Q4 2023 Hillenbrand Inc Earnings Call

Greetings and welcome to the Hillenbrand's fourth quarter fiscal year 2023 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your tell us.

Phone keypad as a reminder, this conference is being recorded I would now like to turn the conference over to your host Sam Mines, Burke, Vice President of Investor Relations for Hillenbrand.

You may begin.

Thank you operator, and good morning, everyone welcome to Hillenbrand's fourth quarter and fiscal 2023 year end earnings call I'm joined by our President and CEO, Kim Ryan and our senior Vice President and CFO, Bob Behan Hamburger.

I'd like to direct your attention to the supplemental slides posted on our IR website that will be referenced on today's call.

Turning to slide three a reminder, that our comments may contain certain forward looking statements 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'll 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.

Additionally, as a reminder, the divested Batesville segment is classified as discontinued operations for all periods presented in our commentary will be based on the performance of our continuing operations.

I encourage you to review the appendix in slide three of the presentation as well as our 10-K, which can be found on our website for a deeper discussion of non-GAAP information forward looking statements and the risk factors that could impact our actual results.

With that I'll now turn the call over to Kevin Kim Thank.

Thank you Sam and good morning, everyone. Thanks for joining us today as we review our fiscal 'twenty 23, and provide our outlook for fiscal year 'twenty 'twenty four I'd like to start by recognizing our associates for their resiliency and dedication throughout the year as we executed our strategy and significantly transformed hillenbrand through the complete.

Of three strategic acquisitions, and the divestiture of our legacy death care segment.

Commitment intelligence made that transformation possible.

These actions have strengthened the foundation for Hillenbrand's long term success as a pure play global industrial company now characterized by a portfolio of leading brands and highly engineered industrial processing technologies and solutions, serving a variety of industries, including durable plastics food and recycling, which we.

Leever supported by long term secular growth trends.

Most notably with the completion of Shang processed food and in performance materials or F. P. M.

September 1st we've now increased the scale of our food and pharma business to roughly $800 million on a pro forma 2023 basis.

Nearly tenfold from what we had in 2022.

It's attractive end market Leverages, the systems and applications engineering expertise and the technological capabilities that are at the core of what we do well at hillenbrand and build upon this backbone products process and portfolio.

Additionally, we believe these acquisitions provide us a less cyclical growth platform as we move forward.

While we're still in early innings of the integrations for these acquisition the businesses had been performing ahead of our expectations and the teams are absolutely energized by the opportunities that lie ahead to create significant value for our associates, our customers and our shareholders now.

Now turning to our performance.

We finished the year by delivering strong margins and a P S and adjusted earnings per share in the quarter at the high end of our guidance range.

Revenue in the fourth quarter was in line with our expectations. Additionally, we added a one month contribution from F. P. M. As a result of our September one close.

We continued to face a soft order environment for capital equipment in our MTS segment, and we experienced ongoing customer decision delays for several large projects within our E. P. S.

A P. S orders did improve modestly on a sequential basis, including winning a record order in our recycling business of nearly $30 million in the quarter. We're excited to continue to build on this momentum as we move through 2024.

I also want to congratulate our recycling team for recently being selected as the first place winner from over 100 companies considered for the Stuttgart Innovation award for sustainability related to our recycling technologies, we're thrilled to be recognized for the strong technological capabilities. We can provide our customers in this exciting end market.

Where we see significant growth potential over the coming years.

Building upon the momentum we've seen throughout the year. Our recently acquired food businesses continued to deliver strong performance as did our aftermarket business with record quarterly aftermarket revenue in both segments.

Our operating cash flow was below expectations, primarily driven by the continued push out of large orders and the corresponding customer advances. However, we made continued headway in reducing inventory and unbilled customer receivable highlighting the ongoing execution of our working capital improvement initiatives.

For the full year, we grew consolidated revenue by 22% driven by acquisition performance and robust organic growth of 9% in our API segment.

