Hillenbrand Inc (HI) 2016 Q3 法說會逐字稿

Good morning, everyone, and welcome to Hillenbrand's earnings teleconferencing for the third quarter of fiscal 2016. A replay of this call will be available until midnight Eastern, August 18, 2016 by dialing 1-855-859-2056 toll-free in the United States and Canada. Or +1-404-537-3406 internationally, and using the conference ID number 42034114.

This webcast will be archived on the Company's website at www.Hillenbrand.com through September 3, 2016. If you ask a question during today's call it will be included in any future use of this recording. Also note that any recording, transcript or other transmission of the text or audio is not permitted without Hillenbrand's written consent.

At this time, it is my pleasure to turn the conference over to Joe Raver, President and Chief Executive Officer of Hillenbrand. Mr. Raver, please go ahead.

Thank you, operator. Good morning. Thanks for joining us on our third-quarter fiscal year 2016 earnings call. Kristina Cerniglia, our Chief Financial Officer, is on the call with me today.

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 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, which can be found at our website, 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.

Okay, today we'll discuss our third-quarter results and provide an update on our outlook for the rest of the fiscal year. I'd like to begin as I usually do with a few comments about our strategy.

We remain committed to transforming Hillenbrand into a world-class global diversified industrial Company. We seek to leverage our strong financial foundation and the Hillenbrand operating model to deliver sustainable profit growth, revenue expansion and free cash flow. We reinvest our cash in growth initiatives to strengthen our existing businesses, as well as in strategic acquisitions, to further develop our industrial portfolio and build leadership position in attractive end-markets.

A central component of our strategy is the Hillenbrand operating model, with a framework and process that we believe helps produce consistent and sustainable results across our business. We leverage management practices that have been among Hillenbrand's strengths for years such as our strategy management process, lean business practices and intentional talent development. And as Hillenbrand has grown and evolved, we have enhanced our operating model to increase its impact on our business by incorporating management practices such as 80-20 and Voice of the Customer.

We use the Hillenbrand operating model to bring focus to the critical few things that we think will have the greatest impact on creating sustainable value for our shareholders. We are transforming Hillenbrand into a diversified industrial Company serving end-markets around the world where we see the potential for long-term profitable growth.

Let me begin the discussion of our results with a few highlights from our third-quarter performance, followed by an overview of our outlook for the balance of the year. I'll then turn the call over to Kristina to take us through the financial results for the quarter and the details of our guidance.

Most of you know many of the markets we serve have had significant challenges this year. Those conditions persisted in the third quarter, and we experienced continued soft demand. Order volume and revenue were down year over year as a result. Despite the volume shortfall, we were able to drive margin improvement in both Batesville and the process equipment group, helping us deliver adjusted EPS that was slightly higher than the prior year embedded in our expectations for the quarter. Margin performance continues to be a bright spot for us. Additionally, we had another quarter with robust operating cash flow.

Batesville continues to execute very well against its strategy and delivered strong results for the quarter. Despite lower revenue, productivity improvements enabled the business to improve margins again. The team continues to simplify the business and take cost out, and the results are coming through in the P&L. This was the fourth consecutive quarter we have seen year-over-year improvement in gross margin.

Of course, our strategy for Batesville goes further than simply improving operational efficiencies. Despite the challenges of operating in a burial market characterized by secular decline, we continue to pursue opportunities to grow the business profitably, and we are investing in very focused areas where we think we can improve our ability to serve our customers and drive profitable growth.

In the process equipment group, revenue was down compared to the prior year. We continue to face very weak demand for equipment used to process proppants for hydraulic fracturing as well as parts and equipment used in coal power and mining. In addition, we experienced lower volume during the quarter for large capital equipment and systems used in the plastics industry. Still, the process equipment group delivered another quarter with year-over-year margin expansion despite this lower volume. That margin performance was driven partly by the changes we are making through the application of the Hillenbrand operating model and partly by favorable product and business mix.

