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spk06: Greetings. Welcome to Hill & Brand's fiscal fourth quarter and full year 2022 earnings call. At this time, all participants are in 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 from your telephone keypad. Please note, this conference is being recorded. At this time, I'll turn the conference over to Sam Minesburg, Senior Director of Investor Relations. Sam, you may begin.
spk02: Thank you, Operator, and good morning, everyone. Welcome to Hill & Brand's fiscal fourth quarter and full year 2022 earnings call. I'm joined by our president and CEO, Kim Ryan, and our senior vice president and CFO, Bob VanHembergen. 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 turn the call over to Kim.
spk00: Thank you, Sam, and good morning, everyone. Thanks for joining us today as we review our fiscal year 22 performance and provide our outlook to fiscal year 23. 2022 was a pivotal year for Hill & Brand, and we made significant progress in executing our strategy to grow as a world-class global industrial company with a portfolio of highly engineered, mission-critical processing technologies and solution, and leading global brands that serve customers throughout the lifetime of our equipment. In our Q1 earnings call, which was my first after officially taking over as CEO, I communicated several key priorities for the year. First, to ensure our company culture, values, and working norms were aligned to the needs of the evolving global workforce. Second, to successfully complete the Millicron integration And finally, to drive continued growth for Hill & Bram through innovation, new product development, and strategic acquisition. We made tremendous progress on these priorities and now I'll cover some of our highlights. In June, we introduced our company's purpose, Shape What Matters for Tomorrow, which serves as the foundation of our culture and unites all of our associates around the globe through a shared vision of how we can drive a positive impact in the world through our people, our products, and our partnerships. Internally, our associates have taken ownership of our purpose, which they helped to create. It's been truly inspiring to watch the organization embed this purpose and our unified core values into our culture. Externally, purpose is demonstrated in our recent acquisition of Herbal Meckesheim, and also by the progress we have made in increasing our transparency through additional disclosures around energy, emissions, and DE&I, and by forging key partnerships with organizations like the American Heart Association, Girls Inc., and Net Impact, just to name a few of the ways this purpose influences our company. In addition, I recently signed the United Nations Women's Empowerment Principles as another step in our commitment to advance gender diversity and equality in our company, industry, and the broader community. Turning to the Millicron integrations, next week we'll reach the end of the third and final year of the integration program. As we announced last quarter, we achieved and have since surpassed our target of $75 million in run rate cost synergies ahead of schedule. I'm very proud of the commitment our teams displayed as they worked tirelessly in pursuit of achieving our goals and creating significant value for the company. As you know, this integration used the Hillenbrand operating model to build a scalable foundation for functions like finance, IT, and HR, as well as global engineering and supply chain that is leveraged by the entire enterprise. We believe the HOM is a key success factor that enables us to drive continuous improvement in our existing businesses and accelerated growth and value realization in our acquisitions. Now turning to performance highlights, despite significant macro headwinds from inflation, supply chain disruption, and foreign currency throughout the year, we achieved record levels for revenue and adjusted EBITDA in our industrial segments in fiscal year 22. Our molding technology solutions segment had annual revenue and margin expansion that came in near the high end of our expectations. And while we did see a slowdown in orders in the fourth quarter, largely due to the rise in global macro uncertainty, we are entering fiscal 23 with a strong backlog. We're closely monitoring the demand environment, as well as the continued zero COVID policy situation in China, and are taking appropriate action to protect overall margins. Bob will cover this when he discusses our financial performance and outlook. In our advanced process solutions segment, we entered fiscal 23 with another record level of backlog, providing us confidence and visibility in this uncertain operating environment. As discussed last quarter, we saw some delays in customer decision timing, but finished strong with a record Q4 order performance on an FX-adjusted basis, and we continue to see solid order pipelines for our large plastic systems, aftermarket parts and service, and our food and recycling applications. Last month, several of our teams across APS and MTS attended the K-Fair in Dusseldorf, Germany, the world's largest plastics convention. Each of our participating businesses saw a significant amount of lead and quote volume coming out of the show, which is a testament to the strength of this industry as evolving trends around durable plastics and especially sustainability provide a tailwind for long-term demand in both our MTS and APS segments. In particular, we have received considerable interest in the expanded recycling capabilities we can now bring to the market as a result of our acquisition of Herbold Meckesheim. Herbold is a leader in the front end of the recycling process with technologies that separate, shred, fine grind, wash, and dry recycled plastic, which can then be fed through our coperium feeding and extrusion equipment to be made back into plastic pellets. These plastic pellets can then be extruded or molded into products via injection molding, extrusion, and hot runner equipment, which are all