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HELIOS TECHNOLOGIES, INC. (HLIO)·Q3 2024 Earnings Summary

Executive Summary

  • Net sales were $194.5M, with gross margin up 150 bps to 31.1% and operating margin up 450 bps to 11.4%; GAAP diluted EPS was $0.34 and Non-GAAP diluted EPS $0.59, with adjusted EBITDA margin at 20.9% .
  • Cash from operations was $34.8M and total debt declined by $19.3M sequentially to $483.4M; net debt/TTM adjusted EBITDA improved to 2.8x .
  • FY2024 guidance was cut: revenue to $800–$805M (from $825–$840M), adjusted EBITDA to $152–$158M (from $161–$176M), and Non-GAAP EPS to $2.10–$2.20 (from $2.25–$2.45), citing weaker end markets, distributor inventory, and hurricane impacts .
  • Stock-reaction catalysts: visible cost discipline and margin expansion against a softer top line; guidance reduction and disclosed hurricane impact ($~10M revenue, ~$3M recovery costs) shape near-term sentiment and estimates .

What Went Well and What Went Wrong

What Went Well

  • Margin expansion despite lower sales: gross margin +150 bps YoY; operating margin +450 bps; adjusted EBITDA margin +320 bps, driven by lower material costs, overhead reductions, and cost adjustments .
  • Working capital and deleveraging: $34.8M operating cash flow (+195% YoY), inventory down to $199.2M, debt down fifth straight quarter, leverage to 2.8x .
  • Management tone on operational resilience: “We delivered solid results… drove operational efficiencies with strong cash management… reduced debt for the fifth consecutive quarter,” said Interim CEO/CFO Sean Bagan .

What Went Wrong

  • Top-line softness: net sales down 3% YoY; Electronics -6% and Hydraulics -2% YoY; Americas -11% and EMEA -3% YoY with APAC +16% .
  • Hurricane-related disruption: three storms led to 18 lost shifts (approx ~$10M revenue impact) and ~$3M recovery expenses, contributing to the FY24 guide-down .
  • Distributor inventory and end-market weakness: higher hydraulic distributor inventories and softness in agriculture, recreational, industrial, and mobile markets weighed on demand and mix .

Financial Results

Consolidated Metrics

MetricQ3 2023Q2 2024Q3 2024
Net Sales ($USD Millions)$201.4 $219.9 $194.5
Gross Margin %29.6% 32.1% 31.1%
Operating Margin %6.9% 11.8% 11.4%
GAAP Diluted EPS ($)$0.11 $0.41 $0.34
Non-GAAP Diluted EPS ($)$0.44 $0.64 $0.59
Adjusted EBITDA ($USD Millions)$35.6 $44.2 $40.6
Adjusted EBITDA Margin %17.7% 20.1% 20.9%

Segment Breakdown

Segment MetricQ3 2023Q2 2024Q3 2024
Hydraulics Net Sales ($USD Millions)$132.0 $145.7 $129.4
Hydraulics Operating Margin %13.9% 16.4% 18.7%
Electronics Net Sales ($USD Millions)$69.4 $74.2 $65.1
Electronics Operating Margin %6.1% 13.9% 10.4%

KPIs and Balance Sheet/Cash Flow

KPIQ2 2024Q3 2024
Cash from Operations ($USD Millions)$33.8 $34.8
Total Debt ($USD Millions)$502.7 $483.4
Net Debt / TTM Adjusted EBITDA (x)3.0x 2.8x
Cash & Equivalents ($USD Millions)$45.0 $46.7
Inventory ($USD Millions)$206.3 $199.2
Capital Expenditure ($USD Millions)$8.1 $6.0
Dividend per Share ($)$0.09 $0.09

