Joe Raver - President and CEO Kristina Cerniglia - SVP and CFO

Daniel Moore - CJS Securities John Franzreb - Sidoti Liam Burke - Wunderlich Securities

Thank you, operator. Good morning, everyone, and thank you for joining us this morning as we discuss the fiscal third quarter financial results for Hillenbrand.

Joining me on the call today is Kristina Cerniglia, our Chief Financial Officer. During the call, we'll be referencing a slide presentation, which can be found on the Investor Relations section of our Web site.

Prior to getting into our prepared remarks about the business, I'd like to remind you that during this call, we may use certain forward-looking statements that are subject to the Safe Harbor provisions of the securities laws. These statements are not guarantees of future performance and our actual results could differ materially.

Also during the course of this call, we will be discussing certain non-GAAP operating performance measures. I encourage you to take a look at our 10-K and 10-Q, which can be found on our Web site, for a deeper discussion of forward-looking statements and the risk factors that could impact our actual results.

For more information on our use of non-GAAP operating measures and their reconciliation to GAAP financial measures, please refer to our 10-Q and the slides presented with this call. This morning, we'll discuss our third quarter performance and trends and provide an update on our outlook for the rest of the fiscal year, followed by a Q&A session.

I'd like to begin with a few comments about our strategy and the Hillenbrand Operating Model. We're working to develop Hillenbrand into a world-class global diversified industrial company by leveraging our strong financial foundation and the Hillenbrand Operating Model to deliver revenue expansion, sustainable profit growth and free cash flow across our business.

We reinvest both organically and in acquisitions to build leadership positions in key markets to create value for shareholders. The Hillenbrand Operating Model is the framework we use to drive our strategy and foster a culture of success.

One of the key tenants of the operating model is recruiting and developing talent throughout the organization. Since I became CEO in 2013, one of my top objectives has been to build the leadership we need to become a world-class industrial company.

In that vein, I'm pleased to report that we recently welcomed two key members to the executive leadership team. First, we decided to create a dedicated leadership position, reporting directly to me to drive the continued expansion, training and application of the Hillenbrand Operating Model across the company.

We believe the operating model is critical to the continued success of our organization as it improves our ability to achieve profitable growth across the enterprise. It helps us bring focus to the critical few things that have the greatest impact on serving our customers and creating value for our shareholders.

Hillenbrand has grown and evolved. We've enhanced the operating model to increase its impact on our business.

I'm really excited to welcome Jim Hooven, who's joined our team as the Vice President of the Hillenbrand Operating Model. Jim brings with him over 20 years of experience with diversified industrial manufacturing companies, such as SL Industries and Danaher.

Under Jim's leadership, we will continue to implement and improve the Hillenbrand Operating Model, making it the foundation of our culture. In addition, I believe people are our most important asset, which is why I structured my executive leadership team to have an HR leader dedicated to driving strategy, building high-performing teams, developing a deep bench strength to increase our competitive advantage.

I'm happy to announce that Glennis Williams has joined our team, as the Chief Human Resources Officer. She brings HR leadership experience from global diversified industrial companies such as Joy Global and Westinghouse.

We're delighted to have both Jim and Glennis on the leadership. Now, let me turn to some high-level comments about the quarter.

We have strong results to report again this quarter as we have been successfully building on the momentum that we experienced coming out of the second quarter. We delivered double-digit organic revenue growth and improved margins in the Process Equipment Group.

Order volume and backlog were up again sequentially, each reaching its highest level in three years. In addition, our cash flow was once again robust as we generated $84 million of operating cash flow in the quarter, driving a free cash flow conversion rate of more than 200% of net income.

We finished the quarter with total revenue growth of 7%, driven by a 12% increase in the Process Equipment Group. GAAP earnings per share of $0.52 was up 8% and adjusted earnings per share of $0.53 was in line with the prior year.

Let me provide a little color on our two operating segments, beginning with the Process Equipment Group. The majority of our revenue within the Process Equipment Group is associated with plastics, where we continue to see positive demand.

Polyolefin business has been the source of growth for our large extrusion systems and equipment driven by continued strength in North American shale gas related projects. We believe our success has been the resolve of our design and engineering expertise, which helps us deliver innovative, high-quality solutions to customers with the most demanding applications.

