Greetings. Welcome to the Hillenbrand Third Quarter Fiscal Year '24 Earnings Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.

I'll now turn the conference over to Sam Mynsberge, Vice President, Investor Relations. Mr. Mynsberge, you may now begin your presentation..

Thank you, operator, and good morning, everyone. Welcome to Hillenbrand's earnings call for our third quarter of fiscal year 2024. I'm joined by our President and CEO, Kim Ryan, and our Senior Vice President and CFO, Bob VanHimbergen. I'd like to direct your attention to the supplemental slides posted on our IR website.

They'll be referenced on today's call. Turning to slide three, a reminder that our comments may contain certain forward-looking statements that are subject to the safe harbor provisions of the securities laws. These statements are not guarantees of future performance, and our actual results could differ materially.

Also, during the course of this call, we will be discussing our results on a continuing operations basis, which excludes any impact from the discontinued operations of Batesville.

As well as certain non-GAAP operating performance measures, including organic comparisons for our segments, which exclude the impact from acquisitions, divestitures, and foreign currency exchange rates.

I encourage you to review the appendix in slide three of the presentation, as well as our 10-Q, which can be found on our website, for a deeper discussion of non-GAAP information, forward-looking statements, and the risk factors that could impact our actual results.

Finally, as of August 1, Schenck Process Food and Performance Materials has been rebranded under our existing Coperion brand, but will be referred to as FPM throughout today's call. With that, I'll now turn the call over to Kim..

Thanks, Sam, and hello, everyone. Thank you for joining us on this morning's call. We were pleased with the progress made in executing our strategy during this quarter in light of tougher-than-expected macro environment, as our FPM integration continued to progress well and exceeded our expectations for synergy achievement.

However, the quarter was also characterized by heightened demand pressure across our mid- and long-cycle product line, as ongoing uncertainty in the macroeconomic environment resulted in significantly lower-than-expected orders and revenue within our advanced process solution segment.

In our molding technology solution segment, demand remained relatively stable, but we've yet to see a rebound in overall order patterns as macro industry trends and machine utilization deteriorated as we progressed through the quarter.

We continue to see pressure to the recovery timeline in MTS, which necessitated the non-cash impairment charge taken in the quarter as we announced in yesterday's press release. From a performance standpoint, total revenue grew 10% over prior year, primarily driven by the acquisition of FPM, but decreased 8% organically.

We continue to see higher aftermarket revenue across both segments. However, this was offset by a decline in capital equipment volume stemming from the ongoing order pressures that we've been facing throughout the year.

Adjusted EBITDA margins also improved sequentially in both segments, as we continued a heavy focus on executing our previously announced restructuring actions and accelerating additional cost initiatives.

In order to speed these cost-out initiatives along, we're utilizing temporary additional resources to help us execute our plans as quickly and effectively as possible, given the intensified volume challenges.

We've delivered adjusted earnings per share of $0.85, which was at the high end of our guidance, due in part to the success of these cost initiatives, which helped mitigate the softer-than-expected volume.

However, we continue to see pressure to our previous performance expectations, given the magnitude of the order shortfall in APS and the increasing uncertainty around the world, which has dampened our outlook. Bob will discuss this further in a moment. I'll now provide some additional color on what we're seeing across key end markets.

As I mentioned, orders in APS were materially impacted by continuing delays in customer decision timing. While we've been experiencing customer delays throughout the year, they became more pronounced during the quarter, as customers remained highly sensitive to several different factors.

The elevated interest rate environment, ongoing inflation, geopolitical uncertainty, and other global macroeconomic concerns. As a result, we're seeing customers conserve cash by postponing CapEx investments decisions beyond their current budget cycle. And we've seen this behavior across most of our key end markets globally.

I'll start my comments with polymers and advanced materials in APS. As we discussed last quarter, we believe we won a majority of the projects awarded for large polyolefin systems so far this year.

We expected to see decisions made for incremental investment projects in India and the Middle East in the back half of the year, which have not yet been awarded on our originally anticipated timeline. While the timing of final project decisions have slowed significantly, the level of customer quote activity remains high across these regions.

