Hillenbrand Inc

Greetings, and welcome to the Hillenbrand's fourth quarter fiscal year 24 earnings call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Sam Meinberg, Vice President, Investor Relations. Thank you. You may begin.

Thank you, Operator, and good morning, everyone. Welcome to Hill & Brand's fourth quarter and fiscal year-end 2024 earnings call. 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. Turning to slide three, please note 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 our results on a continuing operations basis, which excludes any impact from the discontinued operations of Batesville, as well as certain non-GAAP operating performance measures, including organic comparisons for our segments, which exclude the impacts from acquisitions, divestitures, and foreign currency exchange rates. I encourage you to review the appendix and slide three of the earnings call presentation, which can be found on our website, as well as our 10-K, which will be filed later this month for a deeper discussion of non-GAAP information, forward-looking statements, and the risk factors that could impact our actual results. Finally, as a reminder, on August 1st, the Schenck Processed Food and Performance Materials business was rebranded under our existing Coperian brand, but will be referred to as FPM throughout today's call. With that, I'll turn the call over to Kim.

Thanks, Sam, and good morning, everyone. Thank you for joining us today. I'd like to start by recognizing our Hillenbrand associates for their dedication and determination throughout the year. While we face demand pressure from persistent macroeconomic challenges, our teams rose to the occasion by accelerating initiatives to optimize our cost structure and drive trade working capital efficiencies, by diligently managing our discretionary costs, and by delivering stronger than planned FPM margins through the execution of our integration. Guided by our purpose to shape what matters for tomorrow, we continue to pursue excellence, collaboration, and innovation for our customers, our colleagues, and our communities. And I'm truly grateful for a team that embodies that purpose each and every day. As we've completed our first full year as a pure-ply global industrial company, we remain confident about our future. Throughout our transformation, we've established a portfolio of leading brands and highly engineered processing technologies, serving large and attractive end markets with long-term growth that's driven by an expanding global middle class and an increasing focus on sustainable solutions. The breadth of our product offering, world-class applications engineering and process technology expertise, and exceptional systems integration capabilities enable us to offer a compelling value proposition to our customers. We are able to deliver the highest quality and highest output equipment and systems anywhere in the world, and then leverage our global network of service professionals to maintain, upgrade, and modernize this equipment to maximize its value for our customers throughout its lifecycle. This fosters strong, enduring partnerships and positions us as a preferred and trusted supplier for our customers' future needs. While demand for large polyolefin systems and aftermarket parts and service was robust for the year, orders for midsize equipment were more challenged than originally expected as uncertainty around inflation, interest rates, geopolitical events, and global economic activity slowed capital investments. Project quoting pipelines remained very active and test labs remained full, but many of our customers significantly delayed their capital investment decisions across several key end markets. In response, we executed a number of strategic initiatives during the year to help mitigate the impact to the bottom line. We will continue to evaluate and implement additional actions as necessary until the demand environment normalizes. Now, touching on our Q4 performance, we delivered revenue of $838 million, up 10% in total, but down 1% organically. So this reflects an improvement from prior quarter. This was slightly above our expectations coming into the quarter, supported by another record level of aftermarket performance. Teams in both segments also did an excellent job executing orders from backlog. With the incremental volume and continued cost discipline, our adjusted earnings per share of $1.01 was just above the high end of our previous guidance. Additionally, our ongoing focus on working capital and cash optimization resulted in $167 million of operating cash flow in the quarter, allowing us to reduce our leverage to 3.3 times, down sequentially from 3.5 times. This underlines our stated priority of debt paydown. For the full year, consolidated revenue increased 13%, primarily driven by the FPM acquisition and strong aftermarket growth. Organically, total revenue was down 5%. Organic revenue in our advanced process solutions, or APS segment, was down 2%, reflecting customer decision delays on capital equipment orders, which more than offset record aftermarket performance. Revenue in our molding technology solutions, or MTS segment, declined 11%. primarily driven by lower backlog entering the year for injection molding equipment and ongoing soft demand for hot runners globally, but particularly within North America. While