Q4 2020 Hillenbrand Inc Earnings Call
You're looking at it very well.
[music].
Good morning, everyone and welcome to help brands fourth quarter fiscal Twentytwenty earnings Conference call.
Replay of this call will be available until midnight eastern time.
November 26.
It contains 25.
By dialing 1855 eat 592, 056 toll free in the United States, and Canada, or 140, 45373, 406 internationally and using the conference I'd number not to buy.
Hi, Sixthree Onenine this.
Webcast will be archived on the company's website at IR Hillenbrand Dotcom through Friday December 11 2020.
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This time, it's my pleasure to turn the conference.
Over to rich Dudley senior director of Investor Relations Mr. Dudley. Please go ahead.
Thank you operator, good morning, everyone and welcome to Hillenbrand's fourth quarter fiscal 2020 conference call.
Im joined by our President.
Today, we have CEO, Joe Raver, and our senior Vice President and CFO Kristina Cerniglia.
I'd like to direct your attention to the supplemental slides posted on our IR website that we will be referencing on today's call.
Today marks my last earnings conference call as I've taken on a new finance role within Hillenbrand.
I've enjoyed service.
During this important position over the last two and a half years I want to take the opportunity to thank you for your trust and partnership.
I'm very happy to welcome Kabi bucked Yari as our new Investor Relations director.
Probably and I will work closely together over the coming weeks to ensure a smooth transition.
Let me quickly address two items before turn.
Turning the call over to Joe.
First during the fiscal fourth quarter, we changed the names of two of our reportable segments in order to better reflect the nature of business activities and end market exposure for these segments.
As a result, the former process equipment group segment has been renamed advanced process solutions.
Yes, and the former Milacron segment has been renamed molding technology solutions for MTS.
We believe these names better capture the nature of activities and future opportunities for these segments.
We'll continue to use the milk milacron brand name for our injection molding product line.
Second turning to slide four.
Ill remind you that our comments may contain certain forward looking statements that are subject to the safe Harbor provisions of us Federal 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 the molding technology solutions segment.
I encourage you to read review slide four of the presentation and our 10-K, which can be found on our website for a deeper discussion of forward looking statements and the risk factors that could impact our actual results.
With that.
Now I'll turn the call over to Joe.
Thank you rich and good morning, everyone.
Thanks for joining us today and.
And all of US the Hillenbrand hope that you and your families are doing well and staying safe.
Before we start I want to take a moment to thank Rick for his contribution to hillenbrand's Investor Relations and wish.
Continued success in his new role.
I'd also like to welcome Comdata Hillenbrand.
Hey brings over a decade of finance and Investor Relations experience most recently at Fortune brands.
We are committed to building effective and productive relationships with our shareholders and we look forward to cod, a continuing that effort.
Because we strive to provide clear timely and relevant communications.
I also want to acknowledge hillenbrand's employees.
Despite the challenges brought on by the COVID-19 pandemic.
Continued to serve our customers and deliver on our mission every day.
We applaud their hard work and remain.
And fast in our commitment to ensure the health and well being of the 11000 hillenbrand employees and their families our customers and partners and the communities in which we operate around the globe.
We continue to follow the guidance of health experts around the world and are taking the necessary precautions to help reduce the spread of the buyer.
Yes.
As you saw from the release last night, we finished fiscal 2020 with a strong fourth quarter.
Before I get into the quarter, However, I want to take a few minutes to reflect on the entirety of fiscal 2020 and to report on our progress against the execution of our long term strategy.
Harvest.
Vision is to shape hillenbrand into a world class Global Industrial company with a proven record of success driven by the Hillenbrand operating model.
To that end over the past several years, we've consistently articulated for key strategic pillars.
The first is to strengthen and build business platforms both organically.
And through M&A.
The milacron acquisition represent a major step in the execution of the strategic pillar.
With a milacron acquisition, we added industry, leading and complimentary hot runner and injection molding product lines the hillenbrand portfolio.
Further strengthening our customer offering increasing our global scale.
Ill and enhancing our capabilities across the entire plastics value chain from base resin production all the way through recycling.
As we look forward beyond the integration and the current market uncertainty, we see the potential for solid growth.
Both organically and through M&A in both the hot runner and inject.
And moving product line.
In addition to the milk on acquisition, we have strengthened and focus to the advanced process solutions segment investments in innovation in our co purion branded products and solutions have led to revenue growth and improved margins and.
And we believe that we've positioned this part of our business very well for.
Increased profitable growth, both organically and through acquisitions.
This year, we announced the planned divestiture of three smaller businesses within advanced process solutions, which we believe will help sharpen our focus on our larger platforms and accelerate debt reduction.
Our.
Income strategic pillar is to manage batesville for cash.
So has a long history of manufacturing excellence and burial casket and its deep and longstanding customer relationships make it an industry leader.
It has it has historically been less sensitive to economic cycles and.