Our outlook remains positive for polyolefin systems projects. We have a solid pipeline and momentum appears to be building in China and other parts of Asia.

In addition to large systems for polyolefin applications, we're also experiencing growth in smaller extruders and compounding systems used for engineered plastics. Demand is being fueled by a variety of industries, such as automotive and construction, where the use of engineered plastics is expected to continue to rise.

We are optimistic about our ability to continue to grow this part of the business, leveraging our strong technical and applications expertise. The service component of our plastics business was another bright spot in the quarter.

Last year, we executed a number of larger system upgrade projects for our polyolefin and engineered plastics customers. These types of projects tend to be less predictable than our base service business and we have not seen many of these projects in the first half of the year.

However, we won a number of those projects this past quarter, which we expect to contribute to growth on the service side of the business for the balance of this fiscal year and into 2018. In addition to plastics, we continue to see success in other markets, where equipment can be used such as processed food and pharmaceuticals.

Products and technology required for these projects is similar to that used for plastics. Projects often include precision feeders, extruders and pneumatic conveying equipment designed to the specific needs of those applications.

Processed food and pharma represent a small part of our Process Equipment Group today, but we continue to see the opportunity to leverage our technology and accelerate growth. I'll turn to the proppants market, which is another area where we're seeing strong growth.

In the second quarter, we began to see an increase in orders for screeners and minerals separators, which are ideal for the separation of frac sand and ceramic proppants. Some of those orders translated into revenue in the third quarter and we continue to see a steady flow of new orders for the same type of equipment.

We're encouraged by the value customers attribute to our machines for their outstanding and screening performance and yield, which makes them ideal for high-value applications, such as proppants production. We're still seeing high level of activity in the proppants market, but keep in mind the demand for capital equipment in this area tends to be highly cyclical.

Because of that, it's difficult to predict revenue more than a couple of quarters out. Based on what we can see today, we anticipate demand to remain relatively strong in the fourth quarter and into the first quarter of our next fiscal year.

All of these projects that I've mentioned enhance our ability to grow the aftermarket parts and service side of our business. Continue to use the Hillenbrand Operating Model to segment the business and identify opportunities where we can achieve competitive advantage and win market share.

We saw growth in the third quarter and we'll remain focused on continuing to build this relatively high-margin strategically important part of our business. Let me touch briefly on flow control.

We saw good momentum in both order intake and backlog for the quarter. We closed a number of large pump projects mostly related to Indian coal power.

And municipal and industrial wastewater markets in the U.S. remain stable.

In total, we finished the third quarter with our highest flow control backlog since acquiring ABEL and Red Valve. The overall growth we're seeing in the Process Equipment Group is encouraging, but we still face some weak demand in other end markets.

We're not seeing a lot of investment in equipment use in the production of fertilizers. Potash and urea prices remain relatively low and there continues to be excess capacity in the industry.

We expect demand for capital equipment to bounce back at some point. It's just very difficult to predict when that will happen.

Demand for coal power equipment remains relatively weak globally, despite a nice order intake quarter for pumps in the Indian coal power market. In the U.S., where we generate the majority of our revenue from coal, we are seeing stable demand for parts used in coal power plants, but capital equipment orders continue to be almost non-existent.

Increased regulations and basic economics continue to make coal a difficult market, especially if natural gas prices remain low. It's unlikely we will see a meaningful recovery in the near future.

Now, let me comment on Batesville. Strategy for the Batesville business is to build on its industry leadership position and leverage elements of the Hillenbrand Operating Model to provide the earnings, cash flow and talent to fuel our overall corporate growth and continued transformation.

The Batesville business faced a challenging quarter, in which the estimated number of deaths in North America was basically flat. While the estimated rate at which families opted for cremation continued its steady, predictable rise.

Because of those headwinds, revenue was down about 2% compared to the prior year. We continue to employ the Hillenbrand Operating Model to help manage the business through this secular decline.

As always we're constantly working to improve efficiency by applying Lean across the entire base of value chain. And we continue to pursue product innovation and improved service for our customers.

