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Helios Technologies’ Augmented Strategy Continues to Deliver Top-Tier Margins in the Third Quarter 2022

  • Helios team unites to overcome impacts of Hurricane Ian and economic conditions in APAC and Europe to deliver top-tier margins
  • Remain on path to achieve strategic goal of at least $1 billion in revenue in 2023
  • Executing to plan with manufacturing and operating strategy driving productivity, margin enhancement and efficiencies, leveraging “in the region, for the region” operations to protect earnings and cash flow
  • Year-to-date revenue up 6% on GAAP basis; Excluding impacts from hurricane shut down, quarterly revenue relatively unchanged on a constant currency basis over year-ago period
  • Powerful financial flexibility with net debt to adjusted EBITDA leverage ratio at 1.90x1
  • Diluted EPS of $0.63 in the quarter; Diluted Non-GAAP Cash EPS of $0.90 reflects an estimated $0.05 impact from Hurricane Ian and $0.03 impact from FX compared with prior-year period
  • 2022 outlook adjusted to reflect global macro-economic conditions driving market demand timing, material and energy cost increases, and foreign currency exchange rates

Helios Technologies, Inc. (NYSE: HLIO) (“Helios” or the “Company”), a global leader in highly engineered motion control and electronic controls technology for diverse end markets, today reported financial results for the third quarter ended October 1, 2022.

Josef Matosevic, the Company’s President and Chief Executive Officer, commented, “Our focus is on protecting our earnings power, cash generation and financial strength while driving our strategy to create scale and continue to deliver top-tier margins. Of note, the agility of our Helios team helped mitigate the impact of Hurricane Ian and the rapidly evolving headwinds from the macro-economic environment with an all-hands on deck focus to meet our customer’s needs and business goals. This quarter there was an $8.2 million sales impact from the shift in currency exchange rates compared with the same quarter last year. In addition, due to the hurricane, Helios was unable to ship an estimated $5.3 million in sales. Combined, these two items represent a 6.5% impact to the top line. Without these impacts, sales would have been relatively unchanged compared with last year. We also believe our market diversification strategy is working and continues to help offset the industry issues related to reduced consumer discretionary spending globally which has impacted our health and wellness business.”

He went on to say, “We remain confident we will outperform the competition because of three very important factors. We are committed to providing unwavering dedication to our customers, we will remain an innovation leader, and we will continue to leverage our unique position as a pure play in the hydraulics and electronics industries. Despite increasing macro challenges, we continue to have a line of sight to our 2023 goal of $1 billion in revenue given the strength of our balance sheet, our flywheel acquisition strategy, and pipeline of active opportunities.”

Third Quarter 2022 Consolidated Results

($ in millions, except per share data)

Q3 2022

Q3 2021

Change

% Change

Net sales

$

207.2

 

$

223.2

 

$

(16.0

)

(7

%)

Gross profit

$

69.3

 

$

80.9

 

$

(11.6

)

(14

%)

Gross margin

 

33.4

%

 

36.2

%

 

(280

)

bps
Operating income

$

30.7

 

$

40.7

 

$

(10.0

)

(25

%)

Operating margin

 

14.8

%

 

18.2

%

 

(340

)

bps
Non-GAAP adjusted operating margin

 

20.4

%

 

22.5

%

 

(210

)

bps
Net income

$

20.4

 

$

27.8

 

$

(7.4

)

(27

%)

Diluted EPS

$

0.63

 

$

0.85

 

$

(0.22

)

(26

%)

Non-GAAP cash net income

$

29.2

 

$

34.8

 

$

(5.6

)

(16

%)

Diluted Non-GAAP cash EPS

$

0.90

 

$

1.07

 

$

(0.17

)

(16

%)

Adjusted EBITDA

$

48.0

 

$

55.9

 

$

(7.9

)

(14

%)

Adjusted EBITDA margin

 

23.2

%

 

25.1

%

 

(190

)

bps

See the attached tables for additional important disclosures regarding Helios’ use of non-GAAP adjusted operating income, non-GAAP adjusted operating margin, non-GAAP cash net income, non-GAAP cash net income per share, adjusted EBITDA (earnings before net interest expense, income taxes, depreciation, amortization and certain other charges), adjusted EBITDA margin (adjusted EBITDA as a percentage of sales), net debt-to-adjusted EBITDA, and sales in constant currency, as well as reconciliations of GAAP operating income to non-GAAP adjusted operating income and non-GAAP adjusted operating margin, GAAP net income to non-GAAP cash net income, non-GAAP cash earnings per share, adjusted EBITDA and Adjusted EBITDA margin, net debt-to-adjusted EBITDA, and net sales to sales in constant currency. Helios believes that, when used in conjunction with measures prepared in accordance with GAAP, the non-GAAP measures described above help improve the understanding of its operating performance.

Sales

  • Sales in several end markets improved over the third quarter of 2021, with the recreational, industrial machinery, and mobile equipment end markets leading the growth, while the health and wellness end market continued to contract. An estimated $5.3 million of product was not shipped in the quarter due to Hurricane Ian. Sales included $2.9 million in revenue from acquisitions. (See the table in this release that provides acquired revenue by segment by quarter).
  • Sales improved in the Americas and declined both in Europe and the Middle East and Africa ("EMEA") and the Asia Pacific ("APAC") regions compared with the third quarter of 2021. Sales for both the EMEA and APAC regions, excluding foreign currency exchange rates (FX), are being impacted by the softening demand for electronics products in the health and wellness market.
  • Foreign currency translation adjustment on sales: $8.2 million unfavorable.

Profits and margins

  • Gross profit and margin drivers: gross profit was down $11.6 million compared with the prior-year period. Changes in foreign currency exchange rates compared with the third quarter of 2021 reduced gross profit by $2.1 million. Gross margin declined by 280 basis points, driven by higher raw material costs and higher energy costs in the EMEA region partially offset by the impact of price increases.
  • Selling, engineering and administrative (“SEA”) expenses decreased 3% compared with the 2021 third quarter.
  • Amortization of intangible assets: $6.8 million down from $7.4 million in the prior year reflecting timing related to the Company’s acquisitions.