fully equipped to process recycled content to create high quality, more sustainable products. This circularity within the plastics value chain is a perfect example of how our business helps to shape what matters for tomorrow. We're excited to share more details with you as the Kopirian and Herbal teams continue their integration and leverage our combined technologies to create enhanced customer solutions to serve this fast-growing end market. Now, turning to our recent acquisitions in food, yesterday in our earnings release, we announced the tuck-in acquisition of Peerless, a premier supplier of industrial food processing equipment, which is expected to close before the end of the calendar year. Together with the Coperion, Linksys Group, and Gobbler Brands, We anticipate our total food and pharma revenue to be over $400 million, now providing meaningful scale and balance to our portfolio. We're excited about the opportunities ahead of us, from bringing together the complementary technologies across these brands to drive enhanced value propositions for our customers, to the improved operational efficiency we expect to achieve through the deployment of the Hillenbrand operating model. Since closing the Linksys transaction in early October, our integration teams have been working closely together and are on track to drive synergy realization. We're confident in our ability to effectively integrate and improve our combined businesses, as we have proven before through the successful integrations at Millicron and before that, Coperium. In total, including peerless, we executed our disciplined M&A strategy to deploy approximately $740 million towards these acquisitions. expanding our position in complementary end markets with attractive long-term growth characteristics, where we believe our highly engineered, mission-critical processing capabilities and engineering expertise create a compelling opportunity to win. We believe these actions position Hill & Brand for continued long-term growth and shareholder value creation. Finally, before I turn the call over to Bob to cover our financial details and outlook, I want to touch briefly on the status of Batesville Strategic Alternatives Review. The process remains ongoing, and we are confident the final outcome will be the best result for our associates, our customers, and our shareholders. We will provide additional updates as appropriate. With that, I'll now turn the call over to Bob to cover our financial performance and outlook.
spk04: Thanks, Kim, and good morning, everyone. Turning to slide six, as a reminder, throughout my section, I will be discussing our performance compared to the prior year on a pro forma basis, which has been adjusted for the divestitures of Abel, RedValve, and TerraSource Global from the advanced process solution segment. We believe this view provides a clear assessment of our performance, and you will find a reconciliation of reported and pro forma results in the appendix of the earnings slide deck. In our fourth quarter, we delivered a revenue of $750 million. an increase of 1% compared to the prior year, or 7% excluding the impact of foreign currency exchange. This growth was led by pricing and higher volume in our molding technology solutions and advanced process solution segments, partially offset by lower volume in Batesville. Adjusted EBITDA of $135 million decreased 3%, but increased 3% excluding the impact of foreign currency exchange as favorable pricing and productivity improvements, along with higher industrial volume, more than offset inflation, lower Batesville volume, and increase in strategic investments. Adjusted EBITDA margin of 18% decreased 80 basis points, primarily due to the dilutive effect of price cost and lower volume in Batesville. We reported gap net income of $57 million, or 81 cents per share, an increase of 9% compared to the prior year. Adjusted earnings per share of $1.05 came in slightly above the high end of our expectations and was $0.05 or 5% higher than the prior year. As favorable pricing, productivity, higher volume in our industrial segments, and lower shares outstanding were partially offset by inflation, lower Batesville volume, and the impact of foreign currency exchange. The adjusted effective tax rate in the quarter was 27.9%. We had cash flow from operations of $97 million in the quarter, an increase of 13% year over year, primarily due to higher customer advances and timing of cash paid for taxes, partially offset by an increase in inventory. Capital expenditures were $18 million in the quarter, which was in line with expectations. Now moving to segment performance on slide seven, APS revenue of $328 million, was approximately flat compared to the prior year, but up 11%, excluding the impact of foreign currency, primarily driven by favorable pricing and higher volume of aftermarket parts and services. Adjusted EBITDA of $69 million decreased 1% year over year, but increased 9%, excluding the impact of foreign currency, as pricing and productivity improvements and higher volume were partially offset by inflation and strategic investments. Adjusted EBITDA margin of 20.9% was essentially flat as a dilutive effect of price cost mostly offset productivity and operating leverage from higher volume. Record backlog of $1.4 billion increased 6% compared to the prior year, or 22% excluding the impact of foreign currency, driven by strong order volume for large plastic projects, record aftermarket orders, and the acquisition of Hairbold. Looking forward, as Kim mentioned, the project pipeline remains healthy as we continue to see good demand for our leading products and solutions across the key end markets we serve. Turning to molding technology solutions on slide eight, quarterly revenue of $276 million increased 6% year over year, or 11% excluding the impact of foreign currency, primarily driven by favorable pricing and higher volume for injection molding equipment. Adjusted EBITDA of $60 million increased 11% compared to the prior year, or 16% excluding the impact of