Good morning, everyone, and welcome to Hillenbrand's Fourth Quarter Fiscal 2020 Earnings Conference Call. A replay of this call will be available until midnight Eastern Time, November 26, 2020, by dialing 1-855-859-2056 toll-free in the United States and Canada or +1-404-537-3406 internationally and using the conferencing ID number 9256319.

This webcast will be archived on the company's website atir.hillenbrand.com through Friday, December 11, 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 is my pleasure to turn the conference over to Rich Dudley, Senior Director of Investor Relations. Mr. Dudley, please go ahead..

Thank you, operator. Good morning, everyone, and welcome to Hillenbrand's fourth quarter fiscal 2020 conference call. I'm joined by our President and CEO, Joe Raver; and our Senior Vice President and CFO, Kristina Cerniglia. I want to direct your attention to the supplemental slides posted on our IR website that will be referencing on today's call.

Today marks my last earnings conference call, as I’ve taken on a new finance role within Hillenbrand. I’ve enjoyed serving in this important position over the last two and a half year and I want to take the opportunity to thank you for your trust and partnership. I’m very happy to welcome Cabey Bakhtiary [ph] as our new Investor Relations Director.

Cabey and I will work closely together over the coming weeks to ensure a smooth transition. Let me quickly address two items before turning the call over to Joe.

First, during the fiscal fourth quarter, we changed the names of two of our reportable segments in order to better reflect the nature of business activities and end market exposure for these segments.

As a result, the former process equipment group segment has been renamed “Advanced Process Solutions” or ATS and the former Milacron segment has been renamed “Molding Technology Solutions” or MTS. Legally these names better capture the nature of activities and future opportunities for these segments.

We’ll continue to use the Milacron brands name for our injection molding product line. Second, turning to slide four, I’ll remind you that our comments may contain certain forward-looking that are subject to the Safe Harbor provisions of U.S. federal securities laws.

These statements are not guarantees of future performance, and our actual results could differ materially. Also during the course of this call, we will be discussing certain non-GAAP operating performance measures, including pro forma comparisons for the Molding Technology Solutions segment.

I encourage you to review Slide four of the presentation and our 10-K, which can be found on our website, for a deeper discussion of forward-looking statements and the risk factors that could impact our actual results. With that, I'll turn the call over to Joe..

Thank you, Rich, and good morning, everyone. Thanks for joining us today. And all of us at Hillenbrand, we hope that you and your families are doing well and staying safe. Before we start, I want to take a moment to thank Rich for his contribution to Hillenbrand’s investor relation and wish him continued success in his new role.

I'd also like to welcome Cabey to Hillenbrand. Cabey brings over a decade of finance and investor relations experience, most recently, at enforcement brands.

We’re committed to building effective and productive relationships with our shareholders, and we look forward to Cabey continuing that effort as we strive to provide clear, timely and relevant communication.

I also want to acknowledge Hillenbrand’s employees who despite the challenges brought on by to the COVID-19 pandemic, continue to serve our customers and deliver on our mission every day.

We applaud their hard work and remain steadfast in our commitment to ensure the health and wellbeing of the 11,000 Hillenbrand employees and their families, our customers and partners and the communities in which we operate around the globe.

We continue to follow the guidance of health experts around the world and are taking the necessary precautions to help reduce the spread of the virus. As you saw from the release last night, we finished fiscal 2020 with a strong fourth quarter.

Before I get into the quarter, however, I want to take a few minutes to reflect on the entirety of fiscal 2020 and to report on our progress against the execution of our long term strategy. Our vision is to shape Hillenbrand into a world class global industrial company with a proven record of success driven by the Hillenbrand operating model.

And to that end, over the past several years, we've consistently articulated four key strategic pillars. The first is to strengthen and build business platforms, both organically and through M&A. The Milacron acquisition represents a major step in the execution of this strategic pillar.

With a Milacron acquisition we added industry leading and complimentary hot runner and injection molding product lines in the Hillenbrand portfolio, further strengthening our customer offering, increasing our global scale, and enhancing our capabilities across the entire plastics value chain, from base resin production all the way through recycling.

As we look forward, beyond the integration and the current market uncertainty, we see the potential for solid growth both organically and through M&A in both the hot runner and injection molding product line. In addition to the Milacron acquisition, we've strengthened and focused the Advanced Process Solutions segment.

Investments in innovation in our Coperion branded products and solutions have led to revenue growth and improved margins. And we believe that we've positioned this part of our business very well for increased profitable growth, both organically and through acquisition.

This year, we announced the plan divestiture of three smaller businesses within Advanced Process Solutions, which we believe will help sharpen our focus on our larger platforms and accelerate debt reduction. Our second strategic pillar is to manage Batesville for cash.

