Hillenbrand Reports Fiscal Third Quarter 2022 Results

Fiscal Third Quarter 2022 Highlights:

• Revenue of $721 million increased 4% compared to prior year or 5% on a pro forma basis
• GAAP EPS of $0.68 increased 28%; adjusted EPS of $0.92 increased 8% largely due to higher volume in Molding Technology Solutions and lower shares outstanding
• Completed approximately $300 million of share repurchases over the last 5 quarters
• Achieved $75 million annual run-rate synergy target for Milacron integration ahead of schedule
• Fiscal 2022 guidance: reaffirms midpoint of full year adj. EPS, narrowing range to $3.85 - $3.95

BATESVILLE, Ind., Aug. 3, 2022 /PRNewswire/ -- Hillenbrand, Inc. (NYSE: HI) reported results for the fiscal 2022 third quarter, which ended June 30, 2022.

"We made great strides in advancing our profitable growth strategy and strengthening our industrial segments during the third quarter," said Kim Ryan, President and Chief Executive Officer of Hillenbrand. "I am proud of our associates for their resiliency in navigating this challenging global operating environment and our continued success in driving operational efficiency through the consistent deployment of the Hillenbrand Operating Model, which contributed to revenue and adjusted EPS growth in the quarter. We continue to position Hillenbrand for profitable growth through accretive acquisitions like the pending Herbold Meckesheim and LINXIS Group transactions, which will expand our existing capabilities into the attractive growth end markets of recycling and food. I am excited about our future, and confident that Hillenbrand is well positioned to generate long-term value for our shareholders."

Third Quarter 2022 Results

Revenue of $721 million increased 4% compared to the prior year primarily driven by increased pricing and volume growth within the Molding Technology Solutions and Advanced Process Solutions segments, partially offset by foreign currency exchange and the divestiture of TerraSource Global. Excluding the impact of foreign currency exchange, revenue increased 8%. On a pro forma basis, which excludes the divested TerraSource business, revenue increased 5% year over year, or 10% excluding the impact of foreign currency exchange.

Net income of $49 million resulted in $0.68 per share, an increase of $0.15 per share, or 28% compared to the prior year. Adjusted net income of $66 million resulted in adjusted EPS of $0.92, an increase of $0.07, or 8%, as favorable pricing, higher volume in our industrial segments, and lower shares outstanding were partially offset by inflation and the impact of foreign currency exchange. The adjusted effective tax rate for the quarter was 29.7%, a decrease of 70 basis points from the prior year.

Adjusted EBITDA of $126 million was essentially flat year over year. On a pro forma basis, adjusted EBITDA decreased 1%, but excluding the impact of foreign currency exchange, increased 4%, while adjusted EBITDA margin of 17.4% decreased 120 basis points compared to a year ago primarily due to the dilutive effect of price-cost coverage and lower volume in Batesville, which more than offset operating leverage from higher volume in our industrial segments.

Advanced Process Solutions (APS)

Revenue of $310 million decreased 1% compared to the same period in the prior year, but increased 7% excluding the impact of foreign currency exchange. On a pro forma basis, revenue increased 2% year over year, or 10% excluding the impact of foreign currency exchange, primarily driven by favorable pricing and higher volume of large plastics systems and aftermarket parts and services.

Adjusted EBITDA of $61 million decreased 1% year over year. On a pro forma basis, adjusted EBITDA decreased 3%, but excluding the impact of foreign currency exchange, it increased 6%. Pro forma adjusted EBITDA margin of 19.5% was down 100 basis points primarily due to the dilutive effect of price-cost coverage.

Backlog of $1.2 billion decreased 9% on a pro forma basis compared to the prior year, but was flat excluding the impact of foreign currency exchange. Sequentially, backlog was down 4% compared to the quarter ended March 31, 2022, but was flat excluding the impact of foreign currency exchange.

Molding Technology Solutions (MTS)

Revenue of $270 million increased 11% year over year, or 14% excluding the impact of foreign currency exchange, as higher volume from the injection molding product line and favorable pricing were partially offset by a decline in volume from the hot runner product line, which was due to the COVID-19 related shutdowns in China.

Adjusted EBITDA of $55 million increased 11% compared to the prior year, or 15% excluding the impact of foreign currency exchange, while adjusted EBITDA margin of 20.2% was flat, as favorable pricing, operating leverage from higher volume and productivity improvements were offset by inflation and unfavorable mix.

Backlog of $420 million increased 8% year over year, or 10% excluding the impact of foreign currency exchange, primarily driven by an increase in injection molding and extrusion equipment orders. Sequentially, backlog was up approximately 1% compared to the quarter ended March 31, 2022.