And has provided solid and predictable cash flow that we can.
Steadfast in growth businesses.
Batesville to outstanding performance in fiscal year 2020.
As a result of simplifying business processes, improving quality and aggressively managing its cost structure, while maintaining its ability to meet customers needs in a time of elevated demand associated with the pan.
Endemic.
Importantly, basal fulfilled its role in our portfolio. This year as we leveraged the robust cash flow at generated to pay down debt and strengthen our balance sheet.
The third pillar of our strategy is to build a scalable foundation for growth using the hillenbrand operating model.
The acquisition of Milacron, not only helps us expand our presence across the plastic value chain, but it also provides a unique opportunity for us to transform and scale. Many shared back office functional business processes in areas, such as information technology Human resources health and welfare.
Their benefit and finance.
We believe that our efforts to standardize processes and services and.
And to leverage best practices across our operating companies globally will drive meaningful efficiencies improve effectiveness and quality and provide a scalable foundation for future growth.
We're also driving.
Efficiencies and best practices in operations by leveraging our combined spend through our global supply management group and driving lean business practices, which are at the core of the hillenbrand operating model to improve safety quality delivery cost and working capital.
As many of you know effectively.
Computing, the milacron integration with a top priority during fiscal 2020.
And despite the challenges associated with the COVID-19 pandemic.
We delivered on targeted year, one cost synergies at an accelerated rate compared to our original goal and.
And we increased the three year run rate synergies.
Few targets from $50 million to $75 million.
In addition, we completed the divestiture of Sim cool and our fiscal second quarter.
Our dedicated integration management office and integration teams continue to drive the integration and we expect their efforts contribute to top line.
Growth continued margin expansion and strong free cash flow.
While COVID-19 has created some new challenges our team pulled together under difficult conditions and delivered strong results to date.
Our fourth and final strategic pillar is to effectively deploy strong free cash flow.
We have a track.
Jack record of maintaining a flexible balance sheet. So we can grow both organically and through strategic acquisitions.
Additionally, we have a history of quickly reducing leverage following acquisitions we're.
We are employing that playbook, now and prioritizing debt paydown.
During the past quarter, we made a significant Dan.
In our net leverage ratio, finishing below our original target of 2.7 times net debt to EBITDA less than 12 months after closing on milacron.
We're confident in our continued ability to generate robust free cash flow to pay down debt invest.
We invested for growth and return cash.
Full to shareholders.
In summary, the company made significant strides executing our strategy. This past year, and we feel very confident in our ability to create long term shareholder value over the coming quarters and years.
Now, let me turn to some highlights for the quarter.
Total company performance exceeded our internal expectations driven by the stronger than expected recovery in certain industrial end markets continued elevated volumes batesville and generally strong execution and disciplined expense management across all the segments.
In the molding technology solutions segment.
Segment.
Art runner systems orders continued to improve as demand for medical product and electronics remained strong.
And in injection molding, we saw strength in orders, both in India, and North America as order activity picked up in consumer goods packaging automotive and construction.
With.
Finished the fourth quarter with the best order rates and backlog for injection molding and over two years.
We also saw a parts and service orders pickup as we move through the fourth quarter.
In the advanced process solutions segment orders for large polyolefin systems remains strong as we alluded to on our last call.
We booked more than $100 million in new large scale plastics projects in the fourth quarter. These.
These orders contributed to record backlog in the segment.
Despite some slowdown in North American polyethylene project, a pipeline for new large systems remains healthy globally with continued.
In Asia.
Mortgage for our smaller mid cycle products and aftermarket parts and service continued to be down in the quarter due to end market weakness.
All three segments delivered robust cash flow in the quarter on the strength of their operating results and actions taken to reduce expenses and carefully manage work.
Strap.
We remain cognizant of balancing the near and long term needs of the business. We continue to invest in high return projects, including product development and innovation.
And as I mentioned earlier, we meaningfully improve the health of our balance sheet during the quarter.
Kristina will provide more detail on our risk.
Results in a moment, but.
But first I want to report a new addition to our executive leadership team.
I'm pleased to welcome deep dive as our chief Human Resources Officer. He brings more than 25 years of human resources experience and industrial companies, including 14 years at Pentair I.
Now I speak for the entire team when I.
I say that I look forward to working with Pete to continue to execute the milacron integration and our HR transformation and to build talent across the enterprise.
At this time I will turn it over to Christina to.
To provide more specific details on our overall financial performance segment performance and outlook.
Thanks, Joe.
Good morning, everyone.
Our team continued to adapt to a dynamic environment and executed very well in the quarter.
That strong execution, along with an accelerated economic recovery compared to our expectations going into the quarter fueled a terrific finish to our fiscal year.
We reported total revenue of 600.
$94 million for the fourth quarter, an increase of 43% over the prior year.
Growth was driven primarily by the Milacron acquisition, while Batesvilles revenue remained unseasonably strong due to the pandemic and contributed to the year over year increase.