Batesville has a long history of manufacturing excellence in burial caskets, and its deep and long standing customer relationships make it an industry leader. Batesville has historically been less sensitive to economic cycles, and has provided solid and predictable cash flow that we can invest in growth businesses.

Batesville’s outstanding performance in fiscal year 2020 is a result of simplifying business processes, improving quality and aggressively managing its cost structure, while maintaining its ability to meet customer’s needs in a time of elevated demand associated with the pandemic.

Importantly, Batesville fulfilled its role in our portfolio this year, as we leverage the robust cash flow generated to pay down debt and strengthen our balance sheet. Third pillar of our strategy is to build a scalable foundation for growth using the Hillenbrand operating model.

The acquisition of Milacron not only helps us expand our presence across the plastics value chain, but it also provides a unique opportunity for us to transform and scale many shared back office functional business processes in areas such as information technology, human resources, health and welfare benefits, and finance.

We believe that our efforts to standardize processes and services and to leverage best practices across our operating companies globally, will drive meaningful efficiencies, improve effectiveness and quality, and provide a scalable foundation for future growth.

We're also driving efficiencies and best practices in operations by leveraging our combined spend through our Global Supply Management Group and driving lean business practices, which are at the core of the Hillenbrand operating model to improve safety, quality, delivery, cost, and working capital.

As many of you know, effectively executing the Milacron integration was a top priority during fiscal 2020.

And despite the challenges associated with the COVID-19 pandemic, we delivered on targeted year one cost synergies at an accelerated rate compared to our regional goal and we increase the three-year run rate synergy targets from $15 million to $75 million. In addition, we completed the divestiture of Cimcool in our fiscal second quarter.

Our dedicated integration management office and integration teams continue to drive the integration. And we expect their efforts contribute to top line growth, continued margin expansion and strong free cash flow. While COVID-19 has created some new challenges, our team pulled together under difficult conditions and delivered strong results today.

Our fourth and final strategic pillar is to effectively deploy strong free cash flow. We have a track record of maintaining a flexible balance sheet, so we can grow both organically and through strategic acquisition. Additionally, we have a history of quickly reducing leverage following acquisitions.

We're employing that playbook now, in prioritizing debt paid down. During the past quarter, we made a significant dent in our net leverage ratio, finishing below our original target of 2.7 times net debt-to-EBITDA less than 12 months after closing on Milacron.

We're confident in our continued ability to generate robust free cash flow to pay down debt, invest for growth and return capital to shareholders. In summary, the Company made significant strides executing our strategy this past year. And we feel very confident in our ability to create long term shareholder value over the coming quarters and years.

Now, let me turn to some highlights for the quarter. Total company performance exceeded our internal expectations driven by the stronger than expected recovery in certain industrial end markets, continued elevated volume at Batesville, and generally strong execution and disciplined expense management across all the segments.

In the Molding Technology Solutions segment, Hot Runner systems orders continue to improve as demand for medical products and electronics remained strong. And in injection molding, we saw strengthened orders, both in India and North America as order activity picked up in consumer good, packaging, automotive and construction.

We finished the fourth quarter with the best order rates and backlog for injection molding in over two years. We also saw parts and service orders pick up as we move through the fourth quarter. In the advanced process solution segment, orders for large Polyolefins distance remains strong.

As we alluded to on our last call, we booked more than $100 million in new, large scale plastics projects in the fourth quarter. These orders contributed to record backlog in the segment. Despite some slowdown in North American polyethylene project, a pipeline for new large distance remains healthy globally, with continued strength in Asia.

Orders for our smaller, mid cycle products and aftermarket parts and service continued to be down in the quarter due to end market weakness. All three segments delivered robust cash flow in the quarter on the strength of their operating results and actions taken to reduce expenses and carefully managed working capital.

We remain cognizant about the near and long term needs of the business. We continue to invest in high return projects, including product development and innovation. And as I mentioned earlier, we meaningfully improve the health of our balance sheet during the quarter. Kristina will provide more detail on our results in a moment.

But first, I want to report a new addition to our executive leadership team. I'm pleased to welcome Pete Dyke as our Chief Human Resources Officer. Pete brings more than 25 years of Human Resources experience in industrial companies, including 14 years at Pentair.

I know I speak to the entire team when I say that I look forward to working with Pete to continue to execute the Milacron integration and our HR transformation and to build talent across the enterprise. At this time, I'll turn it over to Kristina to provide more specific details on our overall financial performance, segment performance and outlook..

Thanks, Joe. And good morning, everyone. Our team continued to adapt to a dynamic environment and executed very well in the quarter. That strong execution along with an accelerated economic recovery compared to our expectations going into the quarter yield a terrific finish to our fiscal year.

