Q1 2023 Hillenbrand Inc Earnings Call
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Hello, and welcome to the Hillenbrand Q1, 2023 earnings call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation. As a reminder, this conference is being recorded its now my pleasure to turn.
Hello over to Sam Eisenberg, Vice President Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone welcome to Hillenbrand's earnings call for the first quarter of 2023, I'm joined by our President and CEO , Jim Ryan and our senior Vice President and CFO , Bob and Timberland.
I'd like to direct your attention to the supplemental slides posted on our IR website that we referenced on today's call.
As a reminder, the Batesville segment have been classified as discontinued operations for all periods presented our commentary will be based on the performance of our continued continuing operations unless otherwise noted.
Turning to slide three 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 organic comparisons for our segments, which exclude the impact from acquisitions divestitures and foreign currency exchange.
Courage you to review the appendix in slide three 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 affect our actual results with that I'll now turn the call over to Kim.
Thank you Sam and good morning, everyone.
Thanks for joining us today as we review results from our first quarter fiscal 2023.
Last week, we closed the sale of Batesville, completing our transformation into a pure play industrial company. This transaction represents a significant milestone in hillenbrand's journey first it builds upon the momentum we created over the last 12 months with the strategic acquisitions, we made in food and recycling.
It also simplifies our portfolio to fully focus on our expertise in developing highly engineered mission critical industrial processing equipment and solutions for our customers.
Finally, it positions hillenbrand for long term profitable growth through our leading brands in attractive end markets supported by secular growth trends.
I want to thank our associates, who have worked tirelessly towards the successful completion of this transaction I.
I spent 17 years of my career with the Batesville organization and I'm confident that both companies are in a place of strength as we move forward to pursue our own unique opportunities to create value.
We've built a strong foundation at hillenbrand in large part to the tenants of customer service lean operations talent development and responsible corporate citizenship instilled through Beit sounds legacy I want to thank the entire batesville team for their contributions.
Now I'll turn to our first quarter performance.
Despite continued uncertainty impacting the broader global economy, we delivered a solid start to the fiscal year, our first quarter revenue from continuing operations grew 16% compared to the prior year driven by our recent acquisitions and healthy organic growth for advanced process solutions segment.
In the quarter, we saw good demand for our newly acquired food and recycling businesses and we saw continued growth in our aftermarket business.
Our backlog, which now includes links this anti or less nearly $2 billion at the end of the quarter.
And our organic Aps backlog remained at near record levels. Our Aps project pipeline remains robust for our highly engineered equipment installations across our key growth platforms of durable plastics recycling and food.
Starting with our core plastics business, we continue to see strong demand in Asia, and the middle East as polyolefin and engineered plastics customers are quoting projects, it's increasing output requirements to meet the growing global demand for durable plastics.
This is a positive trend for us as we are a global leader in providing complete systems with high output high quality capabilities.
Turning to recycling as we've discussed we believe recycling will be a high growth area for us since our acquisition of <unk> last year. The pipeline of orders have been even better than we planned with growing demand in North America, India and the Middle East. We're excited about the momentum in this area, which we aim to further bolster with our recycling innovation.
Center in Germany, which will be completed in April of this year.
Now I'll, just food, we had better than planned orders and revenue in the quarter driven by solid demand across North America, and Europe through the combination of our coherent and Linksys technologies. We are seeing increased quote opportunities as customers recognize the value of comprehensive solutions, which we can now provide we've.
We've been able to adapt certain feeding technologies that were historically used for plastics applications to help increase share of wallet with existing <unk> customers and have already seen success with this approach within the first few months of ownership.
Finally, our integration program is proceeding well and we remain confident in the value creation, we expect to achieve from the linksys Peerless and <unk> acquisitions.
While we're seeing solid momentum in our Ats segment, the uncertainty of the macroeconomic environment continued to pose challenges for our MTS segment, which tends to be quicker turn and serves applications that are closer to the consumer as.
