• Revenue: $195 million, down 3% compared to last year.
• Cash Generated from Operations: Nearly $35 million, up almost threefold from the previous year.
• Debt Reduction: Reduced by over $19 million.
• Gross Margin: Expanded by 150 basis points over last year.
• Operating Margin: 11.4%, up 450 basis points from last year.
• Adjusted Operating Margin: 16.6%, up 290 basis points from last year.
• Adjusted EBITDA Margin: Expanded by 320 basis points over the prior year period.
• Effective Tax Rate: 14% for the third quarter.
• Diluted EPS: 34, up 209% over last year.
• Diluted Non-GAAP EPS: 59, up 34% over last year.
• Hydraulic Sales: Declined 2% over the prior year period.
• Electronic Sales: Declined 6% year over year.
• Free Cash Flow Conversion Rate: 244%.
• Capital Expenditures: $6 million or 3% of sales.
• Total Debt: Down 8% or $41 million from the end of fiscal year 2023.
• Net Debt to Adjusted EBITDA Leverage Ratio: 2.8 times.
• Full Year Sales Guidance: Adjusted to $800 million to $805 million.
• Adjusted EBITDA Margin Guidance: 19.0% to 19.6%.
• Adjusted Diluted Non-GAAP EPS Guidance: $2.10 to $2.20.

• Warning! GuruFocus has detected 8 Warning Signs with HLIO.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Helios Technologies Inc (NYSE:HLIO) delivered a solid quarter with sales within the guidance range despite challenging market conditions.
• The company generated nearly $35 million in cash and reduced debt by over $19 million, marking the fifth consecutive quarter of debt reduction.
• Gross margin improved by 150 basis points year-over-year due to cost control measures and operational efficiencies.
• Operating margin increased by 450 basis points, and adjusted EBITDA margin expanded by 320 basis points compared to the prior year.
• The company maintained investments in new products, with several product launches planned, indicating a focus on innovation and future growth.

Negative Points

• Sales declined by 3% compared to the previous year, with significant weakness in agriculture, industrial, and recreational markets.
• The company faced operational disruptions due to three hurricanes, resulting in 18 cumulative shifts lost and requiring additional repairs at one facility.
• Extended market weakness led to a reduction in full-year sales guidance, with expected revenue down approximately 4% at the midpoint compared to 2023.
• Hydraulic sales declined by 2% year-over-year, with the agriculture market remaining in decline.
• The company experienced a 6% decline in electronic sales, with weakness in recreational, industrial, and mobile markets.

Q & A Highlights

Q: Can you explain the significant year-over-year decline in SG&A, particularly in hydraulics, and what portion of this is sustainable? A: The biggest adjustment was a stock-based compensation accrual reversal due to officer transition, which provided a one-time benefit. Excluding this, we still saw a $2.1 million decline from the prior year due to specific cost actions like headcount management and discretionary spending cuts. We are maintaining investments in sales, marketing, and engineering to position ourselves well for market recovery. - Sean, Interim President, CEO, and CFO

Q: How do you plan to achieve normalized gross margins in hydraulics, and is this dependent on volume recovery? A: Achieving mid-30% gross margins is primarily dependent on volume recovery. We have ample capacity and have made strategic investments to optimize our manufacturing footprint. As volumes return, we expect to leverage our fixed cost structure to improve margins. - Sean, Interim President, CEO, and CFO

Q: What are your expectations for market recovery, particularly in fluid power shipments, and how will this impact your business? A: We don't anticipate a rapid recovery but expect gradual improvement. We are gaining market share in hydraulics and have a strong product pipeline. Our focus on improving delivery lead times and customer service positions us well to outperform as markets recover. - Sean, Interim President, CEO, and CFO

Q: Can you discuss the growth in the APAC region and the importance of local manufacturing there? A: APAC is showing growth, particularly in hydraulics and electronics. Local manufacturing is crucial for reducing lead times and serving local markets effectively. We are seeing technological advancements in China and have a strong presence in Australia, which supports our growth in the region. - Sean, Interim President, CEO, and CFO

Q: How are you managing potential impacts from tariffs and trade agreements, particularly with your Tijuana facility? A: We are monitoring the situation closely. Our dual manufacturing capabilities allow us to adapt if tariffs impact costs. We have facilities in the U.S. that can absorb production if needed, but we currently see no need to change our manufacturing strategy. - Sean, Interim President, CEO, and CFO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.