Ladies and gentlemen, thank you for standing by. Welcome to Kadant's acquisition of Key Knife conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will 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 would like now to turn the conference over to Michael McKenney, Executive Vice President and Chief Financial Officer. Please go ahead. Okay. Thank you, Michelle. Before I read the Safe Harbor, I'd just like to apologize for the delay. You should now be able to access the slides. With that, I'll go into the Safe Harbor. Good afternoon, everyone, and welcome to Kadant's conference call to discuss its acquisition of Key Knife. With me on the call today is Jeff Powell, our President and Chief Executive Officer, and Michael Colwell, Vice President and Industrial Processing Sector Head. Before we begin, let me read our Safe Harbor statement. Various remarks that we may make today about Kadant's future plans and expectations, including the expected benefits of the acquisition of Key Knife, forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. 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 31, 2022, 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 have changed. With that, I'll turn the call over to Jeff Powell, who will discuss the acquisition. Following Jeff's and my remarks, we will then have a Q&A session. Jeff? Thanks, Mike. Hello, everyone, and thank you for joining the call today. As you read in our press release last week, we've completed the acquisition of Key Knife. Today, we will provide more information about this acquisition and give you an opportunity to ask questions about this new addition to Kadant. As many of you know, we have specific attributes we look for in an acquisition, namely strong market position, high revenue percentage in parts consumables, a product offering that is complementary to Kadant's portfolio, and strong financial performance. I'm pleased to say that Key Knife has all these attributes, and we are very excited to welcome them to the Kadant family. I'll start by providing an overview of the company and the transaction. Key Knife is a manufacturer of engineered knife systems used in custom chipping, planing, and flaking applications. Founded in 1986, this Tualatin, Oregon-based company, has built a reputation of quality and custom solutions that helps its customers improve productivity and reduce operating costs. Today, Key Knife holds a strong market position in the wood processing industry, one that we are quite familiar with. The revenue for the trailing twelve months that ended September 30th, 2023, was $65 million, with approximately 95% of that being from aftermarket parts. The purchase price was approximately $156 million in cash. Key Knife has developed a deep product portfolio of engineered knife systems that are customized for specific applications and processes. Many of these systems are used in the primary breakdown area in wood processing, and this is one of the critical areas within the production process. As you can see on slide five, Key Knife offers unique chipping and planer systems used in sawmills, pulp mills, and chip plants, and other applications. In addition to its product offerings, the company provides comprehensive field service and product-specific training programs to help its customers maximize their operating effectiveness. The company's leading position in disposable knife systems and its highly complementary offerings to Kadant's wood processing products make Key Knife an excellent fit with Kadant. We have worked with Key Knife for many years and collaborated with them on specific development projects, including a disposable knife system for our stranders used to produce oriented strand board. We believe there will be other opportunities to collaborate across our other wood processing businesses in the future. Key Knife has an experienced management team, and they will continue to lead the business as part of Kadant. They have done an excellent job of building a strong customer-focused culture, and their financial metrics and market position reflect this. As we look ahead, there are many potential opportunities made possible by our collaboration. One of the more compelling opportunities is developing new markets where Kadant has existing relationships that can be leveraged to provide Key Knife with growth opportunities in underserved markets. With the addition of Key Knife's products and systems to our existing offerings, we are able to offer an even broader product portfolio to support our customers' critical applications. Our shared focus provides opportunities to expand our solutions to help our customers improve fiber recovery and product quality, maximize production, and reduce overall mill operating costs, which we believe strengthens our respective positions in wood processing industries. Consistent with our decentralized operating model and past practices, Key Knife will continue to operate as a standalone business under Kadant. We look forward to quickly integrating Key Knife into our industrial processing segment and begin exploring opportunities for collaboration and sharing the best practices soon after. With that, I'd like to now turn the call over to Mike to discuss the key financial metrics. Thanks, Jeff. I'd like to provide you with some additional color on the financial metrics associated with this transaction. The purchase price was approximately $156 million, subject to customary adjustments, and on a trailing twelve-month basis, as of September thirtieth, 2023, the business generated approximately $65 million revenue and $15.8 million of Adjusted EBITDA, which translates to an EBITDA multiple of 9.8x. I would note that Key Knife revenue is almost all from parts and consumables, so a strong recurring revenue stream, and this transaction has very favorable tax attributes, which are not captured in the EBITDA multiple. It's important to note that we were able to treat this as an