Good morning everyone, and welcome to Hillenbrand's Earnings Teleconference for the First Quarter of Fiscal 2020. A replay of this call will be available until midnight Eastern Time February 20, 2020 by dialing 1-800-585-8367 toll-free in the United States and Canada or 1-416-621-4642 internationally and using the conference ID number 5373374.

This webcast will be archived on the company's website at http://ir.hillenbrand.com through Friday March 6, 2020. If you ask a question during today's call, it will be included in any future use of this recording. Also note that any recording, transcript or other transmission of the text or audio is not permitted without Hillenbrand's written consent.

At this time, it's my pleasure to turn the conference call over to Rich Dudley, Director of Investor Relations. Mr. Dudley, please go ahead..

Thank you, operator. Good morning, everyone and welcome to Hillenbrand's first quarter fiscal 2020 conference call. I'm joined by our President and CEO, Joe Raver along with our Senior Vice President and CFO, Kristina Cerniglia.

During today's call, we'll discuss first quarter financial results and the outlook for our businesses, including updated guidance to incorporate our recent acquisition of Milacron. We'll then open the call up for Q&A.

Before we get to the results, let me remind you 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. I encourage you to take a look at slide presentation and our 10-Q, which will be found on our website for a deeper discussion of forward-looking statements and the risk factors that could impact our actual results.

Now I'd like to turn the call over to Joe..

Thanks, Rich. Good morning everyone. Before we start, I just want to let you know that our prepared remarks will be a little longer than normal. We’ve a lot to cover in the call, including Milacron results in the first quarter, will be giving an integration update and then updating annual guidance that includes Milacron.

So with that said, I will get started. Our vision at Hillenbrand is to build a world-class global diversified industrial company with a proven record of success driven by the Hillenbrand operating model. Our mission is to create value for our customers and great professional opportunities for our employees.

To improve the communities in which we operate, and importantly, to provide superior returns to our shareholders. We took a big step forward in the furtherance of both our vision and mission in the quarter.

On November 21, we close the acquisition of Milacron, a global leader in highly engineered and customized systems in plastic technology and processing with about $1 billion in annual revenue.

It's the largest acquisition in our company's history and represents a pivotal step in our journey to become a world-class global diversified industrial company. So with that as a backdrop, let me share a little bit about the integration.

As we discussed last quarter, we developed a comprehensive integration plan that we are ready to implement immediately upon closing. And our teams hit the ground running on day one.

I personally visited over a dozen locations in the U.S., Canada, Germany, the Netherlands, India and China and met with several thousand legacy Milacron employees in town halls and smaller meetings around the globe. I was overwhelmed by the warm reception I received from Milacron employees and the very positive reaction they had to the deal.

Our integration management office did a great job developing the integration plan that we are executing now. We're on track and expect to achieve our targeted synergies. We quickly executed a number of initiatives associated with reducing redundant public company costs and are on track with our functional integration work streams.

We are currently advancing the procurement work stream, initially focused on achieving quick wins and building the platform to achieve long-term savings. All of our integration activities are underpinned by the Hillenbrand operating model, which we believe will continue to drive long-term value well after the integration is complete.

We're just getting started as a combined company, but I’m highly confident in our deal thesis and the value we can create by bringing Milacron together with Hillenbrand.

The macro environment is difficult right now and we are taking action to deal with the many challenges we face, but as I look forward, beyond the short-term external issues, I'm excited about our future. First, we have complementary product lines with excellent positions across the plastics value chain.

This provides the opportunity to leverage and combine our shared technologies and capabilities to create innovative solutions to have a positive impact for our customers around the world and provide new profitable growth opportunities for Hillenbrand in areas such as biodegradable plastics and recycling.

Second, we’ve an outstanding global footprint, which we expect to leverage to accelerate geographic and aftermarket growth. Third, we believe our combined scale and purchasing power will generate procurement savings across the entire enterprise.

Fourth, our complementary process capabilities will enable us to implement best practices across key functional areas to improve both our efficiency and effectiveness. And finally, the Hillenbrand operating model provides a clear methodology and set of tools to improve our businesses.

Implementing the model at Milacron will help us achieve our strategic goals and build a strong foundation for the future. Despite the short-term challenges in some of our end markets, we expect demand for plastics to continue to grow over the long run, driven largely by growth in the emerging middle class.

Additionally, we believe the benefits of lightweight durable plastics will support continued growth in applications like automotive light weighting, in consumer goods, in construction where plastics improved durability, require less maintenance and in medical products where there is an increased focus on safety, improved drug and therapy delivery and durability.

In summary, we remain confident in the strategic logic of the acquisition and remain excited about the long-term possibilities with the combined company. Now let me briefly discuss the legacy Milacron businesses and Milacron's performance since the acquisition.

