Greetings, and welcome to Hillenbrand's Fiscal Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Sam Mynsberge, Senior Director of Investor Relations. Please go ahead..

Thank you, operator, and good morning, everyone. Welcome to Hillenbrand's fiscal third quarter of 2022 earnings call. I'm joined by our President and CEO, Kim Ryan; and our Senior Vice President and CFO, Bob VanHimbergen. I'd like to direct your attention to the supplemental slides posted on our IR website that will be referenced on today's call.

Turning to Slide 3. A reminder that our comments may contain 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, including pro forma comparisons for our segments.

I encourage you to review the appendix in Slide 3 of the presentation as well as our 10-Q, which can be found on our website for a deeper discussion of non-GAAP information, forward-looking statements and the risk factors that could impact our actual results. With that, I'll now turn the call over to Kim..

Shape What Matters For Tomorrow, which will propel the organization forward in both what we will do and how we will do it as we leverage a culture of operational excellence, collaboration and innovation to shape solutions that best serve our associates, customers, communities and all other stakeholders.

We were very careful and deliberate in selecting the words that define our purpose. Shape. We are the engineers, designers, manufacturers and molders who take pride in our expertise and technical capability and allow the Company to put the right pieces together to bring forward new solutions for our customers. What matters.

Our end products affect the world. They impact life across how people live, work, play, eat, travel and heal. For tomorrow. We continue to look at what's next. As innovators in our respective industries, we will work to shape a stronger future for our world.

Embedded in our purpose is a set of four core values unifying Hillenbrand's more than 10,000 global associates. First, win as one. Next, partner with possibility. Then, make it matter. And finally, Drive to Deliver. Together, our purpose and core values tell the story of who we are, what we stand for and where we're going as a global organization.

I'm very proud of the collective efforts of all of our associates have made in helping us to create, define and embed our purpose into the organization to shape what matters for tomorrow.

This is a pivotal time for Hillenbrand, and I'm excited for our future and confident that we are well positioned to continue to drive long-term growth and value for all of our stakeholders. I'll now turn the call over to Bob to provide details about our overall financial performance, segment performance and outlook..

Thanks, Kim, and good morning, everyone. As a reminder, throughout my section, I will be discussing our performance on a pro forma basis, which has been adjusted for the divestitures of ABEL, Red Valve and TerraSource Global from the Advanced Process Solutions segment. We believe this provides a better assessment of our ongoing operations.

You will find a reconciliation of reported and pro forma results in the appendix of the earnings slide deck. Turning to Slide 10. In our third quarter, we delivered revenue of $721 million, an increase of 5% compared to the prior year, or 10% excluding the impact of foreign currency exchange.

This growth was led by pricing and higher volume in our Molding Technology Solutions and Advanced Process Solutions segments. As Kim mentioned earlier, supply chain constraints and inflation remain persistent challenges throughout the quarter, and we have seen foreign currency headwinds accelerate as the dollar has neared parity with the euro.

I'll touch on this later when I discuss our outlook for Q4 and the full year. Adjusted EBITDA of $126 million decreased 1% but increased 4%, excluding the impact of foreign currency exchange.

While adjusted EBITDA margin of 17.4% decreased 120 basis points, primarily due to the dilutive effect of price cost and lower volume in Batesville, which more than offset operating leverage from higher volume in our industrial segment. We reported GAAP net income of $49 million or $0.68 per share, an increase of 28% compared to the prior year.

Adjusted earnings per share of $0.92 came slightly above the high end of our expectations and was $0.07 higher or 8% compared to the prior year 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 in the quarter was 29.7%, a decrease of 70 basis points from the prior year.

We 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 plastic projects and an increase in inventory to support higher customer demand and offset risks related to global supply chain disruptions.

In addition, we experienced supply chain delays in sourcing certain parts, which otherwise prevented the completion of some projects in the quarter. As Kim mentioned, we saw customer delays and a few large project decisions in the quarter.

As you know, these large orders are often accompanied by advanced payments, which were a significant factor in our exceptional performance of 170% free cash flow conversion in fiscal year '21.