In addition to growing project pipelines for polyolefin investments in other parts of Asia and Africa. We believe the strength of our global footprint and our best in class technologies and solutions keep us well positioned in these regions for when decision timing begins to normalize.

For midsize equipment systems serving the areas of engineered plastics, recycling, and battery, we continue to see customers pausing their CapEx projects with a number of decisions we expected over the summer now delayed outside of the current fiscal year.

However, the breadth of our products and systems offering for these markets, which was greatly enhanced through the acquisitions of FPM and Herbold, has provided significant opportunity to compete more effectively than we could before.

Our teams remain very energized for our ability to access new customers, increase share of wallet with existing customers, and partner with customers in developing innovative solutions for these highly technical processes. Turning to food, health, and nutrition.

Orders in the quarter improved by double digits sequentially, but did not achieve the levels we expected coming into the year. While these end markets have historically been less cyclical, right now we're seeing elevated CapEx sensitivity from customers.

That said, the pipeline of projects across our key customer segments of baked goods, pet foods, snacks, and cereals remains robust as customers evaluate investments for both capacity expansion and optimizing their existing operations through automation and equipment upgrades.

We have not seen customers cancel projects in the pipeline, but we have seen a similar trend of delayed investment decisions as customers balance new investments with inflationary pressures, higher interest rates, and softening consumer trends.

Finally, for our aftermarket parts and services in APS, we continue to see solid growth in this highly profitable part of the business. As our large and growing install base pays dividends in the legacy business.

In addition, we're driving strong performance within our recent acquisitions through the execution of integration initiatives, including dedicated aftermarket resources, better visibility into install-based opportunities, and improved pricing realization.

As discussed previously, this is a key focus area of our integration, and I'm pleased with the traction that we're making. However, the delay in larger polyolefin project orders has put pressure on our ability to achieve even higher levels of aftermarket growth, as many of those large projects would have included upfront spare parts packages.

Now turning to our Molding Technology Solution segment. In the quarter, we saw improved demand for automotive and packaging applications, primarily in India and Asia, as hot runner demand saw its first quarter of year-over-year growth in China since early 2022.

Overall for this segment, orders were up slightly year-over-year, but essentially flat on a sequential basis, as we've yet to see signs of broader demand recovery.

Key macro indicators showed positive signs in April, but then trended negatively through the remainder of the quarter, reflecting a challenging and uncertain environment for machine utilization and mold making activity in North America.

While investments in new capital equipment remain subdued, we continue to focus on driving aftermarket parts and services revenue, achieving a record level in the quarter.

In summary, we've experienced greater than expected challenges across our end markets, as macro factors have weighed heavily on our near to midterm growth opportunities and expectations.

In light of this, we continue to focus and execute on controllable factors within our four walls, pursue targeted growth initiatives, and exercise discipline regarding discretionary costs.

In addition, we remain on track with previously announced restructuring actions, and we continue to evaluate further actions to ensure that we're optimizing our cost structure across the organization.

I remain confident in our strategy and the long-term catalyst for our business, as the growing global middle class and a drive for increased sustainability supports long-term demands for durable plastics, processed foods, and more sustainably focused solutions, including recycling and batteries.

I'm confident that we're well positioned to meet those demands through our leading brands and our differentiated and highly engineered processing solutions. Now, before turning the call over to Bob, to discuss our financials in more detail, I want to highlight the progress of our integration, as well as touch on our most recent sustainability report.

As we approach the one-year anniversary of our FPM acquisition, I'm tremendously pleased with the fit of the business within our portfolio, the people, the culture, the technologies, and capabilities of the combined company. We are stronger as we've come together as one team.

Through the deployment of our Hillenbrand operating model and the utilization of temporary external resources, we've been able to accelerate operational efficiencies and cost synergies, resulting in EBITDA margins over 300 basis points ahead of what we had originally planned by this time within the FPM business.