Prior to the closing of the acquisition, Milacron segment disclosure consisted of three reportable operating segments. First, it's Melt Delivery and Control Systems, or MDCS, which designs and manufactures highly engineered, technically advanced hot runner and process control systems mold bases and components.

Hot runner and process control systems serve a global market with a strong presence in Asia, Europe and North America. They serve a variety of end markets, including automotive, consumer goods, electronics, medical and packaging. Demand for this equipment is driven to a high degree at product life cycles.

Meaning that each time there's a new product introduction or refresh, it requires a new hot runner system that is uniquely configured to the new mold.

Second is Advanced Plastics Processing Technologies, or APPT, which designs and manufactures plastics processing equipment and systems, including Milacron branded injection molding and extrusion systems. Milacron is a leader in injection molding and extrusion systems in North America and has a leading position in injection molding in India.

From an end market perspective, these product lines have a strong presence in construction, automotive, consumer goods and medical products. Additionally, they serve custom molders that operate across a variety of end markets.

And finally, fluid technologies under the CIMCOOL brand offers metalworking fluids used in a variety of industries to help customers reduce their production costs. The integration of Milacron has just began and we're currently evaluating how the deal will affect our reportable operating segments. This work is not yet complete.

As a result, we will be talking about the Milacron business as a whole during this call.

Looking at the current performance of the legacy Milacron business, it's clear we're facing headwinds with continued pressure from the global economic slowdown, including a weak worldwide automotive market and general weakness in China, all of which were affecting capital investment.

Following industry downturns like the one we're currently facing, the legacy Milacron business, and more specifically it's hot runner product lines have experienced an accelerated recovery before returning to the long-term average growth rates, showing resiliency and an ability to capture pent-up demand.

We believe there's an opportunity for material improvement in momentum in the second half of the calendar year, but it's difficult to predict the timing. Also, when we closed on Milacron, we announced that we were reviewing strategic alternatives with the CIMCOOL business.

Given our vision to create a portfolio of scalable platforms and our desire to pay down debt, we believe it's in the best interest of both Hillenbrand and CIMCOOL to seek strategic alternatives for the business.

CIMCOOL is a different kind of business compared to the other parts of Milacron and Hillenbrand, and we believe that will be better able to achieve its goals under different ownership. It's a compelling business with attractive financial characteristics and we believe there are a number of highly interested incredible potential buyers or partners.

We are working with Houlihan Lokey to assist in the strategic review. As we’ve said previously, you can assume if we were to divest any part of our portfolio, we would apply the proceeds to debt reduction. Now let me turn my comments to the legacy Hillenbrand segments, starting with the Process Equipment Group.

Process Equipment Group performed well in the quarter with revenue growth driven by large extrusion and material handling systems in addition to a modest increase in aftermarket parts and service. We’ve seen a continuation of recent trends with strong demand for polyolefin systems in the U.S., China and other Asian countries.

We have a strong backlog and we continue to see a solid pipeline of projects that we anticipate will be awarded in the coming quarters. From an engineered plastics perspective, the business has generally been soft and we remain cautious amid continued macro economic weakness.

Keep in mind, we tend to see shorter investment cycles in engineered plastics as customers react more quickly to shifts in demand compared to the longer cycles we see in the polyolefin industries.

The near-term weakness in the new equipment sales in the global automotive market is expected to be offset by demand in several other product categories such as PVC and polycarbonate.

Over the longer-term, we’ve a very positive outlook for engineered plastics as we expect that their advancing technical capabilities will lead to greater adoption in a variety of applications and end markets. Another area where we've been very focused is recycling.

A number of our products are core to the recycling process for both postindustrial and postconsumer applications, Sustainability and efforts to create a circular economy are getting more and more attention and deservedly so. We estimated that less than 5% of all plastics are currently being recycled and that needs to change.

It's likely that government regulations around recycling and consumer demand for the use of recycled content will continue to increase. We've grown in recycling applications and believe that we are well positioned to become a leader in the space. As volumes increase, our strength in high-capacity equipment and systems can be a real advantage.

While relatively small, the pipeline of recycling project is growing quickly and we anticipate continued long-term growth in this part of our business. Let me comment briefly on our smaller Process Equipment Group businesses, which have felt more pronounced effects of the global industrial slowdown with weak demand across a number of end markets.

As expected, the separation business was down in the quarter, largely driven by lower capital equipment sales for proppants production. Demand for proppants equipment remained low and we don't anticipate that to change in the near-term due to low oil prices and industry overcapacity.