Now, let me make a couple of comments about M&A. Acquisitions continue to be a key part of our long-term strategy to accelerate profitable growth.

We remain active, evaluating potential targets as we pursue acquisitions that are strategically relevant and close to our core businesses of plastic, processed food and pharma, separation equipment and flow control. Market multiples continued to be elevated, but we will be disciplined in making investments that we see creating the most shareholder value.

With that, let me turn the call over to Kristina for a bit more detail on the financial results for the quarter.

Thanks Joe, and good morning, everyone. As we reported yesterday, revenue was $396 million in the third quarter, up 7% over last year.

The growth was driven by the Process Equipment Group, which was up 12% with continued strength in plastics projects and screening equipment. That growth was partially offset by lower revenue from Batesville, down 2% compared to the prior year, and 1% currency headwind.

GAAP net income of $33 million was 7% higher than the prior year, resulting in earnings per share of $0.52. Adjusted net income of $34 million resulted in an adjusted earnings per share of $0.53, in line with the prior year results.

Adjusted EBITDA grew 8% from the prior year to $72 million and adjusted EBITDA margin increased to 20 basis points to 18.3%. Our adjusted effective tax rate for the quarter was 32.4%, 580 basis points higher than the prior year.

The increase was primarily a result of the geographic mix of our income being weighted more to higher tax jurisdiction in addition to a reduction in a permanent tax benefit related to the funding of our pension. We now expect our adjusted effective tax rate to be between 30% and 31% for the full year, slightly higher than our previous estimate of 30%.

We are very pleased with our strong cash flow performance again this quarter. We generated $84 million of operating cash flow in the quarter and on a year-to-date basis, we've generated operating cash flow of $104 million.

Joe mentioned our high free cash conversion rate in the quarter and that rate is now nearly 100% year-to-date, despite the $80 million contribution we made to our U.S. pension fund at the beginning of the fiscal year.

We continue to see improvements in working capital management as the organization remains focused on improving processes to drive working capital down. It is important to remember though that the timing of large capital projects can also have a significant effect on those balances in any one quarter.

So, they will fluctuate over time. During the third quarter, we returned nearly $13 million to our shareholders in the form of cash dividends.

We also repurchased approximately 310,000 shares of stock for $11 million and paid down $35 million of debt. We have a strong balance sheet, which we believe provides good flexibility to invest capital opportunistically in the business and in strategically relevant M&A.

Now let me cover segment performance, beginning with the Process Equipment Group. Process Equipment Group revenue grew 12% to $259 million; the growth was driven by continued strength in extrusion systems, compounding machines and smaller feeders and process equipment for plastics projects as well as screening and separating equipment.

We are capitalizing on the opportunities we see in the market. And as Joe mentioned, order volume and backlog both reached 3-year highs in the third quarter.

Demand for the screening equipment to process proppants contributed to that growth and we also built backlog in our small to medium-sized process equipment and systems used for engineered plastics, processed food and pharma and in our flow control businesses. As a result, backlog of $606 million was up 16% over the prior year and grew 9% sequentially.

That marks the third consecutive quarter with backlog growth. Process Equipment Group adjusted EBITDA margin of 19.4% increased 130 basis points over the prior year.

That is the highest adjusted EBITDA margin for the segment that we have delivered in a quarter, since we acquired Coperion. We continue to leverage the Hillenbrand Operating Model to drive strategic pricing and productivity initiatives.

In the third quarter, the results of those efforts were evident in our industrial businesses, where we demonstrated strong operating leverage with the benefit of the higher volume. As expected, margin improvements were partially offset by unfavorable product mix as we still have a relatively high volume of lower margin plastics projects flowing through the business.

Moving to the Batesville business. Revenue for the quarter was $137 million, which was down 2% from the prior year.

Burial volume in North America was lower as the estimated number of deaths was relatively flat, while the estimated rate at which families opted for cremation increased. Adjusted EBITDA margin of 24.5% was down 20 basis points, driven by higher commodity and fuel costs, partially offset by productivity improvements.

Let me now turn to our outlook for the balance of the fiscal year. Our projection for GAAP EPS remains $1.85 to $1.95 and for adjusted EPS, $2 to $2.10.