Foreign exchange turned positive.
Causative and benefited the top line by 2%.
Revenue decreased 2% organically.
Adjusted EBITDA of $141 million increased 62% over the prior year, primarily due to the milacron acquisition and strong Batesville performance.
Consolidated.
Validated adjusted EBITDA margin of 20.3% expanded 240 basis points.
Organically adjusted EBITDA increased 4% and adjusted EBITDA margin increased 110 basis points of margin expansion in both advanced process solutions and Batesville segment.
I will provide more details about our margin performance when I review the segment results.
We reported a GAAP net loss of about $7 million or nine cents per share a decrease of 48 cents primarily.
Primarily as a result of noncash impairment charges of $62 million related to businesses identify.
Slide for divestitures as part of our portfolio simplification efforts.
Adjusted net income of $69 million resulted in adjusted earnings per share of 92 cents, an increase of 8% mainly driven by the milacron acquisition and strong Batesville performance.
As a reminder, adjust.
Adjusted earnings per share exclude after tax amortization of acquired intangible assets.
Amortization expense was approximately $17 million in the quarter.
The adjusted effective tax rate for the quarter was 32.1% an increase of 560 basis points year over year.
Evan by increased distributions from foreign subsidiaries.
We generated exceptional operating cash flow of $235 million in the quarter, which was about $165 million higher than the prior year.
The increase was primarily driven by cash flow from the milacron acquisition and strong working cap.
Good performance across the enterprise as well as lower acquisition and integration costs.
Capital expenditures were approximately $16 million in the quarter, and we returned $16 million to our shareholders in the form of cash dividends.
We also paid down $159 million of debt.
Total net debt at the end of the quarter was 1.3 billion and net debt to EBITDA was 2.7 times.
Turning to the next slide let me cover segment performance.
Advanced process solutions revenue of $330 million decreased 6% year over year.
Thanks.
Excluding the impact of foreign exchange revenue decreased 9%.
Revenue decreased primarily as a result of lower revenue recognized from large polyolefin system in general softness in industrial end markets, which affected demand for capital equipment and aftermarket parts and services across the segments.
This softness was partially offset by strength in engineered plastics applications like PVC in polycarbonate.
Despite lower revenue the segment delivered record quarterly adjusted EBITDA margin of 20.6%.
An increase of 160 basis points as cost inflation.
It was more than offset by cost containment actions pricing and productivity improvements.
Order backlog of $988 million that a segment record, increasing 5% sequentially and finishing 14% higher than the prior year.
Large plastics projects.
Comprise more than half of the current backlog.
We've experienced customer driven delays on several of these projects, which has shifted our expectations for timing.
Importantly, we have not had any large project cancellations.
These projects are expected to contribute to revenue over the next.
General quarters.
Including about 28% of the backlog expected to convert to revenue beyond the next 12 months.
The strong backlog and the growing installed base that signifies is a positive indicator for opportunities in both future capital projects and higher margin aftermarket parts and service.
Our molding technology solutions revenue of $217 million decreased 1% on a pro forma basis year over year, but improved 17% sequentially and its strongest quarter to date as part of hillenbrand.
Backlog increased 54% over the prior year and 31.
1% sequentially to $243 million its highest level in more than two years with improvement across the segment.
Sales of injection molding and extrusion equipment decreased year over year, but improved on a sequential basis India.
India in particular rebounded nicely from a weak as well.
Third quarter.
In terms of end market performance automotive construction consumer goods and packaging all improved sequentially.
Sales of hot runners increased year over year on strength and medical electronics and packaging and also grew sequentially driven by improvement in consumer goods and packaging.
Adjusted EBITDA of $51 million increased 20% and adjusted EBITDA margin of 23.3% increased 410 basis points compared to the prior year and increased 280 basis points sequentially.
The improvement was driven by cost containment actions.
Actions in addition to favorable product mix and cost synergies.
We are pleased with these results and remain focused on leveraging the hillenbrand operating model to drive sustainable operational improvements.
Moving to Batesville revenue of $147 million increased 8% year over year.
As we continue to see higher burial casket volume as a result of mortality associated with the COVID-19 pandemic.
Adjusted EBITDA margin of 24.3% was 170 basis points higher than the prior year, mainly driven by operating leverage and productivity gains in addition to cost containment.
Action, which more than offset cost inflation.
Batesville continue to execute exceptionally well leveraging the strength of our supply chain to respond to continued elevated demand broadly as well as demand spikes in certain geographic areas.
The Batesville team continues to work.
And lastly to fulfill this mission by helping families on our the lives of those they love.
Moving to annual results consolidated revenue of $2.5 billion grew 39% or 40%, excluding the impact of foreign currency exchange.
The Miller Con Aquas.
Position contributed 41% while revenue decreased 2% organically.
Advanced process solutions revenue of $1.2 billion decreased 4% or 3% excluding FX.