Non-operating items

  • Net interest expense: $4.1 million in the quarter, up $0.3 million compared with the prior-year period due to rising interest rates.
  • Effective tax rate: 23.6% compared with 25.5% in the prior-year period reflecting levels of income in varying tax jurisdictions.

Net income, earnings per share, non-GAAP cash earnings per share and adjusted EBITDA

  • GAAP net income and diluted earnings per share: $20.4 million and $0.63 per share.
  • Diluted Non-GAAP cash earnings per share: $0.90 compared with $1.07 last year, due to margin contraction related to rising material costs along with impacts from Hurricane Ian of an estimated ($0.05) and foreign exchange rates of ($0.03) per share, respectively.
  • Adjusted EBITDA margin: despite macro headwinds, hurricane and FX impacts maintaining top-tier levels at 23.2% during rapid inflationary environment. The hurricane impacted Adjusted EBITDA by an estimated $2.1 million, 40 basis points when also considering the $5.3 million impact on sales.

Year-to-date 2022 Consolidated Results

($ in millions, except per share data)

2022

2021

Change

% Change

Net sales

$

689.4

 

$

651.5

 

$

37.9

 

6

%

Gross profit

$

235.2

 

$

238.5

 

$

(3.3

)

(1

%)

Gross margin

 

34.1

%

 

36.6

%

 

(250

)

bps
Operating income

$

116.6

 

$

117.4

 

$

(0.8

)

(1

%)

Operating margin

 

16.9

%

 

18.0

%

 

(110

)

bps
Non-GAAP adjusted operating margin

 

21.4

%

 

22.8

%

 

(140

)

bps
Net income

$

80.9

 

$

81.0

 

$

(0.1

)

(0

%)

Diluted EPS

$

2.48

 

$

2.50

 

$

(0.02

)

(1

%)

Non-GAAP cash net income

$

105.8

 

$

105.1

 

$

0.7

 

1

%

Diluted Non-GAAP cash EPS

$

3.25

 

$

3.26

 

$

(0.01

)

(0

%)

Adjusted EBITDA

$

166.1

 

$

164.7

 

$

1.4

 

1

%

Adjusted EBITDA margin

 

24.1

%

 

25.3

%

 

(120

)

bps

See the attached tables for additional important disclosures regarding Helios’ use of non-GAAP adjusted operating income, non-GAAP adjusted operating margin, non-GAAP cash net income, non-GAAP cash net income per share, adjusted EBITDA (earnings before net interest expense, income taxes, depreciation, amortization and certain other charges), adjusted EBITDA margin (adjusted EBITDA as a percentage of sales), net debt-to-adjusted EBITDA, and sales in constant currency, as well as reconciliations of GAAP operating income to non-GAAP adjusted operating income and non-GAAP adjusted operating margin, GAAP net income to non-GAAP cash net income, non-GAAP cash earnings per share, adjusted EBITDA and Adjusted EBITDA margin, net debt-to-adjusted EBITDA, and net sales to sales in constant currency. Helios believes that, when used in conjunction with measures prepared in accordance with GAAP, the non-GAAP measures described above help improve the understanding of its operating performance.

Sales

  • Sales were driven by strong demand regionally in the Americas and solid growth in EMEA offset by declines in Asia. End market demand saw strength in recreational, mobile, industrial, and construction equipment. Hurricane Ian had an estimated $5.3 million impact in sales for the current period. Results included $16.7 million in sales related to acquisitions. (See the table in this release that provides acquired revenue by segment by quarter).
  • Foreign currency translation adjustment on sales: $20.5 million unfavorable.

Profits and margins

  • Gross profit and margin drivers: gross profit nearly flat compared with the same period of 2021 from pricing and increased sales volumes partially offsetting rapid inflation. Changes in FX compared to the first nine months of 2021 reduced year-to-date gross profit by $6.2 million. Gross margin declined 250 basis points driven by higher raw material costs partially offset by the impact of price increases.
  • SEA expenses: 14.2% as a percentage of sales, improving 50 basis points compared with the prior-year period, reflecting improved leverage of our fixed cost base on the higher sales and continued cost containment initiatives.
  • Amortization of intangible assets decreased $4.7 million to $20.6 million from the prior year reflecting timing related to the Company’s acquisitions.

Non-operating items

  • Net interest expense: $1.3 million decrease to $11.7 million compared with the prior-year period reflecting lower debt balances.
  • Effective tax rate: 22.7% compared with 22.0% in the prior-year period reflecting levels of income in varying tax jurisdictions and the 2021 benefit from the resolution of transfer pricing disputes.

Net income, earnings per share, non-GAAP cash earnings per share and adjusted EBITDA

  • GAAP net income and diluted earnings per share: $80.9 million and $2.48 per share nearly flat.
  • Non-GAAP cash earnings per share: $3.25 compared with $3.26 in the prior-year period, nearly flat. Improved demand across several regions and end markets and operational efficiencies being achieved through execution of the manufacturing and operating strategy were offset by macro headwinds and rapid inflation.
  • Adjusted EBITDA margin: maintaining top-tier levels at 24.1% while down 120 basis points compared with the prior-year period due to inflationary environment. The hurricane impacted Adjusted EBITDA by an estimated $2.1 million, 10 basis points year to date when also considering the $5.3 million impact on sales.