The timing of working capital can be lumpy as it relates to the large projects in our Coperion product line, but we are confident in our strength of underlying fundamentals, which are enabled by the consistent deployment of the Hillenbrand operating model.

And our working capital metrics remain a world-class level, including working capital turns of nearly 10x and long-term average free cash flow conversion of over 100%.

We expect free cash flow conversion to be lower than originally expected this year due to timing of large orders, coupled with higher-than-planned inventory due to supply chain disruptions. We are now targeting approximately 60% conversion for the full year, which still results in a three-year average conversion of over 120%.

And we remain confident in our ability to drive strong free cash flow with conversion of 100% over the long term. Capital expenditures were $30 million in the quarter, and we continue to expect full year CapEx to be approximately $50 million.

Once supply chain begins to normalize, we anticipate our CapEx to be in the range of 2% to 2.5% of revenue as we continue to focus on high-return investments for our businesses, particularly in the area of growth and innovation as well as automation to improve overall efficiency.

Our total backlog of $1.65 billion decreased 5% compared to the prior year, but was up 3%, excluding the impact of foreign currency. Sequentially, backlog was down 3%, but flat excluding the impact of exchange rates. Overall, our backlog remains at historically high levels, including record backlog in our MTS segment.

Now moving to segment performance on Slide 11. APS revenue of $310 million increased 2% compared to the prior year or 10% excluding the impact of foreign currency, driven by pricing and higher volume of large plastic systems and aftermarket parts and services.

Adjusted EBITDA of $61 million decreased 3% year-over-year, but increased 6%, including the impact of foreign currency. Adjusted EBITDA margin of 19.5% was down 100 basis points as operating leverage from higher volume and productivity improvements were more than offset by the dilutive margin effect of price cost.

Backlog of $1.2 billion decreased 9% compared to the prior year, but was flat excluding the impact of foreign currency. Looking forward, the pipeline remains healthy, and we continue to see strong order patterns for aftermarket with another quarter of book-to-bill greater than 1. Turning to Molding Technology Solutions on Slide 12.

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

As we mentioned on our Q2 call, we anticipated this shortfall and the teams did a good job in activating plans to mitigate some of the impact in the quarter. We continue to monitor the situation in China, but as of today, we expect to recover the shortfall during the fiscal fourth quarter.

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

As a reminder, injection-only equipment comes at a lower relative margin compared to hot runner equipment. Record backlog of $420 million was up 8% compared to the prior year, or 10% excluding the impact of foreign currency, primarily driven by an increase in injection molding and extrusion equipment.

We continue to see a solid pipeline of demand across the segment, particularly for custom molders, packaging and automotive applications. Now turning to Batesville on Slide 13. Compared to the prior year, revenue of $141 million increased 2% due to 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 COVID-19 and an estimated increase in the rate at which families opted for cremation. This performance is in line with our expectations as burial casket demands begin to normalize to pre-pandemic trends.

Adjusted EBITDA of $25 million decreased 15% and adjusted EBITDA margin of 17.9% declined 370 basis points due to dilutive effect of price cost and lower volume.

As mentioned on last quarter's call, we have committed an additional pricing surcharge in mid-May in response to the continued rise in commodity and fuel costs, which resulted in sequential improvement in our price cost coverage. We expect to exit the year with price fully offsetting inflation.

Additionally, as volumes normalize, the business has increased our focus on productivity improvements, which we expect to begin to see positive margin enhancements in the fourth quarter. Turning to the balance sheet on Slide 14. Net debt at the end of the third quarter was $930 million, with a net debt to adjusted EBITDA ratio of 1.7x.

As of quarter end, we had liquidity of approximately $1.2 billion, including $284 million of cash on hand and the remainder available under our current credit facilities. Turning to capital deployment on Slide 15.

As you know, we've been diligent in our approach to share repurchases, buying back approximately 2.6 million shares for $112 million in the third quarter, an additional 291,000 shares subsequent to the quarter close for approximately $12 million. This brings our total repurchases over the last five quarters to approximately $300 million.

As a reminder, we have $150 million remaining under our current authorization. We continue to maintain a disciplined approach to capital allocation, with a focus on maximizing long-term shareholder returns through organic investments and high-return M&A.