This growth was partially offset by a 2% decline in our MTS segment, primarily driven by lower revenue for our hot runner equipment, which persisted throughout the year.

While the pipeline of customer inquiries and projects remained solid across our key product categories. The global economic and geopolitical environment continues to pose a challenge to the timing of some customer decisions and were entering the year with lower organic backlog levels compared to the record levels. We saw entering fiscal 2023 as.

The result, we're being grounded in our 'twenty 'twenty four demand outlook, which Bob will cover in more detail later in the call. Nevertheless, we firmly believe we are well positioned for long term growth with our leading brands and technologies and we remain focused on controlling what we can by executing on our backlog driving innovation and productivity initiatives.

And integrating our recent acquisitions to accelerate cost and commercial synergies.

Before I turn the call over to Bob I'd like to take a moment to reflect on another key accomplishment. This year. This past may we published our fourth annual sustainability report showcasing how our organization has embraced our purpose shaped what matters for tomorrow and furthering our commitment to transparency by disclosing our scope three emissions.

Why do you said an approach towards reducing our emissions I'm proud of the progress. We've made on these critically important efforts exemplified by the recognition we've received in our most recent upgrade by M. S. C I to a double a rating and in being named a finalist in the writers responsible business awards for our purpose watch with that.

I'll now turn the call over to Bob to cover our financial performance and our outlook.

Thanks, Kevin and good morning, everyone.

Turning to our consolidated fourth quarter performance on slide seven.

We delivered revenue of $763 million, an increase of 26% compared to the prior year, primarily due to acquisitions, including $43 million from S. P O for the month of September.

On organic basis revenue decreased 1% year over year, and 7% organic growth in Acs was offset by an 11% decline in MTS driven by the order softness we experienced throughout the year.

Adjusted EBITDA of $147 million increased 33% or 3% organically as favorable pricing productivity improvements and lower variable compensation were offset by cost inflation and lower MTS volume.

We delivered strong adjusted EBITDA margin of 19, 3% an increase of 90 basis points over the prior year, despite lower organic volume.

We reported GAAP net income of $17 million down from $31 million in the prior year, primarily due to an increase in acquisition and integration related costs, including tax expenses.

Adjusted earnings per share of $1 13 came in at the higher end of our expectations up 45%.

This figure included a net contribution of approximately two cents from S. P. A R.

Our adjusted effective tax rate in the quarter was 28, 4%.

We generated cash flow from operations of $73 million in the corner, which was flat to the prior year.

Capital expenditures were $23 million in the quarter, we returned approximately $50 million to shareholders through our quarterly dividend.

Now moving to segment performance, starting with EPS on slide eight.

TPS revenue of $516 million increased 57% compared to the prior year, primarily driven by acquisitions favorable pricing and higher aftermarket parts and service revenue.

Organic revenue increased 7% year over year.

Adjusted EBITDA of $118 million increased 72% year over year, or 23% organically as favorable pricing productivity improvements higher volume and favorable product mix and lower variable compensation were partially offset by cost inflation.

We delivered strong adjusted EBITDA margin in the quarter of 22, 8%, which was up 190 basis points over the prior year.

Backlog of $1 $9 billion.

<unk> 34 per cent compared to the prior year driven by acquisitions.

I don't know organic basis backlog decreased 9% due to lower orders for large plastic systems.

Resulting from continued customer decision delays on several large projects.

Sequentially backlog increased 16% driven by the acquisition of S. P. A.

We continue to see a healthy level of new product inquiries and full utilization of our test facilities across our key growth platforms of durable plastics food and recycling. So as we've previously communicated we have seen in an elongation of customer decision timing, particularly with them a large plastic systems projects in Asia and the middle East.

Yeah.

We continue to monitor this closely and remain focused on improving our lead times and executing our existing backlog to keep us well positioned for one customer order patterns normalize.

Okay.

Turning to MTS on slide nine.