asset deal for tax purposes, which means we'll be able to take a tax deduction for the step-up in basis for the acquired assets, including goodwill and other intangible assets. Being able to deduct the amortization of goodwill and other intangible assets will provide a significant cash benefit of approximately $24 million over 15 years. This benefit is worth approximately one turn on the EBITDA multiple, and when it's factored in, the multiple is 8.8x. We value businesses on their after-tax cash flow. While EBITDA is a nice, quick way to think about pre-tax cash flow, it does not capture the very favorable tax attributes here. I'd also note that Key Knife is an asset-light business with low CapEx requirements. We used some cash on hand to fund the transaction and borrowed $148 million from our credit facility. We estimate that our leverage ratio, as defined in our credit agreement, will still be relatively low, and as a result, absent any changes from the Fed, we expect our borrowing rate to be approximately 6.4%-6.7%. While we are still working on the valuation of the intangibles that will be amortized for book purposes, our current estimates are that we will have a high level of non-cash intangible amortization expense. We estimate this, in combination with the interest expense, will make this transaction slightly dilutive in 2024 on a GAAP EPS basis. However, free cash flow should be quite good. As always, we will work hard to delever and drive down the interest cost in 2024. I'm going to now turn the call over for questions, but before we start, I should mention that the Q&A session is specific to the Key Knife transaction, as we are currently in the year-end 2023 closing process and cannot comment on our 2023 results or our guidance for 2024 until we have our upcoming earnings call in mid-February. With that, we'd be happy to take your questions. Michelle? Thank you. As a reminder, to ask a question, please press star one 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. The first question comes from Gary Prestopino with Barrington Research. Your line is open. Hi, good afternoon. Hi, Gary. Jeff and Mike, could you just—I know, Jeff, in your prepared remarks, you just discussed what these products are used for within the various segments of the wood processing. Could you just maybe just go over that again, just so I can get an idea of where they are in the process of the wood production? Yeah. So they're in the sawmills, if you think of dimensional lumber in particular, they're in the very... They're right after our debarkers. You basically have to square off that log before you- Okay. Start to cut up. And so these, the, this system does that. It basically squares that off. And if you think of that, that waste wood that comes from squaring that off, it typically gets chipped and then goes into, often into pulp mills or, you know, other applications. And so this technology does it right outside of our debarker, and it will square it off. They also do, you know, make chipping knives for the chipping industry, be it, again, pulp mills or wood pellets. They make planer systems. They make systems that, if you think about a two-by-four, you'll notice the two-by-four, the corner is always rounded. It's not a, you know, a complete ninety-degree sharp angle. On two-by-four- Right. they make the systems that do that rounding. So, you know, it's throughout the sawmill operation that they provide their knives and their technology. But, you know, it all starts with it right out of our debarker with the squaring off of the log, or rectangular, whether squaring or rectangular, but essentially, you know, kind of taking the round radius off of it. Okay. Thank you. That helps. Then could you give us some idea of, of what, like, the top-line growth of this company has been for the last couple of years? Yeah, I, Gary, from 2019 through 2023, it has grown at 5.6%. Okay, and then, two more quick ones. In terms of all of these products, I mean, how often do they have to be changed within the capital equipment usage? I mean, are these things good for a month, or are they good for six months? I mean, give us some idea of, since it's a lot of recurring revenue, how that works. Yeah, well, of course, Gary, you're familiar with the knives that we use in the OSB market, and those get changed out, you know, every eight-12 hours, and these in application would be similar. It's kind of hours to days. Okay. All right, so there's a lot of, lot of changes there- Yeah, and if you think about it, these are very, very harsh environments, you know, running at very high speeds, and so these knives dull out very quickly. Okay, then it just looks like your—this will, just based on the numbers you gave us, this is accretive to your industrial processing Adjusted EBITDA margin, even without the tax benefit. How many basis points would... If you could comment on that, with what you're figuring out with the amortization, how many basis points of accretiveness off of that 24.3% would you expect there? Is that something you can't answer right now? Yeah, we're still, you know, we're still working through the numbers here, Gary, because, as you know, at a private company, they kind of look at things a little bit differently. So we're still aligning them to Kadant. But, you know, specific to the EBITDA margins for the numbers I gave, you know, you would've come out with an EBITDA margin around 24%. Right. You know, that's currently accretive in for the industrial processing segment, which I think year to date was a little under 23%. But and then for Kadant overall, of course, we're running a little over 21%, so it'll be accretive for Kadant. Okay. Thank you very much. Yep. Please stand by for the next question. The next question comes from Kurt Yinger with D.A. Davidson. Your line is open. Great. Thanks, and good morning, Jeff and Mike. Hey, Kurt. Hi, Kurt. Hey, I'm just curious, you know, how would you kind of characterize