

Hi, good morning, guys.

Jeff Powell
Jeff Powell
President and CEO at Kadant

Good morning, Walter.

Walter Liptak
Walter Liptak
Industry Analyst at Seaport Research

I wanted to do a follow-up on that last question about the aftermarket competition coming out of Europe, it sounds like. If that's the case, how do they compete? Are they competing on, like, a quality aftermarket, or is it, like a pricing thing? Like, if you haven't seen any changes in the marketplace for aftermarket because of that.

Jeff Powell
Jeff Powell
President and CEO at Kadant

Traditionally, when somebody's coming in, trying to steal market share away from you, it's, you know, assuming your customer is happy with your product, your service, your performance, the only real leverage they have is to try to undercut you on price. And our customers, you know, will always take advantage of that, you know, to try to lower their overall cost. And so that's typically what they do. I mean, you know, in the markets we're in, as you know, we tend to be number one or in one or two select cases, maybe number two. Very strong relationship with our customers, really serve them well. So the only way they can really make any real entries into those markets is to try to really reduce pricing. And frankly, European companies, you know, they've got a cost structure that-

Jeff Powell
Jeff Powell
President and CEO at Kadant

You know, isn't substantially less than ours. So, you know, that does. The only way they can really do it is to just make less money. And if you follow our competitors in Europe, you'll find that they often do make a lot less money than us, because they try to undercut our price. But there's a lot more to it, you know, that total cost of ownership, you know, is so critical. You know, the technical services that we give them are important. You know, we have guys living in the operations supporting our customers. And because of that, you know, we kinda are able to defend our territory and in some cases, you know, pick up market share. So, you know, it's really nothing new.

Jeff Powell
Jeff Powell
President and CEO at Kadant

I mean, you know, like I said, if it's not the big guys coming after us, it's the small regional guys, actually, the ones that can create more havoc for you because they try to come in and really undercut you on price. But it's, you know, you know, we work very hard to understand our clients' operations and how we can help them create value and stay competitive and increase their throughputs, you know, and reduce their inputs. I mean, that's our value proposition. And so we, that's our daily mission. We work it very hard, and our guys do a great job of it.

Walter Liptak
Walter Liptak
Industry Analyst at Seaport Research

Okay, great. Okay, thank you for that. And, during your prepared comments, Jeff, I think you commented about a good funnel for projects in recycling and waste.

Jeff Powell
Jeff Powell
President and CEO at Kadant

Yes.

Walter Liptak
Walter Liptak
Industry Analyst at Seaport Research

and data center.

Jeff Powell
Jeff Powell
President and CEO at Kadant

Mm-hmm.

Walter Liptak
Walter Liptak
Industry Analyst at Seaport Research

I wonder if you could talk a little bit about those, especially the data center part?

Jeff Powell
Jeff Powell
President and CEO at Kadant

Yeah. So as you know, you know, the housing has been down, but, you know, data center construction is booming. You know, there are massive facilities, and of course, they use all the materials they use to make those, for instance, our material handling group, you know, is involved with, right? So you're talking about aggregate, sand, concrete, copper, aluminum. You know, everything that goes into building those structures starts out as a natural resource that is mined, processed, screened, sized, cleaned, things like that. And of course, our material handling group is in all those sectors.

Jeff Powell
Jeff Powell
President and CEO at Kadant

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

Jeff Powell
Jeff Powell
President and CEO at Kadant

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

Walter Liptak
Walter Liptak
Industry Analyst at Seaport Research

Okay, got it. All right. Thank you.

Operator

Thank you. One moment for our next question. Again, as a reminder, to ask a question, you will need to press star one one on your telephone. Our next question comes from the line of Ross Sparenblek of William Blair. Your line is now open.

Ross Sparenblek
Ross Sparenblek
Equity Research Analyst at William Blair

Hey, gentlemen, just some follow-ups here. Can you just give us a sense on where the OSB segment shook out within industrial process for the year?

Jeff Powell
Jeff Powell
President and CEO at Kadant

Well, well, I will say, you know, Ross, we usually we don't bifurcate that. We, you know, we usually just talk wood and fiber processing. But, you know, that isn't that's a bright spot for us, frankly, in the wood processing side. You know, the

Ross Sparenblek
Ross Sparenblek
Equity Research Analyst at William Blair

Okay.