We expect earnings in the fourth quarter to be similar to 2016. Our guidance for revenue growth remains 1% to 3%.

Revenue from the Process Equipment Group is projected to grow 3% to 5% for the year. We expect to be at the higher end of that range as revenue growth from our proppants-related business is expected to continue.

However, we expect revenue from large systems projects for plastics to taper-off somewhat in the fourth quarter, especially in comparison to a strong prior year comp. In total, we expect Process Equipment Group revenue to be relatively flat in the fourth quarter compared to the prior year.

Batesville is expected to deliver revenue that is down 1% to 3% for the year, in line with our expected annual decline in burial volume. However, we anticipate a steeper decline in the fourth quarter due to less promotional activity and one less billing day compared to last year, resulting in a full-year revenue decline at the lower end of the range.

We are targeting adjusted EBITDA margin expansion of 30 to 80 basis points in the Process Equipment Group for the year. We expect growth to be driven by pricing and productivity initiatives as well as savings from prior year restructuring activities.

We expect those gains to be partially offset by mix, which should be more heavily weighted towards large systems projects. For Batesville, we expect slightly lower margins as a result of commodity cost inflation and lower volumes.

We remain focused on driving strong cash flow performance. Our goal has been to achieve a free cash conversion rate greater than 100% of net income for the year, excluding the impact of the onetime pension funding.

As you can see from our results, we are on pace to do even better. We remain confident that the business is on the right track to achieve the targets we have in place.

At this time, I will turn the call back to Joe for his concluding remarks.

Thanks, Kristina. We had a strong third quarter and we are focused on maintaining the momentum as we finish our fiscal year.

We're encouraged by the trends in our Process Equipment Group businesses, leading to a solid backlog position to start the fourth quarter. The markets we serve appear to be stabilizing and we remain confident that we can build on our recent successes and deliver on our growth targets for the year.

As always we're leveraging the Hillenbrand operating model to continually improve our business and take us closer to our objective of establishing Hillenbrand as a world-class global diversified industrial company in the eyes our customers, our employees and our shareholders. Before we open the phone lines for Q&A, I would like to announce that we are planning to host an Investor Day on December 12 in New York City.

Our goal for this event is to provide greater insight into Hillenbrand's strategy and our future direction. We are planning an agenda that will feature presentations from our management team and a more comprehensive view of our business and growth targets as well as an opportunity for Q&A and informal interaction.

We will provide more details as this event approaches. That concludes our prepared remarks.

We're ready to take your questions. Operator, would you please open the lines?

Good morning, Joe and Kristina.

Good morning.

Good morning, Dan.

First on Batesville, just to clarify the guidance, Q4 -- sorry, the slight margin decline, was that for Q4 or full year or both?

Yes. So, we expect both a margin decline in the fourth quarter and for the full year.

Got it. And maybe just taking a step-back and sticking with Batesville.

Where are we now on the curve of converting burials to cremations, roughly what percentage? And are you seeing any acceleration or deceleration in that trend?

Dan, we are slightly above 50% in North America. I believe the United States crossed over this year above the 50% mark and as you know Canada is quite a bit higher.

So I think we're in that 53% range in North America for the percentage of folks who choose cremation. It's a substitution curve, so we're in sort of in the steep part of the curve.

We continue to be in the steep part of the curve, on the S curve, but we're seeing pretty steady kind of that 130, 140 basis point increase in the cremation rate a year. It bounces around a little bit from quarter-to-quarter and from year-to-year, but we've seen a pretty good trend or a stable trend over the last few years.

And then just to comment on this quarter, the issue really this quarter was sort of the same predictable cremation increase that we would see. But deaths were really pretty flat in North America this quarter, which is -- they should be increasing a little bit.

And again, it bounces around from quarter-to-quarter, but we had a relatively flat death rate this year with a normal rise in cremation in the quarter. And so you saw a bit of a decline in the burial market this particular quarter.

Thanks. With that out of the way, get to the more exciting side of the business, right now, backlog jumped materially, just rank -- maybe rank order.

You mentioned plastics, food, pharma, maybe rank order those end markets, where you see -- you are seeing an up tick. And I was going to ask about proppants in terms of the sustainability.