Broadly speaking, other end markets served by the separation business have been relatively flat, slightly down compared to the prior year. Similarly in flow control, we faced sluggish demand overall for industrial applications.

However, we have seen some positive momentum in other areas of mining, especially pumps and activity in the municipal market appears to have picked up recently as well.

In summary, for the Process Equipment Group, we expect continued strength in large polyolefin projects, continued growth in aftermarket parts and service, decreased demand for capital equipment used in proppants production and essentially flat performance for the balance of the business. Turning to Batesville.

Our strategy for this business is to generate strong cash flow, to fuel our investments for growth on the industrial side of the business. Batesville is an industry leader backed by product quality, service and innovation that we believe is second to none. Revenue was in line with our expectations and declined slightly in the quarter.

Keep in mind, that burial demand faces a secular decline, driven by the increased rate at which families opt for cremation. Batesville's margin performance met our expectations for the quarter and we expect Batesville to achieve our full-year guidance. Burial activity in the U.S and Canada has been relatively high.

However, burial severity and the associated mortality have been low. So we’ve not seen a big impact on burial demand. So in summary, as I reflect on our performance for the quarter, I would say that first, the integration of Milacron is on track and we expect to realize accelerated synergies in year one.

Second, that while the newly acquired Milacron businesses are facing more difficult than expected end market dynamics, in our financial performance reflect this reality, we remain excited about and focused on delivering the long-term benefits of the acquisition. Third, the Batesville business is performing well and in line with expectations.

Fourth the Process Equipment Group is exceeding our expectations, again driven by strong performance in large polyolefin systems and prudent cost controls. Finally, before I turn the call over to Kristina, let me briefly touch on the coronavirus.

We are monitoring the situation in China and around the world very closely to ensure the safety of our employees and to minimize any impact on our customers or operations. We’ve taken actions to limit travel and we are monitoring our global supply chain and taking precautionary actions to mitigate the risk of significant disruptions.

Many operations in China remain closed due to the extended Lunar New Year holiday. Remains a very fluid situation and we will continue to watch it closely. At a high-level, approximately 10% of our revenue comes from China. We are providing a wider range for guidance to reflect the estimated risk to our financial results.

I will now turn the call over to Kristina.

Kristina?.

Thanks, Joe, good morning., everyone. We are reporting performance for our combined company following the acquisition of Milacron which closed on November 21. Our first quarter of fiscal year 2020, includes 41 days of Milacron results. We’ve established a new reporting segment that includes all three of the legacy Milacron business segment.

I will begin with our consolidated results. We reported total revenue of $567 million for the quarter, an increase of 38% over the prior year. Organically, revenue grew 5% driven by the Process Equipment Group.

Adjusted EBITDA of $92 million increased 43%, primarily due to the Milacron acquisition and adjusted EBITDA margin of 16.2%, expanded 60 basis points compared to a year-ago. Organically, adjusted EBITDA increased 1% and adjusted EBITDA margin decreased 60 basis points, We reported a GAAP net loss of $3 million or $0.05 per share.

That was a decrease of $0.50 per share compared to last year, primarily as a result of business acquisition and integration costs. During the quarter, we incurred a total of approximately $54 million of these one-time costs in connection with the Milacron acquisition.

Adjusted net income of $43 million resulted in adjusted earnings per share of $0.63, an increase of $0.14 or 29% year-over-year. Milacron contributed $0.10 to adjusted earnings per share. Organically adjusted earnings per share increased $0.04 or 8%.

The adjusted effective tax rate for the quarter was 22.6%, down 650 basis points from prior year, primarily due to a discrete tax benefit related to foreign statutory tax rate reduction. This tax benefit largely affected the legacy Milacron businesses. Excluding the acquisition, we estimate the adjusted effective tax rate to be approximately 27.7%.

We generated operating cash flow of $18 million in the quarter, and that was 50% lower than last year's first quarter primarily due to acquisition and integration costs. Partially offset by reduced working capital requirements. Capital expenditures were approximately $6 million in the quarter.

We also returned $16 million to our shareholders in the form of cash dividends. After closing on Milacron we finished the quarter with a net debt of $1.7 billion. Let me touch on our capital allocation strategy, where our number one priority is to pay down debt and reduce leverage.

Given our current net debt to EBITDA leverage is 3.8x, we are fully committed to using our excess cash generation beyond paying dividend to paying down debt over the next several quarters. We are curtailing M&A activity and share repurchases as we focus on returning to our targeted leverage range.

Once we are comfortably back within our targeted leverage ratio, we expect to resume our focus on executing strategic investments and returning cash to shareholders through share repurchases. We expect to maintain a strong balance sheet and a liquidity profile that will continue to provide flexibility to execute our profitable growth strategy.

