Hillenbrand Inc

Today, ladies and gentlemen, and welcome to the Hillenbrand Third Quarter Fiscal Year 2023 Earnings Call. Our host for today's call is Sam Mindsberg, VP of Investor Relations. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to your host. Sam, you may begin.

Thank you, Operator. Good morning, everyone. Welcome to Hill & Brand's conference call for our fiscal third quarter of 2023. I'm joined by our President and CEO, Kim Ryan, and our Senior Vice President and CFO, Bob Van Hembergen. I'd like to direct your attention to the supplemental slides posted on our IR website that will be referenced on today's call. As a reminder, the divested Batesville segment is classified as discontinued operations for all periods presented, and our commentary will be based on the performance of our continuing operations. Turning to slide three, a reminder that our comments may contain certain forward-looking statements that are subject to the safe harbor provisions of the securities laws. These statements are not guarantees of future performance, and our actual results could differ materially. Also, during the course of this call, we will be discussing certain non-GAAP operating performance measures, including organic comparisons for our segments, which exclude the impacts of acquisitions, divestitures, and foreign currency exchange. I encourage you to review the appendix and slide three of the presentation, as well as our 10-Q, which can be found on our website, for a deeper discussion of non-GAAP information, forward-looking statements, and the risk factors that could impact our actual results. With that, I'll turn the call over to Kim.

Thanks, Sam, and good morning, everyone. Thank you for joining us on today's call. I'd like to start by touching on our recently announced acquisition of the Schenck Food and Performance Materials business, or FPM. which we expect to close later this quarter. This transaction builds upon the momentum of our Linksys, Peerless, and Hairbold acquisitions as we've executed our profitable growth strategy to transform Helen Brand into a pure-plate global industrial company. As a reminder, with these acquisitions and the divestiture of Batesville that we completed in February, we've transformed our portfolio from having roughly 20% of our revenues generated from the secularly declining death care end market to now anticipating nearly 30% of our combined revenues to be in the higher growth, less cyclical end markets of food, pharma, and recycling. These end markets are supported by long-term macro growth demands, and our improved scale allows us to leverage our global engineering and service capabilities, along with our global footprint and scalable foundation to drive profitable growth. I'm excited by the opportunity this acquisition will create by enabling us to provide more comprehensive value proposition to our customers, to create enhanced opportunities for our associates, to share best practices and drive scale benefits across functions like engineering, manufacturing, and procurement, and finally, to create long-term shareholder value through our combined portfolio of leading brands and technologies with an expanded presence in higher growth, less cyclical end markets. We are on track to close the transaction this quarter, and the teams are diligently planning the integration process so we can hit the ground running on day one. We look forward to providing an update at closing. Turning to the next slide, I'll now touch on a few key highlights from our fiscal third quarter. Overall, we executed well in the quarter, exceeding our expectations for margins and earnings per share, as our teams did an excellent job managing spend and driving productivity. Consolidated revenue grew 24%, driven by strong performance from our acquisitions and robust organic performance of 14% in our APS segment. With continued strength in our aftermarket parts and service business, which offset continued softness within our MTS segment, which I'll discuss further in a moment. We also delivered adjusted earnings for share growth of 36% and generated free cash flow conversion of over 110% in the quarter. I'm pleased with the progress we're making on our integrations and the success we've seen creating enhanced solutions for our customers with two multi-million dollar system orders, one in the quarter, for alternative protein and snack applications, which neither Coperion or Linksys would have been able to win alone. The teams are excited about the opportunity to create even further value through the addition of FPM. Finally, at the end of May, we published our fourth annual sustainability report. showcasing our purpose, shape what matters for tomorrow. In the report, we furthered our commitment to transparency by publishing our double materiality assessment, which reassessed the priorities of our internal and external stakeholders following the acquisitions we made in 2022. We also disclosed our scope three emissions, water usage, and approach towards reducing our emissions. I'm very proud of our teams for the significant progress we've made, most recently reflected in Hillenbrand being named a finalist in the Reuters Responsible Business Awards for the launch and communication of our purpose. Now I'll provide a high-level overview of the dynamics we're seeing across our segments. Starting with MTS, we continue to see softness in orders across the segment. While orders and revenue for hot runners did improve sequentially, we continued to see elongated customer decision processes across most end markets and geographies, particularly in China, where we're seeing extended weakness in customer orders driven by ongoing uncertainty within China's economy, as well as customers pausing to reevaluate their own production footprint within the broader region. For our injection molding products, orders were relatively stable on a sequential basis, but have not rebounded in the timeframe we initially anticipated. We continue to be cautious about the outlook for MTS and remain focused on managing costs and driving productivity to maintain margin performance. Now turning to APS, starting with durable plastics. While we were impacted by customers delaying decisions on a few large projects in the quarter, we've continued to see a healthy pipeline of projects for both polyolefin and engineering plastics in India, the Middle East, and China. The scale of these projects has continued to increase as customers look to maximize the efficiency of their investment, and this plays into our strengths as a leading global provider of highly engineered, high-output extrusion and material handling systems. We've also continued to see strong demand for aftermarket parts and service in this segment, which reflects the strength of our installed base and the enduring value proposition we bring to customers throughout the life of their equipment and systems. We delivered double-digit year-over-year organic growth in the APS aftermarket revenue this quarter, and our aftermarket book-to-bill ratio remained above one, now for the 11th consecutive quarter. Turning to recycling, as a reminder, through the combination of our coperion extrusion and material handling systems and the hairball shredding, washing, and grinding equipment, we can offer a unique value proposition to customers through our complete plastics recycling solution. While this represents a small part of our portfolio today, we believe we'll see significant growth over the next few years as the number of projects, as well as the scale and complexity of the systems required to process the recycled material increases. Now to food and pharma. We saw strong performance in the quarter, with revenue improving nearly 20% sequentially and book-to-bill above 1, with robust demand for equipment and systems in applications such as baked goods and other processed foods, including pet foods, snacks, and treats. We saw strength across North America, Europe, and Latin America, and we're confident in the outlook for this less cyclical, higher growth part of our business, which is bolstered by our ability to create enhanced value with our more comprehensive product portfolio. As a reminder, in fiscal 2022, these end markets represented approximately 3% of consolidated revenues. Through our acquisitions of Linksys, Peerless, and Gartler, we have increased our scale to approximately 15% of total revenues, and at closing the acquisition of FPM, we'll bring this to nearly 25% of expected total company revenues. Overall, we remain confident in our strong brands and leading technologies, and we believe the portfolio actions we've taken have strengthened our position within end markets that can balance the cyclicality of our existing plastics business while still leveraging our core capabilities around material processing and systems engineering. While the ongoing macroeconomic uncertainty is causing delays in customer decisions, we remain focused on executing our strong backlog, driving continuous improvement in our operations through the HOM, managing discretionary costs, and executing our integration plans to achieve both growth and synergies. I'll now turn the call over to Bob to provide a more detailed overview of our financial performance and outlook for the fourth quarter.