we remain cautious in our demand outlook over the near term, I'm pleased with how our teams executed to finish the year. I'll now provide a little more color on the factors driving performance in each of our segments. Starting with MTS, we were pleased to see orders improve once again on both year over year and a sequential basis in the fourth quarter, primarily driven by injection molding equipment demand. Although this progress is encouraging, we have not yet seen enough demand growth to call this an inflection in the overall market. India, where we are a leading provider of injection molding equipment, continues to perform well. And China hot runner demand improved year over year and sequentially for the second consecutive quarter, though it remained low relative to historical levels. As I mentioned, we saw pockets of increased investment in the quarter for injection molding equipment in the U.S. and India. However, hot runner demand continues to be relatively flat globally. Our fiscal 2025 outlook for MTS assumes demand will remain relatively consistent with 2024. We expect relatively stronger injection molding performance, which comes at a lower relative margin, and continued price cost pressure is expected to partially offset productivity and the incremental $12 million of benefits from the previously announced restructuring program. In addition, we will continue to be disciplined on all discretionary costs. Turning to APS, orders were up sequentially this quarter, but overall capital equipment demand remains soft for midsize equipment. though generally in line with what we expected coming into the quarter. As I mentioned, coal pipelines and test lab demand remains robust, but we have experienced significant delays in customer decisions throughout the year across key end markets such as engineering plastics, recycling, pet food, and other specialty materials. As a result, backlog is down year over year, and given the longer lead time nature of projects in APS, This is expected to put pressure on revenue performance in fiscal 2025, but generally in line with the expectations we discussed on last quarter's call. Capital equipment investments remain subdued during the year, but we continue to see solid demand for aftermarket, particularly for larger modernization projects. And we're making great strides in driving aftermarket performance within our newer food businesses. Our focus on aftermarket, coupled with the strength of our install base, resulted in consecutive years of double digit organic expansion in aftermarket. While we expect growth rates to moderate going forward, we anticipate this more stable, highly profitable part of our business will continue to perform well in 2025. Finally, a key focus area this year has been the continued execution of our integration program, which progressed well throughout the year. We are pleased by the enhancements we've made across the combined food, health, and nutrition portfolio, including alignment of go-to-market strategies, standardization of pricing practices, and improved operational efficiencies as exemplified by the strong margin performance we've delivered in this part of the business. We remain on track to achieve our $30 million run rate cost savings, and with significant portion of that already realized, we have additional opportunities still ahead of us. While lower backlog coming into the year is expected to be a headwind in 2025, we continue to focus on accelerating initiatives around cost structure optimization, strategic pricing, and targeted commercial opportunities. We remain very confident in the strategic fit of these assets as we leverage our systems expertise, global footprint, and operating model capabilities across the APS segment. We believe there is a clear path to achieving continued margin expansion and solid top line growth once the demand environment normalizes. Now, before I turn the call over to Bob, I'd like to highlight some recent updates related to our board of directors and our sustainability disclosures. We are committed to the development of our board and ensuring the skill sets of our directors align with the strategic direction and priorities of the company. Last month, we announced the election of Joseph Lower to our board. Joe is a seasoned financial executive with deep skill set in finance operations, strategic planning, capital markets, and business development. We are excited for Joe to join the board on December 1st and look forward to leveraging his expertise as we work together to deliver long-term value for our shareholders. In addition, we announced the establishment of vice chairperson roles for two key committees, the Audit Committee and the Nominating and Corporate Governance, or NCG, Committee. Given Mr. Lower's extensive financial background, he has been named as the Vice Chairperson of the Audit Committee, and current Director Indipreet Soni has been named as Vice Chairperson of the NCG Committee. Finally, in October, we published our first Task Force on Climate-Related Financial Disclosures, or TCFD, report. This report demonstrates our continued transparency in sustainability disclosures and progress towards meeting the global regulatory requirements. I'm proud of the team's efforts in achieving this milestone. With that, I'll now turn the call over to Bob to discuss our financials and our outlook.