Batesville

Revenue of $141 million was up 2% compared to the prior year primarily resulting from the price surcharges implemented this year to offset the significant increase in commodity costs. Burial casket volume was lower compared to the prior year primarily due to an estimated decrease in deaths associated with the COVID-19 pandemic and an estimated increase in the rate at which families opted for cremation.

Adjusted EBITDA of $25 million decreased 15% compared to the prior year, while adjusted EBITDA margin of 17.9% decreased 370 basis points primarily due to the dilutive effect of price-cost coverage and the impact of lower volume, which were partially offset by productivity improvements.

Balance Sheet, Cash Flow and Capital Allocation

Hillenbrand had cash flow from operations of $4 million in the quarter, a decrease of $180 million year-over-year, primarily due to the timing of working capital related to large plastics projects and an increase in inventory due to increased customer demand and supply chain disruptions. During the quarter, the Company repurchased approximately 2,646,000 shares for $111.5 million at an average share price of $42.14 and returned approximately $15 million to shareholders in the form of quarterly dividends. Subsequent to the quarter, the Company repurchased an additional 291,000 shares for $11.9 million at an average share price of $40.79.  The Company has $150 million remaining under its existing share repurchase authorization.

Net debt at the end of the quarter was $930 million, and the net debt to adjusted EBITDA ratio was 1.7x. Liquidity at the end of the quarter was approximately $1.2 billion, including $284 million in cash on hand and the remainder available under our revolving credit facility and delayed-draw term loan facility.

Fiscal 2022 Outlook

Hillenbrand is updating its annual guidance for fiscal year 2022. Revenue and EBITDA margin guidance is on a pro forma basis, excluding the divested Red Valve, ABEL, and TerraSource businesses. Fiscal year 2022 guidance does not include any impact from the pending acquisitions of Herbold Meckesheim and LINXIS Group.

Conference Call Information
Date/Time: Thursday, August 4, 2022, 8:00 a.m. ET
Dial-In for U.S. and Canada: 1-877-407-8012
Dial-In for International: +1-412-902-1013
Conference call ID number: 13731866
Webcast link: https://ir.hillenbrand.com under the News & Events tab (archived through Friday, September 2, 2022)

Replay - Conference Call
Date/Time: Available until midnight ET, Thursday, August 18, 2022
Replay ID number: 13731866
Dial-In for U.S. and Canada: 1-877-660-6853
Dial-In for International: +1-201-612-7415

Hillenbrand's financial statements on Form 10-Q are expected to be filed jointly with this release and will be made available on the company's website (https://ir.hillenbrand.com).

In addition to the financial measures prepared in accordance with United States generally accepted accounting principles (GAAP), this earnings release also contains non-GAAP operating performance measures. These non-GAAP measures are referred to as "adjusted" measures and exclude the following items:

• business acquisition, disposition, and integration costs;
• restructuring and restructuring related charges;
• intangible asset amortization;
• certain debt financing activities;
• gains and losses on divestitures;
• other individually immaterial one-time costs;
• the related income tax impact for all of these items; and
• certain tax items related to the divestitures of Red Valve, ABEL, and TerraSource, the revaluation of deferred tax balances resulting from fluctuations in currency exchange rates for certain foreign jurisdictions, the impact that the Milacron loss carryforward attributes have on tax provisions related to the imposition of tax on Global Intangible Low-Taxed Income (GILTI) earned by certain foreign subsidiaries, the Foreign Derived Intangible Income Deduction (FDII), and the Base Erosion and Anti-Abuse Tax (BEAT).

Refer to the Reconciliation of Non-GAAP Measures for further information on these adjustments.  Non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP.

Hillenbrand uses this non-GAAP information internally to measure operating segment performance and make operating decisions and believes it is helpful to investors because it allows more meaningful period-to-period comparisons of ongoing operating results. The information can also be used to perform trend analysis and to better identify operating trends that may otherwise be masked or distorted by items such as the above excluded items. Hillenbrand believes this information provides a higher degree of transparency.