Turning to the next slide, let me cover segment performance, beginning with the Process Equipment Group. The process equipment group revenue of $307 million grew 9% compared to the prior year. Excluding the impact of foreign currency exchange, revenue increased 10%.

Revenue growth was primarily driven by continued demand for large extrusion and material handling systems for the production of plastics. That growth was offset by weaker capital equipment sales across other industrial end markets, where we continue to experience lower demand as we expected.

In particular, proppants capital equipment sales decreased $14 million year-over-year. The overall Process Equipment Group aftermarket business grew 2% in the quarter or 3% excluding foreign currency exchange. Adjusted EBITDA margin of 16.8% increased 40 basis points.

Adjusted gross margin was down 270 basis points, primarily driven by business mix and inflation, partially offset by pricing and productivity improvements.

As expected, we’ve some margin pressure from a higher proportion of lower margin large polyolefin systems projects and the lower proportion of separation equipment for proppants, which have strong margin. Keep in mind that the growing installed base of a large system increases the opportunity for higher-margin aftermarket revenue in the future.

Growing the aftermarket business and increasing our base of high margin recurring revenue is a key element of our strategy. Operating expenses as a percentage of revenue decreased 340 basis points to 18.3% as a result of focused efforts on discretionary cost control and restructuring benefits.

The Process Equipment Group order backlog have $901 million at the end of the quarter, decreased 5% compared to the prior year, or 3% excluding the negative foreign currency impact. On the other hand, backlog increased sequentially 4% compared to the fourth quarter, driven by strong sequential orders for polyolefin projects.

Also, there continues to be a healthy pipeline of polyolefin projects expected to be awarded in the coming quarters. It's worth noting that we had sequential backlog growth in each of the Process Equipment Group businesses, not just the large Coperion projects.

Moving to the Batesville business, Batesville revenue of $127 million, decreased 1% compared to the prior year. Batesville unit volume increased despite lower estimated demand for burial caskets. However, average selling price decreased as a result of the continued trend of long-term mix decline in the industry.

Adjusted EBITDA margin of 18.1% was 270 basis points lower than the prior year. This margin performance was as expected in the quarter, as the business work through some higher cost inventory and incur higher health care costs in addition to the typical mix pressure the business faces. We expect profitability will improve next quarter.

We now have steel contracts in effect at lower cost and we anticipate healthcare costs will return to a more normal level. Additionally, we are forecasting incremental productivity gains for the balance of the year that will contribute to stronger margins.

We continue to forecast Batesville adjusted EBITDA margin to be in the range of 20% to 21% in fiscal year 2020.

Batesville continually leverages the Hillenbrand operating model to manage the business in a declining demand environment and the leadership team works relentlessly to improve efficiency, reduce costs and operate a lean and flexible organization.

Now let me comment on Milacron's results for the period in which we own the business, beginning on November 21. I will share our thoughts on the outlook for the business when I discuss guidance.

Although we are not providing specific period comparisons for Milacron, directionally financial results were below the prior year across the business, reflecting the slowdown in the global economy. In particular, weakness in China and the global automotive end market were especially challenging for Milacron.

For the quarter, the Milacron segment revenue was $133 million with adjusted gross profit of $38.8 million or and 29.1% of segment revenue. During these 41 days, this revenue generated 19.8% adjusted EBITDA margin, driven mainly by the timing of shipments as the third month of every quarter is typically Milacron's best-performing month.

Additionally, the results of Milacron no longer include its corporate costs as we’ve combined the two corporate functions into one and are well on our way to achieving our synergy target.

On a full quarter basis, the weakness in the global economy continued and the revenue was comparable to Milacron's last publicly reported quarter, prior to the transaction closing. Customer orders decreased approximately 8% compared to the prior year.

However, they increased 7% sequentially over the prior quarter, driven by North American injection molding capital equipment.

Milacron's order backlog of $147 million, decreased approximately 26% from the prior year due to lower order intake in our injection molding business in all regions, which historically represents between 70% to 80% of the total backlog.

Despite the decreased year-over-year, we see a solid pipeline of customer projects for all legacy Milacron product line. Additionally, the majority of Milacron revenue is based on orders that book and ship within a quarter and they never show up in our backlog.

In the past, Milacron described a portion of its revenue as consumables, which included the entire legacy MDCS and fluid technologies segment as well as the aftermarket portion of the legacy APPT segment.

Going forward, we are aligning Milacron to our view of aftermarket revenue to include parts and service, retrofits and rebuilds on existing capital equipment. Based on this view, aftermarket revenue typically comprises about a quarter of the total revenue for Milacron and was essentially flat year-over-year.

