Q4 2025 Kadant Inc Earnings Call

February 19, 2026

Operator: Good day, and thank you for standing by. Welcome to the Kadant Q4 2025 Earnings Conference Call. At this time, all participants are in 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 be advised that today's conference is being recorded. I'd like to hand the conference over to your first speaker today, Michael J. McKenney, Executive Vice President and Chief Financial Officer. Please go ahead.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press *11 on your telephone.

Speaker #1: You will then hear automated message advising your hand is raised. To withdraw your question, please press *11 again. Please revise that today's conference is being recorded.

Speaker #1: I would like to hand the conference over to your first speaker today, Michael McKenney, Executive Vice President and Chief Financial Officer. Please go ahead.

Speaker #2: 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.

Michael J. McKenney: 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.

Speaker #2: 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 safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

Speaker #2: 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.

Michael J. McKenney: 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.

Speaker #2: 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.

Speaker #2: 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. Our 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 call.

Michael J. McKenney: 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?

Speaker #2: 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 are referring to each of these measures as calculated on a diluted basis.

Speaker #2: 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.

Speaker #2: Jeff?

Speaker #3: 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.

Jeff Powell: Thanks, Mike. Hello, everyone, and thank you for joining us. Today, I'll review our Q4 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 Q4, 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 Q4 performance benefited from the acquisitions we completed in 2025 and solid demand in our Flow Control and material handling segments.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: Our fourth quarter performance benefited from the acquisitions we completed in 2025 and solid demand in our flow control and materials handling segments. Revenue increased 11% to a record $286 million led by contributions from our recent acquisitions and record aftermarket parts business.

Jeff Powell: 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 7.

Speaker #3: 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 new orders, organic demand was stable year over year and improved sequentially.

Speaker #3: 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.

Speaker #3: Our Q4 operating cash flow was excellent at $61 million. Next, I'd like to review our full-year financial metrics with slide 7. Stable demand combined with contributions from our two recent acquisitions drove solid revenue performance of $1.05 billion in fiscal 2025.

Jeff Powell: Stable demand, combined with contributions from our two recent acquisitions, drove solid revenue performance of $1.05 billion 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.

Speaker #3: 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 adjusted EPS of $9.26 a share compared to the prior year record of $10.28 per share.

Speaker #3: 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.

Speaker #3: 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 of our three operating segments.

Speaker #3: 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.

Jeff Powell: 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, will continue to drive new opportunities for growth, though business activity continues to be influenced by geopolitical and macroeconomic challenges around the globe.

Speaker #3: 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.

Speaker #3: 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 will continue to drive new opportunities for growth, though business activity continues to be influenced by geopolitical and macroeconomic challenges around the globe.

Jeff Powell: In our Industrial Processing segment, capital project activity remained relatively soft throughout 2025 and continued at similar levels in Q4. 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 Q4 and represented 76% of revenue. Adjusted EBITDA margin improved by 90 basis points year-over-year, driven largely by a more favorable product mix.

Speaker #3: 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 Babini.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: Adjusted EBITDA margin improved by 90 basis points year over year, driven largely by a more favorable product mix. 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.

Jeff Powell: 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. Q4 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.

Speaker #3: 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.

Speaker #3: 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%.

Speaker #3: Looking ahead to 2026, we're encouraged by the high level of project activity and our well-positioned to secure new business. 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.

Jeff Powell: 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?

Speaker #3: 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.

Speaker #3: Although industrial demand is projected to pick up, uncertainty persists regarding the timing of capital orders due to ongoing economic and geopolitical instability.

Speaker #3: 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.

Speaker #3: With that, I'll turn the call over to Mike for a review of our financial results and our 2026 outlook.

Speaker #2: 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 '24.

Michael J. McKenney: Thank you, Jeff. I'll start with some key financial metrics from our Q4. Revenue was a record $286.2 million, up 11% compared to the Q4 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 Q4 of 2025, compared to 43.4% in the Q4 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.

Speaker #2: 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 '25, compared to 43.4% in the fourth quarter of '24, 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.

Speaker #2: There was a 40 basis point negative impact from the amortization of acquired profit and inventory in both periods. As a percentage of revenue, SG&A expense increased to 28.3% in the fourth quarter of '25, compared to 27.3% in the prior year period.

Michael J. McKenney: As a percentage of revenue, SG&A expense increased to 28.3% in Q4 2025, compared to 27.3% in the prior year period. SG&A expenses were $80.9 million in Q4 2025, increasing $10.3 million or 15% compared to $70.6 million in Q4 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 to $2.25 in the fourth quarter.

Speaker #2: SG&A expenses were $80.9 million in the fourth quarter of '25, increasing 10.3 million or 15%, compared to 70.6 million in the fourth quarter of '24.

Speaker #2: 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.

Speaker #2: 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 to $2.25 in the fourth quarter.