Hydraulics Segment Review

(Refer to sales by geographic region and segment data in accompanying tables)

($ in millions)
Hydraulics

Three Months Ended

Q3 2022

Q3 2021

Change

% Change

Net Sales

Americas

$

49.7

 

$

45.2

 

$

4.5

 

10

%

EMEA

 

41.3

 

 

44.8

 

 

(3.5

)

(8

%)

APAC

 

40.2

 

 

43.4

 

 

(3.2

)

(7

%)

Total Segment Sales

$

131.2

 

$

133.4

 

$

(2.2

)

(2

%)

Gross Profit

$

46.5

 

$

50.2

 

$

(3.7

)

(7

%)

Gross Margin

 

35.4

%

 

37.6

%

 

(220

)

bps
SEA Expenses

$

17.1

 

$

18.4

 

$

(1.3

)

(7

%)

Operating Income

$

29.4

 

$

31.8

 

$

(2.4

)

(8

%)

Operating Margin

 

22.4

%

 

23.8

%

 

(140

)

bps

Third Quarter Hydraulics Segment Review

  • Sales decreased 2% to $131.2 million as demand in Americas helped to offset the impact of the hurricane and FX. On a constant currency basis and excluding the estimated $5.3 million impact of the hurricane, sales increased 8% driven by pricing and higher volume in the Americas. This was somewhat offset by lower volume in the APAC and supply chain constraints. FX had a $7.9 million unfavorable adjustment on sales.
  • Gross profit and margin drivers: gross profit decreased $3.7 million, or 7%, compared with the same quarter of the prior year primarily due to the estimated impact from the hurricane of $2.3 million, unfavorable FX of $1.9 million, and inflation. Gross margin reflects the impact of material and energy cost increases along with an unfavorable product mix.
  • Operating income decreased $2.4 million, or 8%, while operating margin of 22.4% declined 140 basis points reflecting the flow through of gross margin. In the quarter there were $0.8 million of restructuring costs in SEA expenses primarily related to the EMEA and APAC regions.

Electronics Segment Review

(Refer to sales by geographic region and segment data in accompanying tables)

($ in millions)
Electronics

Three Months Ended

Q3 2022

Q3 2021

Change

% Change

Net Sales

Americas

$

65.0

 

$

64.2

 

$

0.8

 

1

%

EMEA

 

7.7

 

 

11.1

 

 

(3.4

)

(31

%)

APAC

 

3.3

 

 

14.5

 

 

(11.2

)

(77

%)

Total Segment Sales

$

76.0

 

$

89.8

 

$

(13.8

)

(15

%)

Gross Profit

$

22.8

 

$

31.3

 

$

(8.5

)

(27

%)

Gross Margin

 

30.0

%

 

34.9

%

 

(490

)

bps
SEA Expenses

$

11.8

 

$

12.9

 

$

(1.1

)

(9

%)

Operating Income

$

11.0

 

$

18.4

 

$

(7.4

)

(40

%)

Operating Margin

 

14.5

%

 

20.5

%

 

(600

)

bps

Third Quarter Electronics Segment Review

  • Sales decreased 15% to $76.0 million, with slightly higher demand in the Americas offsetting declines in the APAC and EMEA regions. End market demand was driven by recreational, industrial machinery markets, and construction which partially offset supply chain constraints and a contracting health and wellness market. Foreign currency exchange rates had a $0.3 million unfavorable adjustment on sales.
  • Gross profit and margin drivers: gross profit decreased $8.5 million, or 27%, compared with the same quarter of the prior year primarily due to sales volume and unfavorable FX of $0.3 million. Gross margin declined 490 basis points to 30.0%, reflecting increases in raw material, one-time restructuring costs incurred to realign the segments labor base, labor inefficiencies and reduced fixed cost leverage on the lower sales.
  • Operating income decreased $7.4 million to $11.0 million, or 40%, while operating margin declined 600 basis points to 14.5% reflecting flow through of gross margin and additional restructuring costs. In the quarter there were $0.4 million of restructuring costs in SEA expenses.

Balance Sheet and Cash Flow Review

Tricia Fulton, Executive Vice President and Chief Financial Officer, commented, “We have a strong balance sheet and significant financial flexibility to execute our strategy for growth. We believe this puts us in a solid position to capitalize on unstable market conditions to make selective bolt-on acquisitions and advance toward our financial goals for 2023. We are highly diligent in our efforts and have a solid pipeline of opportunities. Importantly, as supply chain constraints ease, we expect to generate more cash from the release of working capital. We remain very excited about our future despite the short-term challenging operating environment.”

  • Total debt at quarter-end was $457.5 million compared with $419.1 million at end of the second quarter of 2022 as we used debt to fund our recent acquisition. For the nine-month period, borrowings, net of repayments, on our credit facilities amounted to $27.9 million.
  • Cash and cash equivalents at October 1, 2022 were 36.8 million, down $4.5 million from the end of the second quarter of 2022, and up $8.3 million from the end of 2021.
  • Inventory increased $0.8 million to $179.7 million from the second quarter of 2022 and were 9% higher than the end of 2021 driven by the macro issues in the supply chain. These issues include the Company purchasing parts ahead of material shortages, holding some inventory for past due orders where one or two components have been delayed in the supply chain, along with customers changing shipping schedules once the Company has already manufactured the products.
  • Pro-forma net debt-to-adjusted EBITDA increased slightly to 1.90x at the end of the third quarter of 2022 (pro-forma for Taimi and Daman Products Company “Daman”) compared with 1.89x (pro-forma for the NEM and Joyonway acquisitions) at the end of 2021, impacted by the recent acquisition of Daman. At the end of third quarter 2022, the Company had $131.4 million available on its revolving lines of credit.
  • Net cash provided by operations was $30.0 million in the third quarter 2022 compared with $32.5 million in the prior-year period, bringing the nine-month cash flow from operations to $74.2 million compared with $82.0 million for the comparable period in 2021.
  • Capital expenditures were $8.5 million in the third quarter 2022, or approximately 4% of sales. This compares with $6.7 million, or approximately 3% of sales, in the year-ago period.
  • Paid 103rd sequential quarterly cash dividend on October 20, 2022.

Updated 2022 Outlook

The Company is updating its outlook for 2022, which assumes constant currency using quarter end rates, impacts from global macro-economic conditions effecting market demand timing, material and energy cost increases, and foreign currency exchange rates. Guidance assumes that markets served are not further impacted by the global pandemic or the geo-political environment.

