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Operator
Good morning, everyone, and welcome to Hillbrand's fourth quarter fiscal 2020 earnings conference call. A replay of this call will be available until midnight Eastern time, November 26, 2020, by dialing 1-855-859-2056, toll-free in the United States and Canada, or 1-404-537-3406 internationally. and using the conference ID number 9256319. This webcast will be archived on the company's website at irhillbrand.com through Friday, December 11, 2020. If you ask a question during today's call, it will be included in any future use of this recording. Also note that any recording transcript or other transmission of the text or audio is not permitted without Hillbrand's written consent. At this time, it's my pleasure to turn the conference Over to Rich Dudley, Senior Director of Investor Relations. Mr. Dudley, please go ahead.
Rich Dudley
Thank you, operator. Good morning, everyone, and welcome to Hill & Brand's fourth quarter fiscal 2020 conference call. I'm joined by our President and CEO, Joe Raver, and our Senior Vice President and CFO, Christina Cernelia. I'd like to direct your attention to the supplemental slides posted on our IR website that we'll 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 serving in 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 Kaveh Bakhtiari as our new investor relations director. Kaveh and I will work closely together over the coming weeks to ensure a smooth transition. Let me quickly address two items before 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, or APS, and the former Millicron segment has been renamed Molding Technology Solutions, or MTS. we believe these names better capture the nature of activities and feature opportunities for these segments. We'll continue to use the Millicron brand name for our injection molding product line. Second, turning to slide four, I'll remind you that our comments may contain certain forward-looking statements that are subject to the safe harbor provisions of U.S. 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 solution segment. I encourage you to 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, I'll turn the call over to Joe.
Joe Raver
Thank you, Rich, and good morning, everyone. Thanks for joining us today. And all of us at Hill & Brand hope that you and your families are doing well and staying safe. Before we start, I want to take a moment to thank Rich for his contribution to Hill & Brand's investor relations and wish him continued success in his new role. I'd also like to welcome Kaveh to Hill & Brand. Kaveh brings over a decade of finance and investor relations experience, most recently at Forst & Brand. We're committed to building effective and productive relationships with our shareholders And we look forward to Kaveh continuing that effort as we strive to provide clear, timely, and relevant communications. I also want to acknowledge Hill & Brand's employees, who despite the challenges brought on by the COVID-19 pandemic, continue to serve our customers and deliver on our mission every day. We applaud their hard work and remain steadfast in our commitment to ensure the health and well-being of the 11,000 Hill & Brand 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 virus. 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 a long-term strategy. Our vision is to shape Hillenbrand into a world-class global industrial company with a proven record of success driven by the Hillenbrand operating model. And to that end, over the past several years, we've consistently articulated four key strategic pillars. The first is to strengthen and build business platforms, both organically and through M&A. The Millicron acquisition represents a major step in the execution of this strategic pillar. With the Millicron acquisition, we added industry-leading and complementary hot runner and injection molding product lines to the Hillenbrand portfolio, further strengthening our customer offering, increasing our global scale, 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 injection molding product lines. In addition to the Millicron acquisition, we have strengthened and focused the advanced process solution segment. Investments and innovation in our Coperian branded products and solutions have led to revenue growth and improved margins. And we believe that we've positioned this part of our business very well for increased profitable growth, both organically and through acquisition. 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 second strategic pillar is to manage Batesil for cash. Batesil has a long history of manufacturing excellence in burial caskets and its deep and long-standing customer relationships make it an industry leader. Batesil has historically been less sensitive to economic cycles and has provided solid and predictable cash flow that we can invest in growth businesses. Batesil's outstanding performance in fiscal year 2020 is 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 pandemic. Importantly, Basel fulfilled its role in our portfolio this year as we leveraged the robust cash flow it 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 Millicron 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 benefits, and finance. We believe that our efforts to standardize processes and services 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 executing the Millicron integration was 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 we increased the three-year run rate synergy targets from $50 million to $75 million. In addition, we completed the divestiture of Simcool in our fiscal second quarter. Our dedicated integration management office and integration teams continue to drive the integration, and we expect their efforts to contribute to top-line growth, continued margin expansion, and strong free cash flow. While COVID-19 has created some unique 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 record of maintaining