Speaker #2: Adjusted EBITDA increased 11% to $58 million, and represented 20.3% of revenue. For the full year, revenue was $1,052,000,000 compared to $1,053,000,000 in '24. This includes a 3% increase from acquisitions and a 1% increase from the favorable effect of foreign currency.

Michael J. McKenney: Adjusted EBITDA increased 11% to $58 million and represented 20.3% of revenue. For the full year, revenue was $1,052 million, compared to $1,053 million 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.

Speaker #2: Gross margin increased 90 basis points to 45.2%, compared to 44.3% in '24, 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.

Speaker #2: Gross margin included a negative impact from the amortization of acquired profit and inventory of 20 basis points in '25, and 40 basis points in '24.

Speaker #2: Excluding this impact, gross margin was up 70 basis points over 2024. As a percentage of revenue, SG&A expenses increased to 28.7% in 2025, compared to 26.6% in 2024.

Michael J. McKenney: 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.

Speaker #2: SG&A expenses were $301.9 million in '25, increasing 21.9 million or 8%, compared to $279.9 million in '24. Approximately 60% of this increase relates to our acquisitions.

Speaker #2: SG&A expenses were $13.2 million in '25. The remainder was primarily due to a $2.2 million unfavorable effect of foreign currency translation, and higher compensation-related costs.

Speaker #2: Our GAAP EPS was $8.65 in '25, down 9% compared to $9.48 in '24, and our adjusted EPS was $9.26, down from $10.28 in '24.

Speaker #2: Now turning to our cash flow performance. 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 '25, compared to the first two quarters.

Michael J. McKenney: Now turning to our cash flow performance. 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 Q4 of 2025. We paid $173.7 million for the acquisition of Clyde Industries, net of cash acquired.

Speaker #2: For the full year, operating cash flow increased 10% to a record $171.3 million, compared to $155.3 million in '24. Our free cash flow was also a record at $154.3 million in '25, increasing 15% over '24.

Speaker #2: We had several notable non-operating uses of cash in the fourth quarter of '25. We paid $173.7 million for the acquisition of Clyde Industries, net of cash acquired.

Speaker #2: We borrowed $170 million to fund this acquisition, and we repaid $53.7 million of debt in the quarter. In addition, we paid $6.1 million for capital expenditures, and a $4 million dividend on our common stock.

Michael J. McKenney: We borrowed $170 million to fund this acquisition, and we repaid $53.7 million of debt in the quarter. 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 pay down 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.

Speaker #2: 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 '24.

Speaker #2: Turning to adjusted EBITDA. In the fourth quarter of '25, adjusted EBITDA increased 11% to $58.0 million, compared to $52.4 million in the fourth quarter of '24.

Speaker #2: As a percentage of revenue, adjusted EBITDA was 20.3% in both periods. For the full year '25, adjusted EBITDA decreased 6% to $216.3 million, or $20.6% of revenue, compared to record adjusted EBITDA of $229.7 million, or $21.8% of revenue in '24.

Michael J. McKenney: 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, 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 two cents from $2.25 in the fourth quarter of 2024 to $2.27 in the fourth quarter of 2025.

Speaker #2: The weaker performance in '25 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.

Speaker #2: Our adjusted EPS increased 2 cents from $2.25 in the fourth quarter of '24 to $2.27 in the fourth quarter of '25. This includes increases of 17 cents due to higher revenue, 15 cents from the operating results of our acquisitions, excluding the associated borrowing costs, and 9 cents due to higher gross margins.

Michael J. McKenney: 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. 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 Q4 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 Q4 2025 compared to the fourth quarter of last year.

Speaker #2: These increases were partially offset by 22 cents due to higher operating expenses, 10 cents due to a higher tax rate, 4 cents due to higher interest expense, and 3 cents due to higher non-controlling interest.

Speaker #2: Our tax rate was 30% in the fourth quarter of '25, higher than we anticipated due to the impact of global minimum tax regulations, as well as a change in geographic distribution of earnings.

Speaker #2: Collectively, included in all the categories I just mentioned, was a favorable foreign currency translation effect of $0.04 in the fourth quarter of '25, compared to the fourth quarter of last year.

Michael J. McKenney: 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. 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.

Speaker #2: Now turning to our EPS results for the full year on slide 17. Our adjusted EPS decreased $1.02, from $10.28 in '24 to $9.26 in '25.

Speaker #2: This includes decreases of $1.06 from revenue, 70 cents due to higher operating expenses, 13 cents due to a higher tax rate, 7 cents from higher non-controlling interest, and 2 cents due to higher weighted average shares outstanding.

Speaker #2: These decreases were partially offset by 46 cents from higher gross margin, 27 cents in lower interest expense, and 25 cents from the operating results of our acquisitions, excluding the associated borrowing costs.

Speaker #2: Collectively, included in all the categories I just mentioned, was an unfavorable foreign currency translation effect of 1 cent in '25, compared to '24. Now let's turn to our liquidity metrics on slide 18.

Speaker #2: Our cash conversion days, which I calculated by taking days in receivables plus days in inventory and subtracting days in accounts payable, increased to 130 at the end of the fourth quarter of '25, from 122 days at the end of '24.