2021 Actual

2022 Outlook (as of 8/8/22 low-

end of original range)

2022 Outlook (Updated)

Consolidated revenue

$869.2 million

~$930 million

$885 - $910 million

Adjusted EBITDA

$214.1 million

~$219 million

$200 - $215 million

Adjusted EBITDA margin

24.6%

~23.5%

22.6% - 23.6%

Interest expense

$16.9 million

$14 - $15 million

$16 - $17 million

Effective tax rate

20.3%

~23%

23% - 24%

Depreciation

$21.4 million

$24.5 - $26.5 million

$23 - $24 million

Amortization

$33.0 million

$28 - $29 million

$28 - $29 million

Capital expenditures % total revenue

3%

3% - 5% of sales

3% - 4% of sales

Diluted Non-GAAP Cash EPS

$4.25

~4.35

$3.85 - $4.05

Webcast

The Company will host a conference call and webcast today, November 7, at 9:00 a.m. Eastern Time to review its financial and operating results and discuss its corporate strategies and outlook. A question-and-answer session will follow. The conference call can be accessed by calling (201) 689-8573. The audio webcast will be available at www.heliostechnologies.com.

A telephonic replay will be available from approximately 12:00 p.m. ET on the day of the call through Monday, November 14, 2022. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13732763. The webcast replay will be available in the investor relations section of the Company’s website at www.heliostechnologies.com, where a transcript will also be posted once available.

About Helios Technologies

Helios Technologies is a global leader in highly engineered motion control and electronic controls technology for diverse end markets, including construction, material handling, agriculture, energy, recreational vehicles, marine and health and wellness. Helios sells its products to customers in over 90 countries around the world. Its strategy for growth is to be the leading provider in niche markets, with premier products and solutions through innovative product development and acquisition. The Company has paid a cash dividend to its shareholders every quarter since becoming a public company in 1997. For more information please visit: www.heliostechnologies.com.

FORWARD-LOOKING INFORMATION

This news release contains “forward‐looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward‐looking statements involve risks and uncertainties, and actual results may differ materially from those expressed or implied by such statements. They include statements regarding current expectations, estimates, forecasts, projections, our beliefs, and assumptions made by Helios Technologies, Inc. (“Helios” or the “Company”), its directors or its officers about the Company and the industry in which it operates, and assumptions made by management, and include among other items, (i) the Company’s strategies regarding growth, including its intention to develop new products and make acquisitions; (ii) the effectiveness of creating the Center of Engineering Excellence; (iii) the Company’s financing plans; (iv) trends affecting the Company’s financial condition or results of operations; (v) the Company’s ability to continue to control costs and to meet its liquidity and other financing needs; (vi) the declaration and payment of dividends; and (vii) the Company’s ability to respond to changes in customer demand domestically and internationally, including as a result of standardization. In addition, we may make other written or oral statements, which constitute forward-looking statements, from time to time. Words such as “may,” “expects,” “projects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. Similarly, statements that describe our future plans, objectives or goals also are forward-looking statements. These statements are not guaranteeing future performance and are subject to a number of risks and uncertainties. Our actual results may differ materially from what is expressed or forecasted in such forward-looking statements, and undue reliance should not be placed on such statements. All forward-looking statements are made as of the date hereof, and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Factors that could cause the actual results to differ materially from what is expressed or forecasted in such forward‐looking statements include, but are not limited to, (i) supply chain disruption and the potential inability to procure goods; (ii) conditions in the capital markets, including the interest rate environment and the availability of capital; (iii) inflation (including hyperinflation) or recession; (iv) changes in the competitive marketplace that could affect the Company’s revenue and/or cost bases, such as increased competition, lack of qualified engineering, marketing, management or other personnel, and increased labor and raw materials costs; (v) risks related to health epidemics, pandemics and similar outbreaks, including, without limitation, the current COVID-19 pandemic, which may among other things, adversely affect our supply chain, material costs, and work force and may have material adverse effects on our business, financial position, results of operations and/or cash flows; (vi) risks related to our international operations, including the potential impact of the ongoing conflict between Russia and Ukraine; and (vii) new product introductions, product sales mix and the geographic mix of sales nationally and internationally; (viii) our failure to realize the benefits expected from acquisitions, our failure to promptly and effectively integrate acquisitions and the ability of Helios to retain and hire key personnel, and maintain relationships with suppliers. Further information relating to factors that could cause actual results to differ from those anticipated is included but not limited to information under the heading Item 1. “Business” and Item 1A. “Risk Factors” in the Company’s Form 10-K for the year ended January 1, 2022.

This news release will discuss some historical non-GAAP financial measures, which the Company believes are useful in evaluating its performance. The determination of the amounts that are excluded from these non-GAAP measures is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income recognized in a given period. You should not consider the inclusion of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.

This news release also presents forward-looking statements regarding non-GAAP measures. The Company is unable to present a quantitative reconciliation of these forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures because such information is not available, and management cannot reliably predict the necessary components of such GAAP measures without unreasonable effort or expense. In addition, the Company believes that such reconciliations would imply a degree of precision that would be confusing or misleading to investors. The unavailable information could have a significant impact on the Company’s 2022 financial results. These non-GAAP financial measures are preliminary estimates and are subject to risks and uncertainties, including, among others, changes in connection with quarter-end and year-end adjustments. Any variation between the Company’s actual results and preliminary financial data set forth above may be material.