We expect the recently announced Herbold and LINXIS transactions will accelerate our profitable growth and drive long-term value for shareholders. We continue to anticipate Herbold will close in the fourth quarter, with LINXIS closing by the end of the calendar year.

So upon closing of Herbold and LINXIS, we project our pro forma net leverage to be approximately 2.8x. We are committed to deleveraging and have a proven track record of doing so, and expect to be well within our leverage guardrails of 1.7 to 2.7x by the end of the next fiscal year.

Now turning to Slide 17, I will conclude my prepared remarks with an update on our outlook for our fourth quarter and full year. As a reminder, our guidance is on a pro forma basis, which is adjusted for the divestitures of Red Valve, ABEL and TerraSource.

Our guidance does not include any impact from the announced acquisitions of Herbold and LINXIS based on the current expectations of their closing dates. Additionally, our guidance does not assume the impact from any potential COVID-19-related shutdowns in the future.

Overall, we are maintaining our midpoint for the full year adjusted EPS and narrowing the range to be $3.85 to $3.95 from our previous range of $3.80 to $4, with unfavorable foreign currency as a primary driver of the lower top end of the range.

We now expect full year revenue growth of approximately 4% to 5% compared to our previous estimate of 4% to 6%. Now turning to the segments. We expect APS revenue growth of 6% to 7%, down from our previous estimate of 8% to 12%, primarily due to unfavorable foreign currency impacts and continued supply chain disruptions.

We expect adjusted EBITDA margins for APS to be the range of 19.5% to 20%, reflecting flat to modest margin expansion year-over-year. For MTS, we expect full year revenue growth of 4% to 5%, up from previous estimates of 2% to 5%, driven by stronger-than-expected performance in our injection molding product line.

We expect adjusted EBITDA margins for MTS to be in the range of 20.3% to 20.8%, reflecting flat to modest margin expansion year-over-year. Finally, for Batesville, we expect full year revenue to be flat to up 1%, which is up from our previous estimate, primarily due to higher volume.

We have increased our full year margin expectation to be 20.5% to 21% compared to our previous estimate of 20% to 21%. Please review Slide 17 of the earnings presentation for additional guidance assumptions. And now I'll turn the call back over to Kim..

Thanks, Bob. I'll end our discussion with final few remarks before taking questions. As I mentioned, we will remain vigilant towards the external environment, and we are prepared to respond to changes in the economy that might impact our business.

Our backlog remains healthy, and we remain intensely focused on deploying the Hillenbrand operating model to help our teams effectively execute through this challenging global environment.

In accordance with our purpose, Shape What Matters for Tomorrow, we will remain focused on our team, innovation and expanding our capabilities to provide better solutions for our customers and meeting the needs of growing end markets.

We believe the strategic actions we have announced over the last couple of months position Hillenbrand well to drive long-term profitable growth and shareholder value. Finally, we will look forward to sharing more details about our vision for growth and longer-term targets for Hillenbrand at our Investor Day on December 15 in New York City.

We hope to see you there. We will now open the line for your questions..

[Operator Instructions] Our first question is from Daniel Moore of CJS Securities..

Let me start with the back -- maybe start with backlog, flat sequentially adjusting for FX.

Was there much pricing in there? Or is volume sort of relatively flat on an FX-adjusted basis as well?.

Yes. So yes, sequentially, Dan, it's primarily foreign exchange. And if you're looking year-over-year, FX had probably about $125 million impact, negative headwind on that, but then the difference is basically price. But sequentially, it's primarily a foreign exchange..

Yes.

And adjusted for FX on a sequential basis, is there much pricing in that being flat?.

No, no..

In other words, our volume is pretty flat as well..

Exactly. It is pretty flat. So not much of the difference in volume and pricing sequentially..

And is it possible to quantify at all the size in relative terms of some of the wins.

In polyolefin wins that you mentioned you either generated or expected to generate post quarter that got shifted out?.

Yes. So we -- so we're -- we expect Q4 to be strong. As Kim alluded, we did have two large orders that we expected to come in Q3 really hit in Q4. But those are both north of $50 million each..

Got it. Very helpful. Okay. Shifting gears to Batesville. You mentioned the change in opting to cremation.