Also during this period, we were able to complete the sale of the former Milacron injection molding location in Malterdingen, in Germany. Proceeds of $13 million are received in December of 2019 and were used to pay down debt prior to the end of the quarter.

The prolonged weakness facing some key end markets led to disappointing results in the first quarter. However, as Joe said, we are very confident in the long-term resiliency of the Milacron business and in our ability to significantly improve that business.

It is this confidence, not the short-term issues that underlies our belief that this transformative acquisition will drive shareholder value. Let me turn to the integration process, which is going well. We executed several actions that position us to achieve year one cost synergies.

In the quarter, we achieved $3 million of synergies, specifically from the reduction of duplicate public company costs. In addition to these savings, we expect to generate savings in indirect procurement this year. We are well on our way to meeting or exceeding our year one commitment.

While still early, I’m pleased with our overall integration progress to date and will keep you updated throughout the year as we continue to make progress towards our objective.

In summary, the legacy Hillenbrand businesses started the year better than we had expected with strength in polyolefin systems, partially offset by softness across other industrial market while the Milacron businesses have faced more headwinds than we originally anticipated.

Our focus now is capitalizing on the momentum we've generated in large plastics projects, driving flawless execution on the Milacron integration to deliver the targeted synergies and overall business results in generating strong cash flow to pay down debt.

Let me now turn to our updated guidance for fiscal year 2020, including our expectations for Milacron. The forecast for Milacron is based on our approximately 10-month ownership period within the fiscal year. We'll provide additional color on how this relates to annualized year-over-year performance. I'll start with the legacy Hillenbrand businesses.

Given the stronger than expected performance in Q1 and continued strength in our large systems projects, we expect an additional 1% of volume growth for the full-year. Offsetting this additional volume, we are experiencing a higher FX headwind impact to our reported revenue.

Therefore, our overall expectation for revenue growth in the Process Equipment Group remains at 2% to 4% with growth driven by large systems projects, partially offset by continued pressure across the other industrial businesses and foreign currency.

Based on the higher volume and progress made on our productivity initiatives, including synergies, we are targeting full-year adjusted EBITDA margin of approximately 18.2%, representing 70 basis points of year-over-year expansion. This is at the high-end of our original guidance of 50 to 70 basis points.

Our expectations for Batesville remain unchanged with revenue expected to be down 1% to 3% consistent with the forecasted decline in annual burial volume. We anticipate sequential margin improvement in the second quarter and maintain a full-year forecast for adjusted EBITDA margin of 20% to 21%.

Moving to the Milacron business, we continue to see a challenging macro environment. We anticipate the Milacron acquisition to add $850 million to $880 million of revenue with an adjusted EBITDA margin in the range of 17.8% to 18.3% in the 10 months of ownership.

On a pro forma annualized fiscal year basis, revenue is expected to be down approximately 6% to 9% year-over-year due to continued softness in industrial end markets, including weakness in automotive and China with no meaningful recovery anticipated in our fiscal year. As economic conditions improve, we expect a strong recovery in these businesses.

It's difficult to predict the timing and severity of these cycles in the short-term, but these are good businesses with leading brands and technologies serving end markets with attractive long-term growth prospects.

We’ve a strong management team with experience managing through various economic cycles and see significant opportunity to improve profitability through the implementation of the Hillenbrand operating model across the Milacron business.

For our fiscal year, we expect adjusted cash earnings per share to be in the range of $3.48 to $3.75, representing year-over-year growth of approximately 12% to 21%, including $0.45 to $0.51of cash earnings accretion from the acquisition of Milacron.

We're updating our projection for adjusted earnings per share for fiscal 2020 to a range of $2.30 to $2.55 compared to $2.45 to $2.60 previously. This reduction in adjusted earnings per share is primarily due to the impact of noncash depreciation and amortization charges and deal-related interest expense.

Additionally, we feel it's prudent to lower and widen the range more than we typically would as we integrate Milacron and consider ongoing uncertainty around the macroeconomic outlook, global trade, the U.S elections and the coronavirus. We'll be monitoring these factors closely.

Our projections are based on assumptions that includes stabilization of industrial end markets that have recently faced downward trend, but with limited economic recovery in the second half of the fiscal year. We’ve a good line of sight for large plastics projects scheduled later in the year.

However, we’ve less visibility into other industrial businesses with faster turning capital sales, including Milacron. We expect Batesville second quarter to follow a seasonal trend as its strongest quarter as a result of the flu [ph].

Although it's not our practice to give quarterly guidance, I do want to point out that our fiscal second quarter adjusted earnings per share is expected to be significantly lower than our first quarter due to a full quarter of Milacron corporate expenses, including incremental interest expense from the acquisition.