Thanks, Kim, and good morning, everyone. Turning to our consolidated fourth quarter performance on slide five, we delivered revenue of $838 million, an increase of 10% overall compared to the prior year due to the FPM acquisition, favorable pricing, and strength in APS aftermarket parts and services. which was partially offset by lower volume for mid-sized capital equipment across a variety of end markets. Organically, revenue is down 1%. Adjusted EBITDA of $144 million decreased 2% or 13% organically due to cost inflation and lower volume, partially offset by pricing and cost actions, including savings from the MTS restructuring program. We reported gap net income of $12 million down from $17 million in the prior year, primarily due to an increase in business integration costs and higher tax expense related to corporate restructuring actions, partially offset by a gain in the quarter related to the previously announced sale-leaseback transaction. Adjusted net income of $71 million resulted in earnings per share of $1.01, which was slightly above our expectations coming into the quarter, but down 11% compared to the prior year, as cost inflation organic volume, and an increase in interest expense more than offset the incremental contribution of the FPM acquisition, pricing, and cost actions. Our adjusted effective tax rate in the quarter was 27.4%. We generated cash flow from operations of $167 million in the quarter, an increase of $93 million over the prior year, primarily due to trade working capital benefits and cash received related to the settlement of our U.S. pension plans. Capital expenditures were $13 million in the quarter. Now moving to segment performance, starting with APS on slide six. APS revenue for the quarter of $591 million increased 15% compared to the prior year, primarily driven by the FPM acquisition. Organic revenue decreased 2% year over year as favorable pricing and record aftermarket revenue was more than offset by lower capital equipment volume. Adjusted EBITDA of $117 million was essentially flat year over year, but down 14% organically as cost inflation and lower volume more than offset pricing and synergies. Adjusted EBITDA margin of 19.8% was down 300 basis points over the prior year, but at the high end of our expectations for the quarter. As Kim mentioned, orders improved sequentially, but remained soft overall as we anticipated. Backlog of $1.7 billion decreased 10% compared to the prior year and 3% sequentially. Order pipelines remain healthy across most of our TN markets and regions, but as we discussed previously, customer decision timing continues to be uncertain in this macro environment. Now turning to MPS on slide seven, Q4 revenue of $247 million was essentially flat to the prior year. and ahead of our expectations due to better than expected execution of backlog and higher orders. Adjusted EBITDA of $42 million decreased 8%, largely driven by cost inflation and unfavorable product mix, partially offset by the restructuring benefit and other cost actions. Adjusted EBITDA margin of 17% decreased 150 basis points compared to the prior year, but was generally in line with expectations. Backlog of $231 million decreased 1% compared to the prior year and 3% sequentially. Orders were up 10% year over year and 5% sequentially, primarily driven by injection molding equipment, while hot runner demand remained muted. Although this quarter's orders slightly exceeded our expectations, external market indicators, such as machine utilization and mold making activity, remained relatively soft. And we have yet to see signs of a sustained recovery in demand. The team remains focused on driving productivity and managing discretionary costs to ensure we are well positioned to return to profitable growth once the demand environment improves. Now I'll briefly cover full year results on slide eight. Consolidated revenue of $3.18 billion increased 13% over the prior year, but decreased 5% organically as favorable pricing, record aftermarket revenue, and an increase in revenue for large polyolefin systems were offset by the persistent order delays for midsize capital equipment. Adjusted EBITDA of $512 million increased 6%, but was down 12% organically compared to the prior year as lower volume and cost inflation more than offset pricing, restructuring benefits, synergies, and productivity. We reported gap net loss of $213 million, down from net income of $107 million in the prior year largely driven by the non-cash impairment charge taken in Q3 related to our MTS segment. Adjusting that income of $234 million