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spk01: Greetings and welcome to the Hillenbrand fourth quarter fiscal year 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sam Minesburg, Vice President and Best Relations for Hillenbrand. Thank you. You may begin.
spk04: Thank you, operator, and good morning, everyone. Welcome to Hill & Brand's fourth quarter and fiscal 2023 year-end earnings call. I'm joined by our president and CEO, Kim Ryan, and our senior vice president and CFO, Bob 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 organic comparisons for our segments, which exclude the impacts from acquisitions, divestitures, and foreign currency exchange. Additionally, 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. 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 Kim. Kim?
spk00: Thank you, Sam, and good morning, everyone. Thanks for joining us today as we review our fiscal 2023 and provide our outlook for fiscal year 2024. I'd like to start by recognizing our associates for their resiliency and dedication throughout the year as we executed our strategy and significantly transformed Hill & Brand through the completion of three strategic acquisitions and the divestiture of our legacy death care segment. Their commitment and diligence made that transformation possible. These actions have strengthened the foundation for Hill & Brand's long-term success as a pure plate global industrial company now characterized by a portfolio of leading brands and highly engineered industrial processing technologies and solutions serving a variety of industries, including durable plastics, food, and recycling, which we believe are supported by long-term secular growth trends. Most notably, with the completion of Schenck Processed Food and Performance Materials, or FPM, on September 1st, We've now increased the scale of our food and pharma business to roughly $800 million on a pro forma 2023 basis, up nearly tenfold from what we had in 2022. This attractive end market leverages the systems and applications engineering expertise and the technological capabilities that are at the core of what we do well at Hill & Brandt and build upon this backbone of products, process, and portfolio. Additionally, we believe these acquisitions provide us a less cyclical growth platform as we move forward. While we're still in early innings of the integrations for these acquisitions, the businesses have been performing ahead of our expectations and the teams are absolutely energized by the opportunities that lie ahead to create significant value for our associates, our customers, and our shareholders. Now turning to our performance. We finished the year by delivering strong margins in APS and adjusted earnings per share in the quarter at the high end of our guidance range. Revenue in the fourth quarter was in line with our expectations. Additionally, we added a one-month contribution from FPM as a result of our September 1 close. We continued to face a soft order environment for capital equipment in our MTS segment, and we experienced ongoing customer decision delays for several large projects within our APS segment. APS orders did improve modestly on a sequential basis, including winning a record order in our recycling business of nearly $30 million in the quarter. We're excited to continue to build on this momentum as we move through 2024. I also want to congratulate our recycling team for recently being selected as the first place winner from over 100 companies considered for the Stuttgart Innovation Award for Sustainability, related to our recycling technologies. We're thrilled to be recognized for the strong technological capabilities we can provide our customers in this exciting end market where we see significant growth potential over the coming years. Building upon the momentum we've seen throughout the year, our recently acquired food businesses continue to deliver strong performance, as did our aftermarket business with record quarterly aftermarket revenue in both segments. Our operating cash flow was below expectations, primarily driven by the continued push out of large orders and the corresponding customer advances. However, we made continued headway in reducing inventory and unbilled customer receivables, highlighting the ongoing execution of our working capital improvement initiative. For the full year, We grew consolidated revenue by 22%, driven by acquisition performance and robust organic growth of 9% in our APS segment. This growth was partially offset by a 2% decline in our MTS segment, primarily driven by lower revenue for our hot runner equipment, which persisted throughout the year. While the pipeline of customer inquiries and projects remains solid across our key product categories, the global economic and geopolitical environment continues to pose a challenge to the timing of some customer decisions, and we are entering the year with lower organic backlog levels compared to the record levels we saw entering fiscal 2023. As a result, we are being grounded in our 2024 demand outlook, which Bob will cover in more detail later in the call. Nevertheless, we firmly believe we are well-positioned for long-term growth with our leading brands and technologies, and we remain focused on controlling what we can by executing our backlog, driving innovation and productivity initiatives, and integrating our recent acquisitions to accelerate costs and commercial synergies. Before I turn the call over to Bob, I'd like to take a moment to reflect on another key accomplishment this year. This past May, we published our fourth annual sustainability report, showcasing how our organization has embraced our purpose, shaped what matters for tomorrow, and furthering our commitment to transparency by disclosing our Scope 3 emissions, water usage, and approach towards reducing our emissions. I'm proud of the progress we've made on these critically important efforts, exemplified by the recognition we've received in our most recent upgrade by MSCI to a AA rating, and in being named a finalist in the Reuters Responsible Business Awards for our purpose launch. With that, I'll now turn the call over to Bob to cover our financial performance and our outlook.