a flexible balance sheet so we can grow both organically and through strategic acquisition. Additionally, we have a history of quickly reducing leverage following acquisitions. We're employing that playbook now and prioritizing debt pay down. During the past quarter, we made a significant dent 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 Millicron. We're confident in our continued ability to generate robust free cash flows to pay down debt, invest for growth, and return capital 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 volume at Batesville, and generally strong execution and disciplined expense management across all the segments. In the molding technology solution segment, Hot Runner Systems orders continued to improve as demand for medical products 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. We finished the fourth quarter with the best order rates and backlog for injection molding in over two years. We also saw parts and service orders pick up as we moved through the fourth quarter. In the advanced process solution segment, orders for large polyolefin systems remained 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 orders contributed to record backlog in the segment. Despite some slowdown in North American polyethylene projects, the pipeline for new large systems remains healthy globally with continued strength in Asia. Orders for our smaller mid-cycle products and aftermarket parts and service continue 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 working capital. We remain cognizant of balancing the near and long-term needs of the business, and we continue to invest in high-return projects, including product development and innovation. And as I mentioned earlier, we meaningfully improved the health of our balance sheets during the quarter. Christina will provide more detail on our results in a moment, but first, I want to report a new addition to our executive leadership team. i'm pleased to welcome pete dyke as our chief human resources officer he brings more than 25 years of human resources experience in industrial companies including 14 years at pentair i know i speak for the entire team when i say that i look forward to working with pete to continue to execute the millicron integration and our hr transformation and to build talent across the enterprise at this time i'll turn it over to christina to provide more specific details on our overall financial performance, segment performance, and outlook.
Rich
Thanks, Joe, and 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 $694 million for the fourth quarter, an increase of 43% over the prior year. Growth was driven primarily by the Millicron acquisition, while Batesville's revenue remained unseasonably strong due to the pandemic and contributed to the year-over-year increase. Foreign exchange turned positive 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 Millicron acquisition and strong Batesville performance. Consolidated adjusted EBITDA margin of 20.3% expanded 240 basis points. Organically, adjusted EBITDA increased 4% and adjusted EBITDA margin increased 110 basis points. with margin expansion in both advanced process solutions and Batesville segments. I will provide more details about our margin performance when I review the segment results. We reported a gap net loss of about $7 million, or $0.09 per share, a decrease of $0.48, primarily as a result of non-cash impairment charges of $62 million related to businesses identified for divestitures as part of our portfolio simplification effort. Adjusted net income of $69 million resulted in adjusted earnings per share of 92 cents, an increase of 8%, mainly driven by the Millicron acquisition and strong Batesville performance. As a reminder, adjusted earnings per share excludes 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, driven 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 Millicron acquisition and strong working capital 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 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. Excluding the impact of foreign exchange, revenue decreased 9%. Revenue decreased primarily as a result of lower revenue recognized from large polyolefin systems and general softness in industrial end markets, which affected demand for capital equipment and aftermarket parts and services across the segment. This softness was partially offset by strength in engineered plastics applications like PVC and polycarbonate. Despite lower revenue, the segment delivered record quarterly adjusted EBITDA margin of 20.6%, an increase of 160 basis points, as cost inflation was more than offset by cost containment actions, pricing, and productivity improvements. Order backlog of $988 million set 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 several 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 it signifies is a positive indicator for opportunities in both future capital projects and higher margin aftermarket parts and service. Molding Technology Solutions revenue of $217 million decreased 1% on a pro forma basis year over year, but improved 17% sequentially in its strongest quarter to date as part of Hillenbrand. Backlog increased 54% over the prior year and 31% 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 in particular rebounded nicely from a weak fiscal 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 in 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 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 improvement. 