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spk06: Greetings and welcome to the Hillenbrand fourth quarter and full year 2021 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 telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Sam Minesburg, Director of Investor Relations, Thank you. You may begin.
spk07: Thank you, operator, and good morning, everyone. Welcome to Hill & Brand's fiscal fourth quarter and full year 2021 earnings call. I'm joined by our president and CEO, Joe Raver, our executive vice president and incoming CEO, Kim Ryan, 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 will be referenced on today's call. 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 pro forma comparisons for our segments. I encourage you to review the appendix and 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 Joe.
spk05: Thank you, Sam, and good morning, everyone. Thanks for joining us today. Before I start, I'd like to take a moment to introduce our new Investor Relations Director, Sam Minesburg, who kicked off today's call. Sam brings more than a decade of finance experience to the position and has been with Hill & Brand since 2014, serving in a variety of finance roles. Given Sam's knowledge of our business and strong financial acumen, we're excited to have him lead our investor relations efforts. I'll now turn to an overview of the year. Fiscal 2021 was marked by record performance for Hill & Brand, achieving new milestones for order intake, revenue, earnings, and cash flow, driven by strong demand for our products and solutions and outstanding execution by our people. We capped off this strong performance with a solid fourth quarter, as all three segments delivered margins and cash flow that exceeded our expectations coming into the quarter, which Christina will discuss in more detail later in the call. As we approach the second anniversary of the Millicron acquisition, the integration continues to progress well. We accelerated our synergy realization and exceeded our goal for the year, achieving approximately $30 million of incremental cost savings bringing our total synergy realization to date to nearly $60 million. We remain confident in achieving our target of $75 million in run rate synergies by the end of year three. The Millicron integration has served as a catalyst in establishing the foundation for accelerating value capture from future M&A and in driving many of the improved processes that have allowed us to effectively navigate this difficult operating environment. We are a stronger company because of the Millicron acquisition, and I'm excited about the opportunities that lie ahead. We also achieved significant strategic milestones, successfully streamlining our portfolio through the announced divestitures of RedValve and Aval during the fiscal year, and just last month, TerraSource Global. We made good progress on our sustainability journey this year, including the hiring of our first Chief Sustainability Officer, and the issuance of our second sustainability report in September. This year was not without its challenges, however. As global supply chains remain stressed, inflation in commodities and transportation has not abated, the impact of COVID-19 continues to persist, and labor shortages continue throughout the US. Nevertheless, I'm proud of the dedication and resiliency displayed by our associates as they successfully executed our strategy and served our customers in the face of these external challenges. Hillenbrand has a proven track record of execution, and I'm confident in our position as we enter fiscal 2022. Our experienced leadership team, healthy balance sheet, strong backlog, and focused portfolio position us well for continued growth and success. Before I turn the call over to Kim to cover our strategy, I'd like to discuss the CEO transition which is nearing its completion. As I've mentioned before, Kim and I have worked together for a number of years at Hill & Brand, and we have a high degree of trust. Together with our board, we've been executing a detailed plan to ensure a smooth and effective transition. I'm confident that Kim and the rest of our executive team will do a great job leading Hill & Brand into the future. With that, I'll turn it over to Kim.
spk00: Thanks, Joe, and good morning. I want to start off by thanking Joe on behalf of our employees and all of our stakeholders for his many contributions over the years. Joe has led the transformation of Hillenbrand into a global industrial company through the integration of Coperion and the acquisition of Millicron. He also led the transformation of talent and capabilities of the company by bringing in excellent leaders with strong industrial backgrounds and deep operational expertise at all levels of the organization. I'm grateful for his mentorship and partnership over the years, and I'm confident that our leadership team will be able to build upon our strong foundation to drive profitable growth for years to come. Now let me turn to our strategy. The company achieved strong results in 2021, despite the escalating global challenges that we are all facing. During these times, it's critical that we remain focused on executing our strategy to drive long-term shareholder value and I believe our performance demonstrated that throughout the year. As you know, our strategy is comprised of four pillars. The first strategic pillar is to strengthen and build business platforms, both organically and through M&A. Over the past 12 months, we completed the divestitures of three businesses