While the team and I are disappointed that the broader demand environment has limited the speed in which we can capitalize on more commercial opportunities, I'm very proud of how we've executed our integration plan to create a winning organization for the future.

Most importantly, I'm highly confident in our team and our portfolio of leading process technologies for ingredient automation, mixing, extruding, portioning, as well as full systems integration that will allow us to deliver best-in-class solutions to customers in the years ahead.

Finally, as you saw in May, we published our fifth sustainability report, which focused on product innovation, supply chain, and increased transparency around our key environmental metrics like waste, water, and Scope 1, Scope 2, and Scope 3 emissions.

We're pleased with the continued progress we're making in this regard, and as a result, have received top quartile scores amongst industrial companies by third-party reporting agencies. With that, I'll now turn the call over to Bob..

Thanks, Kim, and good morning, everyone. Turning to our consolidated performance on slide five, we delivered revenue of $787 million, an increase of 10% compared to the prior year, primarily due to the acquisition of FPM.

On an organic basis, revenue decreased 8% year-over-year as pricing and higher aftermarket revenue were more than offset by lower capital equipment volume.

Adjusted EBITDA of $131 million increased 4% to decrease 14% organically as pricing, the impact of cost actions, and favorable product mix were more than offset by the flow-through effect of lower volume and cost inflation. We delivered consolidated adjusted EBITDA margin of 16.7%, a decrease of 90 basis points over the prior year.

We reported GAAP net loss of $249 million for a loss of $3.53 per share, down from income of $0.60 per share in the prior year, primarily due to a $265 million non-cash impairment charge in the quarter related to the hot runner product line within the molding technology solution segment.

As Kim referenced, this charge was necessitated by the prolonged decline in demand and uncertain recovery timing for that business.

We continue to take action to right-size the cost structure in this business, improve operational efficiency, and focus on new product development to ensure we're well-positioned to serve customers once market conditions improve.

Adjusted earnings per share of $0.85 decreased $0.10, or 11%, year-over-year, but was at the high end of our expectations coming into the quarter, aided by the benefit of accelerated cost actions, which helped to offset the shortfall in volumes. Our adjusted effective tax rate in the quarter was 28.6%, which was in line with our expectations.

Our cash flow from operations was $46 million in the quarter, down approximately $43 million from the prior year, primarily due to continued pressure of lower-order intake and timing of working capital on large projects.

Capital expenditures were $60 million in the quarter, and we returned approximately $60 million to shareholders through our quarterly dividend. We continue to drive operational improvements in our trade working capital. However, we are likely to experience sustained pressure to our cash flow performance until order patterns normalize.

We now project free cash flow in the year to be approximately $100 million. Now moving to segment performance, starting on APS on slide six. Revenue of $569 million increased 23% compared to the prior year, primarily driven by FPM.

Organic revenue decreased 6% year-over-year, as lower capital equipment volume more than offset price realization and aftermarket revenue growth. Adjusted EBITDA of $109 million increased 17% year-over-year and was down 8% organically, primarily driven by lower volume and cost inflation, which more than offset pricing.

We delivered adjusted EBITDA margin in the quarter of 19.2%, which was down 90 basis points over the prior year or 30 basis points organically. We expected separate margin dilution given FPM's 13% margins at the time of acquisition.

But as a result, the stronger margin performance through accelerated cost centering achievement, operational efficiency gains and aftermarket growth in pricing, we've been able to mitigate the dilutive effects more quickly than originally anticipated, even with top line challenges related to capital equipment volumes.

Backlog of $1.73 billion increased 8% compared to the prior year, driven by the addition of FPM. On an organic basis, backlog decreased 8% and was also down 8% sequentially due to the execution of existing backlog and increased order softness across mid and long cycle parts of the segment.

We continue to focus on accelerating cost actions in the segment, such as pursuing additional procurement, value engineering and product standardization opportunities, driving productivity within our plants and rightsizing our cost structure in response to the challenging demand environment.

As we head toward fiscal 2025, we recognize the pressure lower backlog may put on our ability to drive top line performance, which makes the acceleration of these cost actions even more critical in order to protect profitability. Now turning to MTS on slide seven.