The integrations of our two recent acquisitions in flow control remain on track, as Red Valve completed its first full quarter as part of Hillenbrand. Those businesses also contributed positively to the overall margin performance this quarter.

Turning to our outlook, as you saw in our press release last evening, we've lowered revenue and EPS guidance for the fiscal year. Let me take a few minutes to discuss our outlook and the logic for this change. The decision was driven primarily by the delayed timing of large systems orders during the quarter. You will recall that we had a pretty solid first quarter in terms of closing big projects related to engineered plastics and base resins. In the second quarter, orders for similar projects were lower than we expected and contributed to our decision to guide to the low end of our range for revenue and EPS. At that time, we knew we had to close a few big orders to meet our revenue goals for the year, but we still had visibility to a solid project pipeline, and we were starting to see the backlog build.

Fortunately, that trend did not continue this quarter, and we did not get the sequential growth we were expecting from large projects. Sequentially, order volume was down slightly. Backlog was basically flat. As a result, revenue this quarter, along with our expectations for revenue in the fourth quarter, are below our prior estimates.

I want to be clear that the issue is not that projects have canceled or that we have lost them. In fact, the number of projects being planned remains reasonably healthy. The most significant factor is that the decision cycles for many of these large projects have lengthened, causing project timelines to push out. Customers are exercising added caution as it relates to capital investment. Projects are still planned, so our outlook remains positive. However, our experience with projects pushing out and the extended timelines for customers to reach final investment decisions have caused us to lower our forecast for the revenue we expect to generate over the next couple of quarters.

As I mentioned earlier, demand for equipment in several of our key end-markets remains very low. And in general, demand in the industrial sector remains low. We do not expect that to change dramatically in the near future.

I want to point out that even though orders were below our expectations, order volume has been relatively flat over the past few quarters. We are seeing some level of stabilization in the process equipment group end-markets. We continue to battle these market headwinds by aggressively managing our costs, executing on our previously announced restructuring plans and applying the Hillenbrand operating model to protect the bottom line.

So with that, let me turn the call over to Kristina for a bit more color on the results this quarter and the revised guidance.

Thanks, Joe, and good morning, everyone. As we reported yesterday, we delivered revenue of $371 million in the third quarter. That's down 7% from last year. Batesville was down 3% and the process equipment group was down 9%. GAAP net income of $31 million was 4% lower than the prior year, resulting in earnings per share of $0.48. Adjusted net income of $34 million was about 2% higher than prior year and resulted in adjusted earnings per share of $0.53.

Despite the lower revenue, adjusted gross profit finished $4 million, or 3% higher than the prior year, an improvement of 380 basis points. I will talk more about margins as we get into the segments. Adjusted EBITDA of $67 million increased 1%, and EBITDA margin increased 150 basis points to 18.1%.

Our adjusted effective tax rate for the quarter was 26.6%, 380 basis points lower than the prior year. The decrease in the rate was primarily due to a favorable geographic mix of pre-tax income. We now expect our adjusted effective tax rate to be approximately 29% for the full year, which is slightly lower than historical rates. The balance sheet remains healthy, and we delivered another strong cash flow performance in the third quarter. Operating cash flow of $103 million was $37 million higher than last year largely as a result of the timing of changes in our working capital. Year-to-date operating cash flow of $190 million is significantly better than the prior year. As you will recall, last year we had a substantial use of working capital for large projects in the process equipment group, as well as payments related to the conclusion of the litigation settlement.

During the third quarter, we paid down $74 million of debt, we also returned nearly $13 million to our shareholders in the form of cash dividends and we bought back 412,000 shares of our common stock for a total cost of approximately $13 million.

Turning to the next slide, I will discuss segment performance beginning with the process equipment group. Process equipment group revenue of $231 million in the quarter was down 9%. The recent acquisitions contributed approximately $17 million, so organic revenue was down 16%. Many of our key end-markets, including mining and hydraulic fracturing, continue to deal with the depressed demand we have faced throughout the year. Parts and equipment sales into those markets are down as a result.