from our APS segment. This enables us to focus our capital allocation towards driving growth in our large industrial platforms, where we partner with our customers to develop highly engineered equipment and solutions that optimize quality, output, and energy efficiency to achieve a lower total cost of ownership. The strength of our customer relationships, our deep application expertise, and our innovative product offerings enabled us to achieve record order intake in fiscal 2021, resulting in a strong backlog that positions us well for growth in fiscal 2022 and beyond. We continue to see significant opportunity in several areas of strategic focus, such as food, including texturized proteins, recycling, biopolymers, and batteries, which tend to be less cyclical than our other industrial end markets and have attractive long-term growth prospects. As customer needs in these markets evolve towards higher output and more technically demanding applications, we're confident in our ability to win due to three key factors. our leading product offerings, our application engineering expertise, and finally, our global service network. Additionally, the opportunities we see in these end markets align with our purpose of shaping a more sustainable future. We are making organic investments to better position ourselves to win in these end markets, while also evaluating strategic acquisitions to accelerate our growth. In recycling, for example, Our investments have resulted in the introduction of several new products, the establishment of reference sites across all three recycling processes, and key strategic partnerships that position us well for our future in this exciting area of opportunity. Our next strategic pillar is to manage Batesville for cash. As we continue to grow our industrial product platforms, Batesville is becoming a smaller part of the portfolio. now comprising only about 20% of the company revenues. Throughout this unfortunate and unprecedented pandemic, the Batesville team has remained relentlessly focused on serving our customers and living up to their mission of helping families honor the lives of those they love. Batesville's strong execution over the last two years has delivered over $200 million of free cash flow, playing a key role in the actions we took to aggressively pay down debt, accelerate growth investments in our industrial platforms, and return cash to shareholders. Our third strategic pillar is to build scalable foundations for growth using the Hillenbrand operating model. The Hillenbrand operating model is at the core of how we run and grow our businesses. During Joe's tenure, the Hillenbrand operating model evolved from a lean manufacturing system to a full operating model that enables continuous improvement across all aspects of the business. including operations, supply chain, global support functions, and strategy. I've been fortunate to partner with the leadership team in the development of the operating model while also experiencing firsthand the benefits of its deployment during my time as president of Coperion and through my involvement in the integration of Millicron. The Hillenbrand operating model is a key enabler of the success we've seen so far in the Millicron integration but the benefits will go far beyond the synergies realized from this particular acquisition. We are confident that the capabilities we have developed and the organizational structures we have established will enable us to accelerate the integration and synergy realization of future acquisitions. As we continue to utilize the tools and expand the capabilities of the HOM, we expect to drive further efficiencies throughout the enterprise while also enhancing our growth tools specifically around innovation, digitization, and commercial excellence. Our fourth and final pillar is to effectively deploy strong free cash flow. We generated record cash flow in fiscal 2021. This allowed us to reinvest in the business for growth and productivity, to strengthen our balance sheet, and to return over $180 million in cash to shareholders through share repurchases and quarterly dividends. Since acquiring Millicron two years ago, we've reduced our leverage by nearly 2.5 turns. We have a healthy and flexible balance sheet, enabling us to further accelerate our growth through strategic investments in our industrial platforms, exploring potential inorganic opportunities that maximize long-term shareholder value, and considering opportunistic share repurchases. As always, we remain disciplined in our approach to deploying cash. Before I turn the call over to Christina, I want to briefly touch on our efforts around sustainability. We issued our second sustainability report this past September. In the report, we introduced a framework for how we've prioritized our efforts based on the feedback of our stakeholders. We also aligned our reporting framework to the United Nations Sustainable Development Goals and the Global Reporting Initiative. I'm pleased with the progress that we've made so far, but acknowledge that we are in the early stages of our journey. We believe sustainability is a source of opportunity, innovation, and competitive advantage for Hill & Brand, which will ultimately drive long-term profitable growth and shareholder value. This is a priority of mine, and I'm excited to continue sharing our progress with you over the quarters and years to come. With that, I'll turn the call over to Christina to provide more details about our overall financial performance segment performance, and outlook.