spk03: Thanks, Kim, and good morning, everyone. Turning to our consolidated fourth quarter performance on slide seven, we delivered revenue of $763 million, an increase of 26% compared to the prior year, primarily due to acquisitions, including $43 million from FPM for the month of September. On an organic basis, revenue decreased 1% year over year, as 7% organic growth in APS was offset by an 11% decline in MTS, driven by the order softness we experienced throughout the year. Adjusted EBITDA of $147 million increased 33%, or 3% organically, as favorable pricing, productivity improvements, and lower variable compensation were offset by cost inflation and lower MTS volumes. We delivered strong adjusted EBITDA margin of 19.3%, an increase of 90 basis points over the prior year, despite lower organic volume. We reported gap in income of $17 million, down from $31 million in the prior year, primarily due to an increase in acquisition and integration-related costs, including tax expenses. Adjusted earnings per share of $1.13 came in at the higher end of our expectations, up 45%. This figure included a net contribution of approximately two cents from FPM. Our adjusted effective tax rate in the quarter was 28.4%. We generated cash flow from operations of $73 million in the quarter, which was flat to the prior year. Capital expenditures were $23 million in the quarter. Then we returned approximately $15 million to shareholders through our quarterly dividend. Now moving to segment performance, starting with APS on slide eight. APS revenue of $516 million increased 57% compared to the prior year, primarily driven by acquisitions, favorable pricing, and higher aftermarket parts and service revenue. Organic revenue increased 7% year over year. Adjusted EBITDA of $118 million increased 72% year over year, or 23% organically, as favorable pricing, productivity improvements, higher volume, favorable product mix, and lower variable compensation were partially offset by cost inflation. We delivered strong adjusted even a margin in the quarter of 22.8%, which was up 190 basis points over the prior year. Backlog of $1.9 billion increased 34% compared to the prior year driven by acquisitions. On an organic basis, backlog decreased 9% due to lower orders for large plastic systems primarily resulting from the continued customer decision delays on several large projects. Sequentially, backlog increased 16% driven by the acquisition of SPM. We continue to see a healthy level of new product inquiries and full utilization of our test facilities across our key growth platforms of durable plastics, food, and recycling, though as we've previously communicated, we have seen an elongation of customer decision timing particularly within the large plastic systems projects in Asia and the Middle East. We continue to monitor this closely and remain focused on improving our lead times and executing our existing backlog to keep us well positioned for when customer order patterns normalize. Turning to MTFs on slide 9, revenue of $247 million decreased 10% year-over-year due to lower volume for injection molding and hot runner equipment. Adjusted EBITDA of $46 million decreased 23%, largely driven by lower volume and cost inflation. Adjusted EBITDA margin of 18.5% decreased 310 basis points compared to the prior year, primarily due to cost inflation, impact of volume, and unfavorable product mix. We continue to experience softness in our higher margin hot runner products as China remained relatively slow, and we saw additional weakness in North America. As a result, the mixed headwind was greater than we anticipated coming into the quarter. Backlog of $233 million decreased 36% compared to the prior year, primarily due to the execution of the existing backlog and decreased orders for injection molding equipment. Order volumes persisted at a relatively low level throughout the quarter, but were stable to what we experienced in Q2 and Q3. The teams remained focused on managing discretionary costs and driving productivity. and we're confident that we're well positioned to return to growth as demand recovers. I'll discuss our outlook for fiscal 24 further in a moment. Now I'll briefly cover full year results on slide 10. As a reminder, these results include one month of FPM performance. Consolidated revenue of $2.83 billion increased 22% over the prior year, or 4% organically, as APS grew 9% while MTS decreased 2%. Adjusted EBITDA of $483 million increased 20% compared to the prior year, or 4% on an organic basis, as favorable pricing, productivity improvements, higher APS volume, and lower variable compensation were partially offset by cost inflation, an increase in strategic investments, and lower NTS volume. Adjusted EBITDA margin of 17.1% decreased 20 basis points, primarily due to the dilutive effect of price-cost coverage. Gap net income from continued operations was $107 million, down 2% from the prior year. Adjusted net income of $247 million resulted in adjusted earnings per share of $3.52, an increase of 31%, largely due to the impact of acquisitions. The adjusted effective tax rate for the year was 29.5%. Total backlog of $2.1 million increased 19%, primarily due to nearly $520 million of LINCSIS and SPM backlog that we didn't have coming into the year. Organically, backlog is down 14% due to the lower orders in MTS and the delay of large projects within APS, which will be a challenge for MTS heading into fiscal 24 and a headwind to large systems revenue for APS. We generated full-year operating cash flow of $207 million, up $144 million compared to the prior year, as higher earnings and reductions in inventory and unbilled receivables were partially offset by unfavorable timing, accounts payable, and customer advances, and an increase in business acquisition and integration costs. Capital expenditures for the year were $69 million, and we returned approximately $61 million to shareholders through our quarterly dividends. As Kim highlighted, we have