We also experienced softness in the demand for large projects in the plastics industry. As Joe mentioned, the timing of those projects has shifted. That shift is largely attributable to orders being pushed and longer customer decision cycles.

Order backlog of $524 million was essentially flat compared to the second quarter and 3% lower than the prior year. The lower backlog is being driven by weak demand for crushing and screening equipment used in mining and in the processing of proppants for hydraulic fracturing. The decreases in those areas are partially offset by increased backlog for projects in the plastics industry compared to the prior year. However, we expect to see more of these plastic projects coming during the third quarter and build up backlog.

The process equipment group adjusted gross margin was up 510 basis points to 38.9%, and adjusted EBITDA margin of 18.1% was up 90 basis points over last year. The margin performance was influenced by a number of factors in the quarter. We continued to drive productivity initiatives to increase efficiency and eliminate unnecessary costs. That's in our DNA, and it's something we will always pursue. Price was a positive for us this quarter as well, and we are growing more disciplined in that area, especially as it relates to equipment and parts where we invest significant engineering and application expertise that creates significant value for our customers.

Finally, we experienced very positive product and business mix in the third quarter. Part of that is related to our focus on higher-margin product lines, including our aftermarket parts and service businesses. And some of it is attributable to our expanded portfolio with higher margins from the flow control businesses we acquired.

Another factor that was fairly significant this quarter was the lower portion of revenue from large systems projects. Given the sluggishness in the large projects, we have been very focused on delivering small to midsized projects in spares, which are shorter-term but higher-margin. We don't expect the margin boost driven by mix this quarter to continue. We expect to see the mix shift and margins return to a more normal level next quarter as more of those large projects flow through.

Moving to the Batesville business, revenue for the quarter was $140 million, which was down 3% from last year. The decrease was driven by lower burial unit volumes tied to the estimated increased rate at which families opted for cremation. Despite lower volumes, the efficiency of our plants and logistics systems has been excellent. Adjusted gross margins of 38.5% for the quarter was up 130 basis points from last year. And adjusted EBITDA margin of 24.7% was up 250 basis points as a result of productivity efforts across the supply chain, lower commodity and fuel costs, as well as the restructuring actions that we initiated earlier in the year.

We are always looking to stay ahead of the cost curve, and the Batesville team has worked really hard this year to simplify the business and take cost out. As many of you know, lean is a never-ending journey for the Batesville team, and they are doing an excellent job protecting their market leadership and profitability in a challenging market.

With that, let me turn to our guidance for the rest of fiscal 2016. As we look forward, we are adjusting our guidance in response to lower revenue expectations for the year. As discussed, we have not closed the number of large systems-related projects we expected. Additionally, we do not foresee demand bouncing back in the near-term for the industrial markets that we serve. We are lowering guidance and narrowing the range from adjusted EPS for 2016 to $1.98 to $2.05 versus our previous guidance of $2.05 to $2.15.

We now expect revenue to decrease 5% to 7% organically in constant currency. Previously, we had expected organic revenue to be down 2% to flat. With the acquisitions of Abel and Red Valve, total revenue is expected to decrease from 1% to 3%. That is down from the previous range of 2% to 4% growth.

Revenue growth from the process equipment group is projected to be down 6% to 8% organically, and Batesville is expected to deliver revenue that is down 4% to 6%. Our revenue guidance is based on constant currency growth rates and assumes approximately 2% of negative translation effects compared to fiscal 2015.

Finally, we remain very focused on executing on our previously announced restructuring activities and aggressively managing costs in response to challenging end-markets. We continue to make good progress on the plans we shared earlier in the year. We expect to achieve the targeted savings from restructuring of approximately $10 million on an annualized basis, with an estimated benefit of $4 million in 2016 as previously outlined. We believe the resulting footprint reduction and headcount actions will make our operations more efficient and cost-effective, set us up to respond effectively as market demands return.