Revenue of $247 million decreased 10% year over year due to lower volume for injection molding and hot runner equipment.

Adjusted EBITDA of $46 million decreased 23%, largely driven by lower volume and cost inflation.

Adjusted EBITDA margin of 18, 5% decreased 310 basis points compared to the prior year, primarily due to cost inflation impact on volume and unfavorable product mix.

Turning to experience softness in our higher margin Hot runner products as China remained relatively small and we saw additional weakness in North America.

As a result, the mix headwind was greater than we anticipated coming into the quarter.

Backlog of $233 million decreased 36% compared to the prior year, primarily due to the execution of existing backlog and decreased orders for injection molding equipment.

Order volumes persisted at a relatively low level throughout the quarter, but were stable to what we experienced in Q2 and Q3.

The teams remain focused on managing discretionary costs and driving productivity and we're confident that we're well positioned to return to growth as demand recovers I'll discuss our outlook for fiscal 'twenty four further in a moment.

Okay.

I will briefly cover full year results on slide 10.

As a reminder, these results include one month of SPM performance.

Consolidated revenue of $2 $83 billion increased 22% over the prior year or 4% organically as Etfs grew 9%, while MTS decreased 2%.

Adjusted EBITDA of $483 million increased 20% compared to the prior year or 4% on an organic basis as favorable pricing productivity improvements.

Yes, volume and lower variable compensation were partially offset by cost inflation and increase in strategic investments.

NTS volume.

Adjusted EBITDA margin of 17, 1% decreased 20 basis points, primarily due to the dilutive effect of price cost coverage.

GAAP net income from continuing operations was $107 million down 2% from the prior year.

Adjusted net income of $247 million resulted in adjusted earnings per share of $3.52, an increase of 31% largely due to the impact of acquisitions.

The adjusted effective tax rate for the year was 29, 5%.

Total backlog of $2 $1 billion increased 19%, primarily due to nearly $520 million of linksys and Afghan backlog that we didn't have coming into the year.

Organically backlog is down 14% due to lower orders in MTS and the delay of large projects with N E. P. S.

This will be a challenge for MTS heading into fiscal 'twenty, four and a headwind to large systems revenue for E. P. S.

We generated full year operating cash flow of $207 million up $144 million compared to the prior year.

As higher earnings and reductions in inventory Unbilled receivables were partially offset by unfavorable timing of accounts payable and customer advances and an increase in business acquisition and integration costs.

Capital expenditures for the year were $69 million and we returned approximately $61 million to shareholders through our quarterly dividends.

As Tim highlighted we have sustained improvement in our inventory levels and unbilled receivables throughout the year.

However, our cash flow is lower than anticipated coming into the quarter as a delay in order intake continued to negatively impact our customer advances and we have some timing impact related to the September 1st close of S. P. M.

Given the ongoing macro uncertainty around the world potentially impacting the timing of orders combined with integration and synergy achievement related costs, we expect our cash conversion to be approximately 90% in fiscal 'twenty four with Q1 to be expected a modest outflow of cash which is consistent with our typical cadence.

With that said, we're still confident in our longer term ability to generate cash flow at or greater than net income.

Turning to the balance sheet on slide 11.

Net debt at the end of the quarter was $1 $77 billion and our net debt to pro forma adjusted EBITDA ratio was $3, two which was in line with our expectations. Following the close of FBR.

At quarter end, we had liquidity of approximately $718 million.

<unk> $243 million of cash on hand, and the remainder under available under our revolving credit facility.

Our weighted average interest rate for the quarter was approximately 5%.

Turning to capital deployment on slide 12.

As we've consistently communicated our capital deployment framework is based around four key priorities.

Driving profitable growth through attractive organic and inorganic investment opportunities.

Returning cash to shareholders through an attractive and growing dividend and opportunistic share repurchases.

Paying an appropriate leverage profile with a target net leverage range of one seven to $2 seven.