We reported total revenue of $694 million for the fourth quarter, an increase of 43% over the prior year. Growth was driven primarily by the Milacron acquisition while Batesville’s revenue remained unseasonably strong due to pandemic and contributed to the year-over-year increase. Foreign exchange turned positive and benefited the top line by 2%.

Revenue decreased 2% organically. Adjusted EBITDA of $141 million increased 62% over the prior year, primarily due to the Milacron acquisition, and strong baseball performance. Consolidated Adjusted EBITDA margin of 20.3% expanded 240 basis points.

Organically Adjusted EBITDA increased 4% and Adjusted EBITDA margin increased 110 basis points with margin expansion in both Advanced Process Solutions and Batesville segments. I will provide more details about our margin performance when I review the segment results.

We reported a GAAP net loss of about $7 million or $0.09 per share, a decrease of $0.48, primarily as a result of non-cash impairment charges of $62 million related to businesses identified for divestitures as part of our portfolio simplification effort.

Adjusted net income of $69 million resulted in adjusted earnings per share of $0.92, an increase of 8% mainly driven by the Milacron acquisition and strong Batesville performance. As a reminder, adjusted earnings per share excludes after tax amortization of acquired intangible asset.

Amortization expense was approximately $17 million in the quarter and the adjusted effective tax rate for the quarter was 32.1%, an increase of 560 basis points year-over-year, driven by increased distributions from foreign subsidiaries.

We generated exceptional operating cash flow of $235 million in the quarter, which was about $165 million higher than the prior year. The increase was primarily driven by cash flow from the Milacron acquisition and strong working capital performance across the enterprise, as well as lower acquisition and integration costs.

Capital expenditures are approximately $16 million in the quarter, and we returned $16 million to our shareholders in the form of cash dividend. We also paid down $159 million of debt. Net debt at the end of the quarter was $1.3 billion and net debt-to-EBITDA was 2.7 times. Turning to the next slide, let me cover segment performance.

Advanced Process Solutions revenue of $330 million decreased 6% year-over-year. Excluding the impact of foreign exchange, revenue decreased 9%.

Revenue decreased primarily as a result of lower revenue recognized from large polyolefins system and general softness in industrial end markets, which affected demand for capital equipment and aftermarket parts and services across the segments.

This softness was partially offset by strength in engineered plastics applications, like PVC and polycarbonate. Despite lower revenue, the segments delivered record quarterly adjusted EBITDA margin of 20.6%, an increase of 160 basis points as cost inflation was more than offset by cost containment actions, pricing and productivity improvements.

Order backlog of $988 million set a segment record, increasing 5% sequentially and finishing 14% higher than the prior year. Large plastics projects comprise more than half of the current backlog. We've experienced customer driven delays on several of these projects, which has shifted our expectations for timing.

Importantly, we have not had any large project cancellation. These projects are expected to contribute to revenue over the next several quarters, including about 28% of the backlog expected to convert to revenue beyond the next 12 months.

The strong backlog and the growing installed base it signifies is a positive indicator for opportunities in both feature capital projects and higher margin aftermarket parts and service.

Molding technology solutions revenue of $217 million decreased 1% on a pro forma basis year-over-year, but improved 17% sequentially, and its strongest quarter-to-date as part of Hillenbrand. Backlog increased 54% over the prior year, and 31% sequentially to $243 million, its highest level in more than two years, but improvement across the segments.

Sales of injection molding and extrusion equipment decreased year-over-year but improved on a sequential basis. India in particular rebounded nicely from a weak fiscal third quarter. In terms of end market performance, automotive, construction, consumer goods and packaging, all improved sequentially.

Sales of hot runners increased year-over-year on strength and medical electronics and packaging, and also grew sequentially driven by improvement in consumer goods and packaging.

Adjusted EBITDA of $51 million increased 20% and Adjusted EBITDA margin of 23.3% increase 410 basis points compared to the prior year and increased 280 basis points sequentially. The improvement was driven by cost containment actions in addition to favorable product mix, and class synergies.

We are pleased with these results and remained focused on leveraging the Hillenbrand operating model to drive sustainable operational improvements. Moving to Batesville, revenue of $147 million increased 8% year-over-year, as we continue to see higher burial casket volume as a result of mortality associated with the COVID-19 pandemic.

Adjusted EBITDA margin of 24.3% was 170 basis points higher than the prior year, mainly driven by operating leverage and productivity gains, in addition to cost containment actions, which more than offset cost inflation.

Batesville continue to execute exceptionally well, leveraging the strength of our supply chain to respond to continued elevated demand broadly, as well as demand spikes in certain geographic areas. The Batesville team continues to work tirelessly to fulfill its mission by helping families honor the lives of those they love.