resulted in adjusted earnings per share of $3.32, a decrease of 6% compared to the prior year. That was lower organic volume, cost inflation, and an increase in interest expense more than offset the impact of the FPM acquisition, pricing, and cost actions. The adjusted effective tax rate for the year was 28.1%, which was consistent with our expectations. We generated full-year operating cash flow of $191 million, down $16 million compared to the prior year as lower earnings and fewer customer advances on large projects were partially offset by reduced inventory. Capital expenditures for the year were $54 million, and we returned approximately $63 million to shareholders through quarterly dividends. Turning to slide nine, net debt at the end of the fourth quarter was $1.69 billion, and net debt to adjusted EBITDA ratio was 3.3 times. Debt reduction continues to be our number one priority for capital allocation. We made good progress this quarter with solid cash flow and the execution of an opportunistic sale-leaseback transaction. However, given the uncertain trajectory of orders over the coming year, our anticipated deleverage time remains prolonged. Due to our typical seasonality of earnings and cash flow, along with lower starting backlog and the expectation that orders will remain relatively soft in Q1, we expect leverage to slightly increase in our fiscal first quarter, as this is normally a cash outflow quarter due to the timing of certain annual cash payments. Now, let me conclude my remarks with our 2025 outlook on slide 10. Our guidance for fiscal 25 reflects the potential for ongoing uncertainty in the macro environment and the impact to the timing of orders throughout the year. We anticipate total company revenues of approximately $2.93 billion to $3.09 billion, down 3% to 8% compared to the prior year. This decline is primarily driven by our APS segment, which we expect to be down 5% to 10%. We expect our MTS segment to be relatively steady, with revenues expected to be down 2% to up 2%. We expect adjusted EBITDA to be in the range of $452 million to $488 million, down 5% to 12%, and adjusted earnings per share of $2.80 to $3.15. We're assuming interest expense over approximately $105 million and an adjusted effective tax rate of approximately 29% for the year. We are targeting approximately $200 million in operating cash flow for fiscal year 2025, reflecting lower earnings, payment timing related to the previously announced restructuring actions, and payments associated with synergy realization and accelerated productivity initiatives. We expect these impacts to be more than offset by our ongoing efforts to enhance trade working capital efficiency. We expect capital expenditures to be approximately $50 million for the year. I'll quickly provide some additional color for our segments. For APS, as I mentioned, we anticipate revenue of $2.05 billion to $2.175 billion, down 5% to 10%, driven by a decrease in capital equipment volume due to lower starting backlog, partially offset by modest growth in aftermarket. At the midpoint, we were assuming orders remain essentially flat to 2024, with modest sequential improvements starting in our fiscal second quarter based on expected customer decision timing as capital budgets reset in the new calendar year. We expect adjusted EBITDA margin to be 18 to 18.5%, which reflects better flow through than our standard decremental margin due to ongoing focus on managing discretionary spend, accelerating productivity and cost synergy initiatives, and favorable mix of aftermarket revenue. For MTFs, we anticipate a revenue of $875 million to $915 million, down 2% to up 2%, with slight growth in our injection molding product line and relatively flat performance in our hot runner product line assumed at the midpoint. We are targeting adjusted EBITDA margin of 16.3% to 17%, reflecting approximately 70 basis points of margin expansion at the midpoint. as we realize the carryover benefit of restructuring actions taken in 2024 and continued focus on controlling cost and driving productivity, partially offset by ongoing price-cost pressure and expected unfavorable product mix from a higher proportion of injection molding equipment. Due to ongoing macro uncertainty, we are providing Q1 guidance as well. We expect total revenues of $685 million to $705 million and adjusted earnings per share of 52 to 57 cents, down year over year, primarily driven by decreased volume due to lower starting backlog. Please review slide 10 for additional guidance assumptions. With that, I'll turn the call back over to Kim.