As general weakness in industrial demand was partially offset by modest growth in large.
Higher six projects.
Batesville revenue of $553 million increased 4% for the year due to increased demand for burial casket.
Molding technology solutions revenue was $736 million for the period that hillenbrand owned the business, which included 30.
$38 million from the some coal business that was sold at the end of the fiscal second quarter.
On a 12 month pro forma basis, excluding semiannual molding technology solutions revenue of $798 million decreased 15% year over year given.
Industrial end markets that were exacerbated by the pandemic.
GAAP net loss of $60 million resulted in GAAP earnings per share loss of 82 cents.
Mainly driven by a $145 million in noncash impairment charges, primarily on businesses identified for divestiture.
Our effective tax rate was negative 189% in 2020.
The reason for the negative tax rate was that we reported a net loss for the year, while being in a taxable position for income tax purposes.
The taxable position was primarily driven by nondeductible impairment charges in taxable gain.
Gains from the sale of the some coal business.
On an adjusted basis net income of $235 million resulted in adjusted earnings per share of $3.19.
An increase of 14% ROI.
Our adjusted effective tax rate of 27.8% for the full year.
<unk> increased 100 basis points compared to 2019, primarily due to the taxes associated with foreign earnings distribution.
Adjusted EBITDA of $464 million increased 57% year over year well.
Our EBITDA margin of 18.5% improved.
220 basis points.
The adjusted EBITDA margin increase was driven by organic margin expansion in advanced process solutions and Batesville as well as the addition of higher margin molding technology solutions product line.
We generated outstanding operating cash flow for.
For the year with a record $355 million $176 million higher than the prior year or an increase of 98%.
Our free cash conversion rate was approximately 136% of adjusted net income for the year.
We continue to leverage the hillenbrand.
Brand operating model to drive greater efficiency across the business, including focused initiatives on working capital.
During the year, we also returned approximately $63 million to shareholders in the form of quarterly dividend.
As of the fiscal year end, we had nearly $1.2 billion of.
Of liquidity and no near term debt maturities.
In terms of our capital deployment, we've been clear that our first priority is to pay down debt and deleverage following the milacron acquisition last November.
We have made good progress in reducing leverage from 3.8 times to 2.7 times in less than a year.
Which is faster than we expected in the current environment.
As we have done with previous acquisitions, we have been aggressively deleveraging to position the company with greater flexibility to grow both organically and inorganically.
We will continue to target getting firmly back within our leverage guardrails of 1.7.
Times to 2.7 times.
As we do we'll look to accelerate strategic investments in high return opportunities with the goal of increasing profitable growth.
We expect to maintain a strong balance sheet and liquidity profile to ensure the flexibility to execute our strategy.
And now that we've reached the end of fiscal 2020, we thought it would be a good time to revisit the three year targets, we announced at our Investor day in December of 2017.
As you can see from this slide we delivered on our key targets.
We grew total organic revenue at a rate of about 4% per year and.
Net revenue target for both advanced process solutions and Batesville segment.
We achieved targeted organic adjusted EPS growth and we easily exceeded our targeted free cash flow conversion.
We fell short on two metrics first we came up a bit short on our double digit adjusted EPS target given the unexpected.
Challenges, we faced with certain end markets and COVID-19, following the milacron acquisition.
And second our goal was to expand adjusted EBITDA margin and advanced process solutions by a total of 250 basis points over the three years.
We improved the margin by 180 basis points, which.
It was good but not quite where we want it to be.
Importantly, we achieved our EBITDA dollar target.
The main reason for coming up short on the margin for the increased mix of large plastics projects with a relatively low initial margins.
While we would like to have hit the margin target, we're pleased with the contracts.
Houston These projects made to the bottom line and over the long term, we expect them to provide the opportunity for highly profitable aftermarket parts and service revenue as we continue to pursue incremental margin improvement.
I will now turn to our outlook.
Amid continued uncertainty.
We are providing guidance only for the first quarter of fiscal 2021 under the assumption that we will continue to see stability in the global economy without any broad based coded related disruption.
Starting with Batesville, we expect revenue to increase 12% to 15%.
Year over year based on a continued trend of elevated burial casket volume due to the pandemic.
We expect strong margin performance in the first quarter, driven by operating leverage and continued efforts to drive productivity.
We are targeting an increase in adjusted EBITDA margin of six.
Hundred 40 to 740 basis points over the prior year.
In advanced process solutions, which includes long cycle systems mid cycle capital equipment, and aftermarket parts and service.
We expect first quarter revenues decreased 12% to 15% year over year.
Mainly driven by the timing of long cycle large polyolefin projects and continued softness in both our mid cycle product lines and aftermarket parts and services.
We continue to see strength in the longer term outlook for the long cycle part of the segment as evidenced by the record backlog and a healthy order pipe.
Fixed line however.
However, as I mentioned earlier, we are facing customer driven delays with several large plastics projects.