Moving to annual results, consolidated revenue of $2.5 billion grew 39% or 40% excluding the impact of foreign currency exchange. The Milacron acquisition contributed 41% while revenue decreased 2% organically.

Advanced process solutions revenue of $1.2 billion decreased 4% or 3%, excluding FX, as general weakness and industrial demand was partially offset by minus growth in large plastics project. Batesville revenue of $553 million increased 4% for the year due to increased demand for burial casket.

Molding Technology Solutions revenue was $736 million for the period that Hillenbrand owned the business, which included $38 million from the simple business that was sold at the end of the fiscal second quarter.

On a 12-month pro forma basis, excluding Cimcool, Molding Technology Solutions revenue of $798 million decreased 15% year-over-year, given weak industrial and markets that were exacerbated by the pandemic.

GAAP net loss of $60 million resulted in GAAP earnings per share loss of $0.82, mainly driven by $145 million in non-cash impairment charges, primarily on businesses identified for divestiture. Our effective tax rate was negative 189% in 2020.

The reason for the negative tax rate was that we reported a net loss for the year while being in a taxable position for income tax purposes. The taxable position was primarily driven by non-deductible impairment charges in taxable gains from the sale of the Cimcool business.

On an adjusted basis, net income of $235 million resulted in adjusted earnings per share of $3.19, an increase of 14%. Our adjusted effective tax rate of 27.8% for the full year increased 100 basis points compared to 2019, primarily due to the taxes associated with foreign earnings distribution.

Adjusted EBITDA of $464 million increased 57% year-over-year. While EBITDA margin of 18.5% improved 220 basis points. The Adjusted EBITDA margin increase was driven by organic margin expansion in Advanced Process Solutions and Batesville, as well as the addition of higher margin Molding Technology Solutions product line.

We generated outstanding operating cash flow for the year with a record $355 million $176 million higher than the prior year, or an increase of 98%. Our free cash conversion rate was approximately 136% of adjusted net income for the year.

We continue to leverage the Hillenbrand operating model to drive greater efficiency across the business, including focused initiatives on working capital. During the year, we also returned approximately $63 million to shareholders in the form of quarterly dividends.

As of the fiscal year end, we had nearly $1.2 billion of liquidity and no near term debt maturities. In terms of our capital deployment, we've been clear that our first priority is to pay down debt and deleverage following the Milacron acquisition last November.

We've made good progress in reducing leverage from 3.8 times to 2.7 times in less than a year, which is faster than we expected in the current environment. As we have done with previous acquisitions, we've been aggressively deleveraging to position the company with greater flexibility to grow both organically and in organically.

We'll continue to target getting firmly back within our leverage guardrails of 1.7 times to 2.7 times. As we do, we’ll look to accelerate strategic investments and higher return opportunities with a goal of increasing profitable growth.

We expect to maintain a strong balance sheet and liquidity profile to ensure the flexibility to execute our strategy. Now that we've reached the end of fiscal 2020, we thought it would be a good time to revisit the three year targets we announced at our investor day in December of 2017. As you can see from the slide, we delivered on our key targets.

We grew total organic revenue at a rate of about 4% per year in that revenue targets for both Advanced Process Solutions and Batesville segments. We achieved targeted organic adjusted EPS growth and we easily exceeded our targeted free cash flow conversion. We fell short on few metrics.

First, we came up a bit short on our double-digit adjusted EPS target given the unexpected challenges we faced with certain end markets in COVID-19, following the Milacron acquisition. And second, our goal was to expand Adjusted EBITDA margin and Advanced Process Solutions by a total of 250 basis points over the three years.

We improved the margin by 180 basis points, which was good but not quite where we wanted to be. Importantly, we achieved our EBITDA dollar target, the main reason for coming up short on the margin was the increased mix of large plastics projects with relatively low initial margin.

While we would like to have hit the margin target, we're pleased with the contribution these projects made to the bottom line. And over the long term, we expect them to provide the opportunity for highly profitable aftermarket products and service revenue as we continue to pursue incremental margin improvement. I will now turn to our outlook.

Amid continued uncertainty, we are providing guidance only for the first quarter of fiscal 2021 under the assumption that we'll continue to see stability in the global economy without any broad based COVID related disruptions.

Starting with Batesville, we expect revenue to increase 12% to 15% year-over-year, based on a continued trend of elevated burial casket volume due to the pandemic. We expect strong margin performance in the first quarter driven by operating leverage and continued efforts to drive productivity.

We're targeting an increase in adjusted EBITDA margin of 640 basis points to 740 basis points over the prior year.

In Advanced Process Solutions, which includes long cycle systems, mid cycle capital equipment and aftermarket parts and service, we expect first quarter revenues to decrease 12% to 15% year-over-year, mainly driven by the timing of long cycle large folios and projects, and continued softness in both our mid cycle product lines and aftermarket parts and services.