In addition, continued market softness and the impact of the coronavirus will also contribute to the sequential decline. We estimate the range for the second quarter adjusted earnings per share to be approximately $0.40 to $0.50.

Cash generation remains a top priority and our goal remains to deliver free cash flow greater than our net income with CapEx of approximately 3% of total revenue and acquisition and integration related costs of approximately $80 million to $85 million for the fiscal year.

We still anticipate meeting our leverage commitment of 2.75 net debt to EBITDA by 12 months post close. Our adjusted effective tax rate is forecasted to be approximately 27% to 28%. Let me conclude with the integration process.

As a reminder, we committed to $50 million of run rate cost synergies within 3 years and $20 million to $25 million of run rate cost synergies by 12 months post close. Given the early success in executing our synergy plans, we now expect to realize the majority of the $20 million to $25 million target within fiscal 2020.

The primary drivers of our year one savings are the reduction of the public company costs through the integration of the corporate centers as well as indirect spend opportunities across the businesses.

As we deploy the Hillenbrand operating model to institute best practices around the company globally, we're confident in our ability to exceed the longer term cost synergy targets as well.

We're also excited about the opportunity to drive revenue synergies, including cross-selling of extrusion and material handling equipment and leveraging our global service footprint to further penetrate the aftermarket, which are not included in our current target.

As you may recall, we significantly improved the margin profile of the Coperion business, expanding EBITDA margin from high single digits to mid-teens through the implementation of numerous strategic initiatives, including the establishment of a dedicated parts and service division.

We grew the business by more than 40% and improved working capital return. While we’ve only owned the Milacron business for 10 weeks, we see clear opportunity to drive operational efficiencies in the factories, improve working capital management across all the businesses and leverage our innovation toolkit.

I’m pleased with our overall integration progress to date and excited about the opportunities ahead. At this time, I will turn the call back to Joe for his concluding remarks..

Thanks, Kristina. Before we open the line for questions, I just wanted to make a couple of comments about our focus going forward. First, I want to reiterate my excitement about having completed the Milacron acquisition and having them join the Hillenbrand family. While this will be a challenging one for Milacron, our enthusiasm for the future is high.

Over the coming quarters and years, our company will be focused on three main strategic objectives. The first is to the integrate Milacron with excellence and achieve the full strategic and financial benefits of the deal.

Second is to run our core businesses well, using the Hillenbrand operating model to drive improved top and bottom line performance both the short and the long-term. And third is to generate cash, both operationally and through the execution of the strategic alternative for CIMCOOL to pay down debt. That concludes our prepared remarks.

We are ready to take your questions. With that, I will ask the operator to please open the lines..

[Operator Instructions] And you have a question from the line of Matt Summerville..

Thanks. Good morning. A couple of questions.

First, with respect to Milacron, can you talk about what you saw sequentially in the backlog there and specifically to the hot runner business? How much below prior peak levels is that business operating at right now? And how do you feel that business has been competing from a market share standpoint?.

So -- hi, Matt. This is Joe. Thanks for the question. Let me start on the Mold-Masters side. We've seen relatively flat orders in the Mold-Masters side of the business quarter-over-quarter.

And in the hot runner, which is a hot runner business -- and the hot runner business doesn't have a huge portion of its revenues in backlog, it's a pretty quick turn business. But again, revenue -- I’m sorry, orders and backlog have been relatively flat over the last couple of quarters.

On the injection molding side, we have seen over the last few quarters a decline in both orders and backlog, although we didn’t see a sequential tick up, nice tick up on the injection molding side of the business in the first quarter of our fiscal year..

And then I was also -- I know I asked a lot of different things in that question.

I was also curious, just with the hot runner piece, how far off prior peak levels is that business operating currently and maybe talk about the funnel of opportunity you see there and what you perceive to be sort of the market share trend in that -- in the hot runner business, specifically?.

Yes. So in the hot runner business has been down a couple of quarters in a row. So probably about 10% from peak periods in terms of orders and revenues. The pipeline remains sort of muted given the macro environment, particularly, in China. And as you know this business also serves the automotive business.

And so we're not seeing a significant recovery in this business. There are some larger projects around electronics and tele-electronics that we see that are out there. But again, it's unclear when those projects will be released. So we’re seeing pretty sort of flattish demand in the order pipeline as well as in orders.

And so as we -- as you heard in our guidance, we're not expecting a significant recovery in that business for the balance of our fiscal year. If there is a recovery, it will probably happen sort of towards the end of our fiscal year would be our expectation. But again, the hot runner business, it's a pretty fast turn business.

And so when business is open up and they start to release their new products and refresh products, it can turn pretty quickly..