Over the near term, we continue to prioritize debt reduction with a goal of returning to within our net leverage targets by the end of the first quarter of fiscal 2025, which is consistent with what was previously communicated.

We expect M&A to be to continue to be an important part of our long term strategy as we look to strengthen our capabilities in key end markets accelerate our profitable growth and provide long term value to our shareholders.

However, our current focus is on integrating our recent acquisitions and deleveraging to our targeted range.

Now let me conclude my prepared remarks, with our fiscal 'twenty four outlook on slide 13.

Our guidance for fiscal 2024 reflects the continued uncertainty in the global macro environment and potential impact. It may have on the timing of orders throughout the year.

With that we anticipate total company revenues of $3 two way.

The $344 billion.

Up 16% to 22% compared to the prior year.

Driven by the acquisition of F. P M and solid organic growth and our Aps segment.

Partially offset by year over year decline in the MTS segment as a result of lower order trends, we experienced in 2023.

We expect adjusted EBITDA to be in the range of $530 million to $588 million up 10% to 22% and adjusted earnings per share of $3 60.

The $3 95.

Reflecting 7% growth at the midpoint of the range.

We're assuming interest expense of approximately $150 million for the year.

Versus the prior year due to the debt associated with the acquisition.

We expect our adjusted effective tax rate to be in the range of 28% to 30% for the year.

I'll now touch on cash flow and leverage as I mentioned earlier, we're targeting our cash flow conversion to be around 90% for 2024 inclusive of approximately $20 million of anticipated integration costs and cost to achieve synergies.

While the cash flow will continue to be lumpy on a quarter to quarter basis, we remain confident and highly focused towards achieving our deleverage goal of returning to within our guard rails by the end of Q1 2025.

No I'll quickly touch on our segment outlook.

For EPS, we anticipate revenue of two four to $2 $5 billion up 32% to 37% largely due to the full year impact of SPF.

We expect organic growth of three 8% with strong performance expected in food recycling and aftermarket.

We are taking a more cautious approach towards our large plastic systems' revenue due to the customer order delays we've experienced over the last couple of quarters, but as we mentioned, we still see a healthy level of customer activity and believe our capabilities remain best in class for providing full system solutions and service to customers anywhere in the world.

We expect adjusted EBITDA margin to be 18% to 19% down from the prior year due to the dilutive effect of F. P M, which as a reminder, it comes in at around 13% margin.

Given our successful start to our integration we are highly confident in our ability to drive significant margin expansion over the next few years.

Organically our guidance reflects moderate year over year margin expansion, driven by volume synergies and our continuous improvement initiatives.

Now turning to MTS.

As Kim mentioned, we are entering this year with a significantly lower backlog compared to a year ago, which puts pressure on the whole year revenue, particularly in the first half of the year.

While orders have stabilized over the last few quarters, we're being cautious towards continuing macro uncertainty.

As a result, the low end of our range does not assume an improvement in these order patterns, while the high end expects a modest uptick in orders in the back half of the year.

We are not assuming orders returned to a normalized level this year and our current guidance range.

We are targeting an adjusted EBITDA margin of 18, five to 19, 5%, reflecting about 30 basis points of margin expansion at the midpoint as we focus on executing productivity and continued cost actions to help mitigate the macro headwinds.

For Q1, we are providing a guidance range of adjusted EPS, which we expect to be 66 to 71.

This is in line with our typical seasonality and reflects moderate organic growth in EPS and approximately <unk> <unk> of net contribution from FPL.

Offsetting by the expected volume decline in MTS.

Please review slide 13 for additional guidance assumptions.

With that I'll turn the call back over to Kevin.

Thanks, Bob.

We enter 2024, we continue to experience a dynamic operating environment in light of this I'm all the more confident in the strategic actions, we've taken a position hillenbrand for long term success by expanding our president in higher growth less cyclical end markets, we've already seen traction through the strong performance. These acquisitions have.