spk01: Thanks, Kim, and good morning, everyone. Throughout my section, I will be referencing year-over-year comparisons on a pro forma basis, which are adjusted for acquisitions and divestitures. We believe these pro forma comparisons provide a better assessment of our ongoing operations, and you will find a reconciliation of reported and pro forma results in the appendix of the earnings slide deck. During the fiscal fourth quarter, we delivered total revenue in the quarter of $755 million, an increase of 12% on a pro forma basis, or 11% excluding the impact of foreign currency. We saw year-over-year increases in all three segments, led by volume growth in the injection molding product line within MTS. Adjusted EBITDA of $140 million increased 2%, while adjusted EBITDA margin of 18.5% decreased 180 basis points as cost inflation, unfavorable mix, and an increase in strategic investments more than offset operating leverage from higher volume, favorable pricing, and productivity improvements, including approximately $7 million of year-over-year synergies realized in the quarter. Despite the decline compared to prior year, adjusted EBITDA margins in the quarter exceeded our expectations for all three segments. As communicated last quarter, we have been actively taking pricing actions to help mitigate the impact of rising inflation. We had approximately 70% price cost coverage in the quarter, which was more favorable than we had expected, primarily due to better pricing realization in some of our shorter cycle injection molding products and in Batesville. However, we expect to see continued price cost pressure in the first half of fiscal 22 due in part due to the delivery of longer lead time injection molding equipment from the backlog that was priced at preinflationary levels. Additionally, we expect our primary commodity costs of steel, electrical components, wood, and fuel to remain elevated through at least the first half of fiscal 2022. We will continue to monitor our pricing structures and take further action as appropriate. We reported gap net income of $55 million, or $0.74 per share, which increased from a loss of $0.09 per share in the prior year. Adjusted net income was $74 million, or $1 per share, an increase of $0.08 or 9%, and the adjusted effective tax rate for the quarter was 29.2%. We had cash flow from operations of $86 million in the quarter, which was better than our expectations coming into the quarter, but lower than last year, primarily due to timing of working capital requirements. Capital expenditures were approximately $18 million. We repurchased approximately 1.8 million shares for $78 million in the quarter and returned $16 million to shareholders in the form of quarterly dividends. Moving to segment performance, APS revenue of $340 million increased 9% on a pro forma basis, driven by higher volume of large plastic projects and separation equipment. Aftermarket revenue was relatively flat year over year, but up 6% sequentially, and we had another solid quarter of aftermarket orders. We expect continued growth in this highly profitable part of the business in fiscal year 2022. Adjusted EBITDA of $69 million increased 8% on a pro forma basis, while adjusted EBITDA margin of 20.3% was higher than expected, down only 30 basis points from the prior year. Cost inflation was largely offset by price, but the impact of unfavorable mix from a higher proportion of large plastics projects and strategic investments for growth more than offset operating leverage from higher volume and productivity improvements. Order backlog of $1.3 billion increased 41% year-over-year on a pro forma basis, primarily driven by large plastics projects. While backlog declined 2% sequentially, it remains at a high level, providing us a strong foundation for growth in fiscal 22 and beyond. The pipeline for large plastics projects continues to be healthy, particularly in Asia, and as Kim mentioned, we have made solid advances in our product innovations and strategic partnerships in recycling, as well as food, biopolymers, and batteries. Although these areas are not significant portions of our revenue today, we are focused on building our capabilities to win in these end markets in the future through strategic partnerships and organic investments while also evaluating inorganic opportunities. Turning to molding technology solutions, we saw year-over-year growth in all product lines, led by strong volume growth for injection molding equipment. Both revenue and margins exceeded our expectations coming into the quarter. Revenue of $260 million increased 20% compared to the prior year. The team executed well in the quarter and was able to largely mitigate the impact of the chip shortage that we communicated coming into the quarter. Adjusted EBITDA of $54 million increased 6%, while adjusted EBITDA margin of 20.6%. decreased 270 basis points as higher volume and productivity were more than offset by unfavorable mix due to an increased proportion of injection molding equipment, which comes at a lower margin compared to hot runners, cost inflation not fully offset by price, and higher labor and manufacturing premiums, including outsourcing. We continue to deploy the Hillenbrand Operating Model in the MTS segment particularly in injection molding, where we expect to achieve sustained margin improvement over the coming years. Order backlog of $366 million increased 51% compared to the prior year and decreased 6% sequentially, as order volumes normalized in line with our expectations. Turning to Batesville, Batesville performed above our expectations for both revenue and margin given the unfortunate circumstances with the Delta variant. Revenue of $155 million increased 5% due to higher average selling price and an estimated increase in deaths associated with the pandemic. While we are closely monitoring the continued impact of COVID-19, We expect deaths to normalize as we progress through fiscal year 2022. Adjusted EBITDA margin of 21.6% declined 270 basis points compared to the prior year, primarily due to cost inflation and higher transportation and manufacturing cost premiums required to respond to the increased demand driven by the ongoing COVID-19 pandemic. As we've discussed before, The Batesville team has been fully focused on meeting the elevated demand needs of