sustained improvement in our inventory levels and unbilled receivables throughout the year. However, our cash flow is lower than anticipated coming into the quarter, as the delay in order intake continued to negatively impact our customer advances, and we had some timing impact related to the September 1st close of FPM. Given the ongoing macro uncertainty around the world potentially impacting the timing of orders, combined with integration and synergy achievement related costs, we expect our cash conversion to be approximately 90% in fiscal 24, with Q1 to be expected a modest outflow of cash, which is consistent with our typical cadence. With that said, we're still confident in our longer-term ability to generate cash flow at or greater than net income. Turning to the balance sheet on slide 11, net debt at the end of the quarter was $1.77 billion, and our net debt to pro forma adjusted EBITDA ratio was 3.2, which was in line with our expectations following the close of FPM. At quarter end, we had liquidity of approximately $718 million, including $243 million of cash on hand and the remainder available under our revolving credit facility. Our weighted average interest rate for the quarter was approximately 5%. Turning to capital deployment on slide 12, As we've consistently communicated, our capital employment framework is based around four key priorities. Driving profitable growth through attractive organic and inorganic investment opportunities, returning cash to shareholders through our attractive and growing dividend and opportunistic share repurchases, and maintaining an appropriate leverage profile with a target net leverage range of 1.7 to 2.7. Over the near term, we continue to prioritize debt reduction with the goal of returning to within our net leverage targets by the end of the first quarter of fiscal 2025, which is consistent with what was previously communicated. We expect M&A to continue to be an important part of our long-term strategy as we look to strengthen our capabilities in key end markets, accelerate our profitable growth, and provide long-term value to our shareholders. However, our current focus is on integrating our recent acquisitions and deleveraging to our targeted range. Let me conclude my prepared remarks with our fiscal 24 outlook on slide 13. Our guidance for fiscal 2024 reflects the continued uncertainty in the global macro environment and the potential impact it may have on the timing of orders throughout the year. With that, we anticipate total company revenues of $3.28 to $3.44 billion, up 16% to 22% compared to the prior year, driven by the acquisition of FPM and solid organic growth in our EPS segment, partially offset by year-over-year decline in the MTS segment as a result of lower order trends we experienced in 2023. We expect adjusted EBITDA to be in the range of $530 to $588 million, up 10% to 22%, and adjusted earnings per share of $3.60 to $3.95, reflecting 7% growth at the midpoint of the range. We're assuming interest expense of approximately $150 million for the year, up versus the prior year due to the debt associated with the FDM acquisition. We expect our just effective tax rate to be in the range of 28 to 30% for the year. I'm going to touch on cash flow and leverage. As I mentioned earlier, we're targeting our cash flow conversion to be around 90% for 2024, inclusive of approximately $20 million of anticipated integration costs and cost to achieve synergies. While the cash flow will continue to be lumpy on a quarter-to-quarter basis, we remain confident and highly focused towards achieving our deleveraged goal of returning to within our guardrails by the end of Q1 2025. Now I'll quickly touch on our segment outlook. For APS, we anticipate revenue of $2.4 to $2.5 billion, up 32% to 37%, largely due to the full-year impact of FPM. We expect organic growth of 3% to 8%, with strong performance expected in food, recycling, and aftermarket. We are taking a more cautious approach towards our large plastic systems revenue due to the customer order delays we've experienced over the last couple of quarters. But as we mentioned, we still see a healthy level of customer activity and believe our capabilities remain best in class for providing full system solutions and service to customers anywhere in the world. We expect adjusted EBITDA margin to be 18% to 19% down from the prior year due to the dilutive effect of FPM, which, as a reminder, comes in at around 13% margin. Given the successful start to our integration, we are highly confident in our ability to drive significant margin expansion over the next few years. Organically, our guidance reflects moderate year-over-year margin expansion driven by volume, synergies, and our continuous improvement initiatives. Now turning to MTS, as Kim mentioned, We are entering this year with a significantly lower backlog compared to a year ago, which puts pressure on the full year revenue, particularly in the first half of the year. While orders have stabilized over the last few quarters, we are being cautious towards continuing macro uncertainty. As a result, the low end of our range does not assume an improvement in these order patterns, while the high end expects a modest uptick in orders in the back half of the year. We are not assuming orders return to a normalized level this year in our current guidance range. We are targeting and adjust even a margin of 18.5% to 19.5% reflecting about 30 basis points of margin expansion at the midpoint as we focus on executing productivity and continued cost actions to help mitigate the macro headlines. For Q1, we are providing a guidance range of adjusted EPS, which we expect to be $0.66 to $0.71. This is in line with our typical seasonality and reflects moderate organic growth in APS, and approximately six cents of net contribution from FPM, offset by the expected volume decline in MTS. Please review slide 13 for additional guidance assumptions. With that, I'll turn the call back over to Kim.