Delivered so far as we progress in our integration we've seen excellent collaboration across the Aps segment as we continue to identify significant opportunity to drive commercial and operational synergies and we're looking forward to sharing more details in the coming quarters.

Additionally, we remain relentless on driving operational improvements within MTS in response to the challenging cyclical demand environment I'm excited by our previously announced addition of Tami, Morocco as President of MTS segment, Tammy brings significant global leadership experience and will be focused on continuous improvement and positioning this segment.

For our return to growth once demand recovers.

I want to again, thank our teams for all of their efforts throughout fiscal 2023, and transforming hillenbrand into a pure play global industrial leader in highly engineered processing equipment and solutions I'm very proud of our achievements so far and firmly believe we have significantly more opportunity still ahead.

With that we'll now open the line for your questions.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before.

Pressing the star keys.

Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Thank you good morning, Kevin Good morning, Bob Thanks for calling again.

Let me start with the integration two and a half months in with F. P. M, maybe drill down a little bit [noise] excuse me on what you're seeing there.

As well as an update on kind of link 16, Peerless and then somewhat related but separate just what's embedded in your fiscal 'twenty four guide for Schenk from a prep P. M. I should say from a revenue and EBITDA perspective.

Okay, I'll, let I'll, let Bob take the second.

The second part of your question, but relative to the integration we are a two and a half months and I think we are I think we are even more excited about what we found here I mean, we we've looked at this that we've looked at RPM for a long time, we were excited about the opportunities that we thought we saw there I think as we bring these teams together.

We see even more opportunity than we did during the due diligence and I think we see a tremendous opportunity for us to leverage what we learned during the integrations have kocharyan and then milacron and the scalable foundation that we've built over the last couple of years to be able to move quickly and creating value for not only our P. M been obvious.

We also links S N P or less as we bring them into the portfolio as well.

There they were already underway on the integration. So we've really been folding F. P M into an in flight integration, but I'm really really excited about the way. These teams are coming together, we've been able to launch some regional integration meetings, we've been able to bring these teams together to begin talking about not just cost opportunities about commercial.

<unk> to begin thinking about how we can match these cultures and identify future ways for these teams to come together I think we've even seen ways, where we can bring them rather than just cup here and we can even bring in other parts of a P. S. Specifically row tax into the equation to be a part of these solutions as well. So we are I.

I think I speak for the entire team to say, we are really thrilled with the talent the capabilities and the energy and engagement that we've seen from these teams as we bring them together now ill, let Bob take your question about the.

What still 10 to 24, yeah, Thanks, Cameron and slow down. So just a reminder, we had about $43 million of revenue in the in the month of September with the September 1st close of Shannon can best contribute about two cents.

End of the year. So if you think about incremental in fiscal 'twenty four we havent guidance, it's about an incremental revenue of about $520 million to $530 million.

<unk> margins were about 13%, we see that ticking up a bit in 2024.

I'd also remind you that the food businesses in total have performed better than we had expected internally and then you know as Kim mentioned, we've had some great meetings, so far and a lot of excitement and so I think as we continue to work on some of those opportunities you know hopefully we can continue to move that margin up here by the end of 'twenty four.

Are you into 'twenty, five, but so margins well above 13% I would say and then incremental EPS, it's probably in that 25% to 30 range.

That's helpful. It sounds like a solid mid single digit growth organically, but from from the the numbers you put out with the acquisition.

Maybe talk go ahead I'm sorry.

That's right that's right yeah okay.

Of the 20 million are kind of.

Cost synergies how much is embedded in the fiscal 'twenty four guide and how much is left for for beyond and then Kim you know in terms of potential upside I won't ask you to quantify it but are you seeing more opportunity on the offensive side of a ball or kind of defensive on a go forward basis fell.

Since your initial expectations.

Yeah. So I'll take the first one yeah. So there's probably I'd say down about $7 million to $9 million of cost synergies only that we have embedded in our guidance, but again early days, but we've got some excitement here to hopefully move that number up and by the way of accelerating some of the savings we have beyond that which is probably another call. It 10 to 15, when you think about the links us.