Additionally, we have experienced deferrals in maintenance and modernization projects.
The timing of these projects can cause lumpiness in our quarterly results and we're expecting that to be.
A challenge in our fiscal first quarter.
We anticipate revenue from these projects will be much stronger in the second half of our fiscal year.
We continue to leverage the hillenbrand operating model to drive pricing and productivity improvement and we continue to execute actions to contain costs.
Same time, we're investing in targeted areas to position us better as market conditions improve.
In total we expect year over year, adjusted EBITDA margin improvement of 20 to 70 basis points, despite the lower volume.
We can't predict the timing of potential divestitures, so all our current.
Current advanced process solutions operating companies are included in our projections.
Turning to molding technology solutions, we are nearing the one year Mark from the time of the Milacron acquisition on November 20 Onest.
The majority of the contribution from this segment for fiscal 2021 in comparison.
At this year will be organic but there is a period of about seven weeks at the start of the first quarter. When the segment was not reflected in our prior year results.
This segment includes mid cycle injection molding equipment short cycle hot runners and aftermarket parts and service.
On a pro forma basis, we expect to enroll.
To that end technology solutions of first quarter revenue will grow modestly year over year in a range of about 2% to 5%.
Primarily driven by growth in the short cycle Hot runner systems.
Recent order trends for injection molding equipment have been positive, including sequential order improvement broadly.
Across key end markets and geographic region, leading to the best order levels and backlog in the product line and over two years.
We expect first quarter revenue for injection molding to be relatively flat year over year. However, we're pleased with the momentum that we've generated which bodes well for continued improvement in the second half.
Full year.
We are targeting strong adjusted EBITDA margin improvement of about 370 to 470 basis points driven by increased mix of higher margin Hot runner systems. In addition to productivity and cost synergy initiatives as we continue to deploy the hillenbrand operating model across.
The segment.
As you can see on the slide we expect hillenbrand's total first quarter revenue to decrease year over year in a range of 1% to 4%.
At the same time, we are forecasting strong margin performance across all three segments.
We expect adjusted EBITDA in the range of one.
$6 million to $115 million and adjusted earnings per share in the range of 65 to 75 cents compared to the prior year results of 75 cents on an apples to apples basis.
The range extends below the prior year, primarily as a result of increased interest expense a higher tax rate.
Hundred share dilution.
Putting these items aside I want to emphasize that we anticipate solid improvement in our operating results.
We expect our adjusted effective tax rate for the first quarter to be in the range of 27% to 28%.
Finally ill comment I'll comment briefly on free cash flow.
Which remains a top priority.
Our cash generation tends to be seasonal with the majority generated in the second half of our fiscal year.
We expect that to be the case in fiscal 2021, including first quarter free cash flow in line with historical trends as we anticipate investing cash.
And funding near term working capital requirement.
Over the full fiscal year, we expect to generate free cash flow greater than our adjusted net income.
These are our expectations for the first quarter. Obviously, we continue to operate in a very dynamic environment that remains challenging to forecast injustice.
A few months ahead.
We will look to resume providing full year guidance at the appropriate time.
In summary, we had a stronger than expected finish to a very challenging year.
While the current business environment remains unpredictable in many respects, we're focused on managing the things they can control and continuing to execute.
Had against our strategic initiatives.
We believe our fourth quarter financial results demonstrate that commitment.
At this time I'll turn the call back over to Joe.
Thanks Kristina.
As we close out our prepared remarks I want to update you on the portfolio actions, we announced last quarter.
As such we will plan.
Planned divestitures of Terrasource global and our flow control businesses is going well we've had significant interest in all three assets there.
While the current economic and market conditions may have an impact on the timing of the transaction today, we feel confident in the process and look forward to updating you when we have something to announce.
As we move into fiscal 2021, the management team continues to remain focused on executing our near term priorities of running our businesses well and protect the margins during this uncertain time.
Integrating milacron successfully and generating strong cash flow continued to pay down debt.
We've taken decisive.
Since the weather the challenges of COVID-19, and a position hillenbrand for growth and improved profitability as our markets recover.
With that we'll open the line for your questions.
At this time I would like to remind everyone in order to ask a question. Please press star folded the number one on your telephone keypad.
First question is from Daniel Moore with CJS Securities. Your line is open.
Joe Christina good morning, Thanks for taking the questions.
Dan.
Starting with and forgive me ill get to the new vernacular for all of the segments down, but with MTS molding technology solutions.
Let me just talk about the mix of mold Masters, the hot runner business versus injection molding Q.
Q4 until the guidance in Q1, what that looks like right now.
And what are the end markets you mentioned several but what are the end markets that are really driving the recovery here.
Yes sure.
So let me just let me start out with Q4 from Q.
From a from a revenue perspective.
We saw continued strength in the hot runner part of the business. So that that part of the business performed better than we expected.
And that was really.