As discussed during last quarter's call, we experienced customer decision delays that resulted in order softness as we entered the quarter. This trend continued through the quarter and while we're optimistically monitoring the reopening of China, we've not seen the order pipeline convert yet our sales representatives are just now getting to travel inside China.
To drive these project decisions Adil.
Additionally, while the supply chain and inflationary pressures have begun to ease we continue to experience shortages for chips and other electronic components, which more heavily impacts our MTS segment. We remain focused on deploying the hillenbrand operating model to prioritize critical investments manage discretionary costs and drive operation.
Efficiencies in response to the extended softness Bob will address this further when he covers our results and full year outlook.
Overall, we continue to see strong performance and outlook for our Ats segment, while remaining focused on managing through dynamic macro environment impacting our MTS segment.
As we communicated at our Investor day in December our renewed strategy for the next chapter of our journey is to grow enhance and optimize.
We're excited about the opportunities to continue our momentum through the disciplined deployment of capital towards higher growth higher return investments that will further position hillenbrand for long term shareholder value creation as a pure play industrial leader.
Lastly, before turning the call over to Bob I'd like to quickly provide an update on sustainability with the recent changes in our portfolio. We have revisited our materiality assessment to ensure that we advance our sustainability strategy that our stakeholders in mind, while also incorporating our new acquisitions and accounting for the Batesville divestiture, we pay.
I am to publish the results of our survey and our upcoming annual sustainability report later this year with that I'll now call turn the call over to Bob to provide more details on our financial performance and outlook.
Thanks, Kim and good morning, everyone.
Turning to slide six a few items to note throughout my section.
Dan mentioned Batesville financial results are reported as discontinued operations for all periods presented.
For today's discussion going forward I'll be reviewing our performance and providing guidance on a continuing operations basis, unless otherwise noted.
Results compared on an organic basis, excluding the impacts of acquisitions and divestitures as well as foreign currency exchange.
We believe these comparisons provide a clear assessment of our performance and you'll find reconciliations of our GAAP and non-GAAP results in the appendix of the earnings slide deck.
And our first quarter, we delivered revenue from continuing operations of $676 million.
An increase of 16% compared to the prior year.
Primarily due to acquisitions.
Aftermarket revenue and favorable pricing.
On an organic basis revenue increased 4% year over year.
Adjusted EBITDA from continuing operations of $101 million increased 13%.
On an organic basis, adjusted EBITDA increased 3%.
Favorable pricing and productivity improvements were partially offset by cost inflation and strategic investments.
Adjusted EBITDA margin of 15, 4% decreased 40 basis points, primarily due to the dilutive effect of price cost.
Okay.
We reported GAAP net income from continuing operations of $27 million or <unk> 35 per share an increase of 21% compared to the prior year.
Adjusted earnings per share from continuing operations of 70 cents increased 14 or.
Or 25% compared to the prior year, primarily due to pricing and productivity improvements the impact of acquisitions.
Our shares outstanding and a lower tax rate.
This was partially offset by inflation unfavorable foreign currency exchange and higher interest expense.
This performance was ahead of our expectations coming into the quarter as our total adjusted EPS included Batesville of a dollar.
It was above our original guidance of 85 to 93.
The adjusted effective tax rate in the quarter was 25% or 520 basis points favorable to the prior year, primarily due to a discrete one time impacts from attachment setup in China for high technology companies.
We anticipate our full year tax rate to remain in the range of 29% to 31%.
Cash flow from operations represented a use of cash of $6 million in the quarter down approximately $26 million from the prior year, primarily due to unfavorable customer advances, resulting from order softness within MTS, which was more significant than we expected.
As Kim mentioned, we continue to experienced pockets of supply chain challenges in the quarter, causing inventories remain above optimal levels, well also causing delays in achieving certain project milestones, which resulted in higher than planned until they are.
We remain confident in our ability to drive strong working capital fundamentals across the business and we're cautiously optimistic that the broader supply chain. We will continue to improve as we work through the balance of the year.
With that we anticipate stronger cash flow in the remaining quarters.
We expect our full year cash flow conversion to be approximately 80% to 85%.