And shrink acquisitions.

Kind of a run rate, where we're looking to certainly accelerate some of those I would say on the commercial side is what I'm, assuming you're referring to Dan on the offensive side. When you ask your question.

I would say that the teams are already coming together and in fact, they they are they they were running out in front of even our integration work streams.

Wanting to collaborate on certain opportunities that they saw I think we've announced a couple of opportunities that we were able to take advantage of between linksys and co purion that neither company would have been able to achieve on its own we are seeing similar opportunity.

F P M side by bringing in other parts of the portfolio, whether it's parts of the Linksys group, they legacy Kocharian or even road tax.

They are bringing into solutions.

They are offering to customers and we're already beginning to.

Bringing those things together and then start presenting those to a customer opportunity so more to come on that.

Okay, one more for me I'll jump out.

On the E. P. S side, it's still in the backlog down 9% organically eat.

Just what are you hearing from customers, particularly on the plastic side you know what gives you confidence that that the delays are simply timing related.

And I'll stop there.

Yeah, So what we're hearing from customers.

Just a just a slowness in decision making on on their side, whether it's I mean, there's a variety of factors that are entering into that whether it's interest rates or just a just general concern.

Concerned about about resources there are just a whole variety there's not one silver bullet that I could point to that yeah that well.

That will solve the issue what I will say is that historically when we've seen any kind of downturn. What you start seeing his quotes drying up you start seeing test labs drying up.

Have you started seeing are slow are a short cycle business, specifically parts and service drawing up we're not seeing any of those things to test labs are full.

The quote pipelines are still very active in all regions candidly. We're also seeing our our service business as we mentioned in our prepared remarks, and our service business had record quarters, both on the MTR side and the API side. So.

There is there is nothing that we're at the typical canaries I'm Hey, we're heading into a slow period that that would that would indicate that we're seeing a repeat of that here. The other thing that I would say, though is relative to backlog and I think I've mentioned this several times on calls there is there is a level of backlog that becomes pretty unruly to.

Managed and we were certainly there the number of touches you have to have the number of the the amount of work. It takes to manage a very large backlog and I had indicated previously that backlog as is and this is a more manageable level for us here and so we all we will expect as lead times come down.

With a better supply chain, you will expect to see some fluctuations in that backlog, while still seeing healthy performance in the business on Rabbit Hill.

That's perfect. Thank you.

Thanks.

Thank you. Our next question comes from the line of Matt Summerville with D. A Davidson. Please proceed with your question.

Thanks.

Maybe just starting with MTS, just a little more color, Ken <unk> and Bob. If you can are you seen any divergence in trends with respect to hot runner versus injection molding demand and maybe add a little bit and market color. There you also referenced some incremental weakness in North America and on the slides you talk about price cost.

Maybe moving in the other direction. So can you kind of address I know thats a lot, but can you kind of address all of them.

Yes, I think relative to relative to the demand environment I mean, I think the divergence between our injection molding and R. M.

And our hot runner business, it's a really kind of the geographic footprint and that is that in the injection molding business really is not.

We have a major footprint in China their footprint. It is in India that has continued to be stable in.

In most markets, but you know there is some weakness obviously in the automotive or things like things like that that everyone is seeing but we do expect those things to to kind of work their way out I would say that the hot runner business has really seen softness in China and while it has been sequentially.

Sequentially slightly better it has not returned to former levels.

And and we continue to them, but we do continue to see a pretty robust pipeline. There and are hoping that will continue to see some continued recovery in China. While also seeing some expanded demand in India in future periods are for that for the hot runner business hopefully that gives you some color on.

Where we're seeing the differences in North America, and North America was just generally.

Weather.

Whether you look across any of the end markets North America saw some weakness.

And its current in kind of the current status we expect over the next 12 months, while we expect some continued weakness in certain end markets. We expect stability to start to return in other end markets and and more so globally.