Guidance Changes

MetricPeriodPrevious Guidance (Aug 5, 2024)Current Guidance (Nov 5, 2024)Change
Total Net SalesFY 2024$825–$840M $800–$805M Lowered
Net IncomeFY 2024$45–$52M $40–$42M Lowered
Adjusted EBITDAFY 2024$161–$176M $152–$158M Lowered
Adjusted EBITDA MarginFY 202419.5%–21.0% 19.0%–19.6% Lowered
Interest ExpenseFY 2024$33.5–$34.5M $33.5–$34.0M Tightened
Effective Tax RateFY 202421%–23% 20%–21% Lowered
DepreciationFY 2024$31.5–$32.5M $31.5–$32.0M Tightened
AmortizationFY 2024$32.5–$33.5M $33.0–$33.5M Maintained/Narrowed
Capex % of SalesFY 20243.5%–4.0% 3.5%–3.7% Tightened
Diluted EPSFY 2024$1.35–$1.55 $1.15–$1.25 Lowered
Non-GAAP Diluted EPSFY 2024$2.25–$2.45 $2.10–$2.20 Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Margin trajectorySequential margin improvement in Q1 and Q2; focus on operational efficiencies and cost management Gross +150 bps YoY; operating +450 bps YoY; adjusted EBITDA +320 bps YoY Improving despite lower volumes
Working capital and deleveragingDebt reduction priorities; improving cash conversion cycle (Q1 $17.8M CFO; Q2 refinancing and $33.8M CFO) $34.8M CFO; fifth consecutive quarter of debt reduction; leverage 2.8x Strengthening
End-market mixElectronics (health & wellness) offsetting soft marine/industrial; Hydraulics pressured by ag/mobile Continued softness in ag, recreational, industrial, mobile; APAC demand helps Soft demand; APAC bright spot
Supply chain & distributor inventoriesInventory discipline; backlog normalization post integration Higher hydraulic distributor inventories; Sun Hydraulics past-due backlog at 12-month low Backlog improving; channel heavy
Tariffs/macroMonitoring macro softness; updated outlook in Q2 due to weaker orders and PMI Limited tariff impact given “in the region, for the region” manufacturing footprint Neutral to modest positive
Product innovationNew launches in displays and electro-hydraulics; investment in R&D New compact heat pump/touchpads; subsystem wins; displays in recreational marine Continuing momentum
Hurricane impactN/A~18 shifts lost; ~$10M revenue and ~$3M recovery costs One-off drag in 2H24

Management Commentary

  • “We delivered a solid quarter and made further improvements to our financial profile… generated nearly $35 million in cash and reduced debt by over $19 million… brought down our net debt to adjusted EBITDA leverage ratio to 2.8 times” .
  • “Gross margin expanded 150 basis points… goal of returning to the mid-to-high 30 percent range for gross margin over time… as volume grows and operations are optimized” .
  • “We are adjusting our full year outlook to reflect weakened end markets combined with impact from the storms… cumulative impact… equates to approximately $10 million in revenue… ~$3 million in recovery expenses” .
  • “APAC was a relative bright spot… in the region for the region strategy serving us well; health & wellness growth strong; Sun Hydraulics backlog at a 12-month low” .

Q&A Highlights

  • SG&A decline included a one-time $5.5M stock-based compensation reversal tied to officer transition; run-rate expenses still down ~$2.1M YoY after adjusting .
  • Path to mid-30s gross margin contingent on volume: “$225M type quarters” for company-level mid-30s GM, advancing toward upper-30s with ~$250M/quarter run rate .
  • Operating cadence into 2025: cautious on H1 with potential back-half recovery; maintain reduced OpEx run-rate and keep discretionary costs tight, ready to invest as orders improve .
  • APAC demand and localization strategy reduce tariff risk; dual manufacturing footprint provides flexibility if policy changes .
  • Hurricanes: lost 18 shifts; with distributors holding elevated inventory, the company chose not to build inventory for margin preservation, prioritizing cash conversion .

Estimates Context

  • S&P Global Wall Street consensus estimates were unavailable at the time of query; as a result, a formal comparison vs consensus for Q3 2024 revenue/EPS cannot be provided. Management reported results “within expected guidance range” for the quarter .
  • Implication: Given the FY24 guidance reduction and disclosed one-off hurricane impacts, expect Street models to trim revenue and EPS for 4Q and FY, while recognizing margin execution and deleveraging progress .

Key Takeaways for Investors

  • Margin execution is real: gross, operating, and adjusted EBITDA margins expanded YoY despite a -3% sales decline; continued focus on material cost, overhead, and footprint optimization supports durability .
  • Cash and deleveraging are tailwinds: >$34M CFO and fifth straight quarter of debt reduction lowered leverage to 2.8x; balance sheet flexibility improves optionality in 2025 .
  • Top-line headwinds persist short-term: ag/recreational/industrial/mobile softness and high distributor inventories likely constrain growth near-term; APAC health & wellness and backlog normalization are offsets .
  • FY24 guide reset de-risks near-term expectations: investors should recalibrate to $800–$805M revenue and $2.10–$2.20 Non-GAAP EPS; look for signs of order inflection and inventory normalization into 1H25 .
  • Hurricane impact is transitory: disclosed ~$10M revenue and ~$3M recovery costs frame a one-time drag; operational resilience and cost control mitigated earnings impact .
  • Watch Hydraulics margin trajectory: management targets mid-30s GM at ~$225M quarterly sales; faster recovery in APAC and mix improvements could accelerate .
  • Trading setup: near-term sentiment tied to 4Q cadence and channel inventory; medium-term thesis hinges on margin sustainability, working capital conversion, APAC growth, and system-solution wins (e.g., marine displays, subsystem integrations) .