Largely driven by medical and electro.
Specs.
On the injection molding side of the business you are that that business continued to to see relatively modest revenue increase but as we move through the quarter we.
We did see parts and service pickup and we did see orders for smaller smaller pieces of equipment that we could ship pretty quickly pick.
Pick up so.
Really for the quarter both of those segments performed better than we had expected. The last time, we talked on the on the third Im sorry, the third quarter call of last time.
And then from an order perspective.
We see pretty pretty solid orders continuing on the mold masters side.
On the hot runner side. So that's encouraging as we can see continue to see good orders and.
Good activity there and.
And then during the really the second half of the quarter, we saw very strong order snap back on the injection molding side. So.
We had just a few weeks.
Next were hauling of orders were released and and where we are.
Closed on those orders and as I mentioned, we continued to see good parts and service orders.
So we're still working through how much of that is.
You know kind of one time snap back from a bunch of penta.
Demand and how much of that is going to be ongoing strength, but but I would say the order trends are very strong in both of those businesses as we're heading into into our first quarter.
And then just one last comment related to the guide I think was part of your question related to the guide.
The hot runner business.
It is a pretty fast turn business so.
That shows up typically in the quarter that we're pretty close to the quarter that you're that you get the order. So it it tracks very closely revenue tracked closely with the order trends, which as I've mentioned remain positive.
On the injection molding business unit, Thats, a two or three quarters, sometimes longer.
The other order to delivery cycle, so we'd expect to see some of the strong orders on the injection molding side really mainly impact the second half of our year. So we'll see more modest revenue growth for sure for sure in the first quarter because it will take a little while for those orders to work through the system to turn into revenue.
Got it Thats helpful and maybe just a follow up there just trying to kind of understand the mix a little bit.
Generated.
Exceptionally strong margins in the quarter in that segment.
Nick Guide is for a little bit of a sequential step down. So is that just all mix more injection molding.
Longer or is there anything else.
Just trying to get a sense for what the new sort of base run rate for margins should be.
Hi go forward basis. Thanks.
Yes so.
I would say you know our guided in the first quarter, we expect still to continue strong margin performance Nick.
The driver of that so we will see.
Continue to see a pretty heavy mix of the of the hot runner.
Systems in the first quarter, but but also an increase in the im injection molding side. So as we move through the year, we'll see likely see margins moderate a little bit as.
Mixes second as we move through the second half of the year, we worked through that backlog on injection molding thereof.
There will be a more balanced mix in terms of injection molding compared to the hot runner systems.
Got it and one more and I'll jump back in queue, but batesville.
Obviously continues to be very strong.
Are you surprised that the legs that it had into fiscal Q4 and.
Obviously, if youve got.
Our forecasting continued unseasonal strength since here in fiscal Q1, just talk about your visibility there. Thanks.
Yes, Thanks, Dan I think thats another place that we performed.
Better than than expected.
Compared to where we thought we'd be at our last call. If you think about I.
I think there were some moderation in KOVA 19, and we've seen this really strong second wave, which is continuing to accelerate just driving to work today on the radio I heard that another.
Other.
They have high Destiny, United States yesterday and so.
I think we haven't better view towards.
The potential vaccine and what's happening in the market. So we'd expect this first quarter as we guided to be.
Significantly again year over year.
And then quite.
Frankly, you know as we move into as we move into our our second fiscal quarter.
That's a little bit tougher call, given what's going to happen with the vaccine.
It looks like the.
Based on what we see in Australia as an example, the regular flu may be lighter this year, given everyone's precautions and distributed.
So it's pretty tough to continue to to to forecast that business.
On the one hand on the other hand from external perspective, you can kind of track what's going on with guests in North American good get a pretty good sense of what's happening with our business. So.
You know unfortunately, we're expecting.
We had a decent fourth quarter with elevated volume and unfortunately, we're expecting that to continue into the into the first quarter of this year.
Understood. Okay, I will jump back with any follow ups. Thank you and congrats.
Sexual performance in the quarter.
Thanks, Dan Dan.
Our next question is from Matt Summerville with D.A. Davidson Your line is open.
Thanks couple of questions first I think in the prepared remarks, you mentioned 28% of the.
Long cycle I believe was long cycle, maybe as a total segments, maybe delineate that but 20% of the backlog you have and what you use.
To refer to PDG extending beyond 12 months, what is a more normalized number in that regard. If you look back say over the last five years.
Yes, I'm going to look over at some of the PNM folks here, but.
So I think that number the 28% is the the former PDG segment.
The advanced.
Process solutions and that is those larger projects that tend to get delivered beyond they take four to six sometimes eight quarters to get delivered.
And so that's that's what those projects are we I think as we've communicated we seen that number increasing.
Okay.
Particularly over the last few quarters and really I guess across 2020 really all 2020 that number is typically in the mid to high teens.
And so we've seen it creeping up over the last few quarters I think last quarter. It was in the mid Twentys accord.