Clearly, we are disappointed to have to lower guidance, but I want to point out that there are number of positives in the business as well. We continue to execute on initiatives to drive margins higher and improve free cash flow. We also maintain visibility to a solid pipeline of projects in the plastics market. And we remain optimistic about long-term demand across the business.

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

Thanks, Kristina. This has been a challenging year for Hillenbrand and, in particular, for our process equipment group businesses. The global macroeconomic environment remains sluggish, and certain end-markets, including North American burial caskets, have faced considerable headwinds. We don't expect significant improvement this fiscal year, where our focus remains on executing our strategy.

We continue to work through our restructuring plans to protect our profitability, better position our businesses for return to growth when markets improve. Difficult to predict how quickly that improvement will come, but we remain confident that we are on the right strategic path. We are focused on attractive markets with multiple pathways for growth, driven by long-term megatrends of a growing population and an expanding middle class.

We expect the Hillenbrand operating model to help us continue to improve margins across the business and drive accelerated growth on the bottom line. Our journey to transforming Hillenbrand into a world-class global diversified industrial Company will not always be easy. But our management team remains committed to the long-term strategy that we believe will help us achieve that goal and provide an attractive return for our shareholders.

That concludes our prepared remarks for today, and we are ready to take your questions. Operator, would you please open the lines?

(Operator Instructions) Daniel Moore, CJS Securities.

You obviously gave pretty good color as it relates to some of these larger projects, largely plastics and polyolefin related, that are being pushed to the right. Can you give us -- just spend a minute from a macro perspective, what is it that is causing those delays? And how much visibility do you have that some of the projects that you had hoped to close in Q3 might close in Q4? And I have a quick follow-up.

Sure. I think we talked about it in the first quarter, if you will recall. We felt like demand was pretty good, and we closed a number of larger projects. We saw oil prices rebound. As you know, a lot of our larger customers for these big projects are in the energy space as well as the petrochemicals and plastics space. And I think since the last quarter or so, we've seen a decline in oil prices.

If you can think about some of those larger customers, you just saw what their latest earnings were, and a lot of those large companies are having significant profitability challenges right now.

Now, I would say that I think the plastics part to their business are doing pretty well. Demand is pretty good, and I've read in some of the press releases that those are some of the more profitable parts of the business. But what we are really seeing is sort of that elongation of approval for capital spend. We felt this a little bit last year. I think we are seeing it again. As I mentioned in the prepared remarks, we're not seeing projects canceled. Typically by the time we are involved, the project is pretty far along and they've already invested quite a bit of money. So it's unusual for the project to cancel, except the projects push out.

We have -- with that said, we have -- we are talking to the customers every day or every week and we are really in close communication. And while it's certainly hard for us to predict exactly when the projects will close, we feel reasonably good that this is not -- these are not going to push out forever, that it's a matter of months or a quarter or two that they push out rather than years that they push out. So, while we can't predict exactly what's going to happen, again, we are still doing engineering work for these projects. We are talking to customers on a regular basis, and we still expect these projects to close over the next couple of quarters.

That's helpful. And in terms of Q4, it's always sort of a critical quarter and dependent on equipment shipping. How comfortable or confident in you in kind of the revised guidance, and how dependent on that -- is that having a good quarter in terms of equipment deliveries?

Well, certainly we have to deliver and execute during the quarter. So, as we look into the fourth quarter -- you know, we are partway into the fourth quarter. Most of what we have to get done in the fourth quarter is in the backlog, and we need to execute it and ship it. There can be some customer delays, but largely it's us executing and shipping. We do expect to close some projects during the quarter, but it's not going to be a big driver of revenue or profitability in the fourth quarter.

So, we have pretty decent visibility into the quarter and feel pretty good about the fourth quarter -- achieving our expected results in the fourth quarter.