Michael J. McKenney: Our Cash Conversion Days, calculated by taking days in receivables plus days in inventory and subtracting days in accounts payable, increased to 130 at the end of Q4 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 Q4 2025, compared to 15% in Q4 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.

Speaker #2: The increase in cash conversion days was principally driven by a higher number of days in inventory. Working capitals or percentage of revenue increased to 18.5% in the fourth quarter of '25, compared to 15% in the fourth quarter of '24, due to the lack of full-year revenue for our 25 acquisitions.

Speaker #2: If you exclude the impact of our 25 acquisitions from this calculation, it would be 15.5%, which is slightly above the end of '24. Net debt which is debt less cash at the end of '25 was $251.8 million, compared to net debt of $131.1 million at the end of the third quarter of '25.

Michael J. McKenney: 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 Q3 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 Q3 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.

Speaker #2: Our leverage ratio, calculated as defined in our credit agreement, increased to 1.33 at the end of '25, compared to 0.94 at the end of the third quarter of '25.

Speaker #2: At the end of January, we announced that we had entered into a definitive agreement to acquire a Volstepine Bowler profile GMBH for approximately $157 million euros, subject to certain customary adjustments.

Speaker #2: 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.

Speaker #2: We had $383 million of borrowing capacity available under our revolving credit facility at the end of '25, which will be reduced by the anticipated acquisition borrowing.

Michael J. McKenney: 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 wanna remind you that our 2026 guidance does not incorporate any assumptions related to the pending acquisition. We anticipate that the closing will occur in Q1 2026, and we will revise our 2026 guidance as part of our next earnings call. For the full year of 2026, our revenue guidance is $1.16 billion to $1.185 billion, and our adjusted EPS guidance is $10.40 to $10.75, which excludes $0.13 related to the amortization of acquired profit and inventory.

Speaker #2: Before I review our guidance, I want to remind you that our 26 guidance does not incorporate any assumptions related to the pending acquisition. We anticipate that the closing will occur in the first quarter of '26, and we will revise our 26 guidance as part of our next earnings call.

Speaker #2: For the full year '26, our revenue guidance is $1,160,000,000 to $1,185,000,000, and our adjusted EPS guidance is $10.40 to $10.75, which excludes $0.13 related to the amortization of acquired profit and inventory.

Speaker #2: Looking at our quarterly revenue and EPS performance in '26, 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 '25.

Michael J. McKenney: Looking at our quarterly revenue and EPS performance in 2026, we expect that the Q1 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 Q1 of 2026 is $270 to 280 million, and our adjusted EPS guidance for the Q1 is $1.78 to $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.

Speaker #2: Our revenue guidance for the first quarter of '26 is $270 to $280 million, and our adjusted EPS guidance for the first quarter is $1.78 to $1.88, which excludes 9 cents related to the amortization of acquired profit and inventory.

Speaker #2: 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.

Speaker #2: 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 cadence solution to meet their needs.

Michael J. McKenney: 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 Cadence 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 to 45.7%.

Speaker #2: We have taken a conservative approach to our '26 guidance, given the order delays we experienced in '25. These orders are waiting for customers to have enough clarity with the economic environment to commit to these capital expenditures.

Speaker #2: 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 '26 guidance.

Speaker #2: We anticipate gross margins for '26 will be approximately 45.2 to 45.7%. As a percentage of revenue, we anticipate SG&A will be approximately 27.7 to 28.3%, and R&D expense will be approximately 1.4% of revenue.

Michael J. McKenney: As a percentage of revenue, we anticipate SG&A will be approximately 27.7 to 28.3%, and R&D expense will be approximately 1.4% of revenue. In addition, we anticipate net interest expense of approximately $15.5 to 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 to 27.8% in 2026, and we expect depreciation and amortization expense will be approximately $60 to 61 million. We anticipate CapEx spending in 2026 will be approximately $23 to 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 Q1 of 2026, to add back recurring intangible amortization expense in our adjusted EPS calculation.

Speaker #2: In addition, we anticipate net interest expense of approximately $15.5 to $16 million for '26, which does not include any estimated interest expense related to our proposed acquisition.

Speaker #2: We expect our recurring tax rate will be approximately 27.3 to 27.8% in '26, and we expect depreciation and amortization expense will be approximately 60 to 61 million.

Speaker #2: We anticipate capex spending in '26 will be approximately 23 to 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 '26 to add back recurring intangible amortization expense in our adjusted EPS calculation.

Speaker #2: 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.

Michael J. McKenney: 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.

Speaker #2: Recurring intangible amortization expense has grown steadily given our significant acquisition activity, with a projected annual increase of 22% in '26. 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.

Speaker #2: 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.

Jeff Powell: ... We believe that the exclusion of this expense from Adjusted EPS will allow for a more consistent comparisons of our operating results over time and to peer companies. 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 to $10.75. After adding back recurring intangible amortization expense, our Adjusted EPS guidance for 2026 is now $12.53 to $12.88. For 2025, recurring intangible amortization expense was $27.4 million, or $20.6 million net of tax, and represented $1.75 per share.