foreign currency exchange, while adjusted EBITDA margins of 21.6% increased to 100 basis points as pricing and productivity improvements and operating leverage from higher volume more than offset inflation. Backlog of $364 million was essentially flat compared to the prior year, or up 3% excluding the impact of foreign currency, and still remains at historically strong levels. As Kim mentioned, order volume slowed in Q4 due to a delay in customer decisions resulting from the increasing macro uncertainty. We expect these customer delays to negatively impact orders and revenue through at least the first half of fiscal 23, which I'll discuss further when I cover our outlook. In response to the slowdown in orders in our MTS segment, We have taken measures towards containing discretionary costs, only hiring for critical roles, and a prioritization of key investments. Additionally, our global supply management organization remains focused on optimizing our global supply chain costs, while the continued deployment of the Hillenbrand operating model drives further operational efficiencies, particularly within our injection molding product line. Now turning to Batesville on slide nine, Compared to the prior year, revenue of $146 million decreased 6% due to lower burial casket volume, resulting from an estimated decrease in deaths associated with the declining effects of the COVID-19 pandemic and an estimated increase in the rate at which families opted for cremation. This decrease was partially offset by the price surcharges implemented earlier in the year to offset the significant increase in commodity costs. Adjusted EBITDA of $24 million, decreased 28%, and adjusted EBITDA margin of 16.6% declined 500 basis points due to dilutive effect of price cost and lower volume. Margin in the quarter came in below expectations, but we still anticipate the normalized margins for this business to be approximately 20%, as we have communicated previously. Now we'll briefly cover full year results on slide 10. Consolidated revenue of $2.94 billion increased 5% over the prior year, or 9% excluding the impact of foreign currency exchange. APS revenue of $1.27 billion increased 8%, or 14% excluding currency exchange. And MTS revenue of $1.05 billion grew 5%, or 8% excluding currency exchange. Batesville revenue of $626 million was roughly flat year over year, largely due to the commodity price surcharges, which offset lower volume. Total backlog of $1.76 billion increased 5% or 18%, excluding the impact of foreign currency exchange, with approximately 75% of the backlog expected to convert over the next 12 months. As we head into fiscal 23, The macro environment remains challenging, but our business has shown its resiliency, and our strong backlog provides us confidence as we move forward. Adjusted EBITDA of $527 million decreased 1% compared to the prior year, but increased 3%, excluding the impact of foreign currency, as pricing and productivity improvements and higher volume in APS and MTS were partially offset by inflation, lower Batesville volume, and an increase in strategic investments. Adjusted EBITDA margin of 17.9% decreased 110 basis points, primarily due to the dilutive effect of price-cost coverage. Adjusted EBITDA margin for APS of 19.6% increased 10 basis points, while adjusted EBITDA margin for MTS of 20.7% increased 40 basis points. Batesville's adjusted EBITDA margin of 20.3% decreased 540 basis points due to the dilutive effect of price cost coverage and lower volume. Gap net income of $209 million, or $2.89 per share, decreased from $3.31 in the prior year, primarily due to the prior year gain of the sale of ABL. Adjusted earnings per share of $3.93 increased 14 cents, or 4% compared to the prior year, as pricing and productivity improvements Higher industrial volume and lower shares outstanding were partially offset by inflation, lower Batesville volume, unfavorable foreign currency exchange, and an increase in strategic investments. The adjusted effect of tax rate for the year was 29.1%. We generated operating cash flow for the year of $191 million, down $337 million compared to the prior year, primarily due to the unfavorable timing of working capital related to large plastic projects, and an increase in inventory due to higher customer demand and supply chain disruptions. While cash flow was lower this year, our three-year average conversion remains at approximately 120%, and our underlying working capital processes continue to be healthy, with working capital turns over eight turns. Looking forward, we're confident in our ability to average 100% conversion and drive roughly 10 times working capital turns over the long term. Capital expenditures for the year were $50 million. While we expect CapEx to be higher in fiscal 23 due to the catch-up effect of supplier delays we've experienced in fiscal 21 and 22, we will be actively monitoring the demand environment and prioritize investments accordingly in the case of an increased or prolonged market softness. Now turning to the balance sheet on slide 11, net debt at the end of the fourth quarter was $988 million, and the net debt to adjusted EBITDA ratio was 1.8. At quarter end, we have liquidity of approximately $1.1 billion, including $234 million in cash on hand and the remainder available under a revolving credit facility and delayed draw on term loan facility. As we previously announced, we closed the Linksys transaction on October 6. Upon close of the peerless transaction and including the debt incurred for the acquisition of Linksys, we expect pro forma net leverage to be approximately 2.8 with liquidity of approximately $555 million. Turning to slide 12, as you know, we have a proven track record of deleveraging following acquisitions. And with the increase in leverage from our recent acquisitions, we plan to prioritize debt reduction until we return comfortably within our guardrails of 1.7 to 2.7 times net leverage, which we expect to achieve by the end of fiscal 23. Moving to capital deployment on slide 13, we returned