Revenue of $217 million decreased 14% year-over-year, primarily due to lower volume for injection molding equipment, partially offset by aftermarket growth.

Adjusted EBITDA of $35 million decreased 32% and adjusted EBITDA margin of 15.9% decreased 430 basis points compared to the prior year, largely driven by the impact of lower volumes on operating leverage and price cost pressure.

However, on a sequential basis, margins were up 100 basis points as we began to realize the benefit of our structuring actions. Backlog of $238 million decreased 11% compared to the prior year, but increased 4% on a sequential basis.

As Kim mentioned, we saw pockets of improvement outside of North America as orders remained relatively stable on a sequential basis and improved 3% year-over-year. Continued execution of our cost actions remains a top priority for the segment until demand recovers. Now turning to slide eight.

Net debt at the end of the third quarter was $1.87 billion and net debt to adjust EBITDA ratio was 3.5 times. Debt reduction remains our number one priority for capital allocation, but as discussed last quarter, our timeline for returning to within our guardrails of 1.7 to 2.7 remains prolonged.

I'll now wrap up with an update to our outlook for the remainder of 2024. The demand environment remains weaker than expected as global macroeconomic uncertainty has increased and customer order timing has elongated materially within our APS segment. Given these challenges, we are updating our outlook for the final quarter of the year.

Our full year guidance now assumes total annual revenue of approximately $3.13 billion to $3.16 billion, down from our previous range of $3.2 billion to $3.3 billion. Adjusted EBITDA is now expected to be in the range of $502 million to $512 million, down from $512 million to $536 million.

Margins in each segment remain generally in line with previous expectations despite the lower revenue assumptions.

Adjusted EPS is now expected to be $3.20 to $3.30, previously $3.30 to $3.50 driven by the impact of lower volumes, partially offset by accelerated cost actions being taken across the enterprise and stronger than expected synergy realization within FPM and Linxis. Please review slide nine for additional guidance assumptions.

As the timing for a more normalized demand environment remains unclear, we will continue to take necessary steps to position the business for long-term success.

We cannot dictate the macro environment to remain disciplined on controlling costs, executing on our targeted restructuring and integration plans, and accelerating cost-saving initiatives to ensure we remain well-positioned for when market demand recovers. With that, I'll turn the call back over to Kim..

Thanks, Bob. Before taking questions, I'll end our presentation with a few final remarks. The current macroeconomic environment continues to pressure results, which we expect to persist through the end of the year and potentially beyond.

Although, we do not see clear signals of market recovery timing, we will continue to control what we can by diligently managing costs, driving productivity, and executing our integration and restructuring plans.

I'm confident we're taking the appropriate actions to manage the business in the near term, and I have strong conviction about our portfolio of leading brands and differentiated technologies and believe we will remain well-positioned for long-term growth and value creation. With that, I'll open the line for questions..

Thank you. [Operator Instructions]. Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your questions..

Thank you. Good morning, Kim. Good morning, Bob. I appreciate taking a few questions. Let's start with APS.

It sounds like it's across the board, but are there certain end markets or geographies that may be reacting to the macro more so than others? And I'm just wondering specifically, it sounds like food and recycling is holding up better than most, but not quite as robust as maybe the prior expectations. I want to make sure I heard that right. Thanks..

Yeah, I think from a market standpoint, I think some of the challenges are in those mid-size projects are very prevalent where we're seeing that. And in terms of geographies, I think that the expectations that we had from a polyolefin standpoint, we expected some of these large projects to come through in Middle East and India.

And while we've still got a lot of activity going on in those projects, that's where we continue to see the delays. We received a large -- as we mentioned in earlier calls, we received a large number of orders in China in the large projects earlier in the year. And we believe we received the majority of the market projects awarded.

But again, where we're seeing the pressure and the move out on timing, the move out on timing is these large projects in those Asian geographies and Middle East geographies and the primary pressures in these mid-size type projects that are really pushing out and especially characterized by customers who are a bit more sensitive to a lot of the dynamics that are going on.