Speaker #2: We believe that the exclusion of this expense from adjusted EPS will allow for a more consistent comparison of our operating results over time and to peer companies.

Speaker #2: Now I will summarize the '26 adjusted EPS guidance.

Speaker #1: Imperative 25 information with this change for 20 . Six recurring amortization expense is 33.4 million , or 25.1 million . Not a tax .

Speaker #1: And represents $2.13 per share . Our adjusted EPs guidance presented today and in yesterday's earnings release , was $10.40 to $10.75 . After adding back recurring intangible amortization expense , our adjusted EPs guidance for 26 is now $12.53 to $12.88 .

Speaker #1: For 25 recurring intangible amortization expense was 27.4 million , or $20.6 million , net of tax , and represented $1.75 per share . Our previously reported EPs of $9.26 for 25 is now $11.01 .

Jeff Powell: Our previously reported EPS of $9.26 for 2025 is now $11.01. Recurring intangible amortization expense is $0.53 and $0.40 for Q1 2026 and Q1 2025, respectively. Our adjusted EPS guidance for Q1 2026 is now $2.31 to $2.41, and our previously reported adjusted EPS for Q1 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?

Speaker #1: Recurring intangible amortization expense is $0.53 and $0.40 for the first quarters of 26 and 25 , respectively . Our adjusted EPs guidance for the first quarter of 26 is now $2.31 to $2.41 , and our previously reported adjusted EPs for the first quarter of 25 of $2.10 per share is now $2.50 .

Speaker #1: 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.

Speaker #1: Marvin

Speaker #2: Thank you . At this time , we'll conduct a question and answer session As a reminder to ask a question , you will press star one on your telephone and wait for your name to be announced .

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 from the line of Gary Prestopino of Barrington Research. Your line is now open.

Speaker #2: To withdraw your question , please press star one one again . Please stand by while we compile the Q&A roster And our first question comes from the line of Gary Prestopino of Barrington .

Speaker #2: Your line is now open

Speaker #3: Oh , hey , good morning everyone Gary . Mike , just a couple of housekeeping things here . Do you have the numbers for current assets and current liabilities at year end Andy ?

Gary Prestopino: Oh, hey, good morning, everyone.

Jeff Powell: Good morning, Gary.

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

Speaker #3: Yep ,

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

Speaker #1: Yeah , I do Hang in there and let me look that up Current assets are 542 million and current liabilities are 228 million .

Speaker #3: Okay . Thank you 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 .

Gary Prestopino: Okay, thank you.

Jeff Powell: You're welcome.

Gary Prestopino: 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?

Speaker #3: And material handling is 53% of revenues. Is that right?

Speaker #1: Yep . Yep

Jeff Powell: Yep. Yep.

Speaker #3: Okay . Thank you . And then You know , you're seeing a lot a lot more increased demand for consumable products . Now some of that is as a function of your acquisitions .

Gary Prestopino: 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, the 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?

Speaker #3: Right . But are you still seeing that you know , the your customers are running their equipment really hard . And using a lot more consumables in their processes .

Speaker #3: And that leads you to feel that , you know , the capital projects will get better as the year goes on . In 2026 .

Speaker #1: Yeah , Gary , you know , we've kind of said actually most throughout a lot of last year , as we reported , that the parts were aftermarket was slightly overperforming or expectations based on the operating rates , as you know , we tend to say traditionally our aftermarket is a function of operating rates and operating rates really around the world have been quite were quite low in 25 .

Jeff Powell: 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, our aftermarket is a function of operating rates, and operating rates really around the world were 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 running the equipment harder. 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.

Speaker #1: And the parts business really outperformed that . And the , you know , and they did it consistently . And so it clearly was a case where their they're running the equipment harder .

Speaker #1: There's been a lot you know there's been some capacity taken offline . And they're trying to make up for that . Overall demand .

Speaker #1: Of course increased last year . And most of our markets . And even though some capacity was taken offline in certain markets , and so because of that , they had to run the existing equipment harder .

Jeff Powell: And so 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. And so, 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.

Speaker #1: And its older , you know , they because they've been under-investing now for , for nearly three years . And so that , you know , that's the only explanation you can have for aftermarket overperforming consistently for such a , you know , an extended period of time with these lower operating rates , is that the they're making up for that for that capacity taken offline by pushing everything harder .

Speaker #1: And equipment is just older

Speaker #3: Okay . And then lastly , what you know , obviously was a lot of confusion on tariffs as we entered 2025 last year .

Gary Prestopino: Okay, and then lastly, what -- you know, obviously, was a lot of confusion on tariffs as we entered 2025 last year. 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 to 20% tariffs, and you know, let's reinvigorate our capital projects?

Speaker #3: What's the thought process of your customers now? I mean, you're saying that you're going to see the capital projects start increasing in 2026.