their customers throughout the pandemic. When demand normalizes, the business plans to reallocate resources to drive productivity projects. Now I'll briefly cover full-year results. Consolidated pro forma revenue of $2.8 billion increased 13% or 10%, excluding the impact of foreign currency exchange. Pro forma revenue for APS of $1.2 billion increased 5% compared to the prior year, including a 4% contribution from the impact of foreign currency. MTS revenue of $996 million grew 25% on a pro forma basis, or 22% excluding the impact of foreign currency. Batesville revenue of $623 million increased 13%. Proforma adjusted EBITDA of $534 million increased 20% compared to the prior year, while Proforma adjusted EBITDA margin of 18.8% improved 100 basis points, primarily driven by operating leverage from higher volume in Batesville and MTS and productivity improvements, including synergies. We accelerated the timing of our synergy capture in the year, realizing approximately $30 million of incremental cost savings, which exceeded our target of $20 to $25 million, and we remain on track to achieve our three-year run rate synergy target of $75 million. GAAP net income of $250 million resulted in GAAP earnings per share of $3.31. Adjusted net income of $286 million resulted in adjusted earnings per share of $3.79, an increase of 60 cents, or 19%, compared to the prior year. And our adjusted effective tax rate was 28.7% for the full year. We generated record operating cash flow for the year of $528 million. up $174 million compared to the prior year, and our free cash conversion rate was 171% 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 improving working capital management, particularly within the MTS segment. Capital expenditures for the year were $40 million which was lower than originally expected due to longer lead times from suppliers. We remain focused on investing for growth as we head into fiscal 22. Turning to the balance sheet, net debt at the end of the fourth quarter was $767 million, and the net debt to adjusted EBITDA ratio of 1.4 times was down from 2.7 times at the beginning of the fiscal year. As of quarter end, we had liquidity of approximately $1.3 billion, including $446 million in cash on hand and the remainder available under our revolving credit facility. As of September 30th, we had no borrowing on our revolver and no near-term debt maturities due. Moving to capital deployment, we returned approximately $185 million to shareholders during the year, through the repurchase of 2.8 million shares for approximately $121 million, and $64 million through our quarterly dividend. Subsequent to the year end, we repurchased an additional 620,000 shares for $29 million, and we have $50 million remaining under our share repurchase authorization. Our top priority for capital continues to be strategic investments to accelerate profitable growth in our large platforms in APS and MTS. Additionally, we are evaluating acquisition targets that are a good strategic fit and that we expect will provide a high return to shareholders over the long term. We will also continue to evaluate opportunistic share repurchases. Now let me conclude my prepared remarks with our full year fiscal 22 outlook. Our guidance will be on a pro forma basis, which excludes the divested Red Valve and Abal businesses from the prior year. Our guidance also excludes the divested Terror Source Global business from the prior year and the period of October 1st through October 22nd, 2021. As the basis for our outlook, we expect supply chain disruptions, high transportation costs, and labor market shortages to persist through the majority of the fiscal year. And as I mentioned earlier, we expect commodity cost to remain elevated through at least the first half of the fiscal year. Additionally, we expect currency to be a headwind on a year-over-year basis. We expect full-year revenue of $2.8 to $2.9 billion, an increase of 1 to 4%. driven by our strong backlog and solid underlying growth in our industrial end markets, partially offset by Batesville, the impact of supply chain disruptions, and foreign currency translation. We expect adjusted earnings per share in the range of $3.70 to $4 for the full year. Total material and supply chain inflation for the year is expected to be approximately $95 million. We anticipate offsetting the majority of this impact with price on a dollar-for-dollar basis, but this will have a dilutive impact to margins. We expect inflation to be more of a headwind in the first half of the year, with price-cost coverage of approximately 70% improving to approximately 100% in the second half. For our fiscal first quarter, we expect adjusted EPS in the range of 87 to 94 cents, down versus the prior year, primarily due to lower volume in Batesville, higher inflation and supply chain costs, and the impact of the divestitures. We expect free cash flow as a percent of adjusted net income, to be approximately 100% for the year, including CapEx of approximately $75 million. Please review slide 17 of the earnings presentation for additional guidance assumptions. Now to our segment outlook. Starting with advanced process solutions, we expect full-year revenue to be up 8 to 12%, primarily due to continued strength in large plastics projects as well as solid growth in aftermarket revenue. This growth includes an anticipated currency headwind of 3%. We expect adjusted EBITDA margin of 21 to 21.5%, up 150 to 200 basis points. We anticipate supply chain challenges will more heavily impact the segment in the first half of fiscal year, and we expect price to generally cover inflation for the year. For the first quarter, we expect low double-digit revenue growth year over year, but down high single digits sequentially, which is in line with historical seasonality trends. Turning to molding technology solutions, we expect full-year revenue to be up 2% to 5%, with modest growth in both hot runners and injection molding equipment. We have a strong backlog, and underlying demand trends remain solid. but we anticipate supply chain disruption and labor shortages to be a headwind throughout the year. Additionally, we expect sales for the hot runner equipment to be negatively impacted over the near term, primarily in the first quarter, due to disruptions in China. We expect adjusted