Hillenbrand Reports Fiscal Second Quarter 2023 Results

Highlights:

• Revenue from continuing operations of $691 million in the quarter increased 22% compared to prior year; organic revenue from continuing operations increased 9%
• GAAP EPS from continuing operations of $0.33 compared to $0.38 in the prior year; adjusted EPS from continuing operations of $0.74 increased 14% compared to prior year
• Record backlog of $1.97 billion increased 16%, or 3% organically compared to prior year
• Operating cash flow of $50 million increased $65 million compared to prior year
• Updated Outlook: Updating FY23 adjusted EPS from continuing operations to $3.30 - $3.50, previously $3.25 - $3.55; Fiscal Q3 adjusted EPS from continuing operations of $0.88 - $0.94

BATESVILLE, Ind., May 8, 2023 /PRNewswire/ -- Hillenbrand, Inc. (NYSE: HI) reported results for the second quarter, which ended March 31, 2023.

"Overall, our performance for the second quarter was ahead of our expectations, with strong orders in our Advanced Process Solutions segment and sequential improvement in our Molding Technology Solutions segment. We exited the quarter with record backlog and continued to see strong demand for aftermarket parts and service, though demand for our high margin hot runner equipment remained soft, in line with our expectations," said Kim Ryan, President and Chief Executive Officer of Hillenbrand.

"Looking ahead, while we continue to experience some customer decision delays, we're encouraged by the demand pipeline. We are focused on deploying the Hillenbrand Operating Model to further integrate our recent acquisitions, drive productivity, and manage costs in this dynamic operating environment. We remain confident in our ability to execute our profitable growth strategy to create long-term shareholder value through our industry leading brands and highly-engineered processing equipment and solutions."

Second Quarter 2023 Results of Continuing Operations 

(Batesville financial results reported as discontinued operations for all periods presented)

Revenue from continuing operations of $691 million increased 22% compared to the prior year, primarily due to acquisitions. On an organic basis (which excludes the impacts of acquisitions and foreign currency exchange), revenue increased 9% year over year, primarily due to higher aftermarket parts and service revenue and favorable pricing.

Net income from continuing operations of $24.1 million, or $0.33 per share, decreased $0.05 compared to the prior year primarily due to inflation, discrete tax items, an increase in business acquisition costs, unfavorable foreign currency translation, and inventory step-up charges, partially offset by pricing and productivity improvements, higher APS volume, the impact of acquisitions, and fewer shares outstanding. Adjusted net income from continuing operations of $52 million resulted in adjusted EPS of $0.74, an increase of $0.09, or 14%, primarily due to pricing and productivity improvements, higher APS volume, the impact of acquisitions, and fewer shares outstanding, partially offset by inflation, unfavorable foreign currency translation, and higher interest expense. The adjusted effective tax rate for the quarter was 33.5%, an increase of 50 basis points compared to the prior year.

Adjusted EBITDA of $109 million increased 8% year over year, or 3% on an organic basis. Favorable pricing and productivity improvements were partially offset by cost inflation and an increase in strategic investments. Adjusted EBITDA margin of 15.7% decreased 200 basis points, primarily due to unfavorable product mix and the dilutive effect of the acquisitions. As previously highlighted, the recently acquired businesses have lower relative margins but are expected to be brought in line with the historical Advanced Process Solutions segment margins over the next few years through the deployment of the Hillenbrand Operating Model.

Advanced Process Solutions (APS)

Revenue of $431 million increased 37% compared to the prior year, primarily due to acquisitions. On an organic basis, revenue increased 11% year over year, primarily due to higher aftermarket parts and service revenue and favorable pricing.

Adjusted EBITDA of $73 million increased 12% year over year, or 2% organically, as favorable pricing, higher volume, and productivity improvements were largely offset by cost inflation and an increase in strategic investments. Adjusted EBITDA margin of 17.0% decreased 370 basis points primarily due to the dilutive effect of the acquisitions and an increase in strategic investments.

Backlog of $1.67 billion increased 30% compared to the prior year. On an organic basis, backlog increased 13%, primarily driven by increased orders for large plastics systems and aftermarket parts and service. Sequentially, backlog increased 3%.