You know, the interest rates, consumer demand, concerns around consumer demand, reduction, etc. Those types of projects are going to be more sensitive to that in the APS environment..

Really helpful.

I mean, I know it's sort of an impossible question, but if you had to rank order, how critical are interest rates? I mean, are people sort of sitting waiting on the sidelines for, you know, the 25 basis point, 50-plus basis point, a little bit of relief? Or is it more the just general macro uncertainty from what you're hearing from customers?.

Well, gosh, I would say that there are just a number of factors right now. I don't think you can point to any one and say that is the silver bullet and if and when that changes everything, you know, that'll be the item that kind of opens up the dam of order flow.

I think that there are, you know, right now you've got geopolitical concerns, you've got interest rate concerns, you've got inflation, ongoing inflation concerns, and you add in just kind of what's going to happen, for instance, in the U.S.

with election and what does that mean to policy and trade? All of those concerns, I think, are mounting and I think it's just causing people to take a step back and continue to watch and see how things work out over the next couple of quarters and that's really the slowdown that we saw this quarter at a significantly greater rate than we expected.

And that has been the real change that caused us to step back and look at this from a more conservative point of view given that we are not seeing the change in trajectory that we had expected at this point in the year..

Understood, really helpful. And then, sticking with APS, I know you don't want to get into fiscal '25, but with backlogs ticking lower and just given the uncertainty around capital equipment purchase decisions. I would expect APS revenue perhaps to be modestly lower in '25, unless we start to put more into backlog in the next quarter or two.

Is that a reasonable way to look at the world or am I kind of maybe missing something?.

Yeah, I'll take that one, Dan. So obviously, you know, we'll provide guidance, in November on fiscal '25. But, as we think about next year, there's a couple of things to think about really in both businesses. So we're really not seeing signs of a meaningful market recovery for MTFs, but I'd highlight, two things.

One, the hot runner business certainly can be quick to recover. And then the other thing to keep in mind is that we do have run rate savings from our restructuring charge we took this year that's going to benefit 2025.

Now, on the APS side, with order trends that we're seeing right now, we do expect backlog in APS to be down sequentially, and that's certainly going to put pressure on revenue depending on those order patterns.

So on the accounting side, we do recognize revenue on a percentage of completion basis, and so timing those orders would certainly impact '25. It certainly would -- how those orders come in would impact, when revenues certainly recorded considering those orders are mid and long-term in duration.

So those 12 months to 24 months in duration certainly, impacts, when that revenue's booked on those orders coming in the door, I should say. So near term, we're going to continue to focus on cost actions and operational efficiencies to really mitigate some of that top-line pressure..

Really, that's helpful, Bob. And, you know, really impressive what you've done on the margin front in light of, the incremental kind of macro and revenue weakness.

We think we can hold the line in terms of APS with the restructuring initiatives, the synergies from FPM, etc.? Just wondering how you're kind of thinking about maybe decrementals in near term until we start to see that order book increase, specifically on the APS side. Thanks..

Yeah, it's probably hard to say if we're going to hold the line. I mean, we do have, obviously, a couple of levers we can pull. Certainly, you know, on the APS side, we've historically used a contingent -- I won't say contingent workforce, but an outsourcing model.

So when volumes do decline, we've had the ability to insource those hours and reduce that outsource work. And so that's really why you see with the volume decline, our margins in APS have been relatively stable. The other tailwind we have going into next year.

The FPM business, as Kim highlighted in her prepared remarks, we're seeing really strong performance in that business on operational efficiencies as they execute contracts, but also on the synergies where we're accelerating that. So those will be some of the tailwinds we have going into offsets and top line pressure..

Yeah, and I think, you know, as you look at kind of the topography of how the business builds up, remember that the strategic focus of this was to build, to continue to build the portfolio towards businesses that have less exposure to cyclicality.

And even though we're seeing a bit more than perhaps is normal in that FHN business or the Food Health and Nutrition business, it's still, compared to what you see in the large capital projects businesses, it's significantly less.