One important non-GAAP measure Hillenbrand uses is adjusted earnings before interest, income tax, depreciation, and amortization ("adjusted EBITDA"). A part of our strategy is to pursue acquisitions that strengthen or establish leadership positions in key markets. Given that strategy, it is a natural consequence to incur related expenses, such as amortization from acquired intangible assets and additional interest expense from debt-funded acquisitions. Accordingly, we use adjusted EBITDA, among other measures, to monitor our business performance. We also use "adjusted net income" and "adjusted diluted earnings per share (EPS)," which are defined as net income and earnings per share, respectively, each excluding items described in connection with adjusted EBITDA. Adjusted EBITDA, adjusted net income, and adjusted diluted EPS are not recognized terms under GAAP and therefore do not purport to be alternatives to net income or to diluted EPS, as applicable. Further, Hillenbrand's measures of adjusted EBITDA, adjusted net income, and adjusted diluted EPS may not be comparable to similarly titled measures of other companies.

Pro forma revenue and pro forma adjusted EBITDA are defined respectively as net revenue and adjusted EBITDA excluding net revenue and adjusted EBITDA directly attributable to Red Valve which was divested on December 31, 2020, ABEL which was divested on March 10, 2021, and TerraSource which was divested on October 22, 2021. Hillenbrand uses pro forma measures to assess performance of its reportable operating segments and the Company in total without the impact of recent acquisitions and divestitures.

Hillenbrand calculates the foreign currency impact on net revenue in order to better measure the comparability of results between periods. We calculate the foreign currency impact by translating current year results at prior year foreign exchange rates. This information is provided because exchange rates can distort the underlying change in sales, either positively or negatively.

Another important operational measure used is backlog.  Backlog is not a term recognized under GAAP; however, it is a common measurement used in industries with extended lead times for order fulfillment (long-term contracts), like those in which the Advanced Process Solutions and Molding Technology Solutions reportable operating segments compete. Backlog represents the amount of consolidated net revenue that we expect to realize on contracts awarded to the Advanced Process Solutions and Molding Technology Solutions reportable operating segments.  For purposes of calculating backlog, 100% of estimated net revenue attributable to consolidated subsidiaries is included.  Backlog includes expected net revenue from large systems and equipment, as well as aftermarket parts, components, and service. The length of time that projects remain in backlog can span from days for aftermarket parts or service to approximately 18 to 24 months for larger system sales within the Advanced Process Solutions reportable operating segment. The majority of the backlog within the Molding Technology Solutions reportable operating segment is expected to be fulfilled within the next twelve months. Backlog includes expected net revenue from the remaining portion of firm orders not yet completed, as well as net revenue from change orders to the extent that they are reasonably expected to be realized.  We include in backlog the full contract award, including awards subject to further customer approvals, which we expect to result in revenue in future periods.  In accordance with industry practice, our contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer.

Hillenbrand expects that future net revenue associated with the Advanced Process Solutions and Molding Technology Solutions reportable operating segments will be influenced by order backlog because of the lead time involved in fulfilling engineered-to-order equipment for customers. Although backlog can be an indicator of future net revenue, it does not include projects and parts orders that are booked and shipped within the same quarter. The timing of order placement, size, extent of customization, and customer delivery dates can create fluctuations in backlog and net revenue. Net revenue attributable to backlog may also be affected by foreign exchange fluctuations for orders denominated in currencies other than U.S. dollars.

See below for a reconciliation from GAAP operating performance measures to the most directly comparable non-GAAP (adjusted) performance measures.  Given that backlog is an operational measure and that the Company's methodology for calculating backlog does not meet the definition of a non-GAAP measure, as that term is defined by the SEC, a quantitative reconciliation is not required or provided. In addition, forward-looking adjusted earnings per share for fiscal 2022 excludes potential charges or gains that may be recorded during the fiscal year, including among other things, items described above in connection with other "adjusted" measures. Hillenbrand thus also does not attempt to provide reconciliations of such forward-looking non-GAAP earnings guidance to the comparable GAAP measure, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K, because the impact and timing of these potential charges or gains is inherently uncertain and difficult to predict and is unavailable without unreasonable efforts. In addition, the Company believes such reconciliations would imply a degree of precision and certainty that could be confusing to investors. Such items could have a substantial impact on GAAP measures of Hillenbrand's financial performance.

Forward-Looking Statements

Throughout this earnings release, we make a number of "forward-looking statements" that are within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, and that are intended to be covered by the safe harbor provided under these sections. As the words imply, these are statements about future sales, earnings, cash flow, results of operations, uses of cash, financings, share repurchases, ability to meet deleveraging goals, and other measures of financial performance or potential future plans or events, strategies, objectives, beliefs, prospects, assumptions, expectations, and projected costs or savings or transactions of the Company that might or might not happen in the future, as contrasted with historical information. Forward-looking statements are based on assumptions that we believe are reasonable, but by their very nature are subject to a wide range of risks. If our assumptions prove inaccurate or unknown risks and uncertainties materialize, actual results could vary materially from Hillenbrand's (the "Company") expectations and projections.