Is there any changes in the sort of longer-term trajectory of the shift from burials to cremation? Or has it been pretty consistent with that longer-term slope?.

Yes, Dan. It has continued to be consistent. Frankly, over quite a long period of time, that's been very consistent and so we did not see any shift in that this quarter..

Perfect. And you mentioned....

That other 40-ish basis points that we typically see, that's the same range..

Perfect. And you mentioned, I think I was typing quickly, but a new customer agreement of some sort.

Any color you can -- a light you can shine on that at all?.

Well, we -- as you can imagine, we have agreements with our large customers, and those come up for renewal periodically. And we've been able to secure those for our future partnership. And those are things we consistently deploy against all the time to make sure that we're keeping those agreements current.

And we were able to secure another one of those large customer agreements for a longer-term over the last quarter. So we're very pleased about that.

And especially for the Batesville team, I think that speaks to their continued service delivery, especially over some of the challenges of the last two years that customers continue to kind of re-up and realign with us says that we have been doing the right things to make sure that our customers were able to take care of their customers these last couple of years, despite all of the challenges on global supply and prices and those types of changes that we've had to work through together..

Perfect.

And where are we kind of run rate right now in terms of volume relative to sort of pre-pandemic levels, if you adjust for that shift to cremation, you're still 5%, 10% above? Or are we closer to where we were sort of pre-pandemic?.

Yes. Yes. I think we're -- I'd say right now, Q3, Q4, we're closer to pre-pandemic levels, Dan. So I would think the Q3 performance is right in line with where we thought, maybe slightly better in Q3, but really right in line with pre-pandemic levels is the way I would think about it..

Got it. And last for me, and I'll jump back in the queue. But you mentioned on the injection molding side -- excuse me, on the hot runner side, as expected, some disruptions from supply chain, things getting better there, but there's not incremental sort of disruptions or COVID disruptions in the guide.

Just maybe a little bit more on the cadence week-to-week, quarter-to-quarter, of how that's improving than what you're hearing from your customers and your ability to deliver in that challenging environment..

Yes. I think we have -- we've obviously had success at getting all of our associates back to work. And if you read the news on kind of what's going on in China relative to the zero-COVID policies and that type of thing, we've been -- since the beginning of May, we've been able to return our workers back to the facility generally at pretty full status.

It was the first three weeks of April that had many, many facilities shut down, including us and many of our subs in that. Just around that Mold-Masters product line, really, most of our other operations in China were relatively unaffected by this. So we're really talking about the Mold-Masters product line.

We have been back at it since the beginning of May. Obviously, with three weeks of general shutdown or continuing and high volume demand, so we're really working our way through -- working our way through those orders that were delayed, Dan. And we expected part of them to come in, in Q3 and another part of them to come in, in Q4.

We've continued to see operations able to run, and we continue to see improvement in our suppliers' ability to catch up as well. So I think there's still a bit of a log jam on Asian supply for components for various parts of our business, but that has, I would say, that it still requires a huge amount of manual effort to manage.

But I think we've got our arms around it and at least our ability to manage it has improved. And I would say the situation itself is very slowly improving..

Yes, I would say, Dan, the actual results were right in line with our expectations, where we had a $10 million revenue impact in April. We called about half of that back in the rest of the quarter and expect the other half to be picked up this quarter in Q4..

The next question is from Matt Summerville of D.A. Davidson..

I was hoping maybe you could put a little bit of a finer point on a recurring theme, and that's the magnitude of price cost dilution you're seeing across the three segments?.

Yes. Sure. So we're pleased, obviously, with where we got our price cost in the quarter. And just to remind you, right, we entered the year with the need to execute backlog where we didn't have pricing cover covering our costs. And so at Q1, we were at about 65% of coverage. Q2, we got to 90%. And we were expecting to get to 100% by ending the year.

And so we did get that covered in the quarter in Q3, and we expect to cover that certainly going forward. So, we're pleased about what the global supply chain management team and our commercial teams have done on that. But if you think about full year, just the dilution impact, Matt. For Batesville, it's probably about a 400 basis point impact.