Molding Technology Solutions (MTS)

Revenue of $260 million increased 4% year over year. On an organic basis, which excludes the impact of foreign currency exchange, revenue increased 7% as an increase in injection molding equipment sales, favorable pricing, and higher aftermarket parts and service revenue were partially offset by a decrease in hot runner equipment sales.

Adjusted EBITDA of $48 million decreased 6%, or 2% on an organic basis. Adjusted EBITDA margin of 18.2% decreased 190 basis points primarily due to an increased mix of injection molding equipment, which has lower relative margins compared to hot runner equipment.

Backlog of $298 million decreased 29% compared to the prior year primarily due to a decrease in orders for injection molding equipment. Sequentially, backlog decreased 11% as the execution of existing backlog was partially offset by a sequential increase in orders.

Balance Sheet, Cash Flow and Capital Allocation

The Company generated operating cash flow from continuing operations of $50 million, an increase of $65 million compared to prior year, primarily due to favorable timing of working capital. Capital expenditures were approximately $17 million in the quarter. During the quarter, the Company paid approximately $15 million in quarterly dividends.

As of March 31, 2023, net debt was $999 million, and the net debt to pro forma adjusted EBITDA ratio was 2.2x. Liquidity was approximately $1,108 million, including $315 million in cash on hand and the remainder available under the Company's revolving credit facility.

As previously announced, the Company closed the sale of Batesville to LongRange Capital for $761.5 million on February 1, 2023. At closing, the Company received pre-tax cash proceeds of $698 million and an $11.5 million subordinated note. The pre-tax cash proceeds were used in part to repay the Company's $100 million Series A notes, and the remainder of the proceeds were used to repay outstanding borrowings on the Company's revolving credit facility. The Company expects to make a tax payment related to the Batesville sale of approximately $146 million in June 2023. Following the tax payment, pro forma net debt to pro forma adjusted EBITDA ratio is expected to be 2.5x as of March 31, 2023.

Updated Fiscal 2023 Outlook - Continuing Operations

Hillenbrand is providing updated annual guidance for fiscal year 2023 and quarterly adjusted EPS guidance for fiscal Q3 on a continuing operations basis. The Company is maintaining the midpoint of its adjusted EPS guidance, while slightly raising its revenue estimate at the midpoint.

Note: Year-over-Year ("YOY") growth figures presented in the guidance table above are on a continuing operations basis, which exclude the discontinued operations of Batesville.

Conference Call Information
Date/Time: Tuesday, May 9, 2023, 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: 13737168
Webcast link: http://ir.hillenbrand.com under the News & Events tab (archived through Tuesday, June 6, 2023)

Replay - Conference Call
Date/Time: Available until midnight ET, Tuesday, May 23, 2023
Replay ID number: 13737168
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;
• inventory step-up charges;
• 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 acquisitions and divestitures, the revaluation of deferred tax balances resulting from fluctuations in currency exchange rates and non-routine changes in tax rates for certain foreign jurisdictions, and the impact that the Molding Technology Solutions reportable operating segment's 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.

Organic revenue and organic adjusted EBITDA are defined respectively as net revenue and adjusted EBITDA excluding net revenue and adjusted EBITDA directly attributable to TerraSource, which was divested on October 22, 2021, as well as recent acquisitions, including Linxis, Herbold Meckesheim, Peerless Food Equipment, and Gabler Engineering, and adjusting for the effects of foreign currency exchange. In addition, the ratio of net debt to pro forma adjusted EBITDA is a key financial measure that is used by management to assess Hillenbrand's borrowing capacity (and is calculated as the ratio of total debt less cash and cash equivalents to the trailing twelve months pro forma adjusted EBITDA). Hillenbrand uses organic and 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, adjusted EBITDA, and backlog 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 our reportable operating segments compete. Backlog represents the amount of consolidated net revenue that we expect to realize on contracts awarded to our 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 our 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 U.S. Securities and Exchange Commission, a quantitative reconciliation is not required or provided. In addition, forward-looking revenue, adjusted EBITDA, and adjusted earnings per share for fiscal 2023 exclude potential charges or gains that may be recorded during the fiscal year, including among other things, items described above in connection with these and 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.

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.