I know you've got visibility for another quarter or two. What's your sense for the size, rank order the size and the magnitude of the wave of proppant revenue this time versus maybe a couple of years ago.

Thanks.

Yes, good. So, the first part of that question, if you -- our backlog mirrors our business to a certain extent.

And so we're -- on the process equipment side of the business, it's mostly plastics. And so we saw a nice increase in the backlog, again, this quarter on the plastics side of the business.

And it's really both large projects as well as some of those kind of medium-sized projects on the plastics side of the business. We had an especially strong quarter in our extrusion business, where we make the large extruders.

So this quarter we saw about half the backlog increase was due to plastics. On the industrial products side of the business, all the businesses had increases in backlog versus prior year.

But we did see the biggest jump on the proppants side of the business. And that's a business, as you know, it's really cyclical and it's steep.

It's not like a W. It's a V.

It's a steep V. And we talked last quarter, we started to see some orders come in the second quarter.

But boy, they really hit in the third quarter, we had a very strong order intake quarter for proppants -- separation equipment for proppants. It's a steep up, but as we've learned in the last few cycles, it's a steep down as well.

And so it's kind of hard for us to see too far out. Right now demand looks pretty solid, but we expect kind of a similar cycle to what we've seen in the past and then it will go up fast.

And we're in the -- sort of maybe in the middle of the tail end of that right now. And then we'll see it probably come down pretty fast as well.

Very helpful. Last question and I'll give it over.

Margins on the process equipment side, now we're back to or at sort of record levels when you blend in Coperion. How much room is there?

You've had -- been able to achieve a meaningful and steady EBITDA margin improvement. How much room is there left?

What should we think about in terms of annual rates of leverage and margin improvement going forward? Thanks.

So my favorite topic, as you know, Dan. So we did have a strong margin quarter -- EBITDA margin quarter.

That was largely driven by our industrial products businesses. As you know we had a difficult end market last year and that group took some significant actions to get cost out, to get those businesses sized appropriately.

And then as we've seen demand come back, the revenue has flowed through to profit -- to profitability quite nicely. Again, this quarter we also saw a very favorable mix because we saw some proppants revenue a significant chunk of that proppants revenue we were able to ship in the quarter.

A good amount of the separation machines were proppants and those carry pretty high margins as well. And then, we're constantly working on service and service is the highest margin part of our business, EBITDA margin part of our business overall.

We continue to grow the service side of the business. We had a pretty good quarter, again, on the industrial products group on the service side of the business.

So as we look forward, we task the business, as you know, with a 100 basis points of EBITDA margin improvement every year. This past year we were not able to achieve that.

As we've talked about, it's in that 30 to 80 basis point range. It's getting more difficult for us to get those increases because quite frankly, we've beaten those increases in most of the previous few years.

We continue to task the businesses that way. We continue to get operational efficiencies.

We continue to look for opportunities around pricing. And then, we use our operating model and 80/20 to focus on the most profitable parts of our product line and continue to try to grow those parts of our product lines in our business, because that's actually where we serve our customers best, we create the most value and have good chance to grow.

So, I think as we look forward, aspiration would be 100 basis points a year and we'll probably see sort of increases between...

The 30 and 80 again.

The 30 and 80 again going into next year, especially as we see the larger projects on the Coperion side, where built backlog flow through, through next year.

Thanks very much. Appreciate it.

Good morning, everybody.

Good morning, John.

Hi, John.

Considering the [indiscernible] in Batesville, can you talk a little bit about the competitive landscape, and something a little maybe about the pricing environment that you've seen?

Yes. So as you know, any declining market with relative to high fixed cost can be a tricky market to navigate.

We've seen a pretty stable pricing environment, the number two and number three players got together a number of quarters ago. So you have Matthews and Aurora together now as Matthews.

And so we haven't seen a big shift. They're a public company and have similar sort of economics to Hillenbrand and similar manufacturing, distribution to the Batesville business.

So we've not seen a ton of pricing pressure other than to say that there's always pricing pressure in this industry given that it's relative to high-fixed cost and volumes are declining and so everybody's scrabbling to keep volume. But, we haven't seen anything change in the pricing environment and we're really mindful of that.