EBITDA margin of 20 to 21% compared to 20.3% in fiscal 21. We anticipate a higher degree of price-cost pressure in the first half of the year due to injection molding equipment converting to revenue from the backlog, which was priced preinflation. We expect price-cost coverage to improve in the second half. For Q1, we expect revenue to be modestly higher than prior year, but down sequentially. And we anticipate modest year-over-year margin pressure due to inflation and unfavorable mix from a higher proportion of injection molding equipment, which comes at a lower margin. Finally, with Batesville, we expect revenue to be down 11% to 13% due to an anticipated decline in burial demand as deaths normalize during the year. We expect COVID-related volume to be significantly lower than the prior year in line with external estimates. While we anticipate price-cost coverage will be better than it was in fiscal 21 due to the pricing actions we have taken, we expect adjusted EBITDA margin of 19% to 20% to be down 570 to 670 basis points, primarily due to lower volume as well as supply chain premiums and inflation not fully covered by price. We expect price-cost coverage to be approximately 60% in the first half of the year, and we anticipate this will improve in the second half. For Q1, we expect Batesville to be approximately flat on revenue with modestly higher margin on a sequential basis compared to Q4. We expect the impact of the price increase to be largely offset by lower base deaths and continued pressure from inflation and other supply chain premiums. Overall, heading into fiscal year 2022, we have a strong backlog and our key industrial end markets remain healthy. We continue to be focused on investing for growth and serving our customers while continuing to leverage the Hillenbrand operating model to help us navigate through the difficult global operating environment. Our teams have demonstrated the ability to execute through challenging circumstances, and I am confident that we will continue to drive sustainable improvements and achieve our targets for the coming year. And now I'll turn the call back over to Joe.
spk05: Thanks, Christina. Let me leave you with just a few final remarks before we take your questions. First, underlying industrial and market demand remains solid, and we have a strong backlog as we head into 2022. This provides visibility and gives us confidence as we operate in this uncertain macro environment. Second, through the Millicron integration, we've significantly expanded our capabilities and improved our operating model. And this has enabled our strong execution during the past year to provide the scalable foundation for future growth. And last, we have a talented and experienced leadership team to drive Hillenbrand's profitable growth strategy into the future. Finally, it's been a great honor and privilege to serve at Hill & Brand over the last 28 years. I've been fortunate to lead the organization through a period of significant transformation, which could not have been possible without our dedicated employees, our talented leadership team, and the support of our board, shareholders, customers, and other stakeholders. I'm excited about Hill & Brand's future, and I'm confident in its continued success under Kim's leadership. We'll now open the line for your questions.
spk06: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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. One moment, please, while we poll for your questions. Our first questions come from the line of Matt Somerville with DA Davidson. Please proceed with your questions.
spk03: Thanks. A couple questions. First, to one of your recent comments towards the tail end there, Christina, Batesville price cost covered 60% in the first half. What does that number look like then in the second half? And I guess if you've already put through your normal October 1st price increase, I would assume that takes effect almost on a real-time basis. Correct me if I'm wrong. I guess I'm trying to understand, you know, how you get to near 100% then in the back half if you're only near, you know, 60 in the first half.
spk01: Yeah, so in the first half – first of all, good morning, Matt. But in the first half – You know, we still have some of our larger customers that we have contractual pricing with. And so as those contracts renew, we'll be able to increase our pricing with those customers. And so therefore, you're going to see a higher price-cost coverage in the back half of the year.
spk03: And then I want to spend a minute just talking about the M&A funnel. Talk a little bit about actionability, what average deal sizes you might be looking at if you're looking to do more of a beachhead type of acquisition at this point now that you're roughly almost exactly two years beyond the acquisition of Millicron. So maybe talk about what you're seeing there.
spk00: Good morning, Matt. It's Kim. So, we have a number of different areas that we're looking at, and I think I've mentioned before, we're looking in specific ways that we can bolt on to existing applications and build out some of the capabilities and portfolio that we offer with some of the systems we have in our base offerings, whether that's in our APS business or in our MTS business. But we're also looking at new and developing markets in the areas of food, recycling, battery, biopolymers, where we're looking to build out our capabilities and move more quickly into what we believe will be very attractive markets in the future. We believe we've got a quite active pipeline. From a size perspective, I think we are certainly smaller than what we looked at with the Millicron acquisition. But we're seeing things in the, I would say, in the $500 million to $700 million range are some of the larger ones we see. And certainly there are many that are in the smaller range that could be unique technologies or opportunities to enter into certain geographies or with interesting technologies. types of capabilities that we could bring to the market that could be small tuck-ins and things like that. So we're looking across the breadth of the offerings that are out there in the marketplace today and across those very key focus applications that we think will be interesting and create the right long-term growth opportunities in the market.
