Kadant (KAI) Investor Day 2024 summary

Strategic direction and five-year plan

• Launched a five-year plan targeting $1.5–$1.8B revenue, adjusted EBITDA of $340–$405M, EBITDA margin of 23%+, adjusted EPS of $15–$18, and free cash flow of $240–$280M by 2028.

• Organic revenue growth projected at 3–5% CAGR, with M&A contributing 6–8% CAGR, aiming for a total CAGR of 9–13%.

• Margin expansion will focus on internal initiatives, including 100 basis point improvements in both gross margin and SG&A, not relying on M&A synergies.

• The company leverages a decentralized, asset-light model, strong recurring revenue from aftermarket parts, and disciplined capital allocation.

• Digitalization and sustainability remain core, with investments in the illumenX platform and expansion into new industrial and geographic markets.

Financial performance and guidance

• Revenue grew from $634M in 2018 to $958M in 2023, with adjusted EBITDA margin improving from 18.2% to 21.0% and a new target of 23%+ by 2028.

• Adjusted EPS grew at a 13.5% CAGR to $10.04 in 2023, with a target of $15–$18 by 2028.

• Parts and consumables represent about two-thirds of revenue, providing stable, high-margin, and predictable cash flows.

• CapEx and R&D requirements remain low, supporting strong free cash flow and disciplined capital allocation, with leverage ratio at 1.13 and capex at 2–2.5% of revenue.

• The company expects to incrementally increase the aftermarket mix, potentially reaching the high 60s percent of sales by 2028.

Acquisition strategy and 80/20 program

• Proven M&A strategy with 24 acquisitions since 2013, representing 56% of forecasted 2024 revenue and 64% of adjusted EBITDA.

• Acquisition strategy is balanced across tuck-ins, strategic standalones, and new platforms, with 14 of 16 recent deals sourced via existing relationships and disciplined pricing (average multiple 8.8x, modeled at 10x for future deals).

• The 80/20 program, now covering about 50% of the business, has delivered significant margin and EBITDA improvements, focusing on simplification, employee empowerment, and collaboration.

• 80/20 and acquisitions are tightly integrated, with value enhancement driven by bottom-up initiatives rather than top-down synergy targets.

• Average adjusted ROIC for 2023 acquisitions was 15%.