KAI - NYSE

Good day, and thank you for standing by. Welcome to the Kadant Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Michael McKenney, Executive Vice President and Chief Financial Officer. Please go ahead.

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. 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. 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 Investors 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. 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?

Thanks, Mike. Hello, everyone, and thank you for joining us. Today, I'll review our fourth quarter and full year 2025 results and our outlook for 2026. Let me begin with our operational highlights. We closed the year with solid performance despite a challenging macro background that included tariff volatility and continued cost pressures. Our performance led to solid margin results and strong cash flow in the fourth quarter, which I will outline in the next slide. Additionally, at the end of 2025, Newsweek recognized us as one of America's most responsible companies for the sixth straight year, and we're honored to be included on that list once again. Our fourth quarter performance benefited from the acquisitions we completed in 2025 and solid demand in our Flow Control and Material Handling segments. 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 3 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 on Slide 7. Stable demand, combined with contributions from our 2 recent acquisitions drove solid revenue performance of $1.05 billion in fiscal 2025, with aftermarket parts making up a record 71% of our total revenue. Softness in capital project activity, combined with rising tariffs and other cost pressures resulted in 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 3 operating segments. 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. In our Industrial Processing segment, capital project activity remained relatively soft throughout 2025 and continued at similar levels in the fourth quarter. Our performance in this segment, however, benefited from the additions of Clyde Industries and Babbini, both of which were acquired in the second half of the year. Integration efforts for these businesses are progressing well, and they are expected to contribute positively in the years ahead. Revenue rose 16% to $118 million compared to the same period last year, and aftermarket parts revenue grew 31% in the fourth quarter and represented 76% of revenue. Adjusted EBITDA margin improved by 90 basis points year-over-year, driven largely by a more favorable product mix. As we look ahead to 2026, there's increasing project activity, and we expect demand for our capital equipment to strengthen as customers move forward with planned capital projects. In our Material Handling segment, we delivered solid year-over-year performance improvement in bookings, revenue and margins. Fourth quarter revenue increased 11% to $69 million, driven by strong growth in capital revenue compared to the prior year period. Aftermarket parts made up 53% of total revenue and remained steady throughout the year. Margin performance strengthened as well with adjusted EBITDA margin increasing by 130 basis points to 22.1%. Looking ahead to 2026, we are encouraged by the high level of project activity and are well positioned to secure new business. 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. Additional -- 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. With that, I'll turn the call over to Mike for a review of our financial results and our 2026 outlook. Mike?

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, 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. 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. SG&A expenses were $80.9 million in the fourth quarter '25, increasing $10.3 million or 15% compared to $70.6 million in the fourth quarter '24. 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. Adjusted EBITDA increased 11% to $58 million and represented 20.3% of revenue. For the full year, revenue was $1.52 billion (sic) [ 1.052 billion ] compared to $1.53 billion in '24, 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 '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. 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. Excluding this impact, gross margin was up 70 basis points over '24. As a percentage of revenue, SG&A expenses increased to 28.7% in '25 compared to 26.6% in '24. 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. which had SG&A expenses of $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. 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. 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 2 quarters of '25 compared to the first 2 quarters. 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. We had several notable nonoperating uses of cash in the fourth quarter of '25. We paid $173.7 million for the acquisition of Clyde Industries, net of cash acquired. We borrowed $170 million to fund this acquisition, and we repaid $53.7 million of debt in the quarter. In addition, we paid $6.1 million for capital expenditures and a $4 million dividend on our common stock. We continue to focus on utilizing our strong cash flows to accelerate the paydown of debt, and I'm pleased we were able to repay $122.2 million this year or approximately 42% of our outstanding debt at the end of '24. Turning to adjusted EBITDA. In the fourth quarter '25, adjusted EBITDA increased 11% to $58 million compared to $52.4 million in the fourth quarter '24. 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. 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. Our adjusted EPS increased $0.02 from $2.25 in the fourth quarter of '24 to $2.27 in the fourth quarter of '25. 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 noncontrolling interest. 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. 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. 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. 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 noncontrolling 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 '25 compared to '24. Now let's turn to our liquidity metrics on Slide 18. Our cash conversion days measured 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 '25 from 122 days at the end of '24. The increase in cash conversion days was principally driven by a higher number of days in inventory. Working capital as a percentage of revenue increased to 18.5% in the fourth quarter of '25 compared to 15% in the fourth quarter of '24 due to the lack of full year revenue for our 25 acquisitions. 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 '25. 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 '25. 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. 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. 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. For the full year '26, our revenue guidance is $1.160 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. 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. Our revenue guidance for the first quarter of '26 is $270 million to $280 million, and our adjusted EPS guidance for the first quarter 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. 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 '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. 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. 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. In addition, we anticipate net interest expense of approximately $15.5 million to $16 million for '26, 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 '26, and we expect depreciation and amortization expense will be approximately $60 million to $61 million. We anticipate CapEx spending in '26 will be approximately $23 million 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. Many of you have suggested that we add back noncash 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 '26. These acquired intangible assets are initially recorded as part of purchase accounting and then reduced via a noncash amortization expense for periods which can extend over 15 years. With this change, our adjusted EPS will be more consistent with our adjusted EBITDA and cash flow metrics, which are not impacted by intangible amortization expense. We believe that the exclusion of this expense from adjusted EPS will allow for more consistent comparisons of our operating results over time into peer companies. Now I will summarize the '26 adjusted EPS guidance and comparative '25 information with this change. For '26, 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 '26 is now $12.53 to $12.88. 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. 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. We will be issuing an SEC Form 8-K filing shortly with formal reconciliations of prior period information. I'll now turn the call back over to the operator for our Q&A session. Marvin?