Highlights. This includes approximately $20 million of onetime cash charges related to the divestiture of Batesville that do not qualify for discontinued operations reporting.
Excluding these items, our full year conversion would be roughly 90% to 95%.
Capital expenditures were $15 million in the quarter, which was inline with expectations.
Now moving to segment performance, starting with EPS on slide seven.
EPS revenue of $413 million increased 30% compared to the prior year, driven by acquisitions higher aftermarket revenue and favorable pricing.
Organic revenue increased 5% year over year.
Adjusted EBITDA of $71 million increased 31% year over year.
On an organic basis, adjusted EBITDA increased 9%.
Favorable pricing and productivity improvements were partially offset by cost inflation and in <unk>.
<unk> and strategic investments.
Adjusted EBITDA margin of 17, 3% increased 10 basis points, while organic adjusted EBITDA margin of 18, 1% improved 70 basis points.
As a reminder, the recent acquisitions have margins that are below our legacy segment performance, but we fully anticipate bringing these margins in line over the next few years through the deployment of the hillenbrand operating model to execute on operational improvements and achieve synergies.
Backlog of $1 $63 billion.
Increased 23% compared to the prior year or 11% on an organic basis, driven by strong order volume for large plastics projects and aftermarket parts and service.
As Kim mentioned, we continue to see a solid pipeline of demand in our key growth platforms plastics recycling and food and are excited about the opportunities we are quoting through our enhanced customer offerings across these end markets.
Turning to MTS on slide eight.
Revenue of $243 million decreased 2% year over year, but increased 2% on an organic basis as favorable pricing and higher aftermarket parts and service revenue were partially offset by a decrease in hot runner sales.
Adjusted EBITDA of $43 million decreased 17% compared to the prior year or 11% organically.
Adjusted EBITDA margin of 17, 7% decreased 310 basis points as inflation unfavorable mix and reduced operating leverage on lower volume more than offset favorable pricing.
Backlog of $334 million decreased 18% compared to the prior year and 8% sequentially, primarily due to the execution of existing backlog and a decrease in orders for injection molding and extrusion equivalent.
We anticipated customer delays in MTS as we entered the quarter, though these persistent to a greater extent initially expected, particularly within our injection molding product line.
We now expect this customer softness to persist for longer than initially anticipated, which is now reflected in the updated guidance I will discuss later in the presentation.
As Kim mentioned, we are taking measures to curtail our discretionary spend and prioritize investments to help mitigate the current demand softness.
Okay.
Turning to the balance sheet on slide nine net debt at the end of the first quarter was $1 7 billion.
And net debt to pro forma adjusted EBITDA ratio was two nine.
Quarter end, we had liquidity of approximately $689 million, including $195 million in cash on hand, and the remainder available under our revolving credit facility.
With the sale of Batesville completed we expect after tax net proceeds of approximately $530 million, which we plan to use to reduce existing debt, which will result in pro forma net leverage of approximately $2 six at the end of December 31.
Turning to slide 10, as many of you know we have a strong track record of deleveraging following the acquisitions and we expect to continue this track record as we move forward.
Now moving to capital deployment priorities on slide 11.
As a pure play industrial company, we will look to deploy capital to maximize shareholder value through attractive organic and inorganic growth opportunities as well as returning cash to shareholders through opportunistic share repurchases and dividends, while continuing to target net leverage within the range of one seven to $2 seven.
Now, let me conclude my prepared remarks with our updated outlook.
Turning to slide 12, with the divestiture of Batesville, we are removing 600 million to $610 million of annual revenue and <unk> 95 to $1 of annual adjusted earnings per share from our guidance model, which reflects batesville as previously expected financial contribution as well as the expected reduced.
Interest expense for the planned paydown of debt with the net proceeds from the sale.
With that our previous guidance would have equated to a total annual revenue of approximately $2 $7 billion to $2 8 billion in.
And adjusted earnings per share of $3 15.
The $3 50.
Julian operations basis.