Before that it was around 20, and then sort of high teens before that which is sort of a normal rate.
So it is it is a bit elevated as we see.
Continued strength in orders, but some of those projects pushing out from a customer perspective, and then you're getting that.
A higher percentage of the backlog that would be to live.
Liver.
Beyond the 12 month period.
Is there any way Joe to talk about or terrain times kind of the amount of revenue either be it projects either be it maintenance or modernization slash upgrades, how much revenue in this business has sort of been deferred and the timing.
Which you would expect that to be recaptured at this point.
So.
A couple of things I think it is.
So from a from a backlog perspective, we really don't in this segment, we don't get cancellations typically.
And especially for the larger projects. So in that sense, you can really think of as this backlog pushes out that is really deferred.
Now on the flip side of that we do percentage of completion accounting and so you will have this as we as we guided in the first quarter, we'll have this trough.
And so that won't Nat.
Back really quickly that that'll push out and so we will see a.
Continued strong revenue in the second half and into 22, given this backlog of large projects.
And so I'm not I'm not sure exactly getting to your answer, but but in terms of total dollar.
We've probably seen about $250 million of UBS.
Backlog of push out beyond where we'd expected to be you know.
A couple of quarters ago.
Got it and then just maybe as a final question.
We achieved.
What was the total.
Synergy realization associated with Milacron in fiscal 20, and what do you expect to be the key drivers of that Max.
Log of $20 million to $25 million that you mentioned in your slide deck. Thank you.
Yes, I think we ended the.
In the fiscal year at about $27 million.
Others have.
Realized synergies.
And you know a lot of that was public company costs.
Early on as we move forward, we will continue to get some of those benefits of public company cost reductions in 21.
And then, but we'll really start moving more towards.
More operational oriented savings as we move into 21, and 22 and so a big chunk of savings in 21 comes from our procurement initiatives that really drive across all the industrial businesses and isn't Batesville and then.
We start to you had some productivity savings related.
I'll, let you know site consolidations et cetera, but we'll start to see more of kind of operational efficiencies as we continue to drive kaizen events and lean business practices through the entire organization, but.
Special emphasis on some of the operations, particularly at the inject.
Direction molding business. So we'll see that come through so I would say you know really in the second half.
It's a bit more operationally focused.
Then what we saw in year 2021, it's more operationally focused than we saw in 2020.
Got it thanks, Joe.
Thanks.
Thanks, Matt.
Again, if you would like to ask a question. Please press star followed by the number one on your telephone keypad. Your next question is from Chris How with Barrington Research. Your line is open.
Good morning Jones of Stephens.
Good morning, Good morning, Chris.
Good morning.
Well.
Starting off with the assets that are for sale.
Can you talk a lot, but a little bit more about how they performed in the quarter and.
How you see their performance in Q1 or from a general perspective.
What your expectations are for those businesses as.
As we move through the next.
We are.
Sure.
So the business is you're referring to really is the terrasource global business and NR to flow control businesses.
Just a reminder, that those are relatively small part of the overall portfolio less than 5% of revenue.
Those businesses really felt the.
Just real slowdown like.
Our mid cycle more of our mid cycle businesses in a pretty similar way.
And so it's difficult to forecast when those businesses will snap back.
But but generally they saw performance kind of like the in line.
And with.
Being offset solutions performance and then.
Again, it's a little bit difficult to forecast too far forward with those businesses.
But but.
But they're they're good businesses, they're performing well they've done taking a lot of cost action to protect.
Tech margins over the past couple of quarters.
And again, we see we see pockets of demand returning we see other places where we're continuing to see softness in in orders on both the capital side and the parts and service side.
Okay.
And then.
My next question is just surrounding EPA.
Yes advanced process solutions.
In the first quarter.
You're expecting at 12% to 15% year over year decline.
Given what you've seen so far in October as much as you can share.
Do you feel that Q1.
Is the bottom of that softness and we should see Ats.
Show, some sequential improvement or some cadence through the remainder of the year.
You know.
I think this is why we're only giving quarterly guidance you know it is.
It is.
Really pretty tough to tell I think.
The news of the vaccine is very positive.
Again this businesses is.
Got characteristics that sort of general industrial businesses, which are feeling softness we do have a couple of those large projects that have pushed out we expect those price.
Next to resume though as we move into the second half.
And so we expect the second half of the year to be stronger I.
I would also say the same on the parts and service side, you know the parts and service business.
Continues to remain down on a year over year basis.
And we would expect that pretty good as we move into.
The second quarter, perhaps in into the second half of the year for that to rebound as as customers you know free up both capital and expense and.
And also feel more comfortable scheduling some of the larger service projects that we do.
And so again I think this is a business that we would expect to see.
Proved performance in the second half of the year Bye bye.
Just really tough right now given the difficulty with forecasting around the globe due to the pandemic.