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 actions, which more than offset cost inflation. Batesville continued 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 tirelessly to fulfill its mission by helping families honor 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 MillerCon acquisition 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 plastics projects. State fill revenue of $553 million increased 4% for the year due to increased demand for barrel caskets. Molding Technology Solutions revenue was $736 million for the period that Hillenbrand owned the business, which included $38 million from the Simcoe business that was sold at the end of the fiscal second quarter. On a 12-month pro forma basis, excluding Simcoe, Molding Technology Solutions revenue of $798 million decreased 15% year over year, given weak 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 $145 million in non-cash 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 non-deductible impairment charges and taxable gains from the sale of the Simcoe business. On an adjusted basis, net income of $235 million resulted in adjusted earnings per share of $3.19, an increase of 14%. Our adjusted effective tax rate of 27.8% for the full year 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, while 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 lines. We generated outstanding operating cash flow 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 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 dividends. As of the fiscal year end, we had nearly $1.2 billion 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 Millicron acquisition last November. We've 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'll 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 and high return opportunities with a goal of increasing profitable growth. We expect to maintain a strong balance sheet and liquidity profile to ensure the flexibility to execute our strategy. 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 the slide, we delivered on our key targets. We grew total organic revenue at a rate of about 4% per year and met revenue targets for both advanced process solutions and Batesville segments. 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 in COVID-19 following the Millicron acquisition. And second, our goal was to expand adjusted EBITDA margin and advance process solutions by a total of 250 basis points over the three years. We improved the margin by 180 basis points, which was good, but not quite where we wanted to be. Importantly, we achieved our EBITDA dollar target. The main reason for coming up short on the margin was the increased mix of large plastics projects with relatively low initial margins. While we would like to have hit the margin target, we're pleased with the contribution 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'll continue to see stability in the global economy without any broad-based COVID-related disruptions. 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're targeting an increase in adjusted EBITDA margin of 640 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 to decrease 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 pipeline. However, as I mentioned earlier, we are facing customer-driven delays with several large plastics projects. Additionally, we've 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. At the 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 advanced process solutions operating companies are included in our projections. Turning to molding technology solutions, we're nearing the one-year mark from the time of the Millicron acquisition. The majority of the contribution from this segment for fiscal 2021 in comparison to 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 molding technology solutions 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 system. Recent order trends for injection molding equipment have been positive, including sequential order improvement broadly across key end markets and geographic regions, leading to the best order levels and backlog in the product line in 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 of the 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 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 $106 million to $115 million and adjusted earnings per share in the range of $0.65 to $0.75. compared to the prior year result 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, and 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, I'll comment briefly on free cash flow, which remains a top priority. Our cash generation tends to be seasonal, with a 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 in funding near term working capital requirements. 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 and it remains challenging to forecast even just 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 we can control and continuing to execute against our strategic initiative. We believe our fourth quarter financial results demonstrate that commitment. At this time, I'll turn the call back over to Joe.
Joe Raver
Thanks, Christina. As we close out our prepared remarks, I want to update you on the portfolio actions we announced last quarter. The process for the planned divestitures of TerraSource Global and our flow control businesses is going well. We've had significant interest in all three assets, and 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 protecting margins during this uncertain time. Integrating Millicron successfully and generating strong cash flow to continue to pay down debt. We've taken decisive actions to weather the challenges of COVID-19 and to position Hillenbrand for growth and improve profitability as our markets recover. With that, we'll open the line for your questions.
Operator
At this time, I would like to remind everyone, in order to ask a question, please press star, followed by the number one on your telephone keypad. Our first question is from Daniel Moore with CJS Securities. Your line is open.
Daniel Moore
Joe, Christina, good morning. Thanks for taking the questions. Good morning, Dan. Starting with, and forgive me, I'll get the new vernaculars for all of the segments down, but with MTS, molding technology solutions, maybe just talk about the mix of mold masters, the hot runner business versus injection molding, Q4 into the guidance and 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?