Jeff Powell
Jeff Powell
President and CEO at Kadant

The debarking business servicing, you know, dimensional lumber and North American housing is, you know, really on the capital side quite soft right now. But the OSB keeps just plugging along. They're doing fantastic. They're finding. You know, first of all, we supply them globally, and we're one of only, you know, I guess technically two companies that are doing that. And they're finding more and more applications, more and more uses for the product, so it just continues to grow.

Ross Sparenblek
Ross Sparenblek
Equity Research Analyst at William Blair

Okay. That's good to hear.

Jeff Powell
Jeff Powell
President and CEO at Kadant

They're going into siding, siding, you know, of course, you know, they're going into higher, higher value, higher dollar, applications for it, and, and new applications for it. They're even starting to do it for, you know, for dimensional and structural elements and things like that, you know, looking at it for, for, you know, things that traditionally would be, you know, laminated products. So, it just we continue to see more and more demand.

Ross Sparenblek
Ross Sparenblek
Equity Research Analyst at William Blair

Okay. And then one of your competitors recently called out the vertical integration of the pulp and processing market in China as a, you know, secular opportunity over the coming years. Anything you can speak to as to like, you know, cadence, content, or how you guys argue that market today?

Jeff Powell
Jeff Powell
President and CEO at Kadant

Yeah. So when you know, when you put pulp mills in, of course, one of the big issues there is the recovery boilers. And Clyde, of course, you know, who joined us recently, serves that market, and so they've got, you know, they provide a lot of the technology into the Chinese market as these pulp mills are being built. Traditionally, China was almost 100% recycled fiber, but when the Chinese government put the ban in on the importing of wastepaper, they had to go out and search for fiber. And one of the things they're doing, of course, is they're putting these pulp mills in. And so, Clyde is over there supplying, you know, the boiler cleaning technology for those applications.

Ross Sparenblek
Ross Sparenblek
Equity Research Analyst at William Blair

Okay. And then maybe just, one last one on your 80/20 expectations this year. You guys usually target, you know, 2-3 divisions. Anything more material to call out as, like, the mix within the segments?

Jeff Powell
Jeff Powell
President and CEO at Kadant

No. I mean, we're constantly trying to increase the, you know, the size of our, of our team that leads those efforts, and starting more and more companies up. So, but it's, it's continuing to progress. You know, I think, you know, it's, some of the businesses, I think, you know, started the program late last year, and so, you know, we're expecting maybe towards the end of this year to start to see some results from that. And then, of course, there are others that, that have just entering it or are on schedule to enter it. The, as you know, normally with acquisitions, the first year, we don't like to do anything with them.

Jeff Powell
Jeff Powell
President and CEO at Kadant

We like to kind of get them stabilized and integrated, get them, you know, kind of understanding the programs and kind of, you know, deciding when they wanna undertake that initiative. So I'd say for some of the newer companies that are out there, you know, they're still to be started. But it's continuing along. You know, our team, I think, continues to get better and better at implementing it. And it'll be, you know, continue to be a primary internal initiative of ours for the years to come.

Ross Sparenblek
Ross Sparenblek
Equity Research Analyst at William Blair

All right. Well, thanks again, guys.

Operator

Thank you. I'm showing no further questions at this time. I'll now turn it back to Jeff Powell for closing remarks.

Jeff Powell
Jeff Powell
President and CEO at Kadant

Thanks, Marvin. Before wrapping up the call today, I just wanted to leave you with a couple of takeaways. We finished the year with improving business conditions. We acquired two great companies in the second half of 2025. The integration of this business into the Kadant family is going well, and I'm confident that they'll make meaningful contributions in 2026 and beyond. Outlook for 2026 is optimistic, with expectations of increased project activity and stable aftermarket demand, and we look forward to maximizing the value that we create for our customers and for our stockholders in 2026. With that, we wanna thank you for joining us today.

Operator

Thank you for your participation in today's conference. This has concluded the program. You may now disconnect.

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