spk00: Thanks, Bob. As we enter 2024, we continue to experience a dynamic operating environment. In light of this, I'm all the more confident in the strategic actions we've taken to position Hill & Brand for long-term success by expanding our presence in higher growth less cyclical end markets. We've already seen traction through the strong performance these acquisitions have delivered so far. As we progress in our integration, we've seen excellent collaboration across the APS segment as we continue to identify significant opportunity to drive commercial and operational synergies, and we're looking forward to sharing more details in the coming quarters. Additionally, we remain relentless on driving operational improvements within MTS in response to the challenging cyclical demand environment. I'm excited by our previously announced addition of Tammy Maraco as president of the MTS segment. Tammy brings significant global leadership experience and will be focused on continuous improvement and positioning the segment for a return to growth once demand recovers. Finally, I want to again thank our teams for all of their efforts throughout fiscal 2023 in transforming Hillenbrand into a pure play global industrial leader of highly engineered processing equipment and solutions. I'm very proud of our achievements so far and firmly believe we have significantly more opportunity still ahead. With that, we'll now open the line for your questions.
spk01: 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. 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 using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.
spk05: Thank you. Good morning, Kim. Good morning, Bob. Thanks for all the callers.
spk00: Good morning, Dan.
spk05: Maybe start with, Kim, the integration two and a half months in with FPM, you know, maybe drill down a little bit on what you're seeing there. as well as an update on kind of Linksys and Peerless, and then somewhat related but separate, just what's embedded in your fiscal 24 guide for SHANK for FPM, I should say, from a revenue and EBITDA perspective.
spk00: Okay. I'll let Bob take the second part of your question. But relative to the integration, we are two and a half months in. I think we are – I think we are even more excited about what we found here. I mean, we've looked at FPM for a long time. We were excited about the opportunities that we thought we saw there. I think as we bring these teams together, we see even more opportunity than we did during the due diligence. And I think we see a tremendous opportunity for us to leverage what we learned during the integrations of Coperion and then Millicron and the scalable foundation that we've built over the last couple of years to be able to move quickly in creating value for not only FPM, but obviously also Linksys and Peerless as we bring them into the portfolio as well. They were already underway on the integration, so we've really been folding FPM into an in-flight integration. But I'm really, really excited about the way these teams are coming together. We've been able to launch some regional integration meetings. We've been able to bring these teams together to begin talking about not just cost opportunities but commercial opportunities, to begin thinking about how we can mesh these cultures and identify future ways for these teams to come together. I think we've even seen ways where we can bring, rather than just Coperion, we can even bring other parts of APS, specifically Rotex, into the equation to be a part of these solutions as well. So we are, I think I speak for the entire team to say we are really thrilled with the talent, the capabilities, and the energy and engagement that we've seen from these teams as we bring them together. Now I'll let Bob take your question about what's built into 24.