Joe Raver
Yeah, sure. So let me start out with Q4 from a revenue perspective. We saw continued strength in the hot runner part of the business. So that part of the business performed better than we expected. And that was really largely driven by medical and electronics. On the injection molding side of the business, You know, that business continued to see relatively, you know, modest revenue increase. But as we moved through the quarter, we did see parts and service pick up, and we did see orders for smaller pieces of equipment that we could ship pretty quickly pick up. So, really, for the quarter, both of those segments performed better than we had expected the last time we talked on the third quarter call the last time. And then from an order perspective, we see pretty solid orders continuing on the mold master side, on the hot runner side. So that's encouraging as we continue to see good orders and good activity there. And then during the, you know, really the second half of the quarter, we saw a very strong order snapback on the injection molding side. So we had just a few weeks where a ton of orders were released and where we, you know, closed on those orders. And as I mentioned, we, you know, continued to see good parts and service orders. So, you know, we're still working through how much of that is, you know, kind of one-time snapback from a bunch of pent-up demand and how much of that is going to be ongoing strength. But I would say the order trends are very strong in both of those businesses as we're heading into our first quarter. And then just one last comment, you know, related to the guide, I think was part of your question, related to the guide. know the hot runner business is a pretty fast-term business so um you know that shows up typically in the quarter that you know we're pretty close to the quarter that you're that you get the order so it it tracks very closely revenue tracks closely with the order trends which as i mentioned remain positive on the injection molding business you know that's a two or three quarter sometimes longer uh order to delivery cycle so we'd expect to see some of these strong orders on the injection molding side will really mainly impact the second half of our year so we'll see more modest revenue growth you know for sure for sure in the first quarter because it'll take a little while for those orders to work through the system to turn into revenue got it that's helpful and and maybe just to follow up there just trying to kind of
Daniel Moore
understand the mix a little bit um you know generated exceptionally strong margins in the quarter in that segment um the guide is for a little bit of a sequential step down so is that just full mix more injection molding um or is there anything else uh you know just trying to get a sense of what the the new sort of base run rate for margins should be um I go forward basis thanks
Joe Raver
So I would say our guide in the first quarter, we expect still to continue strong margin performance. Mix is the driver of that. So we will continue to see a pretty heavy mix of the hot runner performance systems in the first quarter, but also an increase in the injection molding side. So as we move through the year, we'll likely see margins moderate a little bit as we move through the second half of the year. We work through that backlog on injection molding. There'll be a more balanced mix in terms of injection molding compared to the hot burner systems.
Daniel Moore
Got it. And one more, and I'll jump back to you. Batesville obviously continues to be very strong. Were you surprised at the legs that it had into fiscal Q4? And obviously you've got our forecasting continued unseasonal strength here in fiscal Q1. Just talk about your visibility there. Thanks.
Joe Raver
Yeah, thanks, Dan. I think that's another place that we performed better than expected compared to where we thought we'd be at our last call. If you think about, I think there was some moderation in COVID-19, and then we've seen this really strong second wave, which is continuing to accelerate. I'm just driving to work today on the radio. I heard that, you know, another day of high deaths in the United States yesterday, and so... I think we have a better view towards the potential vaccine and what's happening in the market. So we expect this first quarter as we guide it to be, you know, up significantly again year over year. And then quite frankly, you know, as we move into our second fiscal quarter, you know, that's a little bit tougher call given what's going to happen with the vaccine. You know, it looks like the For example, the regular flu may be lighter this year given everyone's precautions and the particular strain that it is. So it's pretty tough to continue to forecast that business. On the one hand, on the other hand, from an external perspective, you can kind of track what's going on with deaths in North America and get a pretty good sense of what's happening with our business. So, yeah, 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 first quarter of this year.
Daniel Moore
Understood. Okay. I will jump back with any follow-ups. Thank you, and congrats on exceptional performance in the quarter. Thanks, Dan. Thanks, Sam.
Operator
Our next question is from Matt Somerville with DA Davidson. Your line is open.
Matt Somerville
Thanks. A couple questions. First, I think in the prepared remarks, you mentioned 28% of the long cycle. I believe it was long cycle. Maybe it's a total segment. So maybe delineate that. But 28% of the backlog you have and what you used to refer to as PEG extending beyond 12 months. What is a more normalized number in that regard? If you look back over the last five years?
