Helios Technologies, Inc. (HLIO) Earnings

Management highlights

### Core Strategic Progress & Financial Milestones - Management confirmed that 18 months of work to refine the go-to-market model, invest in innovation, and improve operational excellence has positioned the company to hit its 2030 strategic targets, which call for 5%+ annual organic sales growth, doubling total sales by 2030, and expanding adjusted operating margin to 20%+ and adjusted EBITDA margin to 25%+ long-term. - 1Q26 delivered several record results: highest ever quarterly sales for the Innovation Controls electronics business, record first-quarter operating cash flow and free cash flow, and a 33% increase in the regular quarterly dividend (the first ever regular dividend increase for the company). - Net leverage was reduced to 1.6x net debt to adjusted EBITDA, down from 2.7x one year prior and the lowest level since 1Q2018. This strong balance sheet creates meaningful capital deployment optionality for organic investment, shareholder returns, and strategic M&A. ### Operational & Commercial Highlights - The company exhibited strong operating leverage: higher sales volumes drove significant year-over-year margin expansion, with 12 consecutive months (including April 2026) of double-digit order intake growth and a double-digit year-over-year increase in order backlog. - Multiple new innovative products were launched at the 1Q26 ConExpo trade show, which saw record attendance and strong lead generation for Helios: the QMEH cartridge valve with proprietary position sensor technology from Sun Hydraulics, new thermal management products for data centers from Faster, and the next-generation OpenView S70 display for advanced control systems in data centers and other end markets. - Operational excellence initiatives including footprint optimization in North America and Europe and facility-wide productivity improvements are ongoing, designed to drive incremental margin expansion toward long-term 2030 targets. - Shareholder capital return: the 33% dividend increase brings the quarterly dividend to $0.12 per share, extending the company's streak of consecutive quarterly dividend payments to 117. Nearly $5 million was spent on share repurchases in 1Q26, leaving $82 million remaining under the existing $100 million repurchase authorization.

Guidance

- Based on stronger-than-expected 1Q26 performance and improved second-quarter visibility, management raised the full-year 2026 sales outlook to a range of $840 million to $870 million, up from prior guidance. This represents 8% pro forma year-over-year growth at the midpoint. - Full-year 2026 segment sales guidance: Hydraulics is expected to deliver $520 million to $535 million (7% pro forma growth at the midpoint), while Electronics is expected to deliver $320 million to $335 million (10% growth at the midpoint). - Full-year 2026 adjusted EBITDA margin guidance is maintained at 19.5% to 21%, reflecting expected gross margin expansion, operating expense discipline, and full-year benefits from prior portfolio and footprint optimization actions. - Full-year 2026 diluted non-GAAP EPS guidance was raised to a range of $2.70 to $2.95, representing 11% year-over-year growth at the midpoint. - Second-quarter 2026 guidance calls for total sales of $227 million to $232 million (16% year-over-year growth at the midpoint, adjusting for the CFP divestiture). Second-quarter adjusted EBITDA margin is expected to be 20% to 21%, with diluted non-GAAP EPS of 78 cents to 83 cents. - Management reaffirms its expectation that first-half 2026 year-over-year growth will be stronger than second-half growth, due to the timing of end-market recoveries and the ramp of commercial wins secured in the second half of 2025. On a two-year stacked basis, second-half growth is still expected to accelerate versus the first half.

Segment performance

Helios Technologies has two core operating segments, with broad-based growth across both in 1Q26: 1. **Hydraulics Segment**: Reported sales grew 10% year-over-year; on a pro forma, FX-normalized basis, sales grew 19% year-over-year. Segment gross profit grew 18% YoY, with gross margin expanding 220 basis points to 31.8%. Segment operating income increased 34% YoY to $23.4 million, with operating margin expanding 300 basis points. The segment contributed approximately 60% of total company sales in 1Q26. Strength was seen in mobile end markets (especially construction), with early signs of recovery in agriculture as channel inventories normalized. 2. **Electronics Segment**: Reported sales grew 29% year-over-year. Demand remained robust across recreational markets, with persistent strength from a large key OEM customer driving volume outperformance; growth was also realized in health and wellness, mobile, and industrial, while marine end markets remain soft. Segment gross profit grew 36% YoY, with gross margin expanding 170 basis points, driven by higher volumes and lower direct labor as a percentage of sales. Segment operating income increased 78% YoY to $14.2 million, with operating margin expanding 430 basis points. The segment contributed approximately 40% of total company sales in 1Q26, up from prior years due to faster organic growth and the CFP divestiture.