Speaker #3: I mean , have they basically just got the mindset that , hey , this is going to square out to maybe a 10 to 20% tariffs and and , you know , let's let's reinvigorate our , our capital projects

Speaker #1: Yeah I mean I think , you know , it was the the volatility , you know , and you know the weekly changes that really and the 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 .

Jeff Powell: Yeah, I mean, I think, you know, it was the volatility, you know, and 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. And so, you know, as things have started to stabilize a little bit and people have absorbed, you know, whatever tariff impact, you know, for their respective businesses, they've kind of absorbed that.

Speaker #1: But things are a little more stable now . And , you know , people realize they have to continue running their business . You can't stop running your business .

Speaker #1: You can't stop investing in your business . You'll lose your competitiveness . And 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 , and they've got to get back to increasing efficiency , increasing outputs Everybody I would say right now , the main focus is on improving productivity and driving down costs , not so much .

Jeff Powell: 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.

Speaker #1: On adding new capacity . That tends to be where we're at with a few exceptions . 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 out of their existing operations and be just be more efficient and more productive

Speaker #3: Okay . Thank you very much

Gary Prestopino: Okay. Thank you very much.

Speaker #2: Q for our next question Our next question comes from the line of Ross , Lake of William Blair . Your line is now open

Operator: Thank you. One moment for our next question. Our next question comes on the line of Ross Sparenblek of William Blair. Your line is now open.

Speaker #4: Hey, good morning, gentlemen.

Ross Sparenblek: Hey, good morning, gentlemen.

Speaker #1: Morning , Ross

Jeff Powell: Morning, Ross.

Speaker #4: Hey , a couple for me here and I'll pass it along . Did you guys give a backlog figure ? I may have missed it .

Ross Sparenblek: 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.

Speaker #4: And then also , you know , the equipment backlog when we include the quite acquisition .

Speaker #1: Yep . I can give you give you a number here . Yeah . When I , when we brought in Clyde , they had a backlog of about 30 million .

Jeff Powell: 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 Q4 was $288 million, and the split on that is 60/40, 60% capital, 40% parts.

Speaker #1: 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% .

Speaker #1: Capital , 40% parts

Speaker #4: Okay, that's helpful. And then, I mean, did you guys give organic assumptions within the 2026 guidance?

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

Speaker #1: We didn't , but I'm happy to do that . What you know , it was really I would say kind of flat a little less than 1 to 3% was what we modeled .

Jeff Powell: 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 to 3% was what we modeled. 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. There, that would be meaningful upside for us, but we did not bake that into our guidance.

Speaker #1: And the point I was trying to stress is that , as you know , Ross , through 25 , we we had line of sight on some nice capital projects and , you know , the , the customers have yet to place the orders for those So the approach we're taking for 26 is those orders are there We we think the customers will place those there significant orders .

Speaker #1: There's that would be meaningful upside for us . But we did not bake that into our guidance . Of course , at , you know , 1 to 3% organic .

Jeff Powell: Of course, at, you know, 1% to 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 going to get to midyear, and customers will have placed some of those orders, and we'll be able to take our guidance up.

Speaker #1: There's not a lot of , you know , big capital jobs in there . But there are big capital jobs that are ready to go .

Speaker #1: And we're hoping that we're going to get to mid-year and customers will have placed some of those orders, and we'll be able to take our guidance up.

Speaker #4: Okay . So , I mean , I get the sense that most of that organic in the guide is just your confidence around the parts and consumables business

Ross Sparenblek: Okay. So, I mean, I get the sense that most of that, the organics and the guide, is just your confidence around the parts and consumables business?

Speaker #1: Yeah , the a capital is up . But , you know , not not substantially . You're correct . We're really it's confidence in parts and consumables .

Jeff Powell: Yeah, the capital is up, but, you know, not, not substantially. You're, 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.

Speaker #1: But we do anticipate the kind of, I'd say, single-unit capital business to still keep plugging along.

Speaker #4: Okay . So that seems to imply then that the capital equipment orders is kind of two 9300 million run rate . We've had the last two years .

Ross Sparenblek: Okay. So that seems to imply then, that the capital equipment orders is kind of $290, 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?

Speaker #4: That's kind of the the static base case with potential for upside from there . No expectation that that's going to be going lower .

Jeff Powell: Yeah.

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

Speaker #4: Okay . Awesome . Thank you guys . I'll pass it along Okay .

Speaker #2: Thank you. One moment for our next question. Our next question comes from the line of Caatinga of D.A. Davidson. The line is now open.

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

Speaker #5: Great . Thanks and good morning , everyone . Mike , you had 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 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

Kurt Yinger: Great. Thanks, and good morning, everyone.

Jeff Powell: Good morning, Kurt.

Kurt Yinger: 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 you 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?

Speaker #1: Yeah , Kurt . So I would say the , you know , the the discussions have been ongoing . A lot of projects that we thought were going to , to be released in the back half of last year , you know , didn't go away .