Thanks, Bob. Before we open the line for Q&A, I'll end our presentation with a few closing remarks. I'm incredibly proud of the team for delivering solid results to end our fiscal year. Although we haven't seen clear signals of meaningful demand recovery yet, we're confident in our strategy, the strength of our market position, and the underlying health of our end markets, which we fully anticipate will return to a solid growth trajectory once current macro uncertainties are resolved. I firmly believe our teams have the right tools and capabilities to manage the business through these near-term headwinds and come out stronger on the other side. We will continue to diligently manage costs, drive productivity and innovation, and execute our integration plans to position Helen Grant for long-term success. With that, operator, please open the line for questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question today, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Thank you. And our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your questions.

Thanks, Kim. Bob, good morning. Thanks for taking the questions. Morning, Daniel. Good morning. You gave pretty good color. Maybe just drill down a little bit. It sounds like order is starting to improve modestly in Q4. How do you see order trends playing out in fiscal 25 across end markets? Any additional color relative to those comments you just gave? And then when would you expect backlogs to happen? start to level off and begin to grow again? Is it maybe late 25 or more likely in fiscal 26, just based on what you see today?

I'll take that question here. As we mentioned on the last call, 90 days or so ago, we clearly see capital budgets really being locked down for the rest of this calendar year. Obviously, back three months ago, we had a couple of you know, unknowns, one, certainly the, the presidential election where that would land, but also, you know, interest rates and just broader macro, um, economic, um, you know, topics I would say. And so obviously we have the, the election behind us, so that's, that's a known, but we still have, you know, the interest rate environment and, and obviously, you know, with, with Trump being elected, you know, obviously he's, he's spoken about, you know, kind of what he's thinking, but it's still early days to determine exactly where things are going to land. But with that being said, just based on discussions with our customer base and obviously where we see interest rates ultimately going, we're not expecting a steep recovery here in Q1. But as capital budgets are unlocked here starting in our fiscal second quarter, I think we'll start seeing orders trickle in in that second quarter and continue to accelerate through the second half of the year.

Helpful. And maybe shifting just more specifically to HotRunner, Demand seems like it continues to bounce along the bottom. Can you give any more granularity on what you're seeing kind of across industries as well as geographies from an in-market perspective? And I've got a quick follow-up there. Thanks.

Yeah. So, Dan, it's Kim. You know, what we continue to see is this is the second quarter in a row that we've seen, you know, a good bit of stability and a little bit of growth in that hot runner market. Specifically, we've continued to see strong quarter in India, and we've also seen good stability in China, although obviously at lower levels than we had originally been experiencing there. Some of the activities that we've taken are really moving actively into a variety of end markets in order to expand our reach, and through new product innovation, We've moved into some end markets that I think are going to create some opportunities for us specifically in China and India with a couple of products that are going to hit that kind of top of the mid-tier. And those products are some areas that we're looking to expand. We're also continuing to monitor markets like medical end markets, which we believe will continue to show positive signs of growth in the coming 12 months. and will require some additional capital infusion in order to address some of those market opportunities.

Great. And maybe last for me, and I'll jump back in queue, but it's only been a few quarters, but I'm just wondering if you're surprised by the kind of degree and duration of the pullback in spending in food and pharma. I realize it's subject to the same macro challenges and budget constraints. But just curious if, you know, in terms of the confidence around the thesis that those markets will hold up, you know, generally better and a downturn for capital spending. And maybe your sense for kind of pent up demand when the cycle does turn. Would you expect to see a period of maybe outsized growth beyond the typical kind of mid to high single digits? Or is that just too early to call? Thanks again.

I think the pen top part of your question is a little bit too early to call. I think that the key driver there in those markets is consumer demand and discretionary income, and those are obviously affected by the factors that we brought forward, you know, interest rates and inflation and those types of topics. And so those are some of the things that consumer demand is what companies are looking for in order to drive incremental investments in capacity and new products. And those are the things that we continue to watch. You know, we've seen pretty stable markets, I would say, on the food side. Remember, FPM is a combination of food businesses and also performance materials. I think we've seen good performance, you know, relatively stable performance, even as people are pausing some of the investments on the food side of this equation. And that's exciting. you know, really in line with what we expected to see in this market. We're also continuing to use this time to really focus our energies on getting the integrations done and really taking advantage of this opportunity to leverage the scale that we've created with these businesses, drive cost efficiencies, which you have seen, and then be able to attack those markets in a coordinated way as the timing of those orders becomes a little less dynamic as these market conditions continue to stabilize.

That's really helpful. I'll jump back with any follow-ups. Thank you.

Thanks, Sam.

Our next question is from the line of Matt Somerville with DA Davidson. Pleased to see you with your questions.

Morning, Matt.

Morning. Morning. You know, when I look at the APS deleveraging with organic down to EBITDA down 14, I think it was, with the benefit of generating record aftermarket revenue, what are kind of the influencing factors that drove that deleverage? And embedded in your guide is a material less impact from deleverage. So if you can kind of bridge that, that would be helpful. And then I have a follow-up.