Risks & headwinds

- Uncertainty around the global tariff landscape, including pending changes to IEPA tariffs, creates ongoing margin pressure. While management has mitigated most current impacts via regional production strategies, alternative sourcing, and limited pricing actions, final outcomes for tariff policy and potential tariff refunds remain uncertain. - Inflationary pressures from rising fuel costs driving higher freight surcharges (now back to 2022 peak levels) and elevated energy costs (especially in Europe) create incremental margin headwinds. - Chip costs have begun increasing, though management reports it has secured sufficient supply to cover current demand and does not view this as a material near-term risk. - Ongoing geopolitical tensions and uneven recovery across cyclical end markets create visibility challenges for second-half performance. - While the product pipeline has strong incremental growth potential, the timing and ramp of new product adoption and new customer wins creates variability around full-year results.

Analyst Q&A

• Q: Given the current mixed demand environment across end markets, how would management characterize overall demand trends right now? /

  A: Management reports 12 consecutive months, including April 2026, of double-digit year-over-year order intake, with order backlog also up double digits year-over-year. Demand strength is concentrated in construction, where Sun Hydraulics is benefiting from U.S. infrastructure investments and healthy distributor channel inventory levels that support ongoing reordering. Agriculture demand is geographically mixed: Europe and Asia are stronger, while the U.S. market remains challenging, though new expansion into data center thermal management creates new growth opportunities. In electronics, health and wellness has stabilized after COVID-era demand swings and is back to consistent low single-digit growth, while Innovation Controls delivered a record quarter with stabilized recreational demand and growing off-highway end markets. Marine remains a challenged end market.

• Q: The full-year guidance implies slower second-half growth after a strong first half. Is this moderation due to conservative forecasting given limited visibility, or does it reflect actual expected end-market weakness? /

  A: The slower second-half growth is primarily due to tough 2025 comparisons: 2025 second-half growth (ex-CFP) was 21% year-over-year, an unusually strong result. On a two-year stacked basis, second-half growth would actually accelerate to 20% at the high end of the 2026 sales guide. Most of the variability around the second half comes from the pace of agriculture recovery and the ramp of new product launches, including the new data center thermal management products that are expected to begin contributing revenue in the second half, with no revenue counted in guidance to date. New 2025 customer wins totaling $60 million are also expected to ramp more meaningfully in the second half.

• Q: How is the company managing current margin headwinds including tariffs and inflation, and what is the outlook for margin expansion this year? /

  A: The biggest driver of margin expansion remains volume leverage from higher sales, and management remains committed to its target of ~100 basis points of annual margin expansion toward 2030 long-term targets. Tariff impacts have been largely mitigated via in-region production strategies, alternative sourcing, and targeted pricing actions; current tariff uncertainty is not expected to materially change the margin profile from the maintained 19.5-21% adjusted EBITDA guidance range. Inflationary pressure from higher freight and energy costs is being offset via incremental pricing to recover costs. Even after raising the top-line guidance, management held the full-year adjusted EBITDA margin range steady, reaffirming confidence in its ability to deliver year-over-year margin expansion of up to 180 basis points in 2026 if performance stays at current momentum.

• Q: What is the current update on the M&A pipeline, aligned with the 2030 goal of adding ~$500 million in acquisition revenue? /

  A: Management reaffirms that ~$500 million in cumulative acquisition revenue is required to hit the 2030 sales doubling target, which is in line with the company's historical acquisition pace, and stronger organic growth would reduce the required M&A volume. Capital allocation priorities for 2026 are currently focused on organic investment (including CapEx for automation, equipment replacement, and new data center product capabilities) and shareholder returns (the new dividend increase and ongoing share repurchases). The M&A pipeline is still in early development, with management focused on identifying opportunities in white space and adjacent markets aligned with the company's core strategy. There are no imminent transactions currently expected.