We continue to see strength in the longer term outlook for the long cycle part of the segment, as evidenced by the record backlog and a healthy order pipeline. However, as I mentioned earlier, we are facing customer driven delays with several large plastics project. Additionally, we’ve experienced deferral and maintenance and modernization projects.

The timing of these projects can cause lumpiness in our quarterly results. And we're expecting that to be a challenge in our fiscal first quarter. We anticipate revenue from these projects will be much stronger in the second half of our fiscal year.

We continue to leverage the Hillenbrand operating model to drive pricing and productivity improvements, and we continue to execute actions to contain costs. At the same time, we're investing in targeted areas to position us better as market conditions improved.

In total, we expect year-over-year adjusted EBITDA margin improvement of 20 basis points to 70 basis points despite the lower volume. We can't predict the timing of potential divestitures, so all our current Advanced Process Solutions operating companies are included in our projection.

Turning to Molding technology Solutions, we're nearing the one year mark from the time of the Milacron acquisition on November 21.

The majority of the contribution from this segment for fiscal 2021 in comparison to this year will be organic, but there is a period of about seven weeks at the start of the first quarter when the segment was not reflected in our prior year results.

This segment includes mid-cycle injection molding equipment, short cycle hot runners and aftermarket parts and service. On a pro forma basis, we expect Molding Technology Solutions first quarter revenue will grow modestly year-over-year in a range of about 2% to 5%, primarily driven by growth in the short cycle hot runner system.

Recent order trends for injection molding equipment have been positive, including sequential order improvement broadly across key end markets in geographic region, leading to the best order levels and backlog in the product line in over two years. We expect first quarter revenue for injection molding to be relatively flat year-over-year.

However, we're pleased with the momentum that we've generated which bodes well for continued improvement in the second half of the year.

We are targeting strong adjusted EBITDA margin improvement of about 370 basis points to 470 basis points, driven by increased mix of higher margin hot runner systems in addition to productivity and cost synergy initiatives as we continue to deploy the Hillenbrand operating model across the segment.

As you can see on the slide, we expect Hillenbrand’s total first quarter revenue to decrease year-over-year in a range of 1% to 4%. At the same time, we are forecasting strong margin performance across all three segments.

We expect adjusted EBITDA in the range of $106 million to $115 million and adjusted earnings per share in the range of $0.65 to $0.75, compared to the prior year results of $0.75 on an apples-to-apples basis. The range extends below the prior year primarily as a result of increased interest expense, a higher tax rate, and share dilution.

Putting these items aside, I want to emphasize that we anticipate solid improvement in our operating results. We expect our adjusted effective tax rate for the first quarter to be in the range of 27% to 28%. Finally, I'll comment briefly on free cash flow, which remains a top priority.

Our cash generation tends to be seasonal for the majority generated in the second half of our fiscal year. We expect that to be the case in fiscal 2021 including first quarter free cash flow in line with historical trends, as we anticipate investing cash and funding near term working capital requirements.

Over the full fiscal year, we expect to generate free cash flow greater than our adjusted net income.

Either our expectations for the first quarter obviously, we continue to operate in a very dynamic environment that remains challenging to forecast even just a few months ahead, we will look to resume providing full year guidance at the appropriate time. In summary, we had a stronger than expected finish to a very challenging year.

While the current business environment remains unpredictable in many respects, we're focused on managing the things that can control and continuing to execute against our strategic initiatives. We believe our fourth quarter financial results demonstrate that commitment. At this time, I'll turn the call back over to Joe..

Thanks, Kristina. As we close out our prepared remarks, I want to update you on the portfolio actions we announced last quarter. The process for the plan, divestitures of TerraSource Global and our full control businesses is going well.

We've had significant interest in all three assets, and while the current economic and market conditions may have an impact on the timing of a transaction, today, we feel confident in the process and look forward to updating you when we have something to announce.

As we move into fiscal 2021, the management team continues to remain focused on executing our near term priorities of running our businesses well and protecting margins during this uncertain time. Integrating Milacron successfully and generating strong cash flow continued to pay down debt.

We've taken decisive actions to weather the challenges of COVID-19 and to position Hillenbrand for growth and improve profitability as our markets recover. With that, we'll open the line for your question..

[Operator Instructions] Our first question is from Daniel Moore with CGS Securities. Your line is open..

Joe, Kristina. Good morning. Thanks for taking the questions..

Good morning, Dan..

Good morning, Dan..

Starting with and forgive me, I'll get the new vernacular scroll all the segments down but with MTS Molding technology Solutions maybe just talk about the mix of mold masters, the hot runner business versus injection molding, Q4 into the guidance in Q1, what that looks like right now.