spk03: Yeah, thanks, Kim. So, Dan, so just a reminder, we had about $43 million of revenue in the month of September with the September 1st close of Schenck, and that's contributed about two cents into the year. So if you think about incremental in fiscal 24 we have in guidance, it's about an incremental revenue of about $520 to $530 million. Reminder margins were about 13%. We see that ticking up a bit in 2024. You know, I'd also remind you that the food businesses in total have performed better than we, you know, we'd expected internally. And then, you know, as Kim mentioned, we've had some great, you know, meetings so far and a lot of excitement. And, you know, so I think as we continue to work on some of those opportunities, you know, hopefully we can continue to move that margin up here by the end of 24, maybe into 25. So margins a little above 13%, I would say, and then incremental EPS, it's probably in that 25 to 30 cents range.
spk05: That's helpful. Sounds like solid mid-single-digit growth organically from the numbers you put out at the acquisition. Maybe talk... Go ahead. I'm sorry.
spk03: No, that's right. That's right.
spk05: Yep. Okay. And of the 20 million kind of off synergies, How much is embedded in the fiscal 24 guide and how much is left for beyond? And then, Kim, in terms of potential upside, I won't ask you to quantify, but are you seeing more opportunity on the offensive side of the ball or kind of defensive on a go-forward basis relative to your initial expectations?
spk03: Yeah, I'll take the first one. Yeah, so there's probably, I'd say, Dan, about $7 to $9 million of cost synergies only that we have embedded in our guidance. But again, you know, early days, but we've got some excitement here to hopefully move that number up and, by the way, accelerate some of the savings we have beyond that, which is probably another, call it 10 to 15, when you think about the Linksys and Schenck acquisitions, you know, kind of a runner rate. You know, we're looking to certainly accelerate some of those.
spk00: I would say on the commercial side is what I assume you're referring to, Dan, on the offensive side when you ask your question. I would say that the teams are already coming together. In fact, they were running out in front of even our integration work streams in wanting to collaborate on certain opportunities that they saw. I think we've announced a couple of opportunities that we were able to take advantage of between Linksys and Coperion that neither company would have been able to achieve on its own. We are seeing similar opportunity on the FPM side by bringing in other parts of the portfolio, whether it's Parts of the Linksys group, the Legacy, Coperion, or even Rotex that they're bringing into solutions that they're offering to customers. And we're already beginning to bring those things together and start presenting those to customer opportunities. So more to come on that.
spk05: Okay. One more for me. I'll jump out. On the APS side, still backlogged down 9% organically. Okay. Just what are you hearing from customers, particularly on the plastic side? You know, what gives you confidence that the delays are simply timing related? I'll stop there.
spk00: Yeah, so what we're hearing from customers is just a slowness in decision making on their side, whether it's, I mean, there's a variety of factors that are entering into that, whether it's interest rates or Just general concern about resources. There are just a whole variety. There's not one silver bullet that I could point to that will solve the issue. What I will say is that historically when we've seen any kind of downturn, what you start seeing is quotes drying up. You start seeing test labs drying up. You start seeing our short cycle business, specifically parts and service drying up. We're not seeing any of those things. The test labs are full. The quote pipelines are still very active in all regions, candidly. We're also seeing our service business, as we mentioned in our prepared remarks, our service business hit record quarters both on the MTS side and the APS side. There is nothing that were the typical canaries of, hey, we're heading into a slow period that would indicate that we're seeing a repeat of that here. The other thing that I would say, though, is relative to backlog, and I think I've mentioned this several times on calls, there is a level of backlog that becomes pretty unruly to manage. And we were certainly there, the number of touches you have to have, the number of the amount of work it takes to manage a very large backlog. And I had indicated previously that backlog is, this is a more manageable level for us here. And so we will expect as lead times come down with a better supply chain, you will expect to see some fluctuations in that backlog while still seeing healthy performance in the business on revenue.
spk05: That's perfect. Thank you.
spk00: Thanks.
spk01: Thank you. Our next question comes from the line of Matt Somerville with DA Davidson. Please proceed with your question.
spk02: Thanks. Maybe just starting with MTS, just a little more color, Kim and Bob, if you can. Are you seeing any divergence in trends with respect to hot runner versus injection molding demand? And maybe add a little bit end market color there. You also referenced some incremental weakness in North America. And on the slides, you talk about price-cost. maybe moving in the other direction. So can you kind of address, I know that's a lot, but can you kind of address all of that?