That's great color. Thank you, Joe and if we move below the top line for HTS.
You posted.
Record margin of 20.6%.
In the fourth quarter.
Should we look at that 20.6%.
As the high end of a voluntary range or is there potential for slight.
Expansion of that margin opportunity in fiscal year 21.
Yeah, I think I would think of that margin opportunity.
More at the high end of the range.
So.
I think we've really we've really squeeze down cost.
And especially in the third quarter, we tightened expenses.
Pretty hard and fast in response to the pandemic, we've freed up.
Ups and spending in the last in the in this past quarter across the businesses on trick in areas, where we expect solid growth in really good growth coming out when we come out of this downturn.
So I think the other thing is with the mix of large projects and we'd expect to continue to see.
The.
A mix of large projects.
In the second half of next year and as you know that that has more buyout.
In it so we buy out equipment like motors and gearboxes that brings our margins down a little bit, but but with all that said our margin performance has been very strong.
As we guided in the first quarter pick on a year over year basis really across the board, we expect very solid margin performance.
Probably a little tougher in the in the Hps the advanced process solutions.
Division, but but again solid margin performance across the board is what.
Active in Q1.
Great. Thank you for the color I'll hop back in queue.
Thanks, Chris.
Your next question is from Daniel Moore with CJS Securities. Your line is open.
Thank you again.
Just two quick follow ups.
The I'm on the Coperion large project side.
The.
Modest push outs is are they COVID-19ien related capital constraint related economic uncertainty.
I know, it's hard to tease out sort of just cope it operational challenges versus the economic concerns.
We expect what are you hearing from customers.
As it relates to those project delays.
Yes, so I think it's a little bit it's multiple things.
I would tell you that when you think about our customers that.
Our more integrated oil and gas companies Theyve got capital.
Turns constraints in spending constraints. So there is a there is a little bit of that happening in certain parts of the business.
Then when you think of our other customers that are really more.
Petrochemical oriented and not not.
Doing.
Drilling for oil and gas exploration.
They are seeing you know reduced feedstocks and so in those cases, which is good for them and so in those cases.
It tends to be other things either cold weather related because they can't get the site ready.
Financing related or something like that so we've got a little bit of a a little bit of a mixed bag in terms of what what's the push outs are.
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I would just say that it's a little bit of more obvious in United States. So we've seen some of the push out in the North American projects.
That really isn't the case around the rest of the world, particularly in Asia, where there continues to be strong demand and a very solid pipeline for these large projects.
So the couple of big projects that have pushed out it's really a bit of a mixed bag.
And again, we expect those projects the sort of June back up more aggressively as we go into the second half of the year.
That's helpful is and is there some a little bit of supply chain constraints that you're hearing from your customers or is that less of an issue.
I think thats, a little bit less of an issue right now I think a lot of it is.
We caution.
It is it is a big chunk of it.
I think you know.
The supply chains are operating reasonably well around the world and as I mentioned, we have a significant strength in Asia.
And when you think about Asia, and particularly China, you know the supply chains are pretty intact in in.
In that part of the world as their issues with the pandemic are much more under control, particularly in China.
Perfect and last for me Christina really impressive to hear that you expect free cash.
Conversion after this year to be again above net income.
Just confidence there and what do we should we think about from a capex perspective for fiscal 21.
Yes so.
You know, we do like back to in a high level of confidence to continue to get.
Free cash flow greater than our adjusted net income I would just add to mention.
Mention again, it's going to be it's going to be seasonal that we're going to see that free cash flow in the back half of the year.
And I would tell you that the opportunities are still out there for working capital.
In particularly inventory.
R&D and <unk> segment. So we will continue to work with our legacy hillenbrand businesses Ats and Batesville to maintain their working capital improvement that really the focus as we move forward and.
It will be to get at.
Yes inventory more in line to our expectations. So just given the mix of our business as you know I feel very confident that we're going to get that free cash flow greater than net income.
As it relates to Capex, we are going to be making and a little more investment this year than last year as you know.
Last year, we held off on.
Investment. So we are looking at about 3% of revenue or about $70 million to $75 million.
Perfect. Thank you again.
We have no further questions at this time I turn the call back to presenters for closing remarks.
Thank you operator, and I just want to thank everyone for joining us joining.
Joining us today.
These are challenging times, but we feel like we're doing a good job of focusing on execution controlling what we can control.
We are especially pleased with the progress that the milacron businesses have made during the quarter.
Integration continues to go quite well.
Margins remained strong across the entire enterprise.
And then Weve made just substantial progress in our debt to EBITDA leverage and continuing to bring that down so as we head into our fiscal year 2021, we feel.
Cautiously optimistic that we'll we'll execute well and have a very good year.
And with that we look forward to talking to you again in February as we discuss our first quarter fiscal 2021 results. Thanks, everyone and have a good day.
This concludes today's conference you may now disconnect.
Okay.
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Hello.
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