And what are the end markets? You mentioned several, but what are the markets that are really driving the recovery here?.

Yes, sure. So let me just let me start off with Q4 from a revenue perspective. We saw continued strength in the hot runner part of the business, so that that part of the business performed better than we expected. And that was really largely different by medical and electronics.

On the injection molding side of the business, that business continued to see relatively, modest revenue increase. But as we move through the quarter, we did see parts and service pickup, and we did see orders for smaller, smaller pieces of equipment that we could ship pretty quickly pick up.

So really for the quarter, both of those segments performed better than we had expected. The last time, we talked on the on the third, I'm sorry, on the third quarter call last time. And then from an order perspective, we see pretty solid orders continuing on the mold nastier [ph] side, on the hot runner side.

So that's encouraging as we continue to see good orders and good activity there. And then during the really the second half of the quarter, we saw a very strong order snapback on the injection molding side. So we had just a few weeks where a ton of orders were released, and where we, closed on those orders.

And as I mentioned, we continued to see good parts and service orders.

So we're still working through how much of that is, kind of one time snap back from a bunch of pent up demand, and how much of that is going to be on-going strength, but I would say the order trends are very strong in both of those businesses as we're heading into our first quarter.

And then just one last comment related to the guide, I think was part of your question related to the guide. The hot runner business is a pretty fast turn business.

So, that shows up typically in the quarter that you know, or pretty close to the quarter that you're that you get the order so it tracks very closely revenue tracks closely with the order trends, which as I mentioned, remain positive. On the injection molding business, that the two or three quarters sometimes longer order to delivery cycle.

So we'd expect to see some of these strong orders on the injection molding side and really mainly impact the second half of our year so we'll see more modest revenue growth, for sure in the first quarter, because it will take a little while for those orders to work through the system to turn into revenue..

Got it. That's helpful. And maybe just a follow up there, just trying to kind of understand the mix a little bit. You know you generated exceptionally strong margins in the quarter in that segment guide is for a little bit of a sequential step down.

So is that just all mix more injection molding? Or is there anything else? Just trying to get a sense for what the new user base run rate for margins should be on a go-forward basis? Thanks..

Yes. So I would say, our guide in the first quarter, we expect still to continue strong margin performance. Mix is the driver of that. So we will see, continue to see a pretty heavy mix of the, of the hot runner systems in the first quarter, but also an increase in the injection molding side.

So as we move through the year, we'll see likely see margins moderate a little bit as the second to the move to the second half of the year. We work through that backlog on injection molding. There'll be a more, balanced mix in terms of injection molding compared to the hot runner systems..

Got it. And then one more, and I'll jump back to queue. But Batesville, obviously continues to be very strong. Were you surprised that the legs that had into fiscal Q4, obviously you've got -- are forecasting continued on seasonal strength? And here in fiscal Q1, just talk about your visibility there? Thanks..

Yes, thanks, Dan. I think that's another place that we perform better than expected, compared to where we thought we'd be at our last call. If you think about, I think there were some moderation in COVID-19. And then we've seen this really strong second wave, which is continuing to accelerate.

Just driving to work today on the radio, I heard that, another day of high deaths in the United States yesterday. And so I think we have a better view towards the potential vaccine and what's happening in the market. And so we'd expect this first quarter as we guided to be up significantly, again, year-over-year.

And then quite frankly, as we move into, as we move into our, our second fiscal quarter, that that's a little bit tougher call, given what's going to happen with the vaccine, looks like based on what we see in Australia, as an example, the regular flu may be lighter this year, given everyone's precautions, and the particular strain that it is.

So, it's pretty tough to continue to forecast that business. On the one hand, on the other hand, from a external perspective you can kind of track what's going on with deaths in North American good, get a pretty good sense of what's happening with our business. So, unfortunately we're expecting ahead of a decent fourth quarter with elevated volume.

And unfortunately, we're expecting that to continue into the, into the first quarter of this year..

Understood. Okay, I will jump back with any follow ups. Thank you. And congrats on some exceptional performance in the quarter..

And the next question is from Matt Summerville with D.A. Davidson. Your line is open..

Thanks. A couple of questions. First, I think in the prepared remarks, you mentioned 28% of the long cycle, I believe this long cycle maybe as a total segment.

So maybe delineate that but 28% of the backlog you have and what you used to refer to PEG extending beyond 12 months, what is a more normalized number in that regard? If you look back, say over the last five years..

Yes, I'm going to look over at some of the FP&A [ph] folks here. But so I think that number, the 28% is the former PEG segment, the Advanced Process Solutions, and that is those larger projects that tend to get delivered beyond -- they take four, six, sometimes eight quarters to get delivered. And so that's, what those projects are.