Okay. And lastly, and I'll jump back in the queue. It's a little early to be talking about fiscal 2017, but, at the same time, the environment remains soft here near-term. We also have exceedingly easy comps. And if some of these larger projects do come through in two or three quarters, you know, you could be setting up for a materially improved organic revenue growth in the process equipment side in 2017. Talk about your confidence in sort of getting back to a positive organic growth platform or plane over the next three to five quarters.

Yes, let me answer that question sort of at a Hillenbrand level first and then go down a little bit into the segments. I think we've had a really strong year -- a margin year at Batesville Casket. I think the team has done -- Chris Trainer and his team have done a very nice job in terms of efficiencies and running the business in a more simplified manner that we can effectively serve our customers.

And so we've had a tough top-line year, though, on the Batesville side. If you'll remember, last year we had a strong flu season, and so we had a pretty depressed top line so far this year on the Batesville side. You can't really predict the future with deaths, but if you have a down year, you are more likely to have a little bit better year, at least a flat year in the coming year.

So on the Batesville side, we feel really well-positioned regardless of what the market does. We wouldn't anticipate a decline like we saw this year in the market. The business is running well. Margins are good. So, we feel pretty good about the Batesville business having a better comparable at the top line as we head into 2017.

Then when we talk about the process equipment group, I think there's really sort of the three parts to the business that we talk about. We've really focused a lot on spare parts and service. We feel good about the trends in parts and service. In fact, we think we continue to grow that business faster than the market in many of our segments. So we feel pretty good about that going into 2017.

And then there's the smaller projects. This year we had some considerable headwinds in some key markets where the equipment that we make is really profitable and we sell a lot of spare parts -- frack sand equipment, coal-powered mining equipment, equipment used for fertilizer including potash. So, right now, those commodities have sort of stabilized in terms of pricing for the most part, but at a very low level. So we haven't yet seen an increase in demand for equipment in those areas, and so that will be an important piece for us going into 2017.

We don't see that coming in the sort of the next couple of quarters, but we expect that to come at some point. So that's kind of -- the comparables get easier as you go into the first quarter of next year. Those are cyclical markets. We would expect them to come back at some point, though it's hard to time.

And then finally, the large projects. As I said earlier, we have -- we feel pretty good about what's happening in the plastics industry right now. Demand remains pretty good. Projects are out there; they are just elongating. So, if we can get some of those projects closed and we see sort of a normal timeline on those projects, 2017, particularly the second half of 2017 -- could be a stronger second half of 2017.

So, I think next year, it's really a -- it's those three categories of -- I think it's really going to be the big drivers which -- Batesville business, if we get volume there. And then some of the key end-markets coming back both for equipment, smaller projects and then, of course, the larger projects. Does that help? That was a long answer. I apologize, but did that makes sense?

It gives great color. Appreciate it very much. And as I said, I'll jump back in queue.

John Franzreb, Sidoti & Company.

Joe, just to follow-up on your last commentary, the large projects deferrals has been an ongoing theme for a while. So it's a most a little bit boring. But it sounds like you are saying to me that the first of the major buckets that have been deferred -- frac, coal mining that you expect to come back is chemical. And is that what your customers are telling you? Is that where the most pent-up demand is? Can you talk a little bit about that coming back first?

I think the petrochemicals and plastics markets are pretty good right now. We are seeing okay demand across those markets. I think it's really a question of, particularly in the plastics market, those large project coming to fruition and how quickly that happens.

Related to the other markets, as I said, I think we've got some stability in terms of pricing for those commodities. But we're not seeing demand come back and don't have any indications of demand coming back right now in frac sand, for example. So, I hope that -- does that make sense?

I just want to make sure -- the one you expect to come back first is what?