Jeff Powell: Yeah, Kurt. So I would say the, you know, the 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 going to wait another quarter. We're going to 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.

Speaker #1: But again , people , you know , because of the , the constant changes in , you know , the geopolitical , you know , kind of discussions around tariffs and things really just caused them to just say , well , we're just going to wait another quarter .

Speaker #1: We're going to wait another two quarters here before we we do anything . So we really haven't seen any projects kind of go away .

Speaker #1: We have some projects that we've actually , you know , gotten the order , but we're waiting for letters of credit or down payments for it becomes a booking .

Speaker #1: So there is some activity that has started to to move forward . But you know , it's taking longer in some cases to get the bank set up and get the the letters of credit and the down payments and others are just proceeding more slowly .

Jeff Powell: So, you know, there is some activity that has started to move forward, but, you know, it's taking longer in some cases to get the bank set up and get the 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 going to 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.

Speaker #1: You know , it's just one of caution . I think everybody's looking to see if we bottomed out and we're going to start to see some some growth from a macro level .

Speaker #1: And , and so it's 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: You know, we normally. The bookings we've seen the last kind of 2.5 years have been stuff 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, to plan, and to budget around. It's just created a tremendous amount of instability.

Speaker #1: 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 oh eight , oh nine , you know , when you back when you have a recession .

Speaker #1: 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 , you know , chaotic for for our customers to manage and to plan and to budget around it .

Speaker #1: Just creates a tremendous amount of instability and and , and but as I said earlier , when Gary was asking the question , the , you know , they are starting now to say , okay , things seem to have calmed down a little bit .

Jeff Powell: 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, our companies are, many of our companies are over 100 years old. We know history tells us they cannot go forever without investing in the business. The markets we're under are still growing.

Speaker #1: 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 .

Speaker #1: And so that's what we're seeing . But we do know , you know , our companies are many of our companies are over 100 years old .

Speaker #1: We know history tells us they cannot go forever without investing in the business . The markets were and are still growing , 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 .

Jeff Powell: You know, even the paper and packaging business, which is a, 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.

Speaker #1: So you cannot underinvest forever in that . So they will have to start to make some investments

Speaker #5: Okay . 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 on an over time basis .

Kurt Yinger: Okay. That, 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?

Speaker #5: Is that kind of the main component—that maybe element of conservatism—where you just have assumed that those won't necessarily come in, in the guidance?

Speaker #5: Or are there other, you know, percolating areas of, of kind of capital activity across portfolio that, you know, might be beneficial in there as well?

Speaker #1: Yeah , you've you're really hit it . Exactly . Kurt . You know , we're just we're being cautious here as we move into 26 .

Jeff Powell: 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 overdelivered, and we want to continue that trend.

Speaker #1: And as I said hopefully we'll get some good traction here . And we get to mid-year . We'll be able to raise guidance if some of these capital bookings are placed .

Speaker #1: We are a little bit gun shy because we thought things were going to strengthen. We remember back when they were talking about things improving at the end of '24, then it moved to the end of '25.

Speaker #1: 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 traditionally have always kind of under-promise and overdeliver .

Speaker #1: And we want to continue that trend . And so we just said , look , it's early in the year . You know , we're going to we're going to come out of the gate cautiously and hopefully , you know , some of these things that are that are out there that we believe will come in , will come in and we'll be able to , you then kind of update you guys accordingly .

Jeff Powell: And so 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, and we'll be able to, you know, then kind of update you guys accordingly.

Speaker #5: Got it . Okay . And you know , you talked about how aftermarket is kind of outperformed expectations . And it's maybe been consistently surprising .

Kurt Yinger: Got it. Okay. 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?

Speaker #5: You know it's interesting some of the European peers have talked about a greater focus on that area . Arts and services . Are you seeing that or hearing from your teams about that kind of showing up and kind of meaningful change and the competitive environment and maybe any of these smaller kind of parts and consumables category or any , any commentary on that just in general

Speaker #1: No , I would say 25 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 .

Jeff Powell: You know, I would say, 25 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, 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.

Speaker #1: And in many cases , if they if they did get their foot in the door , we were able to kind of turn that around .

Speaker #1: As the year progressed and, you know, and so from our standpoint, it was a good year, and our customer relationships tend to be quite sticky.

Speaker #1: And they've been very you know , we've had them for a very long time . And so it's held steady . And you know , many of our companies had , kind of record , record , you know , if you look at the percentage of revenue aftermarket , it was a very high level .

Speaker #1: So we , you know , we're quite pleased with the way our guys performed around the world . That is the the daily challenge .

Jeff Powell: 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. So it's our primary focus, and our guys, I think, did a great job in 2025. 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.

Speaker #1: 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 stay as efficient as possible .

Speaker #1: And so it's our primary focus . And our guys I think did a great job in 25 . And you know , there's always people coming after us .

Speaker #1: 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.

Speaker #1: So it's a challenge that we face every day and always have. But we're quite pleased with the way our guys performed.