Now moving to slide 13, given recent developments, including a more favorable expected foreign currency impact. The addition of peerless and the softer than expected performance at our MTS segment, we are updating our continuing operations guidance for the full year.
As a result, our guidance now assumes slightly increased expected revenue of approximately $2 8 billion to $2 9 billion for the year with adjusted earnings per share from continuing operations in the range of $3 25.
The $3 55.
Reflecting year over year growth of 28% to 31% on a continuing operations basis.
Now turning to the segments.
For EPS, we are increasing our expected annual revenue range from $1 78 to $1 83 billion.
Previously $1 six six to $1 74 billion.
This change reflects a more favorable expected foreign currency impact primarily due to the stronger euro as well as the contribution from Peerless, which we closed at the beginning of December .
Our assumption for underlying organic growth remained strong at approximately 10% to 13%.
We are maintaining our expectations for adjusted EBITDA margin to be in the range of 19% to 20% which reflects underlying core.
Organic margin expansion of 60 to 100 basis points.
For MTS, we are reducing our expected annual revenue range to be $980 million to $1 2 billion previously one point or two to $1 6 billion.
As a result of the lower anticipated volume, we are reducing our adjusted EBITDA margin expectations to be in the range of 19% to 20% from our previous guide of 20% to 21%.
With the recent changes to our portfolio and the ongoing macroeconomic uncertainty we are providing Q2 guidance range for adjusted earnings per share from continuing operations, which we expect to be 65 to 73.
Which is essentially flat to slightly ahead of the prior year as EPS growth, including acquisitions is expected to be mostly offset by continued softness with MTS.
Unfavorable foreign currency exchange and a higher tax rate.
Please review slide 13 for additional guidance assumptions.
As we look forward to the balance of the year, we continue to see strong momentum in our API segment, which is helping to mitigate the order softness we see within our MTS segment.
Our recent acquisitions are off to a solid start and performing ahead of our expectations are.
Our teams have remained nimble despite the ongoing macroeconomic uncertainty and I am confident in our ability to continue to position hillenbrand for further growth and shareholder value creation as a pure play industrial company.
With that I'll turn the call back over to Kevin.
Thanks, Bob and before taking questions I'll end our presentation. This morning with a few final remarks, our strong backlog provides stability as we continue to navigate this challenging macro environment and I remain confident in our proven track record of driving operational excellence through our organization, which is enabled by the dedication of our associates.
And that discipline is still by the hillenbrand operating model.
Additionally, our recent acquisitions are off to a great start and we remain committed to driving strong returns on these investments the completion of the Batesville divestiture marks an important new chapter in our transformation journey.
In my over 33 years at Hillenbrand I've never been more excited for the future with a renewed focus and strategy to propel our growth as a pure play global industrial leader as discussed at our Investor Day, we are well positioned to create value through our leading brands, serving large and growing end markets through our.
Our focus on highly profitable aftermarket growth and continuing to expand our capabilities through strategic M&A.
By utilizing the hillenbrand operating model to drive sustained operational improvement productivity and synergies.
And by deploying capital towards high return opportunities that we believe will maximize shareholder value.
We remain committed to our purpose to shape what matters for tomorrow as we provide excellent opportunities for our associates World class product solutions and service to our customers.
Positive impact to our communities and a compelling value for our shareholders. We will now open the line for your questions.
Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one our first question today is coming from Daniel Moore from CJS Securities. Your line is now live.
Thank you good morning, Ken Good morning, Bob Thanks for taking my questions.
And all the detail.
You know, particularly as it relates to bridging the gap between the pro forma is very helpful. So maybe start with Aps you mentioned some of the regions. Obviously plastics remained strong food recycling just talk about where you're seeing incremental strengths both by region and end market.
And maybe just the outlook for margins.
On the current guide.
Not.
Looking out over the next one to two years.
Do you see margins coming up as those acquired businesses layer in and generate synergies and talk about kind of aftermarket parts and how those trend as a percentage as well.
Mouthful, but.
Digging into that a little deeper is really helpful. Thanks.