We've, I think as we've communicated, we've seen that number increasing, particularly over the last few quarters, and really, I guess, across 2020, really all of 2020. That number is typically in the mid-to-high teens. And so, we've seen it creeping up over the last few quarters.

I think last quarter it was in the mid-20s, the quarter before that it was around 20 and then sort of high teens before that, which is sort of a normal rate. So it is a bit elevated as we see, continue to strengthen orders.

But some of those projects pushing out from a customer perspective, and then you're getting that a higher percentage of the backlog that would be delivered beyond the 12-month period..

Is there any way Joe to talk about or to ring some kind of the amount of revenue either via projects, either be maintenance or modernization/upgrades.

How much revenue in this business has sort of been deferred? And the timing in which you would expect that to be recaptured at this point?.

So a couple of things. I think it's, it's so and from a, from a backlog perspective, we really don't in this segment. We don't get cancellations typically, especially for the larger project. So in that sense, you can really think of as backlog pushes out that is really deferred. Now, on the flip side of that, we do percentage of completion accounting.

And so you will have this as we, as we guided in the first quarter, we'll have this trough. And so that won't snap back really quickly that, that will push out. And so we'll see continued strong revenue in the second half and into 2022, given this backlog of large projects.

And so I'm not, I'm not sure if I'm exactly getting to your answer, but in terms of total dollars, we've probably seen about $250 million of backlog of push out beyond where we'd expect it to be, a couple quarters ago..

Got it. And just maybe as a final question, you achieved? What was the total synergy realization associated with Milacron in fiscal 2020? And what do you expect to be the key drivers of that next, log of 20 million to 25 million that you mentioned in your slide deck? Thank you..

Yes, I think we ended the fiscal year about $27 million of realized synergies. And, a lot of that was public company costs. Early on, as we move forward, we'll continue to get some of those benefits of public company cost reductions in 2021.

And then, but we'll really start moving more towards more operational oriented savings as we move into 2021 and 2022. And so a big chunk of savings in 2021 comes from our procurement initiatives that really drive across all the industrial businesses, and in Batesville.

And then we start to -- we had some productivity savings related to sites, consolidations, etcetera.

But we'll start to see more kind of operational efficiencies, as we continue to drive Kaizen events and lean business practices through the entire organization, but special emphasis on some of the operations, particularly the injection molding business, so we'll see that come through.

So I would say, really in the second half, it's a bit more operationally focused than what we saw. In the second year 2021, it's more operationally focused than we saw in 2020..

Got it. Thanks, Joe..

Thanks, Matt..

[Operator Instructions] Your next question is from Chris Howe with Barrington Research. Your line is open..

Good morning Joe and Kristina..

Morning..

Good morning, Chris..

Good morning.

Well, starting off with the assets that are for sale, can you talk a little bit a little bit more about how they performed in the quarter? And how you see their performance in Q1 or from a general perspective what your expectations are for those businesses as we move through the next fiscal year?.

Sure. So the businesses you're referring to really is the TerraSource Global business and then our Q4 Flow Control businesses. Just a reminder that those are relatively small part of the overall portfolio, less than 5% of revenue.

Those businesses really felt the industrial slow down, like our mid-cycle more of our mid-cycle businesses in a pretty similar way. And so, it's difficult to forecast when those businesses will snap back.

But, but generally they saw performance kind of like the in line with that solutions performance and then again, it's a little bit difficult to forecast too far forward with those businesses. But, they're good businesses. They're performing well. They've done taking a lot of cost action to protect margins over the past couple of quarters.

And again, we see pockets of demand returning. We see other places where we're continuing to see softness in orders on both the capital side and the products and service side..

Okay. And then my next question is just surrounding APS, Advanced Process Solutions. In the first quarter, you're expecting a 12% to 15%, year-over-year decline.

Given what you've seen so far, in October, as much as you can share, do you feel that Q1 is the bottom of that softness, and we should see APS show some sequential improvement or some cadence through the remainder of the year?.

I think this is why we're only giving quarterly guidance. It is really pretty tough to tell. I think, the news of the vaccine is very positive. Again, this business is, is got characteristics of sort of general industrial businesses, which are feeling softness. We do have a couple of those large projects that have pushed out.

We expect those projects to resume though, as we move into the second half. And so we expect the second half of the year to be stronger. I would also say the same on the personal service side. The parts and service business continues to remain down on a year-over-year basis.

And we would expect that for as we move into the second quarter perhaps, and into the second half of the year, for that to rebound as customers, free up both capital and expense, and also feel more comfortable scheduling some of the larger service projects that we do.