approximately $266 million to shareholders during the year, with $62 million of that through our quarterly dividends and $204 million through the repurchase of approximately 4.8 million shares, including approximately 900,000 shares for $37 million in our fourth quarter. As we enter fiscal year 23, we will be focused on reducing debt while also continuing to make strategic investments for long-term growth and operational efficiency, such as automation. But we will be cautious as we monitor the overall demand environment. Now let me conclude my prepared remarks with our fiscal 23 outlook on slide 14. Our guidance will be on an organic basis, excluding FX impacts, and a total basis, including the acquisitions of Linksys, Herbald, and Gobbler, and the impacts of FX. We have not yet closed the peerless transaction but do not anticipate it to have a material impact on our guidance. As the basis for our outlook, we enter the year with record backlog and continued strength in our APS segment, including strong momentum in our aftermarket business. However, we expect order and revenue softness for our MTS segment to persist through at least the first half of the fiscal year. But at this time, we are not incorporating a broad-based recession into our guidance. We also expect foreign currency headwinds to be more pronounced in the first half of the fiscal year. While supply chain disruptions and inflation have moderated slightly, we still expect it to be some time before these issues resolve. We expect full year revenue of $3.3 to $3.4 billion, up 11% to 16%, which represents organic growth of 3% to 6%, a contribution from acquisitions of 12% to 13%, offset by foreign currency headwind of roughly 3%. We are providing a wide range for adjusted EPS to reflect potential impacts of the global macro uncertainty. As a result, we expect full year adjusted earnings per share in the range of $4.10 to $4.50, with the second half of the fiscal year expected to be stronger than the first half. We expect free cash flow as percent of adjusted net income to be approximately 100% for the year, with CapEx of approximately $70 million. Now to our full-year segment outlook. Starting with advanced process solutions, we expect full-year revenue to be $1.66 billion to $1.74 billion, up 31% to 37%, representing organic growth of 9% to 13%, primarily driven by continued strength in large plastic projects as well as solid growth and aftermarket revenue. Additionally, we expect a contribution of 28 to 30% from acquisitions and an unfavorable foreign currency impact of approximately 6%. We expect adjusted EBITDA margin of 19 to 20%. Organic margin is anticipated to be up roughly 60 to 100 basis points. As previously discussed, the acquired businesses are dilutive to segment margins but we fully anticipate to bring these margins in line over time as we integrate and drive synergy realization through the deployment of the Hillenbrand operating model. We assume relatively normal seasonality throughout the year, with the first quarter being our lowest quarter and fourth quarter being our highest. Turning to molding technology solutions, we expect full-year revenue to be down 2% to up 1%. including a foreign currency headwind of approximately 2%. Given the strong backlog, we expect moderate growth in injection molding products, while our quicker turn hot runner product line will be more heavily impacted by the current market situation, resulting in a modest decline year over year. We expect adjusted EBITDA margin of 20 to 21% compared to 20.7% in fiscal 22. primarily due to unfavorable mix from a higher proportion of injection molding equipment, which comes at a lower relative margin. As mentioned, we expect a softer first half compared to the second half. For Batesville, we expect revenue to be down 2% to 4% due to an anticipated decline in burial volume, largely due to the impact of the Omicron variant in the first half of fiscal 22, which contributed to nearly 300,000 COVID-19 deaths in North America during that period. This volume decline is largely offset by the carryover of the surcharges we implemented starting in fiscal Q2 of last year. We expect adjusted EBITDA margin of 19.5% to 20.5%, down 30 basis points at the midpoint, primarily due to lower volume, partially offset by productivity actions. we expect price-cost coverage to be relatively neutral for the year. For phasing, we anticipate a tougher year-over-year comparison in the first half, largely due to the decline in volume and higher expected level of inflation. Now, given the macro economic uncertainty, we are providing a Q1 guidance range for adjusted EPS of $0.85 to $0.93. This is down moderately from the prior year, primarily due to lower volume in Batesville as a result of the impact of the Omicron variant in the prior year, and lower volume in MTS, particularly for high margin hot runner product line due to customer order delays. This will be partially offset by APS growth and lower shares outstanding. We expect a contribution of approximately six cents from acquisitions in the quarter, net of interest, which is offset by the impact of unfavorable foreign currency exchange. Please review slide 14 for additional guidance assumptions. Overall heading into fiscal 2023, we have strong backlog and a solid pipeline within our APS segment, which will help mitigate the order softness we're experiencing in our MTS segment. We continue to be focused on investing for growth and delivering world-class solutions to our customers in a variety of growing and markets while utilizing the Hillenbrand operating model to help us navigate through the difficult global environment. Our teams have repeatedly demonstrated the ability to execute through challenging circumstances, and I am confident that we will continue to drive sustainable improvements that will create long-term value for our shareholders while remaining nimble in deploying our downturn playbook to contain costs in response to our broader market downturn scenario. And now I'll turn the call back over to Kim.