And then with respect to the outlook you gave for Q2, Kristina, the $0.40 to $0.50 in adjusted EPS total company.

What would be the organic earnings outlook for fiscal Q2 relative to the prior year, or asked differently, what is the magnitude of Milacron dilution that’s baked in there?.

Yes. So when we think about organically, we would be down slightly on the organic side, primarily because number one, we still don't understand what the impact of the coronavirus will have on our second quarter. And so one of the reasons for the larger range in the second quarter is because of this slight unknown.

Obviously, depending on the duration of the virus and what will happen, we will either be able to make that up back in the back half of the year, or again depending on the duration, it might carryover a little bit through the end of the year. So because of the uncertainty of really what’s going on, we will be down on our legacy business.

I think what I would tell you is the bigger portion of us being down in the second quarter is because when you think about Milacron this stub period as I mentioned in my prepared remarks, we shipped a lot of projects equipment in the last month of the quarter.

And so what happened was we still had a lot of corporate costs that were in the quarter that didn’t get allocated to the stub period. So when you think about the biggest change to the second quarter, it's really the corporate cost of Milacron and getting that quarterly impact of those corporate costs.

And so that really is a lot of things going on in the second quarter, but that’s really the reason for the wide range..

Thank you, guys. I will get back in queue..

Yes. Hey, Matt, I also -- I realize [ph] I did not answer your question about share. And so just as we do in our Process Equipment Group businesses and the Batesville business, we work to poke out there and check the market in various ways to understand what our share position is.

And it's not always perfectly aligned in the short run, but we generally have a pretty good sense of whether we have a share issue or not -- a share issue.

I would tell you while we are learning the Milacron businesses, but the management team is really focused on sort of understanding what's happening in the market, we are also working to confirm that externally with other sources of data. And I would say there's nothing that indicates that there's a share issue right now with the businesses.

They're really facing some very difficult end markets right now, again, and they relate to some of the things that we talked about. But we -- but believe it's an end market issue that is large driver of the other performance of the legacy Milacron businesses. So sorry I didn’t answer that earlier, yes..

No problem..

[Operator Instructions] You have a question from the line of Daniel Moore..

Joe and Kristina, good morning. Thanks for taking the questions..

Hi, Dan..

Good morning, Dan..

I wanted to start with the full year guide and the -- Kristina, I think you alluded to this, but what’s the current level of amortization expense that you're assuming in the fiscal '20 adjusted EPS guide relative to what you might have thought initially when you put out the guidance of Milacron being accretive? Just trying to find kind of tease out the delta there, if possible..

Yes. So we had in our annual guide for amortization about $64 million of amortization. And again that is on our 10 months period. So that’s our fiscal year. So as we go into next year, that’s going to be slightly higher to account for the 12 months. As it relates to kind of the initial assumption on accretion, there are two parts, obviously.

The first part is the performance of legacy Milacron. So that’s --its a little -- its lower than we had expected when we came out back in July with the announcement. The other part as it relates to amortization as we had. Obviously, when you go through an acquisition, you’ve to value your intangibles.

The accountants came in, we did our first assessment and we were off on our original estimation by roughly $20 million. Now what I would say is that is not a final number. So we have about 12 months to really firm up that number. We will do that over the next -- obviously, try and get that cleaned up within the next couple of quarters.

But there was a slight miss there as well..

Okay. But based on that, kind of rough back of the envelope, probably a $0.20 delta, so it seems like apples-to-apples, it would still be accretive maybe by $0.05 to $0.15 rather than the double digits. But kind of still up year-over-year versus the base assumption..

Yes, that is correct..

Okay. That’s helpful. And then your Milacron as you described the guide for this year, kind of mid to high single-digit declines.

You gave some pretty good color, Joe, but can you maybe sort of walk-through the assumptions of each the three businesses, the hot runners, the injection molding and the fluids business? If not to the percentage point, just directionally what's embedded in the guide for each?.

Yes. So again, I don’t think we want to share a ton of detail given the reporting segment. But generally, so again, when we announced the deal last summer, right, we expected some stabilization in the end markets. Obviously, those continue to decline during '19, which we’ve seen. And then we expect some continued decline, but stabilization in '20.

So if you think about that on a year-over-year basis from sort of our fiscal '19 to fiscal '20, it's really the hot runner system and mold part of the business -- but really the hot runner systems, its relatively flat at the top line. And so you had a tough '19 compared to '18, but relatively flat is our expectation.

And then given the order patterns and the backlog that are happening in injection molding and extrusion, that business is down a bit more in '20 compared to '19. So that’s generally how I think about the business. And then, of course, we had the fluids business in there as well, which is slightly down in the -- in fiscal '20 is the expectation..