And then on the EPS side, it's probably 200 basis points. And then on the MTS line, it's about 60. And so when you kind of blend all that, it's about 200 basis points of margin dilution we've had because of the price cost impact on inflation throughout the year..

That's very helpful. And then if we think about it, I would imagine, for the better part of the last two years, you've had to kind of push out the normal sort of productivity actions that you'd be taking at Batesville in order to keep up with demand. I'm sure you're writing extra shifts over time, et cetera.

Now that that's sort of subsided, what are you targeting dollar-wise for productivity improvements in that business looking out over the next 12 to 24 months, to the extent that may help cushion some of the margin pressure you may see from expectedly lower volume?.

Yes. So I would think -- so you're right, where the productivity improvements have been delayed because of the incremental volumes. But in Q3, because of volumes dropping, that team has been focused on now implementing some of those programs. We do have supply chain certainly impacting some of the impact on getting the right automation equipment in.

But I would think -- I mean, longer term, we're still in that 19% to 20% range of margins going forward. And so we'll continue to need to drive productivity and certainly evaluate our cost structure to maintain that 19% to 20%..

Got it. And then maybe just one more quick follow-up. Just with respect to spare parts volume, obviously, improving a little bit, I think, as you mentioned, in fiscal Q3. Book-to-bill in that business still over one.

In an ideal world, how much more parts revenue would you guys have generated year-to-date? I guess I'm trying to get a feel for how mix is going to look in APS going forward as volume there should continue to recover, I would imagine..

Yes. So I'll give you some color, hopefully, that will help you. But our orders in APS, I mean, those are up low double digits. And our revenue is more mid-single digits in there. So our backlog in aftermarket grew year-over-year about closer to $55 million, $60 million. And then even sequentially, about $7 million to $10 million.

And so in our perfect world, our book-to-bill is closer to one, and we're executing that. So that was part of our reason for margins being down a little bit more than what we thought.

But I would still kind of think we're in that kind of 30% to 35% range of aftermarket parts as a percent of overall sales and EPS, and we're highly focused on executing that. But we need supply chain to improve, and we'll be able to execute in that range..

The next question is from Chris Howe of Barrington Research..

Just wanted to throw a broader question to you, see where you take this answer. As we think about what's been the consistent theme this past quarter related to currency, more specifically the strengthening of the dollar versus the euro. As we think about that headwind moving forward with the pending acquisitions, which should close here shortly.

How should we think about the global exposure of the overall business underneath the foreign currency headwinds as we look at demand trends across the regions with the acquisitions taken into consideration?.

With -- so let's lump them into a couple of different buckets. So first of all, the Herbold Meckesheim acquisition, which was the recycling systems acquisition.

As you can imagine, a lot of their business does exist in Europe, who is much more progressive as it pertains to recycling activities and having the appropriate inputs in order to install those systems.

And so a lot of their business does exist there, but the underlying demand of that, despite some of the challenges that we've seen in Europe, the underlying demand for recycling and systems continues to increase.

And even before our acquisition of -- even before the signing of this particular target, our own recycling business was seeing a pretty substantial increase in the number of inquiries and projects that we were being invited into discussions on.

So I would say that despite some of the macroeconomic conditions in Europe relative to that, we have continued to see strength in that particular end market for these types of products and systems and solutions. Relative to the LINXIS acquisition, they are global, they are a global player.

They do have locations, obviously, in Europe, but they also have locations in the U.S. And we will be taking advantage of some of our Asia footprint in order to help expand them into that market.

And so we believe that, despite some potential softness in Europe, that we have other very attractive end markets where we see continued growth in systems investments in Asia and North America.

And us working together and where -- because we do have strength and -- I mean, this was a really nice complement because where we very nicely complement one another geographically and from a product portfolio standpoint. And so we remain confident in our ability to execute on that.

That said, our thesis around each of these acquisitions was the value that we could create through the Hillenbrand operating model. We can't entirely control the revenue side of these equations.

So we worked with our Board and our team as we assess these targets, and we are very focused on how we're going to be able to control the cost side of this in order to make sure that these deliver value for us.

So we will be focused on both, but as we made the decisions on these two targets, we're highly confident that on our ability to control the cost and synergy side of this, that they make sense from that perspective again as well..