I guess I would say that we would expect reasonable demand on the plastics and petrochemicals side and those large projects. And then we don't have really good visibility to the other markets in terms of when they will come back right now. And so, I think on the Batesville side -- we expect to have a pretty decent year next year on the Batesville side given that we had a pretty tough top-line year this year on the Batesville side. And we've done some -- taken some nice actions on the Batesville side to make sure that whatever revenue comes through, we'll be able to turn it into profitability and cash flow.

Got it. And on process and the gross margin, really a good gross margin performance year over year. How much is that attributed to the acquisitions, Abel and Red Valve, and how much is it to mix versus parts? And how much is it attributed to a restructuring? It was a sizable improvement year over year.

Let me ask Kristina to handle that question.

John, when we think about the quarter, year-over-year improvement, again, as you mentioned, PEG had a really good quarter. About -- of that 500 or so basis points improvement, about 100-basis-points improvement, frankly, was from the Abel and Red Valve acquisitions. So they have a higher gross margin profile than our process equipment group as a total. Then, we did get some improvement on price and productivity.

So, I think when we think about the gross margins in the third quarter of the 39%, as I said in my prepared remarks, a fair amount of that was mix that was driving that favorability. So, when I say kind of going back to a normal gross margin next quarter, I would say that's going to be similar to what we delivered in first and second quarter.

Got it, got it. And sticking with the Abel/Red Valve business, it seems like the utility water market has been pretty strong with some of the other competitors. Can you talk a little bit about how those two businesses are performing on the revenue side relative to expectations?

This is Joe. They are performing in line with expectations. I think you nailed it. We are seeing pretty good demand on the municipal side of the business, particularly in North America. So, that's been positive. And that's mostly on the valve side. On the pump side, we've seen strong demand, good demand in Europe for pumps. We've also had some success in mining. We have a really great story on total cost of ownership. So, we help mines reduce their cost, which is a big focus right now in a number of the commodities markets. And so we've had some success there.

So, we feel pretty good about the performance of those businesses right now and the markets they serve. Particularly, the municipal market and the water market is pretty good. And then even though, for example, mining is down, our value proposition is pretty strong. We are actually taking advantage of mining being down. We are just trying to get more efficient and able to sell our value proposition to sell more pumps into that end-market.

Got it. Perfect. And just on Batesville, can you talk a little bit about the competitive landscape with it being a more difficult sell-through environment? Has there been any pricing competition out there?

You know, we had the number two and number three competitors come together a while ago, so it's really changed the dynamics a little bit in the marketplace. We haven't really seen the impact, quite frankly, on pricing or big shifts in the mix of product being sold. So, despite that, which is a big deal in the number two and three getting together, we've seen a pretty sort of steady marketplace. There's certainly price competition, but I don't -- wouldn't characterize that there's anything out of the ordinary. It's always more challenging in a down year as some of the smaller competitors are trying to move in inventory to generate cash. But we are sort of through that period, and we are seeing a pretty stable environment right now on the burial casket side.

Great. Perfect. Thank you.

(Operator Instructions) Liam Burke, Wunderlich.

Joe, you talked about Batesville with the potential of a rebound in mortality rates in 2017. But you also talked about profitable growth initiatives out of that business segment. Could you give us a little more detail on that?

Sure. And I won't go into a ton of detail, just for competitive reasons. But you know, we use our operating model and in particular to use 80-20, and we really try to focus on the more profitable parts of the business. Which, of course, it's true that the most profitable parts of the business -- those are the places where we actually have the best value proposition and we create the most value for our customers. So, Chris Trainer and his team at Batesville have been focused on those areas where we serve our customers best and where we can make more profitability.

So, we've taken some cost out of the Batesville business, but we've taken it out in areas that we think we were either overstaffed or we didn't have as strong a value proposition and weren't as profitable. And we've refocused some of those resources and reinvested those resources in areas where -- right in our core. So, largely it's in the burial casket section -- in certain segments of the burial casket to go achieve growth.

As you know, it's a high-fixed-cost business. And so volume is important for us on the burial casket side. So, we have reinvested to grow on the burial casket side of the business with certain customer segments.