Speaker #5: Perfect . Okay . And just last one , Mike , do you have it in front of you ? Could you just give us kind of organic parts and consumables versus capital kind of sales and bookings for for Q4

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

Speaker #6: Yeah

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

Speaker #1: I have .

Speaker #7: You wanted both revenue and bookings on that , is that what you're .

Speaker #5: Yeah . If possible , I realize it's a lot of numbers , but you .

Kurt Yinger: Yeah, if possible. I realize-

Jeff Powell: Yeah

Kurt Yinger: ... it's a lot of numbers, but you have it.

Speaker #7: No 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% .

Jeff Powell: No, that's, that's okay. Organically, I have for Q4, 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, with the weighting on parts, it puts us up 1% on bookings organically.

Speaker #7: So overall organically that would that comes out to flat . And then on the bookings side , I have parts up 4% and capital down 6% .

Speaker #7: But organically, with the waiting on parts, that puts us up 1% on bookings organically.

Speaker #5: Great . Okay . Appreciate the color guys . Thank you .

Kurt Yinger: Great. Okay. Appreciate the color, guys. Thank you.

Speaker #7: You're welcome .

Jeff Powell: You're welcome.

Speaker #2: Thank you for our next question Our next question comes from the line of Walter Liptak of Seaport Research . Airline is now open

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

Speaker #8: Hi . Good morning guys .

Walter Liptak: Hi, good morning, guys.

Speaker #7: Welcome .

Jeff Powell: Good morning, Walter.

Speaker #8: I wanted to do a follow-up on that last question about the competition coming out of Europe. It sounds like if that's the case, how did they compete?

Walter Liptak: 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?

Speaker #8: Is it a—are they competing on, like, a quality aftermarket, or is it like a pricing thing? Like, if you hadn't seen any changes in the marketplace for aftermarket because of that?

Speaker #1: Traditionally when somebody's coming in trying to steal market share away from you , you know , assuming your customer is happy with your your product , your service , your performance , the only real leverage they have is to try to undercut you on price .

Jeff Powell: ... 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, 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 it. I mean, we, you know, in the markets we're in, as you know, we tend to be number one or, or in one or two slight 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, into those markets is to try to really reduce pricing.

Speaker #1: And our customers will always take advantage of that , to try to lower their overall cost . And so that's typically what they do it .

Speaker #1: I mean , we , you know , in the markets we're in , as you know , we tend to be number one or 1 or 2 slight cases , maybe number two .

Speaker #1: Very strong relationship with our customers really serve them well . So the only way they can really make any real entrees into into those markets is to try to really reduce pricing .

Speaker #1: And frankly , the European companies , you know , they've got a cost structure that , you know , isn't isn't substantially less than ours .

Jeff Powell: And frankly, the European companies, you know, they've got a cost structure that, you know, isn't, you know, 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 kind of are able to defend our territory and in some cases, you know, pick up market share.

Speaker #1: So you know , that 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 they try to undercut our price .

Speaker #1: But there's a lot more to it , you know , that total cost of ownership is so critical . You know , the technical services that we give them are important .

Speaker #1: You know , we have guys living in the operations supporting our customers . And because of that , you know , we kind of are able to defend our territory .

Speaker #1: And in some cases , you know , pick up market share . So , you know , it's it's really nothing new . I mean , you know , like I said , if it's not the big guys coming after us , it's the small , 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 .

Jeff Powell: So, you know, it's really nothing new. 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, 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 that's our daily mission. We work it very hard, and our guys do a great job of it.

Speaker #1: 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 , and reduce their inputs .

Speaker #1: I mean , that's that's our value proposition . And so we that's our daily mission . We work very hard . And our guys do a great job of it .

Speaker #8: Okay . Great . Okay . Thank you for that . And during your prepared comments , Jeff , I think you commented about good funnel for projects in recycling and waste and data center .

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

Jeff Powell: Yes.

Walter Liptak: Data center.

Jeff Powell: Mm-hmm.

Speaker #8: And I wonder if you could talk a little bit about those, especially the data center part.

Walter Liptak: I wonder if you could talk a little bit about those, especially the data center part.

Speaker #1: Yeah . So as you know , you know , the housing has been down , but you know , data center construction is is booming and there are massive facilities .

Jeff Powell: Yeah. So as you know, you know, the housing has been down, but, you know, data center construction is booming. You know, they're 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.

Speaker #1: And of course , they use all the materials they use to make those . For instance , our material handling group , you know , is involved with .

Speaker #1: 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 .

Speaker #1: And of course , our material handling group is in all those sectors . And so 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 of , you know , providing the materials required to build these facilities .

Jeff Powell: And so if you look at some of our big customers out there, you know, the Martin Marietta and people like that, that on the sand and gravel side, you know, they're doing quite well, in part because, you know, it's providing 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 mine 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.

Speaker #1: You know , 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 .

Speaker #1: Of course, you know, the amount of concrete that goes into building one of these. Have you ever seen one of those data center farms?