spk03: And then just, I'm going to sneak one more in. You mentioned battery a couple times. Talk a little bit about what angle you're kind of approaching that market and how you might see that business developing for Hillenbrand. Thank you.
spk00: So a part of battery applications involve extrusion capabilities. The slurry and some of the corrosive materials that have to be handled very carefully in process, very carefully in battery production. have to be processed through an extruder. And so those capabilities both from a highly technical standpoint and from a scale standpoint fit right into what we do. Additionally, we have the capability to offer full systems around the production of these materials. Everything from the feeding capabilities, the pneumatic conveying capabilities, and the actual production of the material in the extruders. That full offering is one of the other interesting capabilities that we have because we can tie that whole system together to create something that is efficient, that we can judge the performance of based on the entire elements of the system rather than just one piece of machinery that we put in a system. We are developing specific products in order to address the unique needs, the process needs of those types of applications. And that is something that I think fits interestingly into the wheelhouse of capabilities that we have after years and years of polymer production for the world. A lot of those capabilities have a high degree of transferability here around process technology applications. Very excited about the opportunities that we see there.
spk03: Great. Thank you, guys.
spk02: Thank you.
spk06: Thank you. Our next question has come from the line of Chris Howe with Barrington Research. Please proceed with your question.
spk09: Good morning, everyone. Thanks for taking my questions.
spk01: Good morning, Chris.
spk09: Hi, Chris. Hi. I wanted to start off. It's essentially one of the pillars that we've discussed in the past with the performance in the current quarter along with the supply chain pressures that are synonymous with most companies through the first half. Can you talk about the work that's going on behind the scenes with the Global Supply Management Team and also the Operations Center of Excellence, how they've been able to perform in the quarter despite the chip issue that you previously discussed and how they intend on navigating the pressure or relieving the pressure in the first half as much as possible. Thanks.
spk00: Good morning. This is Kim. I'll take that question. So when we think about some of the real benefits that came from the Millicron acquisition, it was really to be able to build out this scalable foundation and begin to create capabilities that would obviously, that would serve us in just this type of situation. Although when we embarked on the Millicron acquisition, I don't know that we could have ever anticipated the types of demands that might come with a pandemic. Nevertheless, the infrastructure that we've put in place has very, I think, uniquely situated us to be in a position to help support that. So over the course of the last two years, We have centralized the global supply management function, and we've standardized not just the reporting, but the processes and the controls and the discipline around how we manage our supply base, how we qualify, how we judge the risks of our supply base, and how we try and leverage the size of the organization for both consistency of delivery, consistency of quality, consistency of price across the organization. So we've done that not just on indirect types of materials, but also in several key areas, we've developed centers of excellence around certain commodities and direct materials that we all use. And that has really proven to be beneficial because we aren't just looking at the capabilities of one company to address supply chain challenges that they may be having. We can look across the globe and look across the world at how we can best serve the demands of the corporation. And it's everything from managing consistency of supply, the vendor dispersion that we have so that we have a good supply base that has – the ability to back each other up, everything from controlling and understanding the pricing that's happening in the market and making sure that our pricing is recognized in the business as we price our products and services. So those are the types of things we're doing in the global supply chain. And I'm just tremendously pleased with the work that has been done there the last two years and how that has so well supported us through the demands of the pandemic. Relative to the Center of Excellence for Manufacturing, you're seeing very similar types of capability to leverage resources from the corporate center to help support the local teams on opportunities they see today's productivity opportunities inside their company. That has been particularly valuable when we think about some of the implications of some of the labor challenges that are taking place in the U.S. today. The more efficient we can become in our manufacturing locations. The more efficiently we can use our labor, the better we can address some of the challenges that we've had today and also drive productivity and improve shareholder value from our businesses for tomorrow.
spk09: That's great and very helpful. And one follow-up question, if I may. You mentioned the pressure in Q1 as it relates to the hot runner business in China. We still have some pre-inflation injection molding flowing through the pipeline here in the first half. Once we get through that pre-inflation injection molding business and the hot runner pressure in China starts to alleviate in the second quarter, how do you expect mix to impact margin in the second half for the MTS segment? Thanks.
spk01: Yeah, Chris, this is Christina. So you're absolutely right. I think, you know, what you're going to see in the first quarter is you're going to have that margin pressure. And so year over year, you know, that's going to be down. But then as we exit the fiscal year 22, we're going to see that margin increase, primarily because of the mix, the better mix that you referenced with higher hot runner equipment. But also, you know, we expect to get that pricing, so a higher price-cost coverage in the back half of the year. So, you know, we plan on exiting the year stronger than we're entering for sure.
spk09: Okay, great. Thank you for taking my questions.
spk01: Thank you.