So, I think the point I'm trying to make is we are not just taking costs out of that business. We are certainly sizing the business for the size of the market and to maintain profitability. But we are also reallocating resources within the business and trying to focus those resources on the most profitable parts of our business where we can continue to extend our leadership position and continue to increase our value proposition to our customers.

Thanks, Joe. And the flow control business, the acquisitions are working very well. What does the pipeline look like there in terms of future potential acquisitions?

That's a great question. And, you know, in the last conference call, we talked about our debt-to-EBITDA ratio being at about 2.7, which is the high end of our guardrails for debt. So we've really been focused on paying debt down. We did a really good job, I think, of paying debt down this quarter; took a significant amount of debt off the books by paying debt down.

So as we said last quarter, we don't expect to close any significant transactions during this fiscal year. We remain active in terms of looking at potential acquisitions, including in the flow control space. But you shouldn't expect anything major from us certainly in the next quarter and maybe a little bit longer given that we are still focused on paying debt down over the next few quarters.

Thank you, Joe.

Daniel Moore, CJS Securities.

First time I've heard a lot about pricing initiatives. Maybe you can expand on that a little bit. Where are the kind of verticals where you are seeing areas of opportunity, and is there more to go on that front?

Yes, sure. We've been focused on trying to improve our strategic pricing capabilities for a while now. We are starting to see the benefits of some of that. And it's not a simple -- as you know, it's not a simple, hey, just take price up across the board. It's really trying to understand which product lines and which customers will we create more value, have the opportunity to improve price realization.

And so I think we've gotten certainly better at that over the last number of quarters. We are starting to see that flow through. We still -- we continue to think that there is more opportunity going forward, and it's a significant part of our Hillenbrand operating model. So we are really working with each of our divisions to work through understanding clearly what their customer and product profitability situation is and how price can optimize profit. Sometimes that means taking price up, sometimes that means taking price down to actually improve volumes. So we are getting better at that, and we expect there to be continued opportunity for the foreseeable future related to price.

Very helpful. And in terms of cash generation, obviously improved year over year despite the declines in revenue. What are your -- do you have sort of a range of expected operating cash flow or free cash flow for the balance of fiscal 2016?

Dan, we don't really guide to cash flow. What we have typically said is that cash flow would be greater than net income. You know, if you look at this quarter, we did have really strong cash flow so far this year, including this quarter. And a good chunk of that has to do with the mix of business that -- and putting together sort of pre-payments and all those sorts of things that come in. We expect as we go forward the mix of business, at least in the near term, will see not as strong a cash flow, as we expect to have some uses of cash as we go into the fourth quarter. But, again, overall for the year we feel pretty good about where we are with cash flow. But we will see that slip a little bit in the fourth quarter, given the nature of the projects that we have in-house and sort of what we expect to close as well.

And in terms of the cost restructuring of the $10 million cost savings you expect you are targeting, how much was actually achieved in fiscal Q3 and how much do you anticipate in Q4?

Dan, I'm not sure I can answer that question. I can tell you that we do expect to realize the full amount of the restructuring to hit during the year that we had expected. And Kristina -- I apologize. Kristina is not feeling well, so she just stepped out of the conference room here for a second. But (multiple speakers) --

We will give you the hall pass, and I can certainly follow up off-line. That's not a problem.

Yes, Dan, we expect to have the $4 million this year -- to achieve the $4 million this year. I just don't know how it breaks out by quarter. And, again, it's $10 million on an annualized basis. But we can get back to you on how that breaks out by quarter.

No change there. Okay. Thank you again.

We have no more questions, so now I'd like to turn the call back over to Joe Raver for final comments.

Thank you very much, operator. And once again, I want to thank everyone for participating in the call today. We look forward to speaking with you again in November when we report our fourth-quarter and full fiscal year 2016 results. Have a good day.

That concludes today's conference call. You may now disconnect.