Okay, Alright, so I'll take the I'll take kind of the demand and market base and I'll, let Bob comment on the how we're how we're layering those margins and.
So from a demand standpoint, we continue to see overall stability so.
Kind of look geographically.
China reopening and know that they are through the Chinese new year, the lunar new year, and and resources are again able to travel in China that that will I think be a a positive momentum for us as we are allowed to get those projects we've been working on our.
Sales and service Representatives will be allowed to move around the country more freely to be able to continue to drive the.
Project decisions on new capital, but also to implement service packages and commissioned in the plants that we've been working on over the last couple of years and country because that limiting of travel has been you know.
It has created some of the challenges that we've had in our rising that we commented on earlier so as those resources are able to go and commissioned as planned.
We expect that that will be that will be a positive move forward for us.
As with India, and the Middle East as we commented has been kind of areas of new demands geographically for the Aps market and those.
Those are projects that have been under discussion for some time that are beginning to move ahead in those two regions. We have footprints in each of those regions. Both from a sales and service perspective, and we are well positioned to be able to respond to customer needs there.
<unk> has been very stable and all of these markets, where we've had capital implementations over the last few years, we're beginning to see the the service side of the equation begin to kick in and as we've commented we've seen good growth in our in our parts and service business and that that is also something that.
We're really looking forward to over the next 12 months. So that's what we see on the demand side for Aps.
On the normal kind of plastics business on the food side that business is primarily today and.
In U S and in Europe , and we've seen good demand in both of those areas and we expect that to continue.
The benefit of our acquisition with links US is the long tenure and the quality of the brands that they have operating in that market and the relationships that they have both with local players and global multinational players that we continue to to be able to work with them and and that will be a part of the value equation.
As we continue to cross sell it.
And be able to be more responsive with the broader portfolio that we can take into those markets and on the recycling side. We've continued as we commented we've seen good demand.
And a variety of end markets, there and as a result of our presentations at the K show in October of this year and showcasing some of the more fulsome solutions that we can now offer we continue to be really encouraged about the demand we're seeing in the quoting volume that we're seeing in that.
The business is well I'll, let Bob hit margins, Yeah, Hey, Dan So as we think about just Aps margins longer term in the next couple of years, we do see margins continue to improve really driven by a couple of things first one would be the continued application of the operating model.
Certainly turning into about 100 basis points of annual productivity improvements year over year.
I'd say the other thing to highlight with the acquisitions, we've made in the last <unk>.
Several months those those margin profiles were below what our segment level margins are and so we do see those are treating up to our segment level margins not only through the operating model and continuing to drive some more synergies, but also the aftermarket mix, which as you know I think we've stated it was in the low twenties.
Of the revenue profile and for Us yes.
Yes.
30, 30%.
Do you see those I guess.
The application of our of our.
Aftermarket strategy continue to move those margins up overtime.
Very helpful. Thank you, maybe switching gears to MTS it sounds like not quite yet, but im wondering if youre seeing any pick up if not in revenue then may be just an activity or inquiries.
Following the lifting of Covid restrictions in China, and more recently, the passing of the lunar new year or is still a little too early to tell.
We are we are really just getting back into that market. When you consider the market opened up in kind of mid December but then there was obviously a very significant increase in the number of Covid cases, there followed.
Followed by <unk>, followed by the lunar new year and the preparations that many.
Doing for that so we are getting back to that.
The more broad based travel we are re energized.
The sales force out and working with customers on projects that have been somewhat delayed from a decision standpoint. So we are seeing a lot of activity. There yet we haven't seen those convert into orders yet and but we are anticipating that that will begin to pick up and.
And we expect that market, which is one of our larger markets too, especially in our molding.
<unk> business, we expect that to improve over the remainder of the year. We had initially anticipated that that softness with last just the first half of the year. We expect that may last into the second half of the year and that's that's reflected in our guide.
On the injection molding side, we continue to.
To see a little bit of a delay and some slowness in decision, making in our North America market, but again remember that one of our primary markets. There is the India market that has been more stable.
We expect to see some improvement there over the.