Financial Tables Follow:

HELIOS TECHNOLOGIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

Three Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

% Change

October 1, 2022

October 2, 2021

% Change

 
Net sales

$

207,205

 

$

223,241

 

(7

)%

$

689,420

 

$

651,499

 

6

%

Cost of sales

 

137,939

 

 

142,299

 

(3

)%

 

454,202

 

 

413,036

 

10

%

Gross profit

 

69,266

 

 

80,942

 

(14

)%

 

235,218

 

 

238,463

 

(1

)%

Gross margin

 

33.4

%

 

36.2

%

 

34.1

%

 

36.6

%

 
Selling, engineering and administrative expenses

 

31,749

 

 

32,786

 

(3

)%

 

98,059

 

 

95,757

 

2

%

Amortization of intangible assets

 

6,774

 

 

7,407

 

(9

)%

 

20,554

 

 

25,285

 

(19

)%

Operating income

 

30,743

 

 

40,749

 

(25

)%

 

116,605

 

 

117,421

 

(1

)%

Operating margin

 

14.8

%

 

18.2

%

 

16.9

%

 

18.0

%

 
Interest expense, net

 

4,098

 

 

3,813

 

7

%

 

11,719

 

 

12,965

 

(10

)%

Foreign currency transaction (gain) loss, net

 

(199

)

 

304

 

(165

)%

 

(1,296

)

 

1,271

 

(202

)%

Other non-operating expense (income), net

 

177

 

 

(616

)

(129

)%

 

1,508

 

 

(727

)

(307

)%

Income before income taxes

 

26,667

 

 

37,248

 

(28

)%

 

104,674

 

 

103,912

 

1

%

Income tax provision

 

6,289

 

 

9,488

 

(34

)%

 

23,782

 

 

22,870

 

4

%

Net income

$

20,378

 

$

27,760

 

(27

)%

$

80,892

 

$

81,042

 

(0

)%

 
Net income per share:
Basic

$

0.63

 

$

0.86

 

(27

)%

$

2.49

 

$

2.51

 

(1

)%

Diluted

$

0.63

 

$

0.85

 

(26

)%

$

2.48

 

$

2.50

 

(1

)%

 
Weighted average shares outstanding:
Basic

 

32,541

 

 

32,385

 

 

32,493

 

 

32,272

 

Diluted

 

32,585

 

 

32,539

 

 

32,597

 

 

32,437

 

 
Dividends declared per share

$

0.09

 

$

0.09

 

$

0.27

 

$

0.27

 

HELIOS TECHNOLOGIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

October 1, 2022

January 1, 2022

(Unaudited)

Assets
Current assets:
Cash and cash equivalents

$

36,813

 

$

28,540

 

Restricted cash

 

33

 

 

41

 

Accounts receivable, net of allowance for
credit losses of $1,122 and $1,212

 

131,649

 

 

134,561

 

Inventories, net

 

179,718

 

 

165,629

 

Income taxes receivable

 

6,517

 

 

2,762

 

Other current assets

 

19,543

 

 

20,101

 

Total current assets

 

374,273

 

 

351,634

 

Property, plant and equipment, net

 

171,323

 

 

174,210

 

Deferred income taxes

 

6,008

 

 

2,934

 

Goodwill

 

447,140

 

 

459,936

 

Other intangible assets, net

 

396,528

 

 

412,759

 

Other assets

 

24,295

 

 

13,873

 

Total assets

$

1,419,567

 

$

1,415,346

 

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable

$

64,921

 

$

85,301

 

Accrued compensation and benefits

 

19,004

 

 

28,595

 

Other accrued expenses and current liabilities

 

30,890

 

 

28,254

 

Current portion of long-term non-revolving debt, net

 

18,897

 

 

18,125

 

Dividends payable

 

2,930

 

 

2,917

 

Income taxes payable

 

7,489

 

 

6,328

 

Total current liabilities

 

144,131

 

 

169,520

 

Revolving line of credit

 

267,693

 

 

242,312

 

Long-term non-revolving debt, net

 

169,332

 

 

183,897

 

Deferred income taxes

 

57,042

 

 

71,836

 

Other noncurrent liabilities

 

29,932

 

 

38,818

 

Total liabilities

 

668,130

 

 

706,383

 

Commitments and contingencies

 

-

 

 

-

 

Shareholders’ equity:
Preferred stock, par value $0.001, 2,000 shares authorized,
no shares issued or outstanding

 

-

 

 

-

 

Common stock, par value $0.001, 100,000 shares authorized,
32,544 and 32,407 shares issued and outstanding

 

33

 

 

32

 

Capital in excess of par value

 

401,549

 

 

394,641

 

Retained earnings

 

435,392

 

 

363,279

 

Accumulated other comprehensive loss

 

(85,537

)

 

(48,989

)

Total shareholders’ equity

 

751,437

 

 

708,963

 

Total liabilities and shareholders’ equity

$

1,419,567

 

$

1,415,346

 

HELIOS TECHNOLOGIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

Nine Months Ended

October 1, 2022

October 2, 2021

Cash flows from operating activities:
Net income

$

80,892

 

$

81,042

 

Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization

 

37,360

 

 

41,131

 

Stock-based compensation expense

 

6,212

 

 

6,233

 

Amortization of debt issuance costs

 

374

 

 

374

 

(Benefit) provision for deferred income taxes

 

(2,055

)

 

2,230

 

Forward contract gains, net

 

(6,433

)

 

(3,401

)

Other, net

 

1,039

 

 

(135

)

(Increase) decrease in:
Accounts receivable

 

(2,861

)

 

(36,634

)

Inventories

 

(19,666

)

 

(35,759

)

Income taxes receivable

 

(1,775

)

 

(1,893

)

Other current assets

 

633

 

 

(288

)

Other assets

 

6,240

 

 

3,989

 

Increase (decrease) in:
Accounts payable

 

(17,230

)

 

11,945

 

Accrued expenses and other liabilities

 

(5,658

)

 

8,079

 

Income taxes payable

 

2,485

 

 

9,599

 

Other noncurrent liabilities

 

(5,364

)

 

(4,527

)

Net cash provided by operating activities

 

74,193

 

 

81,985

 

Cash flows from investing activities:
Business acquisitions, net of cash acquired

 

(67,252

)

 

(48,481

)

Amounts paid for net assets acquired

 

-

 

 

(2,400

)

Capital expenditures

 

(21,916

)

 

(17,054

)

Proceeds from dispositions of property, plant and equipment

 

1,903

 

 

82

 

Cash settlement of forward contracts

 

4,448

 

 

1,433

 

Software development costs

 

(2,345

)

 

(1,785

)

Net cash used in investing activities

 

(85,162

)

 

(68,205

)

Cash flows from financing activities:
Borrowings on revolving credit facilities

 

112,720

 

 

71,198

 

Repayment of borrowings on revolving credit facilities

 

(72,167

)

 

(44,500

)