Key Knife's market share and kind of their key product line or two? It sounds like, you know, some of the knives aspect is very similar to Carmanah, which is obviously mostly focused on the OSB side, but this sounds, you know, a little bit more skewed to lumber mills. So just kind of curious how you would kind of slice and dice that market share. Yeah. So, you know, we think they're number one in the market in the Americas. They're principally focused in the Americas, you know, North America and Central and South America, not quite as much in Europe or the rest of the world. But in those markets, and by far, if you think of disposable knives, you know, in America, maybe 40% of the market uses those, where in Europe right now, it's maybe only about 5%. So Europe is yet to kind of adopt this disposable knife process. So while there's still substantial, you know, conversion opportunity in the Americas, 'cause it's about 60% that still uses knives that are resharpened in Europe there, you know, it's a substantially bigger opportunity for us. But they're number one in the Americas, which is where the majority of the market is for disposable knives right now. And- Is it fair that it's kind of complementary in terms of lumber versus OSB focus of Carmanah? It is. You know, it broadens our offering. You know, I think you heard in the comments that they actually worked with us in developing our disposable knives, so they have great expertise, you know, in knife technology, but they haven't focused on the OSB market. That's, you know, that's kind of a market that we have extremely high, nearly 100% market share in, on the OSB side. These guys are number one in their market, but there is a major European competitor that they compete with. Okay. Got it. And then I guess, just last, you know, Mikey talked about it being kind of dilutive on a GAAP EPS basis, which kind of makes sense given the step up and, and the high level of intangible amortization that you mentioned. I guess, you know, is it fair to say that you would expect it to be accretive on an adjusted EPS basis? I think historically, you guys have kind of excluded that intangible amortization, so just wanted to, I guess, get a better sense there. Well, Kurt, we're still working through the valuation, so, you know, I'm happy to come back when we do our earnings call in February and kind of address this to see how this shakes out. But, you know, I saw the report you wrote, and, you know, what's a little bit unusual on this transaction is I'd say we normally get a split on the intangibles that's 60% amortizable intangibles, 40% goodwill, if you will. And on this one, it's shaken out that right now it's very high on the amortizable intangibles, about 85%, I'd say, so not leaving a lot for goodwill. Of course, it's a non-cash charge that you'll, you know, you'll see in our financials, but I'd like to kind of finish up the valuation here and see where we'll go. The reason we're getting such a high amortizable intangible is because this is largely a parts and consumables business, and they have very strong customer relationships, and so that is generating a very high customer relationship intangible. But, you know, we for book purposes or for our adjusted EPS, we don't back that off. What we will be backing off is the write-up on inventory and the write-up on backlog, and those will tend to flush through, you know, within the first year. So you'll see, you know, we will back those out. Got it. Okay. Well, appreciate the color. Thank you very much. You're welcome. Please stand by for the next question. The next question comes from Lawrence De Maria with William Blair. Your line is open. Thanks, and good afternoon, everybody. First question, I guess, you mentioned obviously about 25% EBITDA margins, and that mid-single digit top-line growth that they've had over the past four years or so. So would we expect that kind of growth going forward, or can that accelerate with the opportunities you mentioned? And second part of that is: What can those EBITDA margins look like in a few years as you layer in 80/20 and the other things that you can do to grow them? Yeah. So Larry, just like our wood business, when we gave that number, it was through, you know, 2023, and of course, 2023 was a down year. But we think this year, you know, much like we've talked about, we expect it to be... You know, right now we're expecting kind of flat, you know, with the hope that things are gonna pick up in the second half of the year. But right now, we're thinking that they'll likely kind of be flat with 2023. As far as opportunities to, you know, to work with them to improve the margins, and, you know, I think there is opportunity there. 80/20 is one, obviously, as you know, that we, we introduced to all of our, all of our companies, and we've got really good results from that. So, and we tend not to do that in the first year or so, you know, while they're kind of, you know, getting integrated in and, and kind of, you know, used to being part of a public entity. So it's something that we will probably look at in, you know, the following year, with them. But, we would expect there certainly is opportunity for, for improvement there. As far as the growth rate, they've had periods, much like our wood processing business did, where, you know, they were growing at faster rates, 6%, 7%, 8% growth rates. So I do think that when interest rates drop down and housing starts to take off again, that there, you know, there's we're hoping there's gonna be an opportunity for all of our wood groups to see some growth, you know, reemerge. In addition to that, of course, they, as I mentioned, they don't do a lot in Europe. In fact, Europe really hasn't embraced the disposable knife concept, but we believe over time, they'll have to. You know, the labor cost is high. It's difficult to find skilled labor. And so just as in the OSB business, we've seen that, you know, transition over, we