[Operator Instructions] Our first question comes from the line of Gary Prestopino of Barrington.

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

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

Okay. And just I was going through this as you were talking, given your narrative, but consumables in Flow Control were 73% of revenues, Industrial 76% of revenues and material handling, 53% of revenues. Is that right?

Yes. Yes.

Okay. And then you're seeing 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 your customers are running their equipment really hard and using a lot more consumables in their processes, and that leads you to feel that the capital projects will get better as the year goes on in 2026?

Yes, Gary, we've kind of said actually most throughout a lot of last year as we reported that the parts were -- 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 have been quite -- were quite low in '25. And the parts business really outperformed that. And the -- and they did it consistently. And so it clearly was a case where they're running the equipment harder. There's been some capacity taken offline, and they're trying to make up for that. Overall demand, of course, increased last year in 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 and it's older because they've been underinvesting now for nearly 3 years. And so that's the only explanation you can have for aftermarket overperforming consistently for such an 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 is just older.

And then lastly, what -- obviously, there 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're saying that you're going to see the capital projects start increasing in 2026. 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 let's reinvigorate our capital projects?

Yes. I mean I think it was the volatility and the weekly changes that really -- and the breadth of the implementation in early last year that really shocked everybody and really caused everybody to take a wait-and-see attitude. But things are a little more stable now and 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 lose your competitiveness. And so as things have started to stabilize a little bit and people have absorbed whatever tariff impact 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. So 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 in most places now, it's really trying to squeeze more out of their existing operations and just be more efficient and more productive.

Our next question comes from the line of Ross Sparenblek of William Blair.

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

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

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

We didn't, but I'm happy to do that. What it was really, I would say, kind of flat, a little less than 1% to 3% was what we modeled. And the point I was trying to stress is that, as you know, Ross, through '25, we had line of sight on some nice capital projects. And the customers have yet to place the orders for those. So the approach we're taking for '26 is those orders are there. We think the customers will place those. They're significant orders. There's -- that would be meaningful upside for us, but we did not bake that into our guidance. Of course, at 1% to 3% organic, there's not a lot of 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.

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.

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

Okay. So that seems to imply then that the capital equipment orders is kind of $290 million, $300 million run rate we've had in the last 2 years that's kind of the static base case with potential for upside from there? No expectation that that's going to be going lower.

Yes.

Our next question comes from the line of Kurt Yinger of D.A. Davidson.

Mike, you had talked about 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 time line 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?

Yes, Kurt. So I would say the discussions have been ongoing. A lot of projects that we thought were going to be released in the back half of last year didn't go away. But again, people -- because of the constant changes in the geopolitical 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 2 quarters here before we do anything. So we really haven't seen any projects kind of go away. We have some projects that we've actually gotten the order, but we're waiting for letters of credit or down payments before it becomes a booking. So there is some activity that has started to move forward, but 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. It's just one of caution. I think everybody is looking to see if we bottomed out and we're going to start to see some growth from a macro level. And so it's probably been, I would say, the capital business has been -- the bookings have been as slow, as soft as they've been any time in history when we haven't had a significant recession. We normally -- the bookings we've seen in the last kind of 2.5 years have been -- stuff we saw back in '08, '09, 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 chaotic for our customers to manage and to plan and to budget around. It just created a tremendous amount of instability. And -- but as I said earlier, when Gary was asking the question, 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 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 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 in are still growing. Even the paper and packaging business, which is a chunk of our business right now, 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.

Okay. That's super helpful. And then thinking about 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 maybe element of conservatism where you just have assumed that those won't necessarily come in, in the guidance? Or are there other percolating areas of kind of capital activity across the portfolio that might be beneficial in there as well?

Yes. You've really hit it exactly, Kurt. We're just -- we're being cautious here as we move into '26. 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 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. And so we're just being -- trying to be as cautious as possible. As you know, we tend to always try to -- and traditionally have always kind of underpromised and overdelivered, and we want to continue that trend. And so we just said, look, it's early in the year. We're going to come out of the gate cautiously. And hopefully, some of these things that are out there that we believe will come in will come in, and we'll be able to then kind of update you guys accordingly.