Repayment of borrowings on long-term non-revolving debt

 

(12,616

)

 

(12,178

)

Proceeds from stock issued

 

1,683

 

 

1,353

 

Dividends to shareholders

 

(8,766

)

 

(8,694

)

Other financing activities

 

(5,307

)

 

(2,851

)

Net cash used in financing activities

 

15,547

 

 

4,328

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

3,687

 

 

4,363

 

Net increase in cash, cash equivalents and restricted cash

 

8,265

 

 

22,471

 

Cash, cash equivalents and restricted cash, beginning of period

 

28,581

 

 

25,257

 

Cash, cash equivalents and restricted cash, end of period

$

36,846

 

$

47,728

 

HELIOS TECHNOLOGIES

SEGMENT DATA

(In thousands)

(Unaudited)

 

Three Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Sales:
Hydraulics

$

131,204

 

$

133,404

 

$

411,118

 

$

385,549

 

Electronics

 

76,001

 

 

89,837

 

 

278,302

 

 

265,950

 

Consolidated

$

207,205

 

$

223,241

 

$

689,420

 

$

651,499

 

 
Gross profit and margin:
Hydraulics

$

46,498

 

$

50,223

 

$

146,819

 

$

146,548

 

 

35.4

%

 

37.6

%

 

35.7

%

 

38.0

%

Electronics

 

22,768

 

 

31,277

 

 

88,399

 

 

92,473

 

 

30.0

%

 

34.9

%

 

31.8

%

 

34.8

%

Corporate and other

 

-

 

 

(558

)

 

-

 

 

(558

)

Consolidated

$

69,266

 

$

80,942

 

$

235,218

 

$

238,463

 

 

33.4

%

 

36.2

%

 

34.1

%

 

36.6

%

 
Operating income (loss) and margin:
Hydraulics

$

29,411

 

$

31,799

 

$

92,097

 

$

92,200

 

 

22.4

%

 

23.8

%

 

22.4

%

 

23.9

%

Electronics

 

10,964

 

 

18,445

 

 

51,778

 

 

56,324

 

 

14.5

%

 

20.5

%

 

18.6

%

 

21.2

%

Corporate and other

 

(9,632

)

 

(9,495

)

 

(27,270

)

 

(31,103

)

Consolidated

$

30,743

 

$

40,749

 

$

116,605

 

$

117,421

 

 

14.8

%

 

18.2

%

 

16.9

%

 

18.0

%

ORGANIC AND ACQUIRED REVENUE

(In thousands)

(Unaudited)

 

Three Months Ended

Full Year Ended

Three Months Ended

Nine Months Ended

April 3,

July 3,

October 2,

January 1,

January 1,

April 2,

July 2,

October 1,

October 1,

2021

2021

2021

2022

2022

2022

2022

2022

2022

Hydraulics
Organic

$

119,106

$

133,039

$

128,672

$

125,200

$

506,017

$

130,691

$

137,140

$

129,079

$

396,910

Acquisition

 

-

 

-

 

4,732

 

5,700

 

10,432

 

6,415

 

5,667

 

2,125

 

14,208

Total

$

119,106

$

133,039

$

133,404

$

130,900

$

516,449

$

137,106

$

142,807

$

131,204

$

411,118

 
Electronics
Organic

$

29,459

$

30,191

$

30,808

$

66,107

$

156,565

$

102,663

$

97,909

$

75,210

$

275,782

Acquisition

 

56,279

 

60,183

 

59,029

 

20,680

 

196,171

 

778

 

952

 

791

 

2,520

Total

$

85,738

$

90,374

$

89,837

$

86,787

$

352,736

$

103,441

$

98,861

$

76,001

$

278,302

 
Consolidated
Organic

$

148,565

$

163,230

$

159,480

$

191,307

$

662,582

$

233,354

$

235,049

$

204,289

$

672,692

Acquisition

 

56,279

 

60,183

 

63,761

 

26,380

 

206,603

 

7,193

 

6,619

 

2,916

 

16,728

Total

$

204,844

$

223,413

$

223,241

$

217,687

$

869,185

$

240,547

$

241,668

$

207,205

$

689,420

HELIOS TECHNOLOGIES

ADDITIONAL INFORMATION

(Unaudited)

 
2022 Sales by Geographic Region and Segment
($ in millions)

Q1

% Change

y/y

Q2

% Change

y/y

Q3

% Change

y/y

YTD 2022

% Change

y/y

Americas:
Hydraulics

$

43.1

 

26

%

$

49.9

 

20

%

$

49.7

 

10

%

$

142.7

 

18

%

Electronics

 

77.7

 

20

%

 

80.2

 

25

%

 

65.0

 

1

%

 

222.9

 

15

%

Consol. Americas

 

120.8

 

22

%

 

130.1

 

23

%

 

114.7

 

5

%

 

365.6

 

16

%

% of total

 

50

%

 

54

%

 

55

%

 

53

%

EMEA:
Hydraulics

$

52.9

 

22

%

$

49.0

 

5

%

$

41.3

 

(8

%)

$

143.2

 

6

%

Electronics

 

11.8

 

27

%

 

12.3

 

12

%

 

7.7

 

(31

%)

 

31.8

 

1

%

Consol. EMEA

 

64.7

 

23

%

 

61.3

 

6

%

 

49.0

 

(12

%)

 

175.0

 

5

%

% of total

 

27

%

 

25

%

 

24

%

 

25

%

APAC:
Hydraulics

$

41.1

 

(1

%)

$

43.9

 

(2

%)

$

40.2

 

(7

%)

$

125.2

 

(3

%)

Electronics

 

13.9

 

22

%

 

6.4

 

(58

%)

 

3.3

 

(77

%)

 

23.6

 

(43

%)

Consol. APAC

 

55.0

 

4

%

 

50.3

 

(16

%)

 

43.5

 

(25

%)

 

148.8

 

(13

%)

% of total

 

23

%

 

21

%

 

21

%

 

22

%

Total

$

240.5

 

17

%

$

241.7

 

8

%

$

207.2

 

(7

%)