expect it'll be the same in these markets. It just has taken longer to do that. So we think there's still great growth opportunity in Americas, but also in Europe. Thanks for that. To follow up just on that, is disposable versus resharpened, is that kind of a zero-sum? Is there some cannibalization versus what you have, or is that totally complementary? Yeah, totally. They don't really provide the sharpening knives, the resharpening knives, so it'll be... It's totally a addition for them. Okay. Then last question: can you just give us a handle on kind of debt paydown to think about? I know you mentioned it, but I don't know if you gave a number, and what the current pipeline looks like, if you're still looking, it looks good, or if we're on the sidelines for a while? Yes. Thanks. Well, Larry, on that, you know, I'll go back to the third quarter, where we said, "Hey, we've got $285 available on a revolving facility." So, you know, this, we just utilized $148 of that, so we still have pretty good bandwidth. Bandwidth. When I do the calculations that I just gave, saying it will be, you know, dilutive in year one, when I calculate the interest to the transaction, I only give the transaction credit for the cash they generate. So of course, Kadant generates excellent cash flows, and that's why I made the comment, you know, we're gonna get after deleveraging. So overall, Kadant will do much better than, you know, what I've conveyed for, you know, specific to the transaction. Okay. Thank you. Good luck. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. Please stand by for the next question. The next question comes from Walter Liptak with Seaport Research. Your line is now open. Hi. Thanks. Congratulations, guys, getting what looks like a good deal done. Thanks, Walt. Thanks, Walt. You know, there's been some good questions already. So I guess, just a couple of thoughts. You know, I wonder, you haven't talked about gross margin. You know, I wonder if you could talk about, you know, where gross margin is for this company relative to, to Kadant? Yes, I'm sure you'd like to have that. No, I specifically, you know, am kind of avoiding doing that really for us, Walt, for competitive reasons. We don't really like to give the gross margin profile specific to a business, 'cause of course, as we're more than well aware, our competition is watching and listening. Okay. All right. Makes sense. And just so I understand this, the you know, the sales growth and the margins, you know, it sounds like there's... You're not calling out, like, any synergies, like you're gonna be able to, you know, reduce some back office or other costs? And get that EBITDA margin up even higher or improve the sales growth rate? It sounds like it's gonna be a market growth rate. Well, I mean, I mentioned that they're not really in Europe, and so if we're successful in helping them, you know, leveraging our strong position in Europe, if we're successful in helping them penetrate the European market, it's wide open. You know, there's very little disposable knives being used right now throughout Europe, and that's a very large market, so there's substantial opportunities there. So, you know, we're always working with our companies on best practices. They'll meet all the other divisions and share best practices. There's things they do that our other divisions will probably have interest in, and the opposite is also true. So, you know, I would say over time, most of our businesses, you know, we have a kind of a continual process, right? Of improving operations, and I assume they will, they will be like the rest of our companies. They'll continually get after, you know, improvements on the cost side, market penetration, growth, so but we typically, as I think you know, Walt, we typically don't model a lot of synergies in. That tends to be the upside, the reason that our, our acquisitions tend to overperform our modeling, is because we're not, you know, we don't get overly aggressive in modeling in synergies and assumptions at the beginning. But we certainly pursue those and have reasonable, you know, reasonable success in achieving those. Okay. All right. Makes sense. So, you know, maybe just the last one is, if I'm thinking back to Carmanah, in the OSB market, I think that that was a machine plus a consumable, so it was like a proprietary consumable, and it doesn't sound like that's the case with this acquisition. So I wonder, you know, how do these knives, you know, fit onto others' machines? Do you fit onto everyone's machine? You know, how do you get that high level of consumable? Yeah, well, if you look at the photo, some of the photos, I think, I think it was slide it was on. Maybe it was slide five, I don't remember now, but you can see some of the equipment. So it does have, it does have the holders and, you know, and the technology that holds the knives in place and the other technology in place, so there is some bigger components that sell there. But essentially, there's kind of two companies, you know, that really, you know, kind of serve this market globally. And we both compete for all applications, for all opportunities. There's some smaller ones. There's some small, very small regional players, but there's two kind of global providers here, and we go head-to-head on for almost all applications. Okay, got it. All right, thanks so much. As a reminder, to ask a question, please press star one, one on your telephone. I show no further questions at this time. I would now like to turn the call back to Jeff Powell for closing remarks. Okay, thank you. So, as we conclude the call today, I just want to note that Key Knife is a company that we've worked with and admired for a very long time, and we're very excited to welcome the Key Knife employees to Kadant. And with that, we appreciate you joining the call today, and we look forward to updating you in the future. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.