Okay. That was very helpful. And if we shift to the MTS segment and the two lines of business, for injection molding.

Can you just give a status update on the maturation of their backlog? Have you worked off the older backlog to help margin a bit in the injection molding side of the business?.

So they're actually still growing. So that business has performed well in the quarter in Q3, both on our orders and revenue standpoint. And that actually was part of our mix that happened in the quarter. But I can tell you, they grew both in volume and price in the quarter. So they're doing extremely well. And price cost coverage was slightly favorable.

So that business is performing well, really enabled by the Hillenbrand operating model and the global supply chain management team. And the fundamentals put in place and that business continues to be improving. And obviously, we're targeting that business to continue to improve their margins. But I guess that would be the summary I'd share with you..

And Chris, I would add, a year ago, we saw a big bubble of what we would -- what I think we technically referred to as kind of pent-up demand in quarter two of last year. And then we were executing that for, let's call it, the continuing 3-, 3.5-ish quarters.

But that is -- that kind of -- that bubble of orders that came through that was lacking on the price side, that has generally been executed. And so now we are operating more on those items that were priced in accordance with our new processes.

So I think that -- and the other thing that I would point to is you know that the injection molding business does have a lower margin than our hot runner business, yet you did not see a lot of margin degradation even with the increased volume of injection molding in the quarter.

So I think that speaks really well to the improvements that we're seeing in that business that we were able to carry additional volume at a reduced margin compared to hot runners and still maintain the margin for the segment overall..

That was a perfect answer. The last question, as we think about Herbold and LINXIS and Gabler Engineering, and the complementary nature of these acquisitions.

How do you foresee the integration time line? Do you still have the capacity to consider other acquisitions or tuck-in acquisitions, while the integration of these acquisitions is occurring? Or is this a pause here?.

No. I think we continue to look at -- we continue to look at potential opportunities in our pipeline. And I think that it would be fair to say that those generally are smaller, more tuck-in related in terms of how I would describe them. But some of the things that we were looking at, they would be pretty close.

Relative to those three integrations, Gabler Engineering is a company we've worked with for quite some time as a partner, so we know their company and their capabilities very well. We thought they were going to be a really great addition.

They are a much smaller organization, so we anticipate that they can be integrated rather quickly by the food team in concert working with their team. The -- and then just important to understand that we have in the Coperion organization itself, we have separate dedicated teams that work on recycling and work on food end markets.

And so we have separate teams that are working on those integrations, which allows us greater bandwidth to be able to execute.

And we feel very comfortable that through those local teams in coordination with the infrastructure we built from Milacron with the finance organization, the global supply management organization, IT the global engineering center, with the ability to reach across multiple organizations to help with the integration, we can move quickly.

And it creates additional bandwidth because we have multiple teams we can tap into to get these companies integrated and moving quickly towards our synergy targets..

Okay. And then my last quick question here before I go back into the queue. Gabler Engineering, a tuck-in acquisition. What I'm getting at here is do you think there's more of these in the funnel that perhaps you don't see the press release, you don't see the multiple disclosed.

But in the future, these small tuck-in acquisitions generate perhaps a higher return on what you acquired them for..

I think -- I mean, certainly, I think there could be. There are a lot of niche technologies. These guys had some very specific capabilities in extrusion that we were very keen to be able to add into the portfolio that we offer to our food customers.

So I think, absolutely, there could be other tuck-ins, especially given the especially given the larger nature of the LINXIS Group acquisition that we're making. There are other places in the process where there may be really great, unique assets that we can add in.

But Gabler Engineering, very small, very niche type of application, but something that we think is a great differentiator for us in certain markets. But we are very open. But again, all of these go through a very rigorous M&A process.

Every one of these, regardless of the size, does go through our own M&A process and our process with our Board of Directors to make sure that we're making good, sound financial decisions with appropriate returns for shareholders..

Yes. And then Chris, just to frame it for you. Purchase price was less than $30 million on this, that's why you didn't see too much press on that one. But as Kim mentioned, it's a great asset that we think we've joined with us..

[Operator Instructions] Our next question is from John Franzreb of Sidoti & Company..