So generally it's a pretty stable environment right now when it comes to pricing, but it's a difficult environment. It's a competitive environment but stable.

Okay. And can you talk a little bit in process about what you're seeing in different geographies, I'd be kind of interested if there's any region that's stronger relative to others?

What was the second part of the question? If there's any region that's struggling relative to others?

Is that what you were saying or surging?

It was actually stronger, but you can take it struggling.

No, no. Well I'll do both sides of it maybe.

So let me first talk about North America. North America has been a good market for us for quite a while across our entire Process Equipment Group, particularly the Coperion business, where we're doing some of the larger petrochemical and polyolefin projects.

So we continue to see strong demand and, quite frankly, as we've talked about in the past, strong, extended demand. The demand in North America has been stronger for a longer period than we had expected, if you would ask me that 3 years ago.

So we continue to see good momentum on the North American side of our businesses. I think Asia, we've seen a little bit of an up tick in Asia, and continued -- some continued strength in Asia, particularly for Coperion, for the larger projects, on polyolefin projects, polyethylene and polypropylene.

So that's been a positive. Europe has been kind of tread water for quite some time.

We don't really do a lot of big projects in Europe because they don't really have a feedstock for polyolefins, but we have seen an up tick in Europe in our engineering plastics businesses and on the service side. So generally, we've seen pretty good demand.

And we look at the pipeline and we feel pretty good about where the markets, particularly the plastic markets are going. And then, the last comment I would say, the one place that we probably haven't -- we've seen demand cool off a little bit is in the Middle East.

And so we've seen a little bit -- we do quite a bit of business in the Middle East, both capital equipment and service. And we've probably seen a bit fewer projects in the Middle East, maybe more attributable to that $50 or so, $45 to $55 oil -- price of oil and these are large sort of integrated petrochemical companies.

And so capital spending is a little bit constrained right now. But generally, overall, pretty good demand around the world for our businesses.

Okay. And one last question.

Could you tell us a little bit about Red Valve and ABEL? We've been hearing that there's some increased quotation activity in the municipal water markets.

I'm wondering if you are seeing similar kind of activity on either one of those businesses. And maybe a little bit up-to-speed what you're -- how they are performing relative to your expectations.

And any of the thoughts about extending your market share in those valve and top markets?

Yes. We acquired both ABEL and Red Valve and let me just first say they're really terrific businesses.

They have outstanding value propositions. Quite frankly, we do quite a bit of due diligence -- commercial due diligence prior to an acquisition.

And each time we acquire a business -- and in our current businesses we do voice-of-customer work and those are businesses that come back with really high scores on voice-of-customer. And so really good value propositions in both of those businesses.

Red Valve is really pretty strong in the municipal market in North America and we've seen sort of okay growth in the municipal market. We've decent quote activity and order activity.

I was expecting a little bit more, given the new administration coming in and the focus on infrastructure but we remain pretty bullish on the municipal market in North America and we're seeing kind of steady GDP, a little bit more type of growth on the municipal side of the business.

Okay, great. Thank you for taking my questions.

Thanks John.

Thank you. Good morning, Joe.

Good morning, Kristina.

Good morning, Liam.

Hi, Liam.

Joe, could you give us a little more color on the Hillenbrand Operating Model? You brought in a new organizational head.

You'd look at Batesville and that's been the poster child for Lean. Are there any areas of the business that really need additional attention since you have made a few acquisitions over the last years?

Sure, Liam. We view our Hillenbrand Operating Model as a journey and so we're constantly on a journey.

We're constantly trying to improve the operating model. We've done a pretty decent job on margins across the business.

And I think you've seen that show up in our financials. I think there are two things that we're trying to sort of get the model to the next level at Hillenbrand.

The first one is a stronger organic growth and so we have a lot of tools and a lot of capabilities around Lean in respect to taking cost out, as an example. And we're trying to build our capabilities to grow the business organically and use the model to help us grow more effectively.

I think we've done a decent job on service and pricing and some other things, but organic growth. And so we brought in somebody with experience.

Jim has not just experience inside of the Danaher business system, et cetera, but he's also been a General Manager and he's been tasked with growing businesses and he's used the tools and the processes to grow businesses. So that's one big focus.