Yeah, so if you think about, if your question's more on Q4, Matt, you know, I think we, year over year, you know, certainly our EBITDA percent was a little bit better than what we thought going into the quarter, but year over year, you know, we did have an impact of volumes. We did have timing of incentive compensation that was a headwind for us, you know, in the quarter versus last year, and then we did have a mix of of projects, lower margin projects that we executed this quarter versus last quarter. If I'm thinking forward to fiscal 25 in our guide, order volume is going to be relatively flat. What we see is, as I mentioned earlier on the call, we do see some modest improvements in aftermarket volume and pricing. But we're going to see some mixed pressure, I'd say, within our food, health, and nutrition business as well. So with all that being said, I think we're going to continue to focus on cost containment actions and integration that Kim's just highlighted.

Got it. And you mentioned in your prepared remarks that you're seeing continuing to see price pressure on the MTS side of the business. Can you maybe quantify that a little bit and then talk about what you're thinking is in terms of incremental price capture to your last comment, Bob, for APS in fiscal 25 relative to fiscal 24? Thank you.

Sure. Yeah, sure. So, you know, if I think about pricing in Q4, it's been relatively consistent from what we've seen all year. You know, so APS continues to see, you know, price cost coverage well above 100%. MTS, we've been pressured all year and been below 100%, and Total Helm ran above 100%, which is great. MTS specifically, though, I'd say in Q4, we actually saw some improvements this quarter from what we've seen throughout the last couple quarters, and so that's certainly... something we're pleased to see. But as we think forward to fiscal 25, at this point, we're not assuming a continued steep recovery in pricing. So we're still assuming some muted pressure on that front going into 25. Got it. Thank you.

Our next questions are from the line of Mitch Moore with KeyBank Capital Markets. Let's just see if you have questions.

Hey, guys. Good morning. This quarter came in a bit higher than you'd guided to. Just wondering if you could speak to what trended better for you in the quarter kind of relative to your expectations a couple months ago.

Yeah, I'd say so. If I think about APS, certainly we had higher revenue on the food, health, and nutrition as well as the plastic side. Aftermarket revenue was another record quarter for us. And FPM specifically continues to outperform on the EBITDA side. So we bought that business a year ago at 13% margins. And as Kim's highlighted on some of the integrations that we've seen, we're well ahead of what our expectations are on that front. And so I think we'll consistently see that business operating at that mid-teens margins as we had here recently and going into 2025. And so we'll continue to see that business perform well. On the MTS side, revenues came in stronger on the injection molding business. We saw that strength both in the Americas as well as India. On the hot runner business, I'd say still bouncing around the bottom of the cycle, although we did see some slight improvements in China, particularly in the automotive space. That business, when it does return, you know, it does spike up. We are not assuming that now, but we're seeing some signs of some recovery there. So that's really what drove really the benefit in the quarter versus the guide that we gave.

Great. That's helpful. And then just on MTS, it seems like it's becoming stable kind of at a low level and potentially turning a corner here. Just with your initial guidance, how did you get comfortable with the flat sales guide for the year?

Yeah, I mean, so again, you know, based on discussions with our customers, you know, we've seen spikes in the last year where we have a good month and then, you know, the next month is a bit muted. And so as we sit here today, obviously, you know, Trump, you know, that's one box that got checked, but certainly interest rates is still something that is a wait and see. And, you know, the customer base within MTS is a little bit more subject to the interest rate environment. So as we sit here today, you know, we're seeing recovery in the injection molding side, that hot runner business, you know, maybe a little bit less, uh, recovery. And so right now it's kind of a wait and see until we see, you know, some, some, you know, order has really gotten unlocked. And at this point in time, you know, just being cautious in the one thing I would highlight though, is, you know, we did take some restructuring actions as we've highlighted last couple of quarters. And so we do see margin improvement on the MTS side because we have completed all those restructuring actions. And so we will see that incremental $12 million of benefit coming through fiscal 25. So as a reminder, you know, we did have that charge of $25 million, $20 million of synergies coming from that. And so we'll see that here throughout 2025.

Great. Thanks. I'll hop back in queue.

