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HELIOS TECHNOLOGIES, INC. (HLIO)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 delivered sequential improvement: net sales rose to $219.9M (+4% q/q), gross margin expanded 40 bps, operating margin +220 bps, and adjusted EBITDA margin reached 20.1% (+190 bps q/q), while diluted EPS increased to $0.41 and non-GAAP EPS to $0.64 .
  • Year-over-year comparisons were softer: net sales (-3%), gross margin (-120 bps), operating margin (-120 bps), and diluted EPS (-$0.10), reflecting lower volume, mix, higher labor costs, and higher interest expense .
  • Management moderated full-year 2024 sales outlook to $825–$840M (from $840–$860M) driven by demand softness in agriculture and recreational end-markets, but maintained adjusted EBITDA margin guidance at 19.5%–21.0% and guided Q3 revenue to $192–$200M with 20%–21% adjusted EBITDA margin .
  • Liquidity and balance sheet strengthened via a June credit facility amendment: maturities extended to 2029, revolver upsized to $500M, spreads reduced; total debt fell to $502.7M and net debt/TTM adjusted EBITDA improved to 3.0x; cash from operations rose to $33.8M (+30% y/y) .

What Went Well and What Went Wrong

What Went Well

  • Sequential improvement across P&L: net sales $219.9M (+4% q/q), gross margin +40 bps, operating margin +220 bps; adjusted EBITDA margin +190 bps q/q to 20.1% .
  • Strong cash generation and deleveraging: cash from operations $33.8M (+30% y/y), inventory reduced by $7.6M q/q, total debt reduced by $18.6M quarter-over-quarter, net debt/TTM adjusted EBITDA improved to 3.0x .
  • APAC strength and electronics momentum: APAC sales +12% y/y; Electronics segment grew 7% q/q led by Health & Wellness; “third consecutive quarter… met or slightly beat our guidance” (Sean Bagan) .

What Went Wrong

  • Year-over-year softness: consolidated net sales (-3%), gross margin (-120 bps to 32.1%), operating margin (-120 bps to 11.8%), non-GAAP EPS (-$0.17 y/y), driven by lower volume, lost absorption, mix, and higher interest expense .
  • Geographic and end-market pressure: EMEA (-11% y/y) and Americas (-5% y/y) declines; agriculture and recreational markets weak, impacting Faster (fluid conveyance) and Innovative Controls (displays/controllers) .
  • Higher net interest expense (+$0.7M y/y) due to refinancing write-off and rates; management moderated FY24 sales guidance to $825–$840M reflecting softening orders and negative PMI backdrop .

Financial Results

Consolidated Performance vs Prior Quarter and Prior Year

MetricQ4 2023Q1 2024Q2 2024
Net Sales ($MM)$193.4 $212.0 $219.9
Gross Margin %28.6% 31.7% 32.1%
Operating Margin %6.2% 9.6% 11.8%
Diluted EPS ($)$0.10 $0.28 $0.41
Diluted Non-GAAP EPS ($)$0.38 $0.53 $0.64
Adjusted EBITDA Margin %16.7% 18.2% 20.1%

Segment Net Sales and Operating Margins

SegmentQ4 2023 Net Sales ($MM)Q1 2024 Net Sales ($MM)Q2 2024 Net Sales ($MM)Q4 2023 Op Margin %Q1 2024 Op Margin %Q2 2024 Op Margin %
Hydraulics$133.7 $142.4 $145.7 15.0% 15.3% 16.4%
Electronics$59.7 $69.6 $74.2 1.7% 10.2% 13.9%

KPIs and Balance Sheet

KPIQ4 2023Q1 2024Q2 2024
Cash from Operations ($MM)$33.7 $17.8 $33.8
Cash & Cash Equivalents ($MM)$32.4 $37.3 $45.0
Inventory ($MM)$215.1 $213.9 $206.3
Capital Expenditures ($MM)$8.8 $5.5 $8.1
Net Debt / TTM Adjusted EBITDA (x)3.01x 3.08x 3.0x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total net salesFY 2024$840–$860M $825–$840M Lowered
Net incomeFY 2024$50–$63M $45–$52M Lowered
Adjusted EBITDAFY 2024$163–$180M $161–$176M Lowered (range)
Adjusted EBITDA marginFY 202419.5%–21.0% 19.5%–21.0% Maintained
Interest expenseFY 2024$34–$35M $33.5–$34.5M Slightly Lower
Effective tax rateFY 202422%–24% 21%–23% Slightly Lower
DepreciationFY 2024$34–$36M $31.5–$32.5M Lowered
AmortizationFY 2024$33–$35M $32.5–$33.5M Lowered
Capex (% of sales)FY 20243%–4% 3.5%–4.0% Slightly Raised
Diluted EPSFY 2024$1.50–$1.90 $1.35–$1.55 Lowered
Diluted Non-GAAP EPSFY 2024$2.35–$2.75 $2.25–$2.45 Lowered
Q3 revenueQ3 2024N/A$192–$200M New Q3 guide
Q3 adj. EBITDA marginQ3 2024N/A20%–21% New Q3 guide