Joe Raver
yeah i'm going to look over at some of the fpna folks here but um so i think that number the 28 is the uh the former peg segment the advanced um process solutions and that is those larger projects that tend to get delivered beyond um you know they take four to six sometimes eight quarters to get delivered um and so that's That's what those projects are. I think as we've communicated, we've seen that number increasing, particularly over the last few quarters and really, I guess, across 2020, really all of 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-20s. The quarter before that it was around 20, and then sort of high teens before that, which is sort of a normal rate. So it is a bit elevated as we see, you know, continued strength in orders, but some of those projects pushing out from a customer perspective, and then you're getting that, you know,
Matt Somerville
a higher percentage of the backlog that would be delivered you know beyond the 12-month period is there any way joe to talk about or to ring sense 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 in which you would expect that to be recaptured at this point
Joe Raver
So a couple of things. I think it's so from a backlog perspective, we really don't in this segment, we don't get cancellations typically, especially for the larger projects. So in that sense, you can really think of as this backlog pushes out that it's really deferred. Now, on the flip side of that, we do percentage of completion accounting. And so, you know, we'll have this as we guided in the first quarter, we'll have this trough. And so, that won't snap back really quickly. That will push out. And so, we'll see, you know, continued strong revenue in the second half and into 22, given this backlog of large projects. And so I'm not sure if I'm exactly getting to your answer, but in terms of total dollars, we've probably seen about $250 million of backlog push out beyond where we'd expected it to be a couple quarters ago.
Matt Somerville
Got it. And then just maybe as a final question, you achieved, what was the total synergy realization associated with Millicron in fiscal 20? And what do you expect to be the key drivers of that next, you know, log of 20 to 25 million that you mentioned in your slide deck? Thank you.
Joe Raver
Yeah, I think we ended the fiscal year at about $27 million of realized synergy. And, you know, a lot of that was public company costs early on. As we move forward, we'll continue to get some of those benefits of public company costs 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 of the industrial businesses and even Batesville. And then we start to, you know, we had some productivity savings related to you know, site consolidations, et cetera. But we'll start to see more kind of operational efficiencies as we, you know, continue to drive Kaizen events and Ling business practices, you know, through the entire organization. But, you know, special emphasis on some of the operations, particularly at the injection 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.
Operator
um than what we saw or the set in year 2021 it's more operationally focused than we saw in in 2020. got it thanks joe thanks matt again if you would like to ask a question please press star forward by the number one on your telephone keypad your next question is from chris howe with merrington research your line is open good morning joe and christina morning good morning chris
spk02
Good morning. Well, starting off with the assets that are for sale, can you talk 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 we move through the next fiscal year?
Joe Raver
sure um so the businesses you're referring to uh really is the terra source global business and then our two flow control businesses just a reminder that those are relatively small part of the overall portfolio you know less than five percent of revenue those businesses really felt the industrial slowdown like you know, our mid-cycle, more of our mid-cycle businesses in a pretty similar way. And so, you know, it's difficult to forecast when those businesses will snap back. But generally, they saw performance kind of like the in-line with solutions performance. And then, again, you know, it's a little bit difficult to forecast too far forward with those businesses in But they're good businesses. They're performing well. They've taken a lot of cost action to protect margins over the past couple of quarters. And again, we see pockets of demand returning. We see other places where we're continuing to see softness in orders on both the capital side and the parts and service side.
spk02
Okay. And then my next question is just surrounding APS advanced process solutions. In the first quarter, you're expecting a 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 APS... show some sequential improvement or some cadence through the remainder of the year?
Joe Raver
You know, I think this is why we're only giving quarterly guidance. It is really pretty tough to tell. I think the news of the vaccine is very positive. Again, this business is Got characteristics of 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 projects to resume, though, as we move into the second half. And so we expect the second half of the year to be stronger. I would also say the same on the parts and service side. You know, the parts and service business, you know, continues to remain down on a year-over-year basis. And we would expect that, particularly as we move into, you know, the second quarter, perhaps, and into the second half of the year, for that to rebound as customers, you know, free up both capital and expense 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 improved performance in the second half of the year. But, you know, it's just really tough right now given the difficulty with forecasting around the globe due to the pandemic.
spk02
That's great color. Thank you, Joe. And if we move below the top line for APS, you posted record margin of 20.6% in the fourth quarter. Should we look at that 20.6% as the high end of a boundary range, or is there potential for slight expansion of that margin opportunity in fiscal year 21?