As a reminder, if you'd like to ask a question today, you may press star 1 from your telephone keypad. The next question is from the line of John Frantzrup with Sidodian Company. Let's see if there are questions.

Good morning. Thanks for taking the questions. Good morning, John. Can you discuss a little bit about the changes in geography and demand in both India and China? It seems like there's inflection points going on in both regions.

Yeah, I would say relative to India, you know, we're continuing to see a lot of opportunity in India. I think you heard us comment on the fact that we saw a good quarter in our India injection molding business, a good level quarter in our hot runner business. And, you know, that continues to be an opportunity for growth as we think about projects on the APS side of the equation as well. as we anticipate further investments in India due to that growing global middle class, which, as you know, is an underpinning of why additional products and services are going to continue to grow in that region and hence the need for our equipment. In terms of China, China has really been, you know, while we had experienced, you know, a significant downsizing of volume in that market over the last year and a half, especially on the MTS side of our business and hot runners, that has leveled out and continues to kind of bounce around. It's not growing at historical growth, excuse me, growth rates, but it, you know, continues to be stable. And especially as we continue to invest, as I mentioned on Dan's question in that kind of upper mid tier and some interesting end markets for us, I think we're going to be able to continue to look for opportunities to leverage our footprint there. We are very focused from a supply chain standpoint on, a real local for local approach, both in India and in China and in the US, which allows us to, we believe, be able to compete over the long term. Even as some of these macroeconomic situations work out, we think we're best positioned with that footprint to be able to attack opportunities in each of those geographies.

Fair enough. Thank you. And in the past, you talked about test labs as being an indicator of future demand. Can you kind of update us on the test lab activity, and is that still the case?

Yeah, we have continued to see, you know, we do a lot of R&D with customers, and typically that test lab experience is what allows them to do proof of concept, and that's a precursor often, almost always, for their capital investments, specifically because those are collaborative. Those are collaborative experiments in those test labs, and those are a pay-to-play environment. So it's not just an environment where they come in and utilize test facilities. They are also paying for those trials. And so it really connotes a very serious investment on their side and on our side to investigate viability for those lines. The recycling labs are full. The polyols and labs are full. The food labs are full. So we do feel very encouraged by that. And as we have mentioned before, Typically, we see those lab trials really slow down if we are entering a down cycle, and that has not occurred here, nor have we seen down cycling of our parts and services business. In fact, those have, as we've mentioned, continued to be very robust. And so those are both bellwethers for some of the optimism we feel as we look into the next year and some of the things that we continue to see. to double down on as we look for some of these capital decisions to start working themselves through the pipeline as we enter the beginning of the calendar year.

That's good to hear. Best of luck, and thanks for the detail.

Great.

Thanks, John. Thank you. Our next questions are follow-up from the line of Daniel Moore with CJS Securities. Please proceed with your questions.

Thank you again. I apologize if you mentioned it. I may have missed it. How much of the 30 million synergies were realized as of September 30th and what's left in terms of incremental benefit for 25 and beyond?

Yeah, so our original guide going into the year, Dan, we thought we'd have about seven to nine of that achieved. And we're closer to like two times that amount here in the year. And I think we'll continue to see acceleration there. you know, within 2025 and into 2026 as well.

And Dan, a reminder that those are cost synergies and we feel very comfortable with the cost synergies and you see that coming through in the margin. You know, they performed very well on execution of the projects that they had in their pipeline. They've also, you know, been able to bring forward a lot of valuable benefit from the shared services and from their operating model implementation and also now the the co-branding and the simplification of that branding story into the marketplace, which was completed in September. We also obviously see opportunities on aftermarket collaboration and the organization just went into place October 1st for combined aftermarket approach and also the operating model that they put in place to really create synergies among all of the food companies and how we're approaching all of that. And that has organizationally created a number of synergies as well that started being implemented in June and then completed its implementation on October 1st. So we're really pleased with the way that is going and the cadence and the rigor with which we are managing that implementation and the folks that are doing that on our teams.

Got it. Really helpful. And I think I can answer this one, but the guidance in terms of cash EPS for 25 doesn't include, doesn't assume any material change in tax rates, correct?

Correct. That's right.