spk00: Thanks, Bob. I'll end our discussion with a few final remarks before taking questions. We continue to operate in a dynamic and challenging macro environment. As I mentioned, we remain vigilant towards the external environment, and we are taking appropriate action to protect the business in the short term while not sacrificing our long-term opportunity for growth. Our backlog remains at record levels, and we remain intensely focused on deploying the Helen Brand operating model to help our teams effectively guide and execute through these challenging global times. Guided by our purpose, shape what matters for tomorrow, we continue to invest in innovative solutions that help our customers solve their most difficult problems. And we're confident that we're taking the right steps to further our position at Hill & Brand to drive long-term profitable growth and shareholder value. Finally, we hope to see you at our Investor Day on December 15th in New York City, where you'll be able to meet key members of our talented and experienced leadership team and members of our board of directors. and where we plan to provide further insight into our strategy, our transformation journey, our segments, and our targeted performance. We'll now open the line for your questions.
spk06: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants who are using speaker equipment, It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, that's star one. Thank you. Our first question comes from the line of Daniel Moore with CJS Securities. Please receive your questions.
spk03: Thank you. Good morning, Kim. Good morning, Bob. Thanks for taking the questions.
spk04: Good morning, Dan. Good morning.
spk03: We'll start with advanced process solutions. Clearly continuing to see strength. You mentioned record quarter of orders adjusted for FX. I think last quarter you alluded to a couple of large orders. I assume those did close during the quarter. Just checking there and maybe any more color just on the general outlook and pipeline behind the backlog growth that you're seeing in this quarter.
spk00: Yeah, Dan. So, yes, we had seen a couple of those trickle in at the beginning of the quarter, and then a few more of the orders, obviously, that we expected executed towards the end of the quarter. And that obviously allowed us to achieve those record order levels. We also saw continuing strength of our services business and the order pipeline for that, which was, you know, something that we've been talking about, as you know, for several quarters and something that we've been monitoring. And that obviously comes as a result of a lot of the capital that has been purchased over the last number of years and the subsequent parts annuity that we expect to come from these orders. from these systems and projects that we've put in. In terms of the pipeline, we still feel that that's good and robust and stable, and particularly as we had an opportunity to interact with a lot of our customers K-Fair over the course of the last 45 days had an opportunity to really explore a lot of the thinking around how our customers are approaching the market and some of these uncertain times. What are some of the projects that they're still planning on? How are they thinking about continuing investments in the durable plastics area? And as you might imagine, sustainability was a huge focus of K-Fair, and so there was a high degree of interest in the recent acquisitions that we've made, especially in the recycling space, so that we could continue to offer more fulsome solutions to our customers in the areas, whether it's mechanical recycling, solvent-based recycling, chemical recycling, we have the opportunity to share the the reference lines that we've been able to put in in all of those areas and how we're going to be bringing those solutions to light with this most recent acquisition. So it was very well received. And that's, I think, a pretty good view of kind of how we see things materializing with APS.
spk03: Got it. Very helpful. Maybe just switching gears to the MTS side of the house. just talk about what you're seeing in real time. You gave great color on the prepared remarks, but as far as kind of sequentially, week to week, month to month, how demand has trended, or I should say order rates are trending, exiting fiscal 22 and thus far this quarter. Sounds like you're kind of setting up for some softness for the next one to two quarters. Just what are you hearing from customers and Maybe compare it to prior downturns, if that's possible.