$

689.4

 

6

%

2021 Sales by Geographic Region and Segment
($ in millions)

Q1

% Change

y/y

Q2

% Change

y/y

Q3

% Change

y/y

Q4

% Change

y/y

YTD 2021

% Change

y/y

Americas:
Hydraulics

$

34.3

 

(8

%)

$

41.7

 

22

%

$

45.2

 

63

%

$

46.5

 

49

%

$

167.7

 

29

%

Electronics

 

65.0

 

201

%

 

64.1

 

378

%

 

64.2

 

200

%

$

64.5

 

72

%

 

257.8

 

175

%

Consol. Americas

 

99.3

 

69

%

 

105.8

 

122

%

 

109.4

 

123

%

 

111.0

 

61

%

 

425.5

 

90

%

% of total

 

48

%

 

47

%

 

49

%

 

51

%

 

49

%

EMEA:
Hydraulics

$

43.3

 

29

%

$

46.6

 

49

%

$

44.8

 

40

%

$

45.3

 

32

%

$

180.0

 

37

%

Electronics

 

9.3

 

272

%

 

11.0

 

479

%

 

11.1

 

640

%

 

10.6

 

116

%

 

42.0

 

289

%

Consol. EMEA

 

52.6

 

46

%

 

57.6

 

74

%

 

55.9

 

66

%

 

55.9

 

42

%

 

222.0

 

56

%

% of total

 

26

%

 

26

%

 

25

%

 

26

%

 

26

%

APAC:
Hydraulics

$

41.5

 

26

%

$

44.7

 

22

%

$

43.4

 

13

%

$

39.1

 

5

%

$

168.7

 

16

%

Electronics

 

11.4

 

613

%

 

15.3

 

705

%

 

14.5

 

867

%

$

11.7

 

92

%

 

52.9

 

377

%

Consol. APAC

 

52.9

 

53

%

 

60.0

 

55

%

 

57.9

 

45

%

 

50.8

 

17

%

 

221.7

 

42

%

% of total

 

26

%

 

27

%

 

26

%

 

23

%

 

26

%

Total

$

204.8

 

58

%

$

223.4

 

87

%

$

223.2

 

82

%

$

217.7

 

44

%

$

869.2

 

66

%

HELIOS TECHNOLOGIES

Non-GAAP Adjusted Operating Income RECONCILIATION

(In thousands)

(Unaudited)

 

Three Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

GAAP operating income

$

30,743

 

$

40,749

 

$

116,605

 

$

117,421

 

Acquisition-related amortization of intangible assets

 

6,774

 

 

7,407

 

 

20,554

 

 

25,285

 

Acquisition and financing-related expenses(1)

 

2,190

 

 

654

 

 

3,991

 

 

2,901

 

Restructuring charges(2)

 

1,835

 

 

55

 

 

3,785

 

 

472

 

Officer transition costs

 

-

 

 

-

 

 

301

 

 

569

 

Inventory step-up amortization

 

-

 

 

558

 

 

-

 

 

558

 

Acquisition integration costs(3)

 

649

 

 

845

 

 

2,377

 

 

1,729

 

Other

 

41

 

 

(99

)

 

232

 

 

(99

)

Non-GAAP adjusted operating income

$

42,232

 

$

50,169

 

$

147,845

 

$

148,836

 

GAAP operating margin

 

14.8

%

 

18.2

%

 

16.9

%

 

18.0

%

Non-GAAP adjusted operating margin

 

20.4

%

 

22.5

%

 

21.4

%

 

22.8

%

Adjusted EBITDA RECONCILIATION

(In thousands)

(Unaudited)

 

Three Months Ended

Nine Months Ended

Twelve Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

October 1, 2022

Net income

$

20,378

 

$

27,760

 

$

80,892

 

$

81,042

 

$

104,447

 

Interest expense, net

 

4,098

 

 

3,813

 

 

11,719

 

 

12,965

 

 

15,627

 

Income tax provision

 

6,289

 

 

9,488

 

 

23,782

 

 

22,870

 

 

27,496

 

Depreciation and amortization

 

12,381

 

 

12,989

 

 

37,355

 

 

41,131

 

 

50,628

 

EBITDA

 

43,146

 

 

54,050

 

 

153,748

 

 

158,008

 

 

198,198

 

Acquisition and financing-related expenses(1)

 

2,190

 

 

654

 

 

3,991

 

 

2,901

 

 

6,831

 

Restructuring charges(2)

 

1,835

 

 

55

 

 

3,785

 

 

472

 

 

3,784

 

Officer transition costs

 

-

 

 

-

 

 

301

 

 

569

 

 

50

 

Inventory step-up amortization

 

-

 

 

558

 

 

-

 

 

558

 

 

-

 

Acquisition integration costs(3)

 

649

 

 

845

 

 

2,377

 

 

1,729

 

 

3,498

 

Change in fair value of contingent consideration

 

152

 

 

-

 

 

1,621

 

 

-

 

 

2,670

 

Other

 

41

 

 

(216

)

 

233

 

 

481

 

 

376

 

Adjusted EBITDA

$

48,013

 

$

55,946

 

$

166,056

 

$

164,718

 

$

215,407

 

Adjusted EBITDA margin

 

23.2

%

 

25.1

%

 

24.1

%

 

25.3

%

 

23.7

%

 
Pre-acquisition adjusted EBITDA, Taimi and Daman

 

6,203

 

TTM Pro forma adjusted EBITDA

$

221,610

 

HELIOS TECHNOLOGIES

Non-GAAP Cash Net Income RECONCILIATION

(In thousands)

(Unaudited)

 

Three Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Net income

$

20,378

 

$

27,760

 

$

80,892

 

$

81,042

 

Amortization of intangible assets

 

6,925

 

 

7,487

 

 

20,956

 

 

25,431

 

Acquisition and financing-related expenses(1)

 

2,190

 

 

654

 

 

3,991

 

 

2,901

 

Restructuring charges(2)

 

1,835

 

 

55

 

 

3,785

 

 

472

 

Officer transition costs

 

-

 

 