And lastly, appreciate the guide for operating cash flow as well as CapEx. Is there a working capital headwind embedded in the 200 million OCF guide as demand, and as demand for mid and large size systems recovers? How much of a tailwind could that be as we look out to, you know, 26 and beyond? I'm just wondering how quickly we can get back to, you know, 250, maybe even 300 million in operating cash flow in an environment where demand does pick up. Thank you again.

Yeah, so I'll give you some color on that, Dan. So if you think about, you know, the $200 million, maybe just talk about free cash flow, not of the CapEx. You think about where we landed in fiscal 24, You know, we had $137 million of free cash flow coming in the door. If you think about what that looks like for fiscal 25, you know, we do have lower earnings, so obviously that would be a headwind. We also had a one-time pension settlement that you saw in our remarks and our press release as well. You know, as previously discussed, we did, you know, offload our pension assets and liabilities to an insurance company this year, and so there was $27 million of cash left over from that. So that was shown as a one-time item in our cash flow statement here this quarter. So you have a couple headwinds there. And then what we really see is upside with lower interest expense and then actually working capital improvement, particularly on inventory and AR and AP, we continue to focus on trade working capitals, percent of sales, the things that we can control, and certainly some recovery in advances in that second half of the year. Now, if order trends pick up a little bit quicker, obviously we know with the cash advances, that could move that $150 million free cash flow number north. Really, that would come in, I guess, probably Q3, Q4 is what I would say there. The thing I want to highlight is if you're trying to bridge your free cash flow year over year, we did have that sale leaseback transaction that we announced in Q4. That was about $55 million of cash coming in. That's actually shown as investing cash flows. It is not in our $137 million. So it's additional cash that came in the door we used to pay down debt. So that's kind of the bridge year over year. And then again, Because of the lumpiness of orders, it's hard to predict when those advances come in, but that certainly would be upside in the second half of the year.

Okay.

Yeah, but I think fair to say, Dan, you know, look, places where we've had the most pressure is on those, in that mid-sized tier, mid to large. And when I say large, I don't mean like mega large. I don't mean giant polyolefin. It's been that, you know, it's been that. engineering plastic space. Those are POC projects. Those do come with down payments. Those down payments are for both our engineering hours as well as buyouts. So the types of business that we're waiting to break on these orders is the type of business that is accompanied with down payments. The businesses that have been very steady and kind of are a steady pay as you go, the parts business, the individual equipment business, the smaller projects, those are the types of businesses that have been a little more steady over the course of the last year, and it's those mid-size with accompanying down payments that create some opportunity if those break more quickly.

Makes sense, and safe to assume that debt repayment remains a priority beyond dividends as it relates to that use of incremental cash generation, at least in your term?

Yes.

Perfect. Thank you again.

Thanks, Dan.

Thank you. Our next question is a follow-up from the line of Matt Somerville with TA Davidson. Please proceed with your question.

Just following up on the last point, in the context that your integration activities with FPM have been seemingly quite successful, maybe ahead of kind of the trajectory you had laid out when you bought the business and knowing what I think at least is your desire to get back into the M&A market sooner versus later to continue that acquisitive pivot towards more secularly attractive businesses. If that is indeed the case, how should we be thinking about you know, this 3% dividend yield in context of me thinking about where you guys want to go and the idea that you probably want to get back in the market sooner versus later from an M&A standpoint. I guess, Kim, how are you thinking about all that?

Yeah, Dan, that's obviously a topic as we discuss our capital allocation priorities. We continue to discuss that and evaluate that with our board and obviously in consideration of our investor base. And so we continue to look at that as we look at our priorities, as we look at our portfolio, all of those things as a part of our normal processes with our board. And so You know, I can tell you that we have active considerations about exactly what we think best use of cash is for the benefit of shareholders, and we'll continue to do that. And if any changes are on the horizon, you know, obviously we'll share that if and when that is appropriate. Thanks again.

Thank you. At this time, I'll turn the floor back to Kim Ryan for closing remarks.

All right. Thanks again, everyone, for joining us on the call today. We appreciate your ownership and interest in Helen Brand and look forward to talking to you again in February with our first quarter results. Have a great rest of your day.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.