I think the second focus is a business like Batesville is very mature and the operating model is really part of their culture. And so, we have certain parts of the business that really embrace the model.

It's become part of their culture. And I think that's the other piece that we're really trying to drive through the organization is to achieve sort of make this a deep part in the foundation of our culture across all the businesses and around the globe as well.

And so, those are the two things that we're trying to get better at and achieve in our next level of transformation of the business.

Okay. And back on valves.

You mentioned that the North American wastewater was okay. What else in the -- and then obviously international looks stronger, but where are you seeing the strength there?

So for the quarter, the ABEL pumps do very well in moving abrasive slurries and they're super energy -- the total of ownership is low. They're energy efficient, not a lot of wear parts compared to some more traditional pumps and they use very little water because they can pump high-concentrate slurry.

So we've success, for example, this quarter in the Indian coal market, where we're really pumping fly ash slurry to retention ponds. That was a big area of strength this quarter.

The other place that we're pretty strong on the pump side is in the mining business and we continue to try to grow the mining business. I think we've talked a little bit in the past about -- we've got some really good reference sights in place.

We've been building out our sales channel there and we're starting to see some momentum on the mining side of the business. On the valve side, we're strong in municipal wastewater.

And we talked about that and also industrial wastewater, which has been a little bit more of a challenge than on the municipal side, but that's the business, the Red Valve business in North America that continues to do really well, really strong margins and really good growth prospects.

Good. Thank you, Joe.

Thanks Liam.

Thank you, again. Just, obviously, given the strong cash flow, the balance sheet continues to get better quarter-after-quarter or down below 2x leverage now.

What is the -- you commented on M&A. Are there opportunities out there similar to ABEL and Red Valve in water waste, water management or other areas?

And if multiples continue to stay high or persistently high, would you consider other initiatives? Clearly with a 6%, 7% free cash flow yield, your own stock is pretty attractive here.

Just your thoughts on potential for share repurchases as we go forward. Thanks.

Thanks, Dan. Yes.

So let me first say that acquisitions remain an important part of our long-term profitable growth strategy. We remain active in the market.

And as I outlined in the prepared remarks, we're focused in areas that we currently have a relatively strong presence in our core market and then in near adjacencies. So we're very active, the market is pretty decent.

We're seeing pretty good deal flow. But as you mentioned, multiples continue to be quite high.

And I think the gap between buyers and seller expectations, at least in our experience, continues to be pretty wide and may be wider than we've seen in a while. So we will remain disciplined.

We want to make sure that we get a good return for shareholders. That's the most important thing when we consider a deal.

So we're remaining disciplined. Given multiples, it implies that if we do a deal, it'll be closer to home, where we can get synergies and get benefits from bringing two businesses together.

That, I think, was the first part of your question. The second part was about -- we're at 1.9x in terms of net debt-to-EBITDA.

We've set our guardrail to between 1.7 and 2.7. I think we have a little ways to go to drop down to the 1.7.

But when we get to that point, if we don't have an imminent deal, we would consider buying shares back. And we'll cross that hurdle when we get to it, but I don't -- we've had no change in our capital allocation strategy.

So we continue to view our guardrails at that 1.7 to 2.7. And once we get below 1.7, and our belief is we can buy shares back because at that 1.7 we can continue to execute our strategy.

We have enough balance sheet strength that we can go out and borrow money to execute our strategy. So below that, we would start to buy shares back likely.

You will be there pretty quickly at this rate of free cash flow. Thank you.

Thanks Dan.

Thanks, operator. Just a quick summary of the quarter.

We continue to see good momentum with improvements in the Process Equipment Group, in revenue, EBITDA, margin and backlog. In addition, operating cash flow was strong and we have, as we just discussed, ample financial flexibility to pursue a disciplined acquisition strategy.

We'll continue to leverage our strong financial foundation in the Hillenbrand Operating Model as we continue to deliver sustainable profit growth, revenue expansion and free cash flow. So, I just want to say thanks to everyone for participating on the call today.

Enjoy the rest of the summer. And we look forward to speaking with you again in November, when we'll report our fourth quarter and fiscal year 2017 results and also discuss our guidance for 2018.

Have a good day, everyone.