spk00: Yeah, we have seen some softness in quarter four and a bit coming in, and that's primarily on the capital side of the business. We've continued to see good activity in the parts side of our business on MTS. Specifically for our extrusion and injection molding systems, we continue to see continuing good order trends there. Obviously, we do have a strong backlog in that injection molding and extrusion side of the business, and so we will continue to work through that with our partners. We also continue to monitor the situation in China, and while we have not been shut down in our facility and our local suppliers that supply that plant, it does limit some of our capability to travel very broadly in China with some of the sporadic shutdowns that happen in that area, and I think that has caused a bit of a slowdown in decisions. We continue to have good, robust pipelines of orders and good communications with our customers, but some of those projects, frankly, just require an opportunity to work together face-to-face. As we continue to see those areas open up, it makes it a lot easier to get those order decisions finalized. So that's what we continue to see right now. That short cycle, the shorter cycle business, you know, we do expect to see some softness in the first half, but as we look out to what we're hearing from customers and what we're seeing in our own pipelines, we do expect that to elevate in the second half of the year and move some of those decisions and projects ahead at that time.
spk03: Perfect. Maybe one more and I'll jump back, but just in terms of price cost, remind us kind of where we are now when you expect to be fully caught up. Sounds like for the full year you do, but will you still have a little bit of catch-up to go in certain parts of the business for Q1, Q2? Is that the right way to think about it, Bob?
spk04: Yeah, I mean, you know, so I think we've demonstrated with our global supply chain management team that we've got some good fundamentals put in place. And, you know, as expected, we saw continued improvement as we work throughout the year. And so Q3 was the first quarter that we were 100% price cost covered. And then in Q4, we were actually above 100% as a total company. With that being said, full year, we're just shy of being 100% price cost covered. And I would say Batesville's the most behind of the group. But with that being said, we feel great exiting the year where we did that we'll be 100% price-cost covered going forward. Obviously, that's dilutive to margins, but on a dollar-for-dollar basis, we will be protected going forward.
spk03: Perfect. I'll jump back with any follow-ups. Thank you.
spk00: Thanks, Dan.
spk06: Thank you. As a reminder, if you'd like to ask a question this morning, please press star 1 from your telephone keypad. The next question comes from the line of Matt Somerville with DA Davidson. Please proceed with your question.
spk01: Thanks. A couple of questions. First, can you talk about – I apologize for the voice – what cost and revenue synergies you may be expecting from the four deals, either closed or soon to be closed and over what periods?
spk04: Yeah, so Linksys is our biggest acquisition, and so we're expecting about $10 million of synergies to come through over the next several years. With some of those obviously being in the near term, primarily in the global supply chain management execution of procurement save and operational savings. And just as a reminder, what we did not put into our business case was the opportunity on the commercial side. But with that being said, I think our teams have already gotten to work on what we're going to do with cross-selling. And so we've already began to offer a broader portfolio to our customers. The other thing I'd highlight too, right, is the Linksys business was underrepresented as far as aftermarket parts. And so we've leveraged and started leveraging some of our best practices to improve their entitlement on aftermarket. But then the last thing I would say is, right, I mean, we've got key account relationships, and we didn't have a lot of customer overlap between both companies. But I can tell you on the first 30 days, we've identified several multimillion-dollar opportunities that we're going to go quote that we wouldn't have had we been separate companies. And so I think our teams have done a fantastic job already really getting to work, and so we feel good about where things are going.
spk00: And I would just add that, you know, as with any of these acquisitions, We evaluate as we determine whether or not we can make appropriate returns on these acquisitions. We evaluate that in our very disciplined M&A process that we conduct with our board of directors. We base that primarily on cost. And then as we get into the integration planning and we are really able to test some of the theories that we have around other opportunities, then we will continue to update those synergies as we move along through the integration, as we have demonstrated with the Millicron integration. If it becomes appropriate to do so, we'll update on what types of opportunities we see there.
spk01: Understood. And then two follow-ups. First, can you maybe provide a little bit more of a high-level comment, Kim, on the Batesville process? You know, you're roughly four months into this. Are you happy with the interest levels you're seeing and maybe how the current market environment may be influencing the process?
spk00: I would say that we continue to work this process. We are confident that we will arrive at a final outcome that will be the best result for associates, customers, shareholders. I would say even though there is a challenging market in front of us, I think we've had a great partner involved in this, and we've been able to really had a very fulsome look at the opportunities out in the marketplace and be able to make sure that, you know, all interested parties have an opportunity to evaluate, you know, this great asset that we are exploring the strategic alternatives for. And we'll continue to provide updates as those become available.
spk01: Appreciate that. And finally, just one more for me. If you look at slide 14 in the organic guidance you provided by segment, appreciate you providing that. Can you maybe comment by segment how much of the organic is split between volume and price?