Back half of the year, just perhaps not on the original timeframe that we had anticipated, but a strong footprint in India and a leading position in India, We think will serve us well.
As that market begins to pick up on the <unk> side.
Great and last for me and I'll jump back jump out, but just talk about free cash flow.
I appreciate the updated guide it sounds like on an adjusted basis it would be up in the 90% range in terms of conversion you still expect to trend back towards closer to 100 over time and you still expect to exit fiscal 'twenty three with net leverage kind of in the low twos, excluding additional M&A.
Yes. So simple answer is yes to both of those Dan and you know as I mentioned in the past in our Investor day in over a trend we will be at 100% free cash flow conversion in the quarter. We did see obviously, the MTS order pressure come through and obviously that that turned into some lower cash advances but overtime.
We still see a 100% free cash flow conversion and certainly cash flow picking up starting in Q2 here not only from us.
From many orders coming back a bit but also just our continued inventory.
Levels continuing to be reduced overtime as supply chain continues to improve and on your leverage question. Yeah. We do we do anticipate being that low twos range as we continue to.
Pay down debt.
And so are our 80% to 85% reflects certainly some of some of the impact from.
So it certainly reflects some of the.
The cash advances, but also it reflects the.
Costs associated with the Batesville transaction that wouldn't qualify as discontinued operations. So those are somewhat of a onetime.
Cash impact that Youll see in the year.
Very good thank you again for the color.
Thanks, Dan.
The next question is coming from Matt Summerville from D. A Davidson your line is now live.
Good morning, Matt. Good morning. This is Scott this is bill jellison on for Matt Summerville. This morning.
Good morning.
I wanted to start by asking you about price realization in the quarter with respect to both businesses, how how that progress has trended throughout the quarter and where you were with respect to price cost spread.
Yeah. So you know throughout fiscal 'twenty, two we continued to improve our processes around around pricing and price costs through our global supply chain management team and that continued through the quarter.
As I've mentioned in the past our backlog was protected and as we saw that execute we continue to be price cost covered.
In the quarter were slightly favorable in dollars, but still dilutive of about 10 basis points on our EBITDA margins because of price cost.
And so I would expect that trend to continue throughout the rest of the year will be favorable in dollars, but obviously dilutive on a margin percentage.
Okay.
Understood. Okay. Thank you for that.
And then as a follow up.
I'd also like to learn a little bit more about the supply chain impact and how that progressed and as.
As we stand today with respect to both your ability to ship.
And generate sales as well as the impact on free cash flow and your outlook there.
Yeah.
Yeah, I would say.
I'll provide just a couple of comments on the free cash flow it certainly impacted our ability to <unk>.
Execute some orders and so as our supply chain is constrained what happens is we're not we're not able to hit certain billing milestones and thats, probably primarily in the EPS side.
But we saw that.
Coming into the year, and so I'd say that those supply chain challenges are reflected in our free cash flow outlook.
But I would say on our parts I mean, we do see supply chain improving in certain areas. However, there are certain engineered products and I'd say the two things that have the longest lead times still would be gearboxes and motors and some of those are up to a 52 week.
Lead time, and so we have been building inventory over the last probably year and placing orders on those to get ahead of that.
And chip I would say so those are those are a couple of areas, where we've where we have seen some delays and I and we haven't really seen the improvement yet I think.
To note that some of these systems that that our engineered specifically on the API side have very highly engineered components and then there are only a few.
Suppliers in the world that can meet the required specifications for those parts and so you know that working things through the supply chain when you're on a very limited supply base can take longer on items such as that.
That's great I appreciate you taking my questions.
Thank you.
Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from John <unk> from Sidoti and company. Your line is now live.
Good morning, Kim and Bob Thanks for taking the question.
Hey, Jonathan just a little bit more color on the molding technology side of the business. It seems like the order intake was a little wider than you anticipated.
I had a function really of the geographic puts and takes that you've kind of highlighted or is there something else going on on the customer level that we should be cognizant of.
No I think typically when we when there are you know.