spk00: Yeah, I think relative to the demand environment, I mean, I think the divergence between injection molding and our hot runner businesses are really kind of the geographic footprint. And that is that the injection molding business really does not have a major footprint in China. Their footprint is in India. That has continued to be stable in most markets. you know, there is some weakness, obviously, in automotive or things like that that everyone is seeing. But we do expect those things to kind of work their way out. I would say that the hot runner business has really seen softness in China. And while it has been sequentially slightly better, it has not returned to former levels. And we continue to But we do continue to see a pretty robust pipeline there and are hoping that we'll continue to see some continued recovery in China while also seeing some expanded demand in India in future periods for the hot runner business. Hopefully that gives you some color on kind of where we're seeing the differences. North America. North America was just generally, you know, whether you looked across any of the end markets, North America saw some weakness. in kind of the current status, we expect over the next 12 months, while we expect some continued weakness in certain end markets, we expect stability to start to return in other end markets and more so globally in those markets as well. So I'm going to turn it over to Bob then, relative to your question.
spk03: Yeah, but on pricing, Matt, so we did exit 23 with 100% price cost coverage. We expect to maintain that throughout 24 as well. But, yeah, we are seeing pricing pressure in the MTF side of the house. With that being said, I'd say two things we're really focused on. One is our global supply chain management team, you know, actively looking at where we've seen price increases in the past over the last, call it 12 to 15 months, and going after those same costs as those come down to achieve those savings. And then the other area I would say is just really focused with our value-added engineering, both with customers and suppliers, and trying to find value where we can maintain those margins.
spk00: Right. And the last point I'd make is just, you know, the Hillenbrand operating model. These are the times when that skill set and that muscle is at its most important level, and dedicated resources in all of these facilities, whether it's on the APS side of the equation or MTS, there are dedicated resources that are working on productivity initiatives and driving those as quickly as we can and creating that kind of a maximum amount of flexibility as we continue to see some pressure in different areas of the organization. Those productivity initiatives are particularly important to making sure that we can respond to up and down volumes.
spk02: Got it. And then just as a follow-up, I was hoping you could provide a little bit more detail around the scope of the recycling project, that $30 million order you received. Talk about maybe what, assuming it was a competitive bid, what sort of differentiated you versus others, but maybe bidding on the project. And how does the go-forward funnel look specifically with respect to recycling? Thank you.
spk00: So relative to the recycling, so we've got a steady pipeline of recycling initiatives in the pipeline. And what we would tell you is that You know, the capabilities that we are bringing together with Hairbold and Coperion are going to be really critically important to being able to have a systems approach to some of these opportunities, whether it's for smaller recyclers or large recycling initiatives with larger customers. We do participate in all types of recycling, mechanical, chemical, solvent-based recycling. And so we have projects underway in all of those areas, and we have luminary sites where we've initiated that. where we've initiated those jobs all over the world and are excited about the opportunity that that brings. We do expect to see strong growth in certain parts of the world. When we initially started looking at recycling, I think everybody kind of thought, okay, Europe, that's the only place where recycling is really going to take on a lot of interest. But what we are really seeing is there is an increased level of interest in the U.S., or rather North America. There's an increased level in the Middle East and in India, and we are seeing strong growth in investments in those markets over the coming year. And people really are looking for full solutions. There's not a ready now set of people who know how to put these systems and capabilities together. It's not a, you know, this is a new and emerging. And so the fact that we have put many of these together is a real step up for us in terms of what value we can bring to customers by offering full system solutions.
spk03: Yeah, and then, Matt, I would add, you know, you think about this business right now is only about $100 million, but, you know, we're expecting kind of low double-digit growth here in fiscal 24 and certainly well beyond that just as that market continues to develop.
spk02: Got it. Thanks, guys.
spk01: Thank you. As a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of John Fansrub with Sidoti and Company. Please proceed with your question.
spk06: Good morning, everyone, and thanks for taking the questions. Good morning. Kim, in the past, you've talked about the delays in large press or jobs as being pushed to the right for several quarters. Has that timeline narrowed or widened in recent months?
spk00: Oh, I don't know. I mean, obviously, we've got certain jobs that we were anticipating were going to close in Q4, that decisions would be made in Q4 where those decisions were not executed and, in fact, have pushed out into Q1 or Q2 of fiscal 24 for us. So, I mean, I would have to, by definition, say that they are still widening or lumpy in terms of the decisions that we're anticipating. You know, historically, if we thought you were going to make a decision September 1st, we would typically anticipate that there would be another 60 days of back and forth on contract terms and negotiations and things like that before we could close a deal. I would say that we anticipate that those things are taking longer now to get through, if that helps answer your question.
