Business Overview
Helios Technologies, Inc. (HLIO) is a global leader in highly engineered motion control and electronic controls technology, serving diverse end markets ranging from construction and material handling to agriculture, energy, recreational vehicles, marine, and health and wellness. With a focus on innovation and strategic acquisitions, Helios has transformed itself from a holding company to an integrated operating enterprise, delivering value and differentiation through its premier product portfolio and solutions.
Founded in 1970 as Sun Hydraulics Corporation, the company began as a manufacturer of screw-in cartridge valves and manifolds for the hydraulic industry. Over the decades, Helios has strategically expanded its capabilities through organic growth and a series of strategic acquisitions. Notable acquisitions include Faster Inc. in 2018, which expanded Helios' fluid conveyance technology capabilities, and the acquisitions of Balboa Water Group and Enovation Controls in 2020, which strengthened the company's electronics and controls offerings. The company has also made more recent acquisitions, including Schultes Precision Manufacturing and i3 Product Development in 2022.
In 2021, Helios announced a strategic shift to transform the business from a holding company into a global integrated operating company. This initiative leveraged the breadth of the company's global footprint and manufacturing capabilities to drive efficiency and optimization across the organization. As part of this transformation, Helios created new Centers of Excellence to consolidate and streamline certain manufacturing and production activities.
Today, the company operates two reporting segments - Hydraulics and Electronics - which collectively offer a comprehensive suite of highly engineered solutions to its global customer base. The Hydraulics segment, which accounts for approximately 67% of total revenue, designs and manufactures hydraulic motion control and fluid conveyance technology products, including cartridge valves, manifolds, and quick release couplings. These mission-critical components are used across a wide range of industries to transmit power and control force, speed, and motion. The Electronics segment, contributing the remaining 33% of revenue, provides customized electronic controls systems, displays, wire harnesses, and software solutions for applications in industrial, mobile, recreational, and health and wellness end markets.
The Hydraulics segment's products are sold under various brands including Sun Hydraulics, Faster, Custom Fluidpower, Seungwon, NEM, Taimi, Daman, and Schultes. They are categorized into two key technologies: motion control technology (MCT) and fluid conveyance technology (FCT). MCT products, such as cartridge valves, provide simultaneous control of acceleration, velocity, and position, while FCT products, like quick release couplings, are used to transfer hydraulic fluid from one point to another.
The Electronics segment's products are sold under brands such as Enovation Controls, Murphy, Zero Off, HCT, Balboa Water Group, and Joyonway. These products cater to various end markets including industrial and mobile, recreational, and health and wellness.
Financials
Helios' financial performance has been resilient, with the company reporting annual revenues of $835.6 million and net income of $37.5 million in fiscal year 2023. The company's diversified business model and focus on innovation have enabled it to navigate challenging market conditions, as evidenced by its ability to grow both organically and through strategic acquisitions.
In the most recent quarter, Q2 2024, Helios reported net sales of $219.9 million, down 3.4% year-over-year, with the Hydraulics segment experiencing a 4.4% decline and the Electronics segment seeing a 1.3% decrease. Gross profit for the quarter was $70.6 million, with a gross margin of 32.1%, down 120 basis points from the prior-year period. Operating income for Q2 2024 was $26.0 million, with a margin of 11.8%, a decline of 120 basis points year-over-year.
Despite the challenging macroeconomic environment, Helios has maintained its focus on operational excellence, cost control, and strategic investments. The company's adjusted EBITDA margin for Q2 2024 was 16.4%, a 190-basis point improvement sequentially, demonstrating the effectiveness of its initiatives to improve profitability.
Breaking down the performance by segment, the Hydraulics segment's net sales decreased by 4.4% year-over-year to $145.7 million in Q2 2024, primarily driven by softness in the agriculture end market. Gross profit for this segment decreased by 9.7% to $44.9 million, and gross margin declined by 180 basis points to 30.8%. The Electronics segment's net sales decreased by 1.3% year-over-year to $74.2 million, with declines in the recreational, mobile, and industrial end markets, partially offset by strength in the health and wellness end market. Gross profit for this segment decreased by 1.5% to $25.7 million, and gross margin declined by 10 basis points to 34.6%.
For the first six months of 2024, the Hydraulics segment's net sales decreased by 4.0% year-over-year to $288.1 million, while the Electronics segment's net sales increased by 2.2% to $143.8 million.
In terms of geographic performance, in Q2 2024, the Americas region accounted for 53.3% of total revenue, EMEA accounted for 23.5%, and APAC accounted for 23.2%. Year-over-year, the Americas declined 5.0%, EMEA declined 11.0%, and APAC grew 12.0%.
The company's cash flow performance has been strong, with operating cash flow (OCF) of $33.8 million and free cash flow (FCF) of $24.7 million in Q2 2024. Compared to Q2 2023, OCF increased by 30.1%, despite the decline in revenue and net income.
Liquidity
Helios has continued to strengthen its financial position, reducing total debt by 4% in the quarter and maintaining a net debt leverage ratio of 3.0x. As of June 29, 2024, the company had a debt-to-equity ratio of 0.58, a cash balance of $45.0 million, and $308.3 million available on its revolving credit facilities. Helios has a $500.0 million revolving credit facility with PNC Bank that matures in June 2029, as well as a $6.0 million revolving facility with Citibank that matures in June 2026.
The company's liquidity position remains strong, with a current ratio of 2.92 and a quick ratio of 1.49 as of June 29, 2024, indicating its ability to meet short-term obligations.
Outlook and Conclusion
Helios' diversified business model, innovative product portfolio, and strategic investments position the company well to navigate the evolving market landscape. The company's focus on operational excellence, cost control, and strategic capital allocation have enabled it to deliver consistent financial performance and shareholder value.
Looking ahead, Helios has adjusted its full-year 2024 sales guidance to a range of $825 million to $840 million, reflecting a more cautious outlook on certain end markets. This implies flat to 3% growth in the second half of 2024 compared to the prior year period. Despite the moderation in sales expectations, the company is maintaining its adjusted EBITDA margin guidance of 19.5% to 21.0% for the full year 2024, underscoring its ability to manage costs and expand profitability amid the current market conditions.
For Q3 2024, Helios estimates sales to be in the range of $192 million to $200 million, with an adjusted EBITDA margin expected to be between 20% and 21%. The company has also adjusted its diluted non-GAAP earnings per share guidance to be in the range of $2.25 to $2.45 for 2024.
It's worth noting that Helios has beaten its sales guidance for Q2 2024 and has delivered financial results that met or slightly beat guidance for the third consecutive quarter. This demonstrates the company's ability to navigate challenging market conditions effectively.
As Helios continues to execute on its integrated operating company strategy, investors will closely watch the company's ability to capitalize on new growth opportunities and further solidify its position as a global leader in motion control and electronic controls technology. The company's performance should be viewed in the context of broader industry trends, such as the 9% decrease in the U.S. index of shipments of hydraulic products during the first six months of 2024, as reported by the National Fluid Power Association. Despite these headwinds, Helios' diversified portfolio and strategic initiatives position it well to weather market fluctuations and drive long-term growth.