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023 and Q1 2024)Current Period (Q2 2024)Trend
Liquidity/capital structureEmphasized debt reduction; Q4 cash from ops $33.7M; deleveraging priority Refinanced credit; maturities to 2029, revolver to $500M; reduced spreads; available revolver $308M Improving flexibility
End-market demandQ4: health & wellness up; marine/industrial soft ; Q1: Electronics +6% y/y on Health & Wellness; Hydraulics -4% Agriculture and recreational weakening; Health & Wellness strong; APAC growth +12% y/y Mixed; ag/rec soft, APAC strong
Margin trajectoryQ4: margins compressed; restructuring impacts ; Q1: sequential gross +310 bps, op +340 bps Gross +40 bps q/q; adj. operating margin +200 bps; adj. EBITDA margin 20.1% Sequential improvement
System solutions/IoTQ1: WaterGuru alliance; integrated solutions narrative Early interest in Cygnus Reach for IoT devices; long-cycle OEM system deals progressing Building pipeline
Regional trendsQ4: Americas +4%, EMEA -10%, APAC -5% y/y APAC +12% y/y; EMEA -11%; Americas -5% APAC strengthening
Leadership transitionN/A in Q4; Q1 had prior CEO role (no change) Board terminated prior CEO; interim CEO/CFO in place; search underway Transition in progress

Management Commentary

  • “For the third consecutive quarter, the Helios team delivered financial results that met or slightly beat our guidance… sequential top line growth, expanding margins, and disciplined working capital management validate that the adjustments we have made in the business are yielding positive outcomes.” — Sean Bagan, Interim President, CEO & CFO .
  • “Given the softening in demand… and the contracting annual fiscal year revenue guidance published by our largest public company customers, we are prudently bringing in our sales expectations for the year. Despite this… we still expect to maintain our original adjusted EBITDA margin range.” — Sean Bagan .
  • “We are encouraged by the early interest of our Cygnus Reach software solution… providing remote support for IoT smart devices… it can be a market disruptor and differentiator.” — Sean Bagan .

Q&A Highlights

  • CEO search and transition: Board engaging a leading search firm; considering internal and external candidates; management focus remains on execution .
  • Margin sustainability despite lower sales: Benefits from Centers of Excellence realignment, cost actions, efficiency improvements; maintaining margin profile through back half .
  • Revenue drivers to upper-end guidance: Distributor inventory levels at Sun Hydraulics stable; APAC strength; potential interest-rate easing could stimulate OEM builds; Health & Wellness continued growth .
  • Capacity additions: Americas and Mexico facilities fully complete; Europe (Faster) optimizing footprint; pursuing subsystem and full system solutions to fill capacity .
  • Demand cadence and quarterly mix: Gradual softening late Q2 into Q3, particularly in ag and recreational; Q3 guide $192–$200M; Q4 growth possible due to easier comp and run-rate operations .
  • Health & Wellness outlook: Growth from strategic alliance with WaterGuru integrated into Balboa app; new revenue streams expected .

Estimates Context

  • S&P Global consensus estimates for Q2 2024 revenue and EPS were unavailable due to data access limits at time of analysis; therefore, we cannot quantify a beat/miss versus Wall Street consensus. The company stated it “met or slightly beat” internal guidance across the last three quarters .
  • Q3 2024 guidance: revenue $192–$200M and adjusted EBITDA margin 20%–21% provides the near-term frame for estimate recalibration .

Key Takeaways for Investors

  • Sequential improvement with disciplined cost control and working capital execution; margins improved despite end-market pressure, supporting near-term resilience .
  • Guidance moderation signals caution on ag and recreational exposure; watch OEM schedules and PMI as leading indicators into Q3/Q4 .
  • Balance sheet/liquidity improved materially post-refinancing (maturities to 2029; revolver $500M; spreads reduced); deleveraging continues (net debt/adj. EBITDA 3.0x) .
  • APAC momentum and Health & Wellness strength help offset EMEA/Americas softness; regional mix is a key margin/volume swing factor .
  • Systems/IoT pipeline (Cygnus Reach) offers medium-term growth optionality; long-cycle OEM wins could be meaningful but require patience .
  • Near-term trading: Expect focus on Q3 delivery vs guide (revenue $192–$200M, margin 20%–21%); any signs of ag/recreational stabilization or APAC acceleration are potential catalysts .
  • Leadership transition appears contained (no financial control issues cited); stable execution under interim leadership reduces governance overhang, but CEO selection remains a milestone .