Yes..

Any other comments, Kristina?.

No, I would just agree with Joe that when we think about the 6% to 9% on the full-year fiscal calendar for us, that’s primarily driven by the injection molding capital equipment. And so when we think about actually in the injection molding business, the spare parts, that was the good news because that’s essentially flat year-over-year.

But it's really what’s driving that 6% to 9% down kind of guide is primarily the capital equipment and the injection molding business..

Perfect. Okay.

And then synergies, given the fact you’re running slightly at least ahead of pace, I know you’re not ready to revise that number, but if there are -- if there is upside to the $50 million over the next 2 to 3 years, where would it be?.

So I think we would probably see incremental savings in procurement, manufacturing operations. Those are probably the two areas that I would say have the most potential upside and then as I mentioned we also believe that there will be some revenue synergies and those have not been included in our forecast targets.

Obviously those are going to take a little longer to develop, but we believe that there's opportunity there as well..

Perfect. And last for me. CIMCOOL, obviously you mentioned Houlihan Lokey.

I know there's not a lot of color you can provide on the process, but just anything you can relay in terms of interest you’re seeing, confidence and ability to monetize that asset at attractive multiples over the next few quarters?.

Yes. So we're running a very disciplined process. And so we're seeing, I would say, look the market this is a very attractive business I think to both strategic partners or buyers as well as financial firms and so -- financial sponsors.

So we believe that there is -- there are a good number of potential credible folks that may want to acquire or partner in some way with this business. And so we expect the process to go well.

We expect the market for this business to be very good, and so we have a lot of confidence in the process and remain confident and we will continue to update as we can. So, yes, it's a good business, good financial. It's got great financial characteristics, very resilient business. It's just a very different business from what we do.

And again, I think it can thrive and have a better home with another strategic partner or another owner. .

Okay. Very good. [Indiscernible] follow-up, so I will jump back. Thank you again for the color..

All right. Thanks, Dan..

Thanks, Dan..

[Operator Instructions] And we have a question from the line of Matt Summerville..

Yes, just one follow-up on Batesville. Can you maybe parse out some of the headwinds you saw in Q1 from a margin standpoint? You managed -- you mentioned health care costs that sounded somewhat temporary. So I would assume you would be able to maybe give a little bit of color on that.

May be also just what sort of headwind you’re seeing from an ASP standpoint and why or why not that might abate? At the end of the day, I’m trying to bridge how you get from Q1 into your guided range for the year? Thank you..

Yes. So when we think about Batesville and what happened in the quarter. So there were really two major drivers, Matt. It was as you said, higher health care costs, so just as a reminder, we are self insured.

And so sometimes those health care -- those health care costs will go up slightly, but we expect those to recover as we go forward kind of at a normal level. The second thing this quarter was, we had our inventory flowing through at a higher value from last year, because we had some inefficiencies in our production last year.

And so that inventory has to be carried at a higher value. So when that flush through the P&L, that was really kind of like a temporary element. So we would expect to see that kind of recover. As we go forward, we also are experiencing now with our new steel contract, lower pricing in steel. And so we expect to get some favorability there.

And then additionally, as you know the Batesville business is consistently looking at cost, cost reduction, Kaizen events. And so they’ve some productivity projects that are also in the queue for the back half. I would say that.

And then don’t forget our second quarter is usually when you think about our trends for EBITDA, it's always the highest EBITDA quarter, primarily because of the volume because of the flu season. And so we expect that same business cycle, if you will, to happen from fourth quarter to second quarter..

Got it. And then just with respect to free cash flow, what would your free cash flow guidance sort to be for the year if we were to back out? I think you mentioned $80 million to $85 million in acquisition integration related costs, maybe you want to use a percentage of net income.

Just talk about maybe what your free cash range would be for the year?.

Yes. We generally guide to free cash flow greater than GAAP net income. And so, we still feel very confident about that. What I would say is both in our business and the legacy Milacron business, when we think about free cash flow and how that’s going to flow through the year, we are going to have a stronger back half of our year than front half.

So we will have -- obviously, this quarter we had acquisition and deal costs. We will continue to see some of those really integration costs coming in Q2.

Coming really out of Q3 and Q4 is when you're going to really see that uptick in free cash flow, primarily it's not only because of greater net income, but also we should get a lot of these deal and integration costs kind of out of the way..

Got it. Thank you, guys..

And at this time, there are no audio questions..

Thank you, operator. And in closing, I just want to thank everyone for participating in the call today. We appreciate your interest in Hillenbrand and look forward to speaking with you again in May, as we report our fiscal second quarter results. Have a great day. Thanks..

Thank you for your participation. This concludes today's call. You may now disconnect..