Words that could indicate that we are making forward-looking statements include the following:

This is not an exhaustive list, but is intended to give you an idea of how we try to identify forward-looking statements. The absence of any of these words, however, does not mean that the statement is not forward-looking.

Here is the key point:  Forward-looking statements are not guarantees of future performance or events, and actual results or events could differ materially from those set forth in any forward-looking statements. Any number of factors, many of which are beyond our control, could cause our performance to differ significantly from what is described in the forward-looking statements. These factors include, but are not limited to: risks related to the Russian Federation's invasion of Ukraine (referred to herein as the "Ukraine War") and resulting geopolitical instability and uncertainty, which could have a negative impact on our ability to sell to, ship products to, collect payments from, and support customers in certain regions, in addition to the potential effect of supply chain disruptions that could adversely affect profitability; the impact of contagious diseases such as the COVID-19 pandemic and the escalation thereof due to variant strains of the virus and the societal, governmental, and individual responses thereto, including supply chain disruption, loss of contracts and/or customers, erosion of some customers' credit quality, downgrades of the Company's credit quality, closure or temporary interruption of the Company's or suppliers' manufacturing facilities, travel, shipping and logistical disruptions, domestic and international general economic conditions, such as inflation, exchange rates and interest rates; loss of human capital or personnel, and general economic calamities; increased costs, poor quality, or unavailability of raw materials or certain outsourced services and supply chain disruptions; increasing competition for highly skilled and talented workers as well as labor shortages; the risk of business disruptions associated with information technology, cyber-attacks, or catastrophic losses affecting infrastructure; risks that the integration of Milacron disrupts current operations or poses potential difficulties in employee retention or otherwise affects financial or operating results; the ability to recognize the benefits of the acquisition of Milacron or any other acquisition or disposition, including the pending acquisitions of Herbold Meckesheim and Linxis Group, including potential synergies and cost savings or the failure of the Company or any acquired company to achieve its plans and objectives generally; impairment charges to goodwill and other identifiable intangible assets; competition in the industries in which we operate, including on price or from nontraditional sources in the death care industry; impacts of decreases in demand or changes in technological advances, laws, or regulation on the revenues that we derive from the plastics industry; our reliance upon employees, agents, and business partners to comply with laws in many countries and jurisdictions; the impact of incurring significant amounts of indebtedness and any inability of the Company to respond to changes in its business or make future desirable acquisitions; the ability of the Company to comply with financial or other covenants in its debt agreements; global market and economic conditions, including those related to the financial markets; our level of international sales and operations; cyclical demand for industrial capital goods; continued fluctuations in mortality rates and increased cremations; the dependence of our business units on relationships with several large customers and providers; competition faced by our Batesville business from non-traditional sources; the impact to the Company's effective tax rate of changes in the mix of earnings or tax laws and certain other tax-related matters; involvement in claims, lawsuits and governmental proceedings related to operations; uncertainty in the United States political and regulatory environment or global trade policy; adverse foreign currency fluctuations; labor disruptions; and the effect of certain provisions of the Company's governing documents and Indiana law that could decrease the trading price of the Company's common stock. Shareholders, potential investors, and other readers are urged to consider these risks and uncertainties in evaluating forward-looking statements and are cautioned not to place undue reliance on the forward-looking statements. For a more in-depth discussion of these and other factors that could cause actual results to differ from those contained in forward-looking statements, see the discussions under the heading "Risk Factors" in Part I, Item 1A of Hillenbrand's Form 10-K for the year ended September 30, 2021, filed with the Securities and Exchange Commission ("SEC") on November 17, 2021, and in Part II, Item 1A of Hillenbrand's Form 10-Q for the quarter ended June 30, 2022, filed with the SEC on August 3, 2022. The forward-looking information in this release speaks only as of the date hereof, and we assume no obligation to update or revise any forward-looking information.

About Hillenbrand

Hillenbrand (NYSE: HI) is a global industrial company operating in over 40 countries with over 10,000 associates serving a wide variety of industries around the world. Guided by our Purpose — Shape What Matters For Tomorrow™ — we pursue excellence, collaboration, and innovation to consistently shape solutions that best serve our associates, customers, communities, and other stakeholders. Hillenbrand's portfolio includes brands such as Coperion, Milacron Injection Molding & Extrusion, and Mold-Masters, in addition to Batesville. To learn more, visit: www.Hillenbrand.com.

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