So remember that the businesses we're using to really help balance that out are the Food Health and Nutrition businesses, we've invested heavily in and the aftermarket business. Those two businesses we're heavily focused on so that we can continue to kind of balance out some of the cyclicality that you may see in other parts of the business.

And our ability to react to what we see in that cyclicality is, again, as Bob mentioned, really driven by creating flexibility with our capacities. And I was really pleased to see how well that has translated being down on the top and really not seeing an exponential figure down on the bottom.

And that APS side, you can really see how valuable that setup is for being able to flex up and down as volumes change throughout the year..

Yeah, that's helpful. And certainly evident. Maybe the last one for me, and then I'll jump back in queue. Appreciate the commentary around accelerating the synergies and the integration ahead of schedule on the FPM side. Maybe just talk about beyond kind of the vision when you put them together.

Is there opportunity in a downturn like this to get closer to customers and even maybe accelerate some of the share gains that you had hoped to achieve, when you put them together when we think about coming out the other side? That's it for me, thanks..

Yeah, I would say that this is necessity is the mother of invention or some quote like that.

What we've really seen with the teams coming together is coming together on portfolio, coming together commercially, coming together thinking about how we can manage projects, how can we more quickly move them into different geographies where we have a footprint and they did not yet have a footprint.

These are all of the things that the team is working on to continue to push the FPM opportunity ahead. And I'm really, really pleased with the way these teams are coming together.

At this point, we had hoped that we would have the operating structure in place and that we would have global, we would be pretty far down the road on having our global shared services implemented.

And we are, but we are also already at the point where manufacturing teams are talking to one another, engineering teams are talking to one another, portfolio marketing resources are talking to one another about how we make sure that we have the right products in the portfolio to be able to offer systems and solutions.

So we are very excited about the opportunities that this brings together and the ability of these teams to work with one another.

You know, that's always a question when you do M&A or that it's not just about the strategy and the products and the portfolio, it's can the cultures come together and work effectively together? And I'm pleased that we're seeing really positive results on all of those fronts.

So we are, you know, we signed up for $30 million in synergies across these assets. We feel that we are well on track for that and the team is continuing to identify and ideate and put ideas in the pipeline that we will action as quickly as we can.

And that has been the, you know, the course that we are charting, especially given some of the volume pressure that makes all of those ideas even more important to implement quickly..

All right, thanks again. I'll jump back, if any follow-ups..

All right, thanks Dan..

Our next question is from the line of Matt Summerville with D.A. Davidson. Please proceed with your question..

Thanks.

Maybe just to review, where were APS and MTS in the quarter with price cost and does that spread widen or narrow as we look ahead based on the fundamentals you're seeing in the business today?.

Hey Matt, so I'll take that one. Yeah, so similar answer to what we said in the past, right? We continue to have price cost coverage on the APS side and then on the MTS side, you know, continued pricing pressure.

Really, in Q3 we've seen that really all year as competitors are fighting for volumes and so we've been under price cost coverage on the MTS side. And the brands, we are over that 100% coverage, but I don't see that changing, you know, in Q4 going forward. And so it's been relatively stable. We keep that pricing, I'd say favorability on the APS side.

It's going to be short on MTS. It's not getting worse. It's not getting better. So as I said earlier, it's really status quo..

I think, Kim, you mentioned in your prepared remarks that typically these projects come with an initial, you know, parts package provision.

If we're kind of lower for longer in that business, what does that mean for aftermarket? And I guess I'm trying to think about when you look at APS, when you look at even MTS, how sustainable is the growth you're seeing in aftermarket? And I know the pandemic had contributed to some level of pent-up demand in that regard.

Have you worked your way through that excess, if you will? Just talk a minute about aftermarket and then I have one other quick follow-up..

Yeah, so Matt, I can provide some color on aftermarket. So this has been a strategic priority for us for obviously some time here, considering the margin benefit we get on aftermarket versus capital.