Kim, you kind of just touched on this before. It's kind of a bigger picture question here. You talked about the injection molding and some of the jobs at the last year was from pent-up demand from pre-pandemic.

So the enterprise as a whole, do you feel that you kind of caught up on all those pre-pandemic kind of orders that were deferred, and right now, your customers are making purchasing decisions based on the current operating environment?.

Yes, we do. We do. I mean we think that, for instance, the increases, for instance, that we've seen in the injection molding side of the business are not another round of pent-up demand. We think that's good continuing demand, continued product rollouts from that team, continued focus on sales excellence.

So we don't feel that, that is a -- we don't feel like there are any kind of strange things going on in the market. We feel like that's a normal demand curve based on some of the investments we've made in places we want to grow on products that we've launched..

Great.

And just sticking with that theme, should recessionary conditions become more evident, which businesses would you expect to see that first and foremost in either the order book or any kind of magnitude?.

Well, I think, remember that typically where we see that is in the short-cycle businesses. So the first place that some of those, that's where the canary in the coal mine ends up being is in that. Aftermarket business is where we typically see the first signs of slowdown. They're also the first ones out of it when we see.

And right now, we see continued really robust demand in aftermarket in our businesses. And so that has typically the short-cycle businesses have typically been the indicator, our short-cycle businesses, which is our aftermarket business, our hot runner business, our feeding types of products, those products are all seeing really good order trends.

And we have not experienced those slowdowns yet. These mega orders that we're talking about, we continue to keep an eye on all of this. We keep an eye on pipelines over time, order quote volumes over time. We do that geographically, by product line, you can imagine, and we continue to be very diligent about monitoring it.

But that's what I would kind of point you to as the leading indicators. These large projects, I think you always have to recognize that these are projects that have thousands and thousands of hours in order to create a quote from multiple suppliers in these large projects.

And so it is not unusual for a time line to move around a bit on this, depending on the availability of labor to conduct these quotes for, whether it's for us or for other suppliers that are quoting these very large polyolefin jobs. I mean everybody is fighting to have full staff of labor, and so it's not unusual that these would move around a bit.

And as we said, we've seen some of those orders materialize already in this quarter. So we feel good even about those long-cycle orders as well..

Perfect.

And just sticking on the same theme, the cancellation risk, if there's any -- in any of the products would be on the shorter cycle businesses such as the hot runner? Or do they face very little cancellation risk?.

Yes, it would -- it would be on the parts business, but we do not see that..

Yes. We historically haven't seen, yes and even in previous downturns, we haven't seen cancellations of any orders..

Perfect. That's comment just what I'm going for.

And then back to the quarter and the coming quarter, how much of revenue was pushed in the hot runner business from 3Q into 4Q? What kind of magnitude we're talking about there?.

Yes. To think about $5 million or so, I would say, John. We picked up about half of the 10 shortfall in Q3 and the other half we'll pick up in Q4..

Great. And you talked about a little bit of inventory build.

Was that just to satisfy those large jobs in EPS? Or are you building inventory in of itself for yourself? And does that process continue if so?.

Yes, I'd say we had inventory build in really kind of really all three phases. So we had in raw materials, WIP and finished goods. And a couple of things. One, we obviously have higher volumes. And so that, coupled with supply chain challenges, we have been prebuying on longer lead -- longer lead time parts.

Obviously, transportation issues with trucking availability and ports being backed up. But we do have machines sitting there that are almost complete, just waiting on a couple of parts, primarily electronics, where we can -- once we get those in, we can ship.

But I'd tell you, our long-term focus is still on working capital efficiency, and particularly in the MTS business, so that would be the IC injection molds. But we still think we can get there turns up more and more through the Hillenbrand operating model.

And I would say right now, we're carrying right inventory a little bit higher just so we can continue to meet customer commitments. But as supply chain continues to improve, we will see that inventory level come down..

There are no additional questions at this time. I'd like to turn the call back to Kim Ryan for closing remarks..

Great. Thank you. Thanks again, everyone, for joining us on the call today. We appreciate your ownership and interest in Hillenbrand, and we look forward to talking to you again in November when we will report our fiscal fourth quarter and annual results. I hope you all have a great summer, and stay safe and healthy..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..