<unk> around.
When there are concerns around slowdown you typically see that in some of the.
Short to mid term projects because they can be decisions can be delayed or stopped and started and you don't have significant amounts of time that you lose on very large scale projects that we.
We very typically see everyone investing through the cycle because when you're working on a two or three or four year project you can't try and you can't try and hit the peaks and valleys you have to continuously invest but mid term projects short term projects can be can be delayed when people have concerns around.
Around cash preservation, or just kind of waiting to see what what happens to the economy. So we've seen that lasts a little longer than we would have anticipated.
And the and we are responding to that but the inquiries continue to be good I wouldn't say that it's a geographic thing save China I think that I think that the slowness. We saw in China was absolutely are isolated to some of the some of the things going on around this erakovic policy there in China, which is.
A large business for us in the MTS segment, but I would say overall I think this is just general conservatism around making decisions and not wanting to start and stop projects, which obviously can drive up costs. So rather delay the decision doesn't start and stop something in the event that people need to slow down and preserve cash.
And when that business turns around does it turn around quickly or is it a gradual recovery.
Yeah, and the short cycle businesses generally I'd characterize all the industrial businesses short cycle businesses are first in first out.
And they had lung longer as you as you go out in duration. They entered the cycle later and and come out later.
Got it and just on the sales synergies you highlighted.
Yeah listen it looks at the clinics.
Could you talk a little bit about the opportunity profile as far sales synergies and what do you think is a reasonable.
And it will benefit from from bringing that your businesses with theirs.
So yeah on the.
On the opportunity side when you know one of the things that we really looking for was a place where we were going to be able to have kind of a one plus one equals three type of equation and I think what what what linksys what the length of this company's end gobbler and turboprop was extremely strong brands great equipment providers.
Periodically they would sell those as sub systems, absolutely phenomenal customer relationships that haven't been built over long periods of time by and Great service Thats been delivered but what we can add on the on the side from co period was our systems expertise and then ability to help.
Augment their portfolio for things that they were previously buying out and remember the reason that the food market was particularly attractive or the recycling market is particularly attractive is because we have the capability to take our systems expertise are highly engineered.
Process knowledge, and our products, which can be modified or reengineered to work in that market very effectively bringing that together and that is really something that we think is kind of the secret sauce to penetrating this market with with broader facing systems less things that have to be bought.
Out in an ability to cross sell among the two.
We also think that our ability to create back office synergies and and more efficient.
Procurement and.
Global supply chain processes to help support that group can also help influence the margin profiles that we're looking for as well as our operating model around aftermarket.
Perfect and one of those more margin profile drivers is the increasing aftermarket sales, bringing it from the low twenty's to the thirties.
Could you talk about the steps that you need to do to get to.
The 30 threshold and a reasonable timeline to get there.
Yeah. So so it's.
You were to pull the playbook out on this and the steps that we've taken in our other business. It's really around a couple of key steps I mean, we isolate that aftermarket business and instead of kind of mixing it in with the capital business. We isolate it we truly understand the profitability of that business. We name a leader that's going to be focused on the aftermarket we put in.
Process, some disciplines around pricing around proactive selling around making sure that we have a clear vision of the install base and that we understand where we're winning and where we have opportunities to improve share of wallet and then it's really just an execution of a very specific playbook bed.
It's been determined by really analyzing the information identifying the opportunities and deploying dedicated resources that go turn those opportunities into a reality I know it sounds very simple, it's when you're running a business as I've done many times in my career.
It's easy to kind of lose sight of sometimes stepping back and seeing just a very specific playbook on how to go after that can actually be.
Really effective rather than trying to go after everything at once and that has been successful in each of our businesses as we brought them into our operating model.
Oh, great. Thanks for all the color I appreciate it I'll get back into queue.
You.
Thank you we reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Alright.
Well. Thank you everyone for joining us on the call today, we appreciate your ownership and your interest in Hillenbrand and we look forward to talking to you again in May when we will report our fiscal second quarter results. We wish all of you a great day. Thank you.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.