-

 

 

301

 

 

569

 

Inventory step-up amortization

 

-

 

 

558

 

 

-

 

 

558

 

Acquisition integration costs(3)

 

649

 

 

845

 

 

2,377

 

 

1,729

 

Change in fair value of contingent consideration

 

152

 

 

-

 

 

1,621

 

 

-

 

Other

 

41

 

 

(216

)

 

233

 

 

481

 

Tax effect of above

 

(2,946

)

 

(2,347

)

 

(8,313

)

 

(8,035

)

Non-GAAP cash net income

$

29,224

 

$

34,796

 

$

105,843

 

$

105,148

 

Non-GAAP cash net income per diluted share

$

0.90

 

$

1.07

 

$

3.25

 

$

3.26

 

(1) Acquisition and financing-related expenses include costs associated with our M&A activities. These activities include all phases of the M&A process from analyzing targets, to raising funding, to due diligence and transaction costs at closing. We utilize internal resources for a significant amount of time spent on our acquisition activities and have chosen not to staff a full M&A department or use significant outside services. We believe these costs are not representative of the Company's operational performance and it is therefore more meaningful to analyze results with the costs excluded. For the three and nine months ended Oct 1, 2022, the charges include recurring labor costs of $0.7 million and $1.9 million, professional fees of $0.8 million and $1.1 million, travel costs of $0.4 million and $0.5 million and other M&A related costs of $0.3 million and $0.5 million, respectively.

(2) Restructuring activities include costs associated with our actions to improve operating efficiencies and rationalize our cost structure. The 2022 costs relate to an operational restructuring that combined the manufacturing operations at two of our locations into one location as well as organizational restructures among several locations which aligned employee talent with the strategic operational goals of the company. For the three and nine months ended Oct 1, 2022, the charges include recurring labor costs of $0.5 million and $1.8 million, severance-related costs of $1.1 million and $1.7 million and manufacturing relocation and other costs of $0.2 million and $0.3 million, respectively.

(3) Acquisition integration activities include costs associated with integrating our acquired businesses, which can occur up to 18 months after acquisition date. We believe these costs are not representative of the Company's operational performance and it is therefore more meaningful to analyze results with the costs excluded. For the three and nine months ended Oct 1, 2022, the charges include recurring labor costs of $0.4 million and $1.6 million, professional fees of $0.2 million and $0.7 million and travel and other costs of $0.1 million and $0.1 million, respectively.

HELIOS TECHNOLOGIES

Non-GAAP Sales Growth RECONCILIATION

(In millions)

(Unaudited)

 

Three Months Ended

Nine Months Ended

Hydraulics

Electronics

Consolidated

Hydraulics

Electronics

Consolidated

Q3 2022 Net Sales

$

131.2

 

$

76.0

 

$

207.2

 

$

411.1

 

$

278.3

 

$

689.4

 

Impact of foreign currency translation(1)

 

7.9

 

 

0.3

 

 

8.2

 

 

19.4

 

 

1.1

 

 

20.5

 

Net Sales in constant currency

 

139.1

 

 

76.3

 

 

215.4

 

 

430.5

 

 

279.4

 

 

709.9

 

Less: Acquisition related sales

 

(2.1

)

 

(0.8

)

 

(2.9

)

 

(14.2

)

 

(2.5

)

 

(16.7

)

Organic sales in constant currency

$

137.0

 

$

75.5

 

$

212.5

 

$

416.3

 

$

276.9

 

$

693.2

 

 
Q3 2021 Net Sales

$

133.4

 

$

89.8

 

$

223.2

 

$

385.5

 

$

266.0

 

$

651.5

 

 
Net sales growth

 

-2

%

 

-15

%

 

-7

%

 

7

%

 

5

%

 

6

%

Net sales growth in constant currency

 

4

%

 

-15

%

 

-3

%

 

12

%

 

5

%

 

9

%

Organic net sales growth in constant currency

 

3

%

 

-16

%

 

-5

%

 

8

%

 

4

%

 

6

%

(1) The impact from foreign currency translation is calculated by translating current period activity at average prior period exchange rates.

Net Debt-to-Adjusted EBITDA RECONCILIATION

(In thousands)

(Unaudited)

 

As of

October 1, 2022

Current portion of long-term non-revolving debt, net

$

18,897

Revolving lines of credit

 

269,286

Long-term non-revolving debt, net

 

169,332

Total debt

 

457,515

Less: Cash and cash equivalents

 

36,813

Net debt

$

420,702

 
TTM Pro forma adjusted EBITDA*

$

221,610

Ratio of net debt to TTM pro forma adjusted EBITDA

 

1.90

*On a pro-forma basis for Taimi and Daman

Non-GAAP Financial Measures and Non-GAAP Forward-looking Financial Measures:

Adjusted operating income, adjusted operating margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, net debt-to-adjusted EBITDA, cash net income, cash net income per diluted share and sales in constant currency are not measures determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP. Nevertheless, Helios believes that providing non-GAAP information such as adjusted operating income, adjusted operating margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, net debt-to-adjusted EBITDA, cash net income and cash net income per diluted share are important for investors and other readers of Helios’s financial statements, as they are used as analytical indicators by Helios’s management to better understand operating performance. Because adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, net debt-to-adjusted EBITDA, cash net income and cash net income per diluted share are non-GAAP measures and are thus susceptible to varying calculations, adjusted operating income, adjusted operating margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, net debt-to-adjusted EBITDA, cash net income and cash net income per diluted share, as presented, may not be directly comparable with other similarly titled measures used by other companies. The Company does not provide a reconciliation of forward-looking non-GAAP financial measures, such as adjusted EBITDA, adjusted EBITDA margin and cash net income and cash net income per diluted share disclosed above in our 2022 Outlook, to their comparable GAAP financial measures because it could not do so without unreasonable effort due to the unavailability of the information needed to calculate reconciling items and due to the variability, complexity and limited visibility of the adjusting items that would be excluded from the non-GAAP financial measures in future periods.

1 On a pro-forma basis for Taimi and Daman

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