So, this quarter was no different than the last several where we're seeing really strong, I'd say, mid to high single-digit growth year-over-year on aftermarket revenue.

We do, to your point, we did have pressure in the quarter and that could continue with some of these larger orders getting pushed out because we generally do sell spare part packages with those orders. But some of the tailwinds we have, one, we do have a large install base and so we're seeing the continued benefit of that come through.

And then, we're seeing progress certainly, in the acquisitions that we've had, we're seeing some of the fundamentals we expected to come through on pricing and volume certainly benefit the year. Obviously, with orders, how those come out in the next, call it six months, and again, those spare part packages, that would certainly impact 2025.

But some of the fundamentals we've put in place and then the install base we feel good about..

Yeah, and I would just add to that. That said, aftermarket expansion and FHN is a continued area of focus. Remember that we felt that each of the companies, Linxis and FPM that we acquired, each had a different, kind of a different medicine that we wanted to provide.

On the Linxis side, we wanted to improve, we wanted to improve our share of aftermarket. On the Schenck side or the FPM side, we wanted to improve the pricing of aftermarket. So we have continued to focus and will continue to focus on that. You see that in the results as well. But I agree with Bob's assessment on the core business.

That said, we are very proactively going out and keeping in touch with customers who are part of the install base, both for ongoing parts and service, as well as modernization projects, which are also a key offering that we have in the market to modernize and upgrade lines that are existing.

And that is also, you know, those are all three heavy focus areas for proactive selling, which is part of our operating model, as opposed to waiting for the phone to ring. And so those are the actions that I would say, we're taking, especially in the face of what we're seeing with some of the delayed parts packages that come with those large orders..

Got it.

And then just real quick, if you guys could summarize your realized cost synergies in '24 and what is left over in '25 from the acquisitions? And then in addition, how much is realized in '24 left over for '25 from the MTS restructuring and any other targeted actions you're taking, just trying to think about the overall cost profile? Thank you..

Yeah. So on the cost side, so, you know, we entered the year thinking we'd see about $7 million to $9 million of cost synergies coming from the Linxis and FPM acquisitions. And I'd say, we are certainly trending ahead of that through '24.

And so I think, you know, certainly we're going to see that run rate benefit coming through in Q4 as well as next year. And then on the MTS side, we're still on pace.

And so we expect about $8 million of cost synergies coming through or the benefit coming through this year with an incremental 12 run rate coming through in 2025, and we're right on pace for that. So all restructuring actions will be executed by the end of the year, and we'll see that full benefit coming through next year..

Thank you..

Does that help, Dan? Or does that help, Matt?.

Yes. Thank you, guys..

Okay..

Our next question is from the line of Jeff Hammond with KeyBanc Capital Markets. Please proceed with your questions..

Hey, good morning, everyone..

Good morning, Jeff..

Just on APS and, you know, some of this slowness, deferral, maybe just speak to how this environment is maybe the same or different versus kind of past down cycles. I know you've referenced, pipeline and testing being healthy, but maybe just speak to how this cycle feels same or different..

Well, I would say that this still feels different to us. You know, typically when we've gone into a down cycle, and keep in mind that the last real, the last sizable down cycle was 2008-2009, and then there was a, I guess I would characterize it as a modest down cycle in 2016.

What we would typically see is a slowdown in parts orders, limited quotes coming out, limited test lab activity as the downturn began to happen. Different than those characterizations, we have not seen, you've heard us talk about the strength of the aftermarket business.

You've heard us talk about the fact that the test labs are still very full, and you've heard us talk about the fact that we've got a pretty robust pipeline of quotes that we are continuing to see. Different is now you're seeing elongated decision processes.

Probably it's much more exacerbated than what we have historically seen around these decisions, but you also have a lot more, I would say, a lot more noise in the system with the various factors that we highlighted in our prepared remarks, interest rates, macroeconomic uncertainty, geopolitical concerns, inflation.

You've got a kind of a bit of a pile on effect right now that I think are, especially for midsize projects, I think is really impacting those decision timelines.