In those markets as well, so I'm going to turn it over to Bob Ben relative to your question on.

On pricing that so we did exit.

<unk> 23, with a 100% price cost coverage, we expect to maintain that throughout the 24 as well, but yeah. We are seeing pricing pressure in the MTS side of the house with that being said I'd say two things were really focused on one is our global supply chain management team.

Actively looking at where we've seen price increases in the past over the last call. It 12 to 15 months and going after those same costs as those come down to achieve those savings and then the other the other area I would say is just really focus with our value added engineering, both with customers and suppliers and trying to find value, where we can maintain those mark.

Right and the last point I'd make is just you know the hillenbrand operating model is that these are the times when a when that skill set and that muscle is that the at its most important level and dedicated resources in all of these facilities, whether it's on the API side of the equation or MTS. There are dedicated resources that are working on productivity initiatives and driving those as quickly as we can.

And creating that kind of a maximum amount of flexibility as we continue to see some some pressure in different areas of.

<unk> of the organization. So those productivity initiatives are particularly important to making sure that we can respond to up and down volumes.

Got it and then just as a follow up I was hoping you could provide a little bit more detail around this.

The scope of the recycling project at $30 million of order you received.

Talk about maybe what assuming it was a competitive bid what sort of differentiated you versus others, but maybe bidding on the project and how does the gulfport funnel looks specifically with respect to recycling. Thank you.

So relative to the recycling.

So we've got a steady pipeline of recycling initiatives are in the pipeline and what we would tell you is that you know the capabilities that we're bringing together with her bold and co purion are going to be really critically important to being able to have a systems approach to some of these opportunities whether it's for smaller recycle.

<unk> or large recycling initiatives with larger customers and we do participate in all types of recycling mechanical chemical solvent based recycling and so we are we have projects underway in all of those areas and we have a luminary sites, where we've initiated that.

Where we've initiated those those jobs all over the world and are excited about the opportunity that that brings and we do expect to see strong growth in certain parts of the world and you know we had when we get when we initially started looking at recycling I think everybody kind of thought okay. Europe. That's the only place that we're recycling, it's really going to tell.

On a you know a lot of interest, but what we're really seeing is there is an increased level of interest in <unk> in the U S or rather North America Theres, an increased level in the middle East and in India, and we are seeing strong growth in investments in those markets over the coming year and people really are looking for full solutions.

There yeah, there's not a ready now a set of.

People, who know how to put these systems and capabilities together, it's not a you know this is a new and emerging and so the fact that we have put many of these together it's a real it's a real step out for us in terms of what value, we can bring to customers by offering full system solutions, yeah less than that.

I would add.

You know you think about this business right now is only about $100 million, but we're expecting kind of low double digit growth here in fiscal 'twenty, four and certainly well beyond that just as that market continues to develop.

Got it thanks guys.

Thank you as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of John fans from what's Sidoti and company. Please proceed with your question.

Good morning, everyone and thanks for taking the questions.

Good morning, Jim in the past you've talked about.

The delays in large prestige jobs is being pushed to the right for several quarters is that timeline download or widened in recent months.

Oh I got them.

I mean, obviously, we've got a obviously we've got certain jobs that we're anticipating we're going to close in Q4 and the decisions would be made in Q4, where those decisions were not executed and in fact have.

Pushed out into Q1 or Q2.

Fiscal 'twenty four for us So I would I mean, I would have to by definition and say that they are you know they are still widening or lumpy in terms of the decisions that we're anticipating.

You know historically, if we thought you were going to make a decision at September 1st we would typically anticipate that there would be another 60 days of a back and forth on contract terms and negotiations and things like that before we could close the deal I would say that we anticipate that those those things are taking longer now to get.

Through.

If that if that helps answer your question no.

What I'm looking for.

And you referenced gains in the aftermarket.

Being positive in the quarter.

Was that just natural demands recovery, what does that reflect any changes that you made bringing product to market our services to market.