Got it. Okay. And you talked about how aftermarket has kind of outperformed expectations and it's maybe been consistently surprising. 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 in 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?

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. 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 so from our standpoint, it was a good year. And our customers' relationships tend to be quite sticky, and they've been very -- we've had them for a very long time. And so it's held steady. And that many of our companies had kind of record -- if you look at the percentage of revenue aftermarket, it was a very high level. So we're quite pleased with the way our guys performed around the world. That is the daily challenge. Every day when our guys get in the morning, that's what they're focused on. That's a big challenge, is serving the customers with that aftermarket piece to help our customers stay as efficient as possible. And so it's our primary focus, and our guys, I think, did a great job in '25. And there's always people coming after us. If it's not the big guys from Europe, it's the regional players 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.

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

Yes. I have -- you wanted both revenue and bookings on that, Kurt?

Yes, it's possible. I realize it's a lot of numbers, but...

No, that's okay. Organically, I have -- for the fourth quarter, parts on the revenue side up 3%, capital on the revenue side down 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%. But organically, with the weighting on parts, it puts us up 1% on bookings organically.

Our next question comes from the line of Walter Liptak of Seaport Research.

I wanted to do a follow-up on that last question about the aftermarket competition coming out of Europe, it sounds like. If that's the case, how do they compete? Is it -- are they competing on like a quality aftermarket? Or is it like a pricing thing? Like if you had seen any changes in the marketplace for aftermarket because of that?

Traditionally, when somebody is coming in and trying to steal market share away from you, assuming your customer is happy with your product, your service, your performance, the only real leverage they have is to try to undercut you on price. And our customers will always take advantage of that to try to lower their overall cost. And so that's typically what they do it. I mean we -- in the markets we're in, as you know, we tend to be #1 or in 1 or 2 slight cases, maybe #2, very strong relations with our customers and really serve them well. So the only way they can really make any real entrees into those markets is to try to really reduce pricing. And frankly, the European companies, they've got a cost structure that isn't substantially less than ours. So 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 try to undercut our price. But there's a lot more to it. That total cost of ownership is so critical. The technical services that we give them are important. We have guys living in the operations supporting our customers. And because of that, we kind of were able to defend our territory and in some cases, pick up market share. So it's -- it's really nothing new. I mean, 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 -- 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. I mean that's our value proposition. And so we -- that's our daily mission. We work it very hard, and our guys do a great job of it.

Okay. Great. Okay. And during your prepared comments, Jeff, I think you commented about a good funnel for projects in recycling and waste and data center. And I wonder if you could talk a little bit about those, especially the data center part.

Yes. So as you know, the housing has been down, but data center construction is booming. They're massive facilities. And of course, they -- all the materials they use to make those, for instance, our material handling group is involved with, right? So you're talking about aggregate, sand, concrete, copper, aluminum. Everything that goes into building those structures starts out as a natural resource that is mined, processed, screened, size, cleaned, things like that. 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, the Martin Marietta and people like that, that on the sand and gravel side, they're doing quite well in part because it's providing the materials required to build these facilities. The amount of copper, for instance, going into these facilities is quite substantial. So we support the copper mine operations around the world, of course. 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. And so it's basically all that material has to get processed by equipment that we build or our competitors build.

[Operator Instructions] And our next question comes from the line of Ross Sparenblek of William Blair.

Can you just give us a sense on where the OSB segment shook out within Industrial Process for the year?

Well, I will say, Ross, we usually -- we don't bifurcate that. We usually just talk wood and fiber processing. But that isn't -- that's a bright spot for us, frankly, in the wood processing side. The debarking business servicing dimensional lumber and North American housing is really on the capital side is quite soft right now. But the OSB just keeps plugging along. They're doing fantastic.

They're finding -- first of all, we supply them globally, and we're one of only, I guess, technically 2 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.

Okay. That's good to hear.

Siding, of course, 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 dimensional and structural elements and things like that, looking at it for things that traditionally would be laminated products. So it's just -- we continue to see more and more demand.

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

Yes. So 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. So they've got -- they provide a lot of the technology into the Chinese market as these pulp mills are being built. Traditionally, China was almost 100% recycled fiber. But when they put the -- 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.

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

No. I mean we're constantly trying to increase the size of our team that leads those efforts and starting more and more companies up. But it's continuing to progress. I think it's -- some of the businesses, I think, starting the program late last year. And so 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. 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 kind of understanding the programs and kind of deciding when they want to undertake that initiative. So I'd say for some of the newer companies that are out there, they're still to be started. But it's continuing along. Our team, I think, continues to get better and better at implementing it. And it will be -- continue to be a primary internal initiative of ours for the years to come.

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

Thanks, Marvin. Before wrapping up the call today, I just want to leave you with a couple of takeaways. We finished the year with improving business conditions. We acquired 2 great companies in the second half of 2025 and the integration of this business into the Kadant family is going well, and I'm confident that they'll make meaningful contributions in 2026 and beyond. The 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 want to thank you for joining us today.