spk06: Thank you. Our next questions come from the line of Daniel Moore with CJS Securities. Please proceed with your questions.
spk08: Thank you and good morning. Good morning, Dan. Let me start quickly by saying, Joe, say it ain't so, but I guess this is it. I want to say thanks for all your help, but mostly for your candor and transparency. Look forward to a lot more of the same from the team, but I wish you the best going forward. maybe start with the backlog growth, which continues to be impressive. How much of that is sort of price versus volume across the segments?
spk01: So I'm not sure I clearly understand that question, Dan. So I think what I would say is as we look at the backlog for APS, we continue to see really good solid pipeline, and that's a lot of, you know, volume growth. And, you know, we expect that pipeline to continue. That strength is primarily coming from Asia, and so we feel very excited about the opportunities in the APS segment because, you know, what we're seeing there as it relates to backlogs. I think, you know, typically in that business, we're always, you know, we have always essentially covered our inflation with price. And so I don't think that, you know, the trend that you're going to be seeing in backlog for APS is going to be significantly different than what we've been seeing. I think on the MTS side, you know, Clearly, as we kind of look at the backlog, we had, as I mentioned in my remarks, some pre-inflationary jobs in the backlog that are going to convert. We started pricing for that inflation in really the third quarter. And so as we kind of look at the backlog and we look at how that's going to turn out. We're going to convert the revenue from the backlog in the first half at a lower margin, and then the back half of MTS, we expect a higher margin. Hopefully that answered your question.
spk08: Yeah, no, that's helpful, and we can follow up on that offline, just trying to get a sense of the volume growth versus how much of it was driven by passing through higher-priced input costs.
spk01: Yes, I would say the majority of the growth on MTS, certainly on APS, is volume, and then MTS is primarily volume.
spk08: Great. In terms of supply chain, I know this is a general question, but when you look across the businesses, what areas are getting more challenging versus areas that maybe are letting up a little bit? And similar question on labor, wondering if, you know, post the stimulus checks running off, if you've seen any improvement in terms of labor availability.
spk01: Yeah, so on the commodities, you know, we continue – I think what – transportation continues to get worse. We continue to see, you know, a higher cost in transportation. Steel is still inflated. Fuel continues to be inflated. And so – We're really not seeing a lot of relief quite yet on the inflationary side of the house as it relates to labor. You know, we're seeing that labor pressure primarily in North America. We are having job fairs. We are going to trade schools. We are partnering with universities. So is it getting better? We're seeing a little bit of uptick, but I still think that it's going to be quite challenging for at least through the first half of the year.
spk00: And I think one addition that I might make to that, Dan, it's Kim, is I think that what we've had to do is really take advantage of some of the global functions that have been put into place and try and leverage one another and leverage some best practices and move to more of a continuous recruitment mode as it pertains to some of the labor challenges that we've had and really change our process and be in the mode of perpetually recruiting to make sure that we are able to address the demand and address the backlog and the great opportunities that we've had on the revenue side by making sure that we're fully staffed at all times. And again, to make a play for the reason that some of these, the Center of Excellence and some of the other global functions have been so important is because they continue to help us to focus on the places where we can become more efficient in our operations and make best use of the labor and the teams that have tirelessly delivered the last two years throughout the pandemic there for us.
spk08: Perfect. Maybe one or two more quick. Batesville, obviously prudent and understandable to build in a normalization, if you will. I'm just wondering if that's what you're actually seeing, if volumes still remain elevated at this stage, and whether you think that there's a likelihood that that could remain the case, given kind of up and down trends with what's going on with Delta, et cetera.
spk00: What we've planned for at this point is some general flatness to what we saw in quarter four. But then we expect and kind of all the experts would say that we should expect that to taper down, not insignificantly throughout the last part of the first half and into the second half most dramatically. So that is what we have planned for. And at this point, we think that is the best outlook that we have for how things will develop.
spk08: Got it. And then, you know, you gave a lot of color around cash generation and obviously capital allocation. You talked about the M&A pipeline. You just, in terms of in absence of M&A, given where leverage is, expect to continue to be more aggressive on the buyback front, as you have been? Maybe just talk about the other levers there. Thanks.
spk01: Yeah, so, you know, we will continue to evaluate our capital deployment. Obviously, our, you know, first preference is to reinvest in the business. However, you know, if something doesn't come along, you know, we are apt to continue to repurchase shares. We currently only have about $50 million left on our authorization, you know, and we will obviously actively monitor the situation.
spk08: Makes perfect sense. Thanks for the color.
spk01: Thanks, Dan.
spk08: Thanks, Dan.
spk01: Thanks, Dan.