spk04: Thank you. For the acquisitions? Yeah, I can hear Matt. So if you think about, I guess maybe let's take APS, obviously, where the acquisitions are. So the volume is going to be the biggest driver in that segment. That's going to be about, I'll call it, mid-single digits. The acquisitions is going to be closer to the higher 20s, and that's primarily volume. There's not too much price. There's going to be some price opportunity we have as part of our synergies, Matt, but I would consider most of that to be volume right now. Obviously, total price is going to be mid-single digits of an impact, and then we've got the foreign exchange really offsetting that. As far as the acquisitions alone, consider that mostly volume, and then we'll work through our through our processes of integration and applying the HOM to get pricing and aftermarket mix.
spk01: And then the other two segments, same thing, volume versus price, please.
spk04: Yeah, I'd say on NTS, it's primarily price offset with some slight volume headwinds, and then foreign exchange, and then Batesville, You know, as you can imagine, with the Omicron virus we had last year and we don't have this year, you know, we're going to lose volume of about, you know, kind of high single digits, but that'll be offset by price. And so that's how you get to that kind of 2% to 4% decline.
spk01: Great. Thank you for that detail.
spk06: Our next question comes from the line of John Franzrev with Sidonian Company. Please just use your questions.
spk05: Good morning, everyone, and thanks for taking my questions. I like to start with the M&A environment. Considering you've made a couple acquisitions in the past year, what are your thoughts about additional M&A versus taking maybe some time to digest what you've got before you go again in the M&A market?
spk00: Yeah, I would say a couple of things. I think we've been very clear that we are We have our guardrails set up. We work very hard to stay within those guardrails, comfortably within those guardrails, and so you should anticipate that our priority is focusing on our integrations, achieving the synergies of those integrations, and making sure that we continue to pay down debt and get back comfortably within the guardrails. That will be a priority of ours. we don't jump into and out of the M&A market as you can imagine that the targets that we identified and executed on this year are things that we've been looking at for years as a part of our long-term growth strategy and so we don't jump in and jump out I would say that we are we are very focused our priorities are investing in in the internal opportunities we identified in the business that we've been discussing and paying down debt and getting these integrations done in the fashion that you would expect and that we've previously demonstrated with prior acquisition. And we do not expect to, you know, in the near term, we don't expect to be doing a lot of other transactions until we're back within those guardrails.
spk05: Great. And in regards to repurchasing stock versus paying down debt, I guess, personally, how much is left in the authorization and what are your thoughts about spending capital on reducing debt versus buying stock?
spk04: Yeah, I mean, and so just maybe give you some background, right? So through the, throughout this last year, we've been pretty active in, in share repurchases. And so we've, We've bought close to 5 million shares back, really for about $200 million. We did execute about $37 million in our fourth quarter. Remember, our price had bounced around in that kind of high 30s to low 40 range. But we had to do that, or that was the opportunistic opportunity we had just because of the way our debt structure worked, John. So we had fixed debt, and we would have had prepayment penalties had we paid down debt. So really buying shares was the best alternative for our shareholders. To answer your first question, we do have $125 million left on our authorization as we move forward. But as you think about our guardrails, as Kim mentioned, after the linksless transaction and peerless transactions, we're going to be just north of our net leverage guardrails of 1.7 to 2.7. And so near term, we are going to be focused on paying down that debt and really putting a pause on share repurchases here.
spk05: Great. And I might have missed this in the prepared remarks, but what's the backlog look like X acquisitions on a year-over-year basis?
spk04: Yeah, so maybe I'll give you some color because we do have some moving parts there. You know, so our backlog ended at a billion 762, as I mentioned, but the biggest driver is really volume. And so volume was up about 9% year over year. And so that's the biggest driver. But the other thing I'd highlight is we did have, you know, an impact of price just because of some of the fundamentals that we put in place with the global supply chain management team. So we picked up about 4% there. So if you think organically, backlog's up about 13%. We also had the impact of an uplift of the Gobbler and Hairbold acquisitions. We picked up another 5% at backlog there. So that's about 18% year-over-year growth. Now, unfortunately, with the foreign exchange rates, you know, we did have a reduction of about 13% just on the euro, rupee, and RMB. uh, really, uh, versus the dollar. Um, and, and most obviously being the Euro. So net net, we ended at 5%, uh, organically 13, up 13, and then, you know, excluding foreign exchange up 18%. Got it.
spk05: And just, I guess one last question, if I may, um, regarding Batesville and the price cost recovery, you're saying that's lagging the most. Why is that the case? I would think considering it's book in turn shipping cycle, That would be easier, but are you locked into, like, long-term contracts? I guess a little call would be helpful.