Yes, I'd say you know part of it is quite honestly, John the Hillenbrand operating model.

That's an area of focus for us that we've talked about where we see high single digit growth.

Coming out of aftermarket certainly with the links US acquisition, we knew there was opportunity there, but but I'd tell you. You know you think about just the orders that we had in the quarter in aftermarket you know that's kind of in that high teens level and even even for the full year is that mid teens level right and you think about 2024.

We're still seeing kind of mid to high single digit growth bolt on orders and revenue. So quite honestly, it's just been an area of focus for us it's an area of opportunity as we think about the acquisitions.

And that's you know the operating model continue to drive value you know in that area. So John I would also add to that there are.

You know there are a number of elements of aftermarket it's not just parts. It's also service. It's also modernization and consulting for Debottlenecking or reconfiguration of align and so those things are also important to note that we've continued to see interest in all of those areas.

Yeah, and and people running their lines efficiently and be able being able to keep their lines up and running continuously when they're when they're facing certain financial pressures I think as it is one of the critical differentiators between us our global service network, and and our ability to respond quickly to customer needs and demands and especially to keep there.

Lines up and running especially when they are you know kind of fighting through some of the inflationary times and and every every hour of uptime matters at this point and I think that's a critical differentiator for us I would say.

Obviously, we have continued development on capabilities and the service area are proactive selling and really getting out there and understanding which customers are.

A part of our.

You know kind of go forward support and those where we have an opportunity to penetrate those that has been some very specific work that's been being done.

In order to make sure that we are tapping into the entire installed base of all of the capital products that we've been putting out in the market and we if you look at the increase in capital you would expect to start seeing parts orders as long as we maintain those relationships properly which has also been a focus of this team over the last I'd say 24.

Months to make sure that installed base has heard from us understands what they need to have on hand understands lead times for things and when they need to order and that we're working proactively with them to make sure that they are up and running all the time.

Right.

And in your prepared remarks, you mentioned about the outperformance of recent acquisitions.

Bursaries link system seem to anniversary Peerless can you talk a little bit about the outperformance how much of it's been on the revenue side versus the cost savings side, maybe just give us a quick synopsis review.

Yes, So I would say is it's actually on more on the revenue side.

John We are I'd say, we are on pace with the cost side, but as as Kim mentioned earlier.

The excitement coming out of some of these meetings. We've had we've had the linksys team the <unk> team as well as our legacy Kocharyan team coming together I think theres going to be more opportunities, but we are seeing topline performance, which is really encouraging because we know we can get the cost stuff out and again more opportunities coming.

Yeah.

Alright, and just one last question and I'll make sure I heard this properly Bob it seems like price cost recovery.

The first half of the dollar for dollar.

In the second half of the year you were you above that dollar for dollar threshold.

<unk> again is it it's still margin dilutive.

I mean, obviously just.

The incremental cost and that's just been baked into when you think about the backlog business that we have John right. So theres been a lot of cost that's been sitting in backlog, we have that priced coverage.

So a dollar for dollar it's pretty neutral, but you just have the inflated numerator denominator.

I just thought that I was on the impression that the stuff in the backlog.

Price cost protected and maybe that's something that is always a slow start as a dollar for dollar basis, yes, but it flows through revenue youre still seeing that pressure.

Okay.

So let me take that question slightly probably slightly dilutive John It was nowhere near as dilutive as it was as you think about what it was last year, it's like 50 basis points dilutive.

Got it thank you for that perspective.

At the gross margin level by the way so it's not an EBITDA number or so.

It's much more in line to what it was a year ago.

Thank you Bob.

Great. Thanks, Sean.

Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Ms. Ryan for any final comments.

I want to thank you all for joining us today and for your continued interest and ownership in Hillenbrand. We look forward to speaking with you again in February when we will report our fiscal quarter. One results have a great day, and a safe and happy holiday season. Thank you.

Do you.

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