spk06: Thank you. Our next question has come from the line of John Franzrath with Sidoti & Company. Please proceed with your questions.
spk04: Good morning, everybody. I just want to go back to the MTS segment and the lower outlook for 2022. Can you talk a little bit about the supply chain issues and how much of that is your ability to procure what you need versus your customer base maybe pushing off orders because they can't get what they need?
spk01: Yeah, so on the MTS segment, if you recall, you know, we've got the two major product lines. So the Hot Runner, I would just talk about the Hot Runner business first. You know, the Hot Runner business is a quicker cycle business, and so they had a really strong year last year. And, you know, we will continue to see growth in that segment. I think where we're seeing a lot of pressure as it relates to labor and it relates to supply chain is more so on the injection molding side of the business. And, you know, we're seeing supply disruptions not just in our business but also in our suppliers. And so, you know, we expect... that that will hopefully get better in the back half of the year, but certainly we are feeling those pressures. Additionally, we are seeing the labor shortages in that business primarily in North America, and that is also having an impact on the outlook. Again, we believe that you know, first half is going to be more challenged. And, you know, we hope to, you know, get that labor on board with the efforts that we're working. And, you know, that'll uptick in the back half.
spk04: Do you have a sense of what the opportunity lost here is because of supply chain? How much of deferred revenue or what kind of what a profile would look like if not for the supply chain issues?
spk01: Yeah, you know, I think in this business we would say roughly about $50 million is, you know, what we believe is probably pushing into, you know, into the next year. I would say, you know, in the segment we continue to have a strong backlog. We continue to have an active pipeline. So I think if I were to quantify that, it would probably be about $50 million of revenue.
spk04: Perfect. And just on the year-over-year synergy realization, the $12 to $15 million, what's the timing of that, and is there any major projects embedded in that?
spk01: Yeah, so the 12 to 15, a fair amount of that is carryover. So, you know, a little over half is carryover. We expect the synergies to continue to come from procurement and operations. And, you know, At the end of the year, we are essentially going to stop measuring synergies because now it just becomes part of the productivity that goes into the business. And so that's how we'll be measuring those savings going forward.
spk04: Great. And congratulations, Joe. Enjoy your time. It's been great working with you. Thanks for taking my questions, everyone.
spk01: Thanks, John. Thanks, John.
spk06: Thank you. Our next questions come from the line of Chris Howe from Barrington Research. Please proceed with your questions.
spk09: I wanted to sneak back in to say well wishes to Joe in his retirement, but also to ask another question.
spk02: I wanted to talk about...
spk09: The aftermarket orders that bullets in the APS slide, you said that you anticipate solid growth in this highly profitable business over the course of fiscal year 2022. If we slice this out of the business, can you talk about your short and long-term expectations for aftermarket and also the timing of aftermarket orders through fiscal year 2022? Thanks.
spk00: So for fiscal, I'll start with fiscal 2022. We expect that we'll continue to see growth in aftermarket orders. Over the last half of the year, we saw a nice improvement and a return to our expected levels of orders in that area, and those will begin to come to fruition here in 2022. In terms of the long-term outlook for this, We have, over the last couple of years, had, as you know, a tremendous backlog, and those systems are moving into production, into place. And as those systems come online, they will begin to produce, specifically in a lot of our proprietary equipment that goes into those systems, will begin to create its own parts generation system. in order to keep those systems up and running. And I think in previous presentations, we've shared kind of the life cycle of how our parts business operates for these larger systems on the APS side of the business. And there are wear parts that kind of continue throughout the running of these systems. And then there are periodic upgrades and let's call it overhaul is perhaps a big word, but where we conduct modernization projects, where we do debottlenecking or we do general offline, more substantive renovations on the line in order to keep them operating at their peak. And so this investment cycle will create a long-term positive outlook for the parts industry. then that will continue to build in its annuity over time.
spk09: Okay. That's perfect. And can you remind me, how does the aftermarket margin stack up with other pieces of the business? How would you say their adjusted EBITDA comes in at?
spk01: Yes. Chris, I would say generally the aftermarket is about 15 points higher in margin than our capital equipment.
spk09: All right. Perfect. Thank you.
spk01: Thank you. Thanks.
spk06: Thank you. There are no further questions at this time. I'd like to turn the call back over to Kim Ryan for any closing comments.
spk00: All right. I want to thank everyone for joining us on the call today. We appreciate your ownership and your interest in Hill & Brand. Before we depart today, I want to again thank Joe for his very meaningful contributions to Hill & Brand, and we wish him all the very best in the future. We look forward to talking to you again in February when we report our fiscal first quarter results. Thank you, everyone. Have a great day and stay safe and healthy.
spk06: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great day.
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