Speaker #1: It's some of the biggest buildings that I've ever seen . And they just go forever . And so , you know , it's , you know , the it basically all that material has to get processed by equipment that we build or our competitors build .

Jeff Powell: And so, you know, it's, you know, it basically, all that material has to get processed by equipment that we build or our competitors build.

Speaker #8: Okay. Got it. All right. Thank you.

Walter Liptak: Okay, got it. All right. Thank you.

Speaker #2: 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 And our next question comes from the line of Ross Black of William Blair .

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. And our next question comes on the line of Ross Sparenblek of William Blair. Your line is now open.

Speaker #2: Your now is not open .

Speaker #4: Hey , gentlemen , the follow ups here . Can you just give us a sense of where the OSB segment shook out within industrial process for the year ?

Ross Sparenblek: Hey, gentlemen, this is the follow-up here. Can you just give us a sense on where the OSB segment shook out within industrial process for the year?

Speaker #1: Well .

Jeff Powell: 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 -

Speaker #7: 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 .

Speaker #7: You know the debarking business servicing , you know , dimensional lumber and North American housing is is , you know , really on the capital side is quite soft right now .

Ross Sparenblek: Okay.

Jeff Powell: 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 OSB keeps just keeps plugging along. They're doing fantastic.

Speaker #7: But OSB keeps—just keeps plugging along. They're doing fantastic.

Speaker #1: 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 and they're finding more and more applications more and more uses for the product .

Walter Liptak: 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.

Speaker #1: So it just continues to grow.

Speaker #4: Okay. That's good to hear. They're going.

Ross Sparenblek: Okay. That's good to hear.

Jeff Powell: They're going into siding, you know, of course, you know, they're going into higher, higher value, higher dollar applications for it, 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, you know, things that traditionally would be, you know, laminated products. So, it just, we continue to see more and more demand.

Speaker #1: Citing , you know , of course , you know , they're going into higher higher value higher dollar applications for it . And new applications for it .

Speaker #1: 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 product .

Speaker #1: So it’s just we continue to see more and more demand.

Speaker #4: 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 cadence content or how you guys view that market today .

Ross Sparenblek: 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 view that market today?

Speaker #1: Yeah . Well , so when you , you know , when you 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 .

Jeff Powell: Yeah. So when you, you know, when you put pulp mills in, of course, one of the big issues there is the Recovery Boilers. And Clyde, of course, who joined us recently, serves that market. And so they provide a lot of their 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 the importing of waste paper, 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 the boiler cleaning technology for those applications.

Speaker #1: And so they've got , you know , they they provide a lot of their technology into the Chinese market as , as these pulp mills are being built , traditionally China was almost 100% recycled fiber .

Speaker #1: But when they put the China , the Chinese government put the ban in the importing of of waste paper , they had to go out and search for fiber And one of the things they're doing is they're putting these pulp mills in .

Speaker #1: And so Clyde is Clyde is over there supplying the , you know , the boiler cleaning technology for those applications .

Speaker #4: Okay . And then maybe just one last one on your 80 over 20 expectations this year . You guys usually target , you know , 2 to 3 divisions .

Gary Prestopino: Okay. Then maybe just one last one on your 80/20 expectations this year. You guys usually target, you know, two to three divisions. Anything more material to call out as like to the mix within the segments?

Speaker #4: Anything more material to call out as like the the mix within the segments .

Speaker #1: 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 .

Jeff Powell: 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 continuing to progress. You know, I think, you know, it's some of the businesses, I think, you know, are starting 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 are just entering it or on schedule to enter it. As you know, normally with acquisitions, the first year, we don't like to do anything with them.

Speaker #1: But it's it's continuing to progress . You know , I think , you know , it's some of the businesses I think are starting the program late last year .

Speaker #1: 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 are just entering it or are on schedule to enter it .

Speaker #1: The as you know , normally with acquisitions , the first year , we don't like to do anything with them . We like to kind of get them stabilized and integrated , get them , you know , kind of understanding the programs and kind of deciding when they want to undertake that , that initiative .

Jeff Powell: 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 would 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, it'll be a, you know, continue to be a primary internal initiative of ours for the years to come.

Speaker #1: So I'd say for some of the newer companies that are out there , you know , they're still to still to be started , but it's a continuing along , you know , our team , I think , continues to get better and better and implementing it and it'll be a continue to be a primary internal initiative of ours for , for the years to come .

Speaker #4: All right. Well, thanks again, guys.

Gary Prestopino: All right. Well, thanks again, guys.

Speaker #2: Thank you . I'm showing no further questions at this time . I'll now turn it back to Jeff Powell for closing remarks .

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

Speaker #1: 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.

Jeff Powell: 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, and integration of 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. And with that, we wanna thank you for joining us today.

Speaker #1: We acquired two great companies in the second half of 2025, and the integration of business into the Kadant family is going well, and I'm confident that they'll make meaningful contributions in 2026 and beyond.

Speaker #1: 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.

Speaker #1: And with that , we want to thank you for joining us today .

Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

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