spk06: No, that's what I'm looking for. You referenced gains in the aftermarket as being positive in the quarter. Was that just natural demand recovery, or does that reflect any changes that you made bringing product to market or services to market?
spk03: Yeah, I'd say part of it is, quite honestly, John, the Hill & Grant operating model, that's an area of focus for us that we've talked about where we see high single-digit growth really coming out of aftermarket. Certainly with the Linksys, acquisition, we knew there was opportunity there, but, but I'd tell you, you know, you think about, you know, just the orders that we have in the quarter and aftermarket, you know, that's kind of that high teens level. And even, even for the full year, it's that mid teens level. Right. And, and you think about 2024, we're still seeing kind of mid to high single digit growth, both in orders and revenue. So quite honestly, it's just been an area of focus for us. It's an area of, of opportunity as we think about the acquisitions. And, you know, the operating model continues to drive value, you know, in that area.
spk00: So, John, I would also add to that. There are, you know, there are a number of elements of aftermarket. It's not just parts. It's also service. It's also modernization and consulting for debunking or reconfiguration of a line. And so those things are also important to note that we continue to see interest in all of those areas. and people running their lines efficiently and being able to keep their lines up and running continuously when they're facing certain financial pressures, I think is one of the critical differentiators between us, a global service network, and our ability to respond quickly to customer needs and demands, especially to keep their lines up and running, especially when they're, you know, kind of fighting through some of the inflationary times. and every hour of uptime matters at this point, and I think that's a critical differentiator for us. I would say, obviously, we have continued development on capabilities in the service area, but proactive selling and really getting out there and understanding which customers are a part of our business you know, kind of go forward support and those where we have an opportunity to penetrate those that has been some very specific work that's been being done in order to make sure that we are tapping into the entire install base of all of the capital products that we've been putting out in the market. And we, If you look at the increase in capital, you would expect to start seeing parts orders as long as we maintain those relationships properly, which has also been a focus of this team over the last, I'd say, 24 months to make sure that install base has heard from us, understands what they need to have on hand, understands lead times for things and when they need to order, and that we're working proactively with them to make sure that they are up and running all the time.
spk06: Great. And in your prepared remarks, you mentioned about the outperformance of recent acquisitions. We've anniversary Linksys and soon to anniversary Peerless. Can you talk a little bit about the outperformance, how much of it's been on the revenue side versus the cost-saving side? Maybe just give us a quick synopsis review.
spk03: Yeah. So I would say it's Actually, more on the revenue side, John, I'd say we're on pace with the cost side, but as Kim mentioned earlier, just the excitement coming out of some of these meetings we've had. We've had the Linksys team, the FPM team, as well as our Legacy Copernican team coming together. I think there's going to be more opportunities, but we're seeing top-line performance, which is really encouraging because we know we can get the cost stuff out and, again, more opportunities coming.
spk06: And just one last question. I want to make sure I heard this properly, Bob. It seems like price-cost recovery in the first half of the year, you were dollar for dollar, and the second half of the year, you were above that dollar for dollar threshold. Why again is it that it's still margin dilutive?
spk03: uh i mean obviously just the incremental cost that's just been baked into i mean think about the backlog business that we have john right so there's been a lot of cost that's been sitting in backlog we have that price coverage uh so a dollar for dollar it's pretty neutral but you just have the inflated numerator denominator i just thought that i was in the impression that the stuff in the backlog was was price cost protected and
spk06: Maybe that's not the case.
spk03: It is, but as it flows through. As a dollar-for-dollar basis. Yeah, but it flows through revenue. You know, you're still seeing that pressure. Okay. Thank you for taking that question. It's only slightly dilutive. You know, John, it was nowhere near as dilutive as it was. I didn't even think about what it was last year. It's like, you know, 50 basis points dilutive.
spk06: Got it. Thank you for that perspective.
spk03: At the gross margin level, by the way, so it's not an EBITDA number. So it's much more in line than it was a year ago.
spk06: Thank you, Bob.
spk01: Great. Thanks, John. Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Ms. Ryan for any final comments.
spk00: I want to thank you all for joining us today and for your continued interest and ownership in Hillenbrand. We look forward to speaking with you again in February when we will report our fiscal quarter one results. Have a great day and a safe and happy holiday season. Thank you.
spk01: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
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