And so that's how I would characterize today versus what we would have historically seen, and I have the great fortune of having people on my team who have been through a couple of these and have strong recollections of how things have gone historically and how this feels different than that..

Okay, that's helpful. And then just on the acquisition synergies, it sounds like you're running ahead.

Are these kind of pulled forward and you're just getting them earlier, or is there a point where we can say, hey, the synergies, we're finding more synergies and the $30 million between the two can be upsized?.

Yeah, so as you see here today, there are certainly pull forwards. Jeff, I would tell you, though, the teams are actively looking at additional opportunities, and I'd say we fully expect those to come to fruition.

So what we see now is pull forward, and then we've got teams focused on not only the cost side but also commercial harmonization, aftermarket pricing, and other, I'd say, cost opportunities..

And so what I'd say is that during this implementation, I think as we've done, I would say we did a good job on the Coperion integration, better job on the Milacron integration, and better still on the integration of the FPM and Linxis companies.

And so what I would say is that we've got a good process for the capture of ideas, for managing those projects, for creating visibility, not just within the operating company but all the way up through the corporate entity. I mean, Bob and I review these projects weekly, literally weekly, on what their status is.

And so I would say that the process has continued to improve, and once things get to a status where they go through, let's call it a stage gate process so that we can really see if those projects are going to reach the capability to deliver that we expect.

And as we become more confident, more things reach that kind of stage gate where we're highly confident it's going to deliver, then we'll share more of that information. Right now, we're heavily committed to making sure that we hit that $30 million target and do it as quickly as we possibly can.

I know that when we announced the acquisitions, we said three to five was our target for achieving those synergies. Obviously, our internal target is to drive faster than that and then to add to the pile.

So the first target and the first hurdle that I hold myself and everyone on my team accountable for is getting to that $30 million as robustly and as quickly as we can, and then we'll continue to communicate as we see other projects that we have high confidence will deliver value.

And, again, those were cost synergies as opposed to commercial synergies, which obviously we're working on as well..

Okay, great. And then last one, I mean, it sounds like pricing competition is maybe starting to stabilize a little bit or find a bottom here in the hot runner market. You commented in the queue about the ability of competitors to produce higher quality parts and becoming more capable.

Just wondering if that's kind of a stale comment that's been out there in part of justifying the write-down or if there's anything new or incremental there..

Yeah, I don't think there's anything new. I mean, I think certainly on the hot runner side, we are seeing pressure of competitors moving up the chain. We're in that premier box, premium box of hot runners, and we're seeing some kind of move up, not to the level we are. To mitigate some of that, you know, we're moving down.

So we've launched, I'd say, mid-tier hot runners to offer lower-priced hot runners and certainly compete at that, call it B-plus level. But I'd say nothing new. Yeah, I do think pricing is somewhat stabilized, again, probably at a lower level than we'd like on the hot runner side..

Okay, thanks..

Thank you. [Operator Instructions]. The next question is from the line of John Franzreb with Sidoti & Company. Please proceed with your questions..

Good morning, everyone, and thanks for taking the questions.

Most of my questions have been addressed, but I am curious in APS, is it just the lower intake or has there been deferred deliveries or cancellations in that business?.

There have not been cancellations. In terms of delivery, I think we've only seen what we would consider pretty normal, something isn't ready at the site yet. Because remember, we're going to bring our equipment in after all the side prep is done. So I think what we would characterize it as pretty normal, ebbs and flows of projects.

You're just working on a -- you're just working on a multibillion-dollar site project, and there are going to be puts and takes on that. But I wouldn't say that there has been anything that has been completely out of the ordinary. And we don't see cancels on those projects..

That's it. All my other questions have been addressed. Thank you..

All right, thanks..

Thank you. At this time, we have reached the end of the question-and-answer session, and I'll turn the floor over to Kim Ryan for closing remarks..

All right, thanks again, everyone, for joining us on the call today. We appreciate your ownership and interest in Hillenbrand, and we look forward to talking to you again in November with our full-year results. Have a great rest of your summer, and thanks for joining us this morning..

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day..