Joe Raver
Yeah, I think I would think of that margin opportunity more at the high end of the range. You know, I think we've really squeezed down costs, and especially in the third quarter. You know, we tightened expenses, you know, pretty hard and fast in response to the pandemic. You know, we've freed up some spending in the last, in this past quarter across the businesses on particularly in areas where we expect solid growth and really good growth coming out when we come out of the downturn. So I think the other thing is with the mix of large projects, we'd expect to continue to see a mix of large projects in the second half of next year. that has more buyout in it. So we buy out equipment like motors and gearboxes. So that brings our margins down a little bit. But with all that said, you know, our margin performance has been very strong as we guided in the first quarter pick on a year-over-year basis. You know, really across the board, we expect very solid margin performance. You know, probably a little tougher in the APS, the advanced process solutions segment. uh division but but again solid margin performance across the board is what we expect in in q1 great thank you for the call i'll hop back into thanks chris your next question is from daniel moore with cgs securities your line is open thank you again um just two quick follow-ups on the um on the coperian large project side um
Daniel Moore
The modest pushouts, are they COVID-related, capital constraint-related, economic uncertainty? I know it's hard to tease out sort of just COVID operational challenges versus the economic concerns, but what are you hearing from customers as it relates to those project delays?
Joe Raver
Yeah, so I think it's a little bit, it's multiple things. I would tell you that when you think about our customers that are more integrated oil and gas companies, they've got capital constraints and spending constraints. So there's 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 doing drilling for oil and gas and exploration, they're seeing reduced feedstocks, which is good for them. And so in those cases, it tends to be other things, either COVID-related because they can't get a site ready or financing-related or something like that. So we've got a little bit of a mixed bag in terms of what the pushouts are. I would just say that it's a little bit more obvious in the 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, you know, we expect those projects to sort of gin back up more aggressively as we go into the second half of the year.
Daniel Moore
That's helpful. And is there a little bit of supply chain constraints that you're hearing from your customers, or is that less of an issue?
Joe Raver
You know, I think that's a little bit less of an issue right now. I think a lot of it is caution is a big chunk of it. I think, you know, the supply chains are operating reasonably well around the world. And as I mentioned, you know, we have a significant strength in Asia. And when you think about Asia and particularly China, the supply chains are pretty intact in that part of the world as their issues with the pandemic are much more under control, particularly in China.
Daniel Moore
Perfect. And last for me, Christina, really impressive to hear that you expect free cash flow conversion after this year to be, again, above net income. Just confidence there, and what do we think about from a CapEx perspective for fiscal 21?
Rich
Yeah, so, you know, we do expect with a high level of confidence to continue to get, you know, free cash flow greater than our adjusted net income. I would just, you know, mention, again, it's going to be seasonal, so we're going to see that free cash flow in the back half of the year. Um, I would tell you that the opportunities are still out there, um, for working capital in particularly inventory for the MTS segment. So, you know, we will continue to work with our legacy Hill and brand businesses. So APS and Batesville to maintain their working capital improvement, but really the focus as we move forward. will be to get MTS inventory more in line to our expectations. So just given the mix of our businesses, 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 a little more investment this year than last year. As you know, last year we held off on some investments. So we're looking at about 3% of revenue or about $70 to $75 million.
Daniel Moore
Perfect. Thank you again.
Operator
We have no further questions at this time. I turn the call back to Prezantes for closing remarks.
Joe Raver
Thank you, Operator. And I just want to thank everyone for 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 Millicron businesses have made during the quarter. The integration continues to go quite well. Margins remain strong across the entire enterprise. And then we've 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 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.
Operator
This concludes today's conference.
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