spk00: Yeah, just from an industry structure standpoint, that industry is previously normally characterized by a normal annual price increase that would go into effect, and then we would help our customers increase. They have a lot of work that has to be done in order to implement those price increases and the resulting pricing changes that happen in all of their presentations to their consumers and their customers. And so we had, you know, this industry is typically characterized by that annual price increase, typically in October of every year. Over the course of the last year or so with inflation and the really outpaced inflation that all businesses were seeing, we implemented surcharges during the year, one in January and again in May, to address the inflationary situations that we have there. There are, you know, there is timing elements of that because some contracts obviously have We have to go in with the price timing that we've agreed to contractually, but even with those surcharges, it does take time to implement those things and pass those through to customers, and they in turn then pass those through to consumers. So that industry is typically characterized by not real-time pricing in an effort to support the processes that our customers have to adhere to.
spk04: You know, John, I would highlight we are caught up. We did catch up on price cost in the fourth quarter, and that's what gives us confidence moving forward. But for the full year, obviously, we started behind in Q1, Q2.
spk05: You know, I'm going to stick one more in. Hospitalization is up on a higher influenza rate. Are you seeing any impact in the baseball business on that?
spk00: No, we're not. Not yet?
spk05: No, we're not. Okay.
spk00: Okay, not yet. Typical flu season does come in our fiscal second quarter is when we typically see that more prevalently. So, you know, remains to be seen how close vaccines match that and, you know, all kinds of other factors that influence how that influenza season will behave this year.
spk05: Great. Thank you very much, Kim.
spk00: Thank you.
spk06: The next question is from the line of Daniel Moore with CJS Securities. Please proceed with your questions.
spk03: Thanks again. Maybe just one more on Batesville. Looking at the guidance for this year for fiscal 23, specifically from a volume perspective, does that imply kind of close to full, quote, normalization post-pandemic? Are we sort of back to the you know, what would have been the run rate, you know, if we had not had the spike of the pandemic, or is that still kind of above trend?
spk04: No, no, Dan, that'll get us back to kind of the new kind of 1% to 3%. We'll be down to the 1% to 3% when you adjust for the Omicron impact we had in Q1 and Q2, right? So we're kind of down high single digits, but again, most of that's going to be first half, and then we'll be in that kind of 1% to 3% secular decline after that. So consider it back to normal.
spk00: Right. And remember, Dan, the model that we kind of tried to get everybody's head around was taking that 2019 pre-COVID number and then kind of modeling that for the normal secular decline you see in this market and kind of drawing that trend line plus or minus. And that when we arrived back post-COVID, it would come back in that range. And that's where we are.
spk04: Yeah, and then just one final point. And so we're talking volume, obviously. And so we do have, you know, pricing in place with the surcharge. And obviously, with a deflationary environment, you know, there could be risk that our pricing does come down. We're actually going to be slow to do that. But should that happen, our margins will actually improve, but we'll still be covered on a dollar for dollar basis.
spk03: No, it makes sense. I ask it just because the, you know, if you look back to 2019, it's at a different dollar level, given all the inflation and costs you've had to pass through. And then lastly, you know, can't blame me for asking just any, any preview of the analyst investor day, not necessarily numbers, but you know, what types of long term targets might you be thinking about, you know, in terms of end markets, adjacencies, and, you know, kind of the longer term opportunities?
spk04: Yeah, so we'll give some clarity around financially, I'd say, through 2025, so think three-year horizon. But obviously, we're going to provide a lot of color on some of the strategic investments we've made and the impacts that our Hillenbrand operating model has provided and will continue to provide going forward.
spk00: Obviously, we'll obviously share as well the new strategic markets, the size of those markets, the growth trends that we're that we're expecting both in the shorter and longer term and how we will play in those markets, given that recycling and food especially have been areas that we haven't historically talked a lot about, and we'll have a lot more color on that as well. Obviously, that's a much differently sized part of our portfolio. As we come into Investor Day, that's another great end market that takes advantage of all the skills and capabilities that we have as a corporation, and we're excited about the diversity that that provides from an end market perspective in our portfolio.
spk03: Very good. Look forward to it. Appreciate the call.
spk00: Great. Thanks, Dan.
spk03: Thank you.
spk06: At this time, we've reached the end of the question and answer session. I'll now turn the call over to Kim Ryan for closing remarks.
spk00: Thank you. Thank you again, everyone, for joining us on the call today. We appreciate your ownership and your interest in the transformation going on here at Helen Brand. We look forward to talking to you again in December at our Investor Day and then in February when we will report our first quarter fiscal 23 results. I hope you all have a safe and healthy Thanksgiving holiday. Thank you again for joining us this morning.
spk06: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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