And so again, I think this is a business that we would expect to see improved performance in the second half of the year. But, it's just really tough right now, given the difficulty with forecasting around the globe due to the pandemic..

That's great color. Thank you, Joe. And if we move below the top line for APS, you posted record margin of 20.6% in the fourth quarter.

Should we look at that 20.6% as the high end of a boundary range? Or is there potential for slight expansion of that margin opportunity in fiscal year 2021?.

Yes, I think I would think of that margin opportunity more at the high end of the range. I think we've really, we've really squeezed down costs. And especially in the third quarter, we tightened expenses, pretty hard and fast in response to the pandemic.

We've freed up some spending in the last in this past quarter across the businesses on tricking areas where we expect a solid growth and really good growth coming out when we come out of this downturn.

So I think the other thing is with the mix of large projects, and we'd expect to continue to see a mix of large projects in the second half of next year. And if you know that, that has more buyout in it, so we buy out equipment like motors and gearboxes that brings our margins down a little bit.

But with all that said, our margin performance has been very strong as we guided in the first quarter pick on a year-over-year basis.

Really across the board, we expect very solid margin performance, probably a little tougher in the APS, the Advanced Process Solutions Division, but again, solid margin performance across the board is what we expected in Q1..

Great. Thank you for the color. I'll hop back in the queue..

Thanks, Chris..

Your next question is from Daniel Moore with CGS Securities. Your line is open..

Thank you again. Just two quick follow ups. On the Coperion large project side, the modest push outs are they COVID related, capital constraint related, economic uncertainty.

I know it's hard to tease out sort of just COVID operational challenges versus the economic concerns, but what are you hearing from customers as it relates to those project delays..

Yes, so I think it's a little bit, it's multiple things. I would tell you that when you think about our customers that are more integrated oil and gas companies, they've got capital constraints and spending constraints. So there's a, there's a little bit of that happening in certain parts of the business.

Then when you think of our other customers that are really more petrochemical oriented and not doing, drilling for oil and gas and exploration, they're saying, reduced feedstocks, and so in those kittens, which is good for them.

And so in those cases, it tends to be other things either COVID related because they can't get a site ready, or financing related or something like that. So we've got a little bit of a little bit of a mixed bag in terms of what the push outs are. I would just say that, it's a little bit more obvious in the United States.

So we've seen some of the push out in the North American projects. That really isn't the case around the rest of the world, particularly in Asia, where there continues to be strong demand and a very solid pipeline for these large projects. So the couple of big projects that have pushed out, it's really a bit of a mixed bag.

And again, we expect those projects to sort of gin back up more aggressively as we go into the second half of the year..

That's helpful.

And is there some a little bit of supply chain constraints that you're hearing from the customers, or is that less of an issue?.

I think that's a little bit less of an issue right now. I think a lot of it is caution, is a big chunk of it. I think the supply chains are operating reasonably well around the world. And as I mentioned, we have significant strength in Asia.

And when you think about Asia, and particularly China, the supply chains are pretty intact in that part of the world as their issues with the pandemic are much more under control, particularly in China..

Perfect. And last for me, Kristina, really impressive to hear that you expect free cash flow conversion after this year to be like, again, above net income.

Just confidence there, and what are we to think about from a CapEx perspective for fiscal 2021?.

Yes, so we do expect to an high level of confidence to continue to get free cash flow greater than our adjusted net income. I would just, mention again, it's going to be it's going to be seasonal, so we're going to see that free cash flow in the back half of the year.

And I would tell you that the opportunities are still out there for working capital in particularly inventory for the MTS segments. So we will continue to work with our legacy Hillenbrand businesses or APS and Batesville to maintain their working capital improvement.

But really the focus as we move forward will be to get MTS inventory more in line to our expectations. So just given the mix of our businesses, I feel very confident that we're going to get that free cash flow greater than net income. As it relates to CapEx, we are going to be making a little more investment this year than last year.

As you know, last year we held off on some investment. So we're looking at about 3% of revenue, or about $70 million to $75 million..

Perfect, thank you again..

We have no further questions at this time. I’d like to turn the call back to presenters for closing remarks..

Thank you, operator. And I just want to thank everyone for joining us, joining us today. You know these are challenging times. But we feel like we're doing a good job of focusing on execution controlling what we can control. We are especially pleased with the progress that the Milacron businesses have made during the quarter.

The integration continues to go quite well. Margins remain strong across the entire enterprise. And then we've made just substantial progress in our debt-to-EBITDA leverage and continuing to bring that down. So as we head into our fiscal year 2021 we feel cautiously optimistic that we'll execute well and have a very good year.

And with that, we look forward to talking to you again in February as we discuss our first quarter fiscal 2021 results. Thanks everyone and have a good day..

This concludes today's conference. You may now disconnect..