HELIOS TECHNOLOGIES, INC. Q4 FY2024 earnings call

Key Points

• Product Introductions and Market Engagement: In 2024, on the hydraulic side, eleven new cartridge valves were launched. On the electronic side, products like PowerView U150, U120, U35 displays and Cendercan Plus solution were introduced. There was also a partnership with Alto-Shaam in the service and software side, launching a commercial kitchen solution integrating Cygnus Reach remote support technology. Teams also participated in trade shows globally.
• Operational Efficiency: Achieved year-over-year operating declines in the last three quarters. Focused on cash conversion cycle, reduced inventory by $25 million or 12% in 2024, strengthened balance sheet by reducing and refinancing debt, lowering borrowing spreads.
• Finance and Accounting Team Adjustments: Sean prioritized building on the strong foundation, inserted segment CFOs, and hired Jeremy Evans as corporate controller. Jeremy brought extensive experience from Tech Data.
• Fourth Quarter and Full-Year Results: Fourth quarter sales $180 million, gross margin expanded 150 basis points, operating income grew 12%, adjusted operating margin up 70 basis points. Full-year sales down 4%, gross margin unchanged, effective tax rate fourth quarter 37.2%, full-year 22.8%, free cash flow conversion rate 244% in fourth quarter, record cash from operations $122 million for the year. Reorganized Helios Center of Engineering Excellence, planned to close San Antonio facilities by midyear.

In the fourth quarter, sales were $180 million, landing just above the upper end of the recent guidance range. By segment, hydraulic sales declined 10% year-over-year due to weakness in agriculture and mobile end markets. Foreign exchange had an unfavorable $100,000 impact on segment sales. Hydraulics gross profit and gross margin contracted year-over-year 14% and 110 basis points respectively on lower sales volume. Electronics sales were relatively unchanged year-over-year, with higher sales in health and wellness countering declines in other markets. Electronics gross profit increased $4.4 million on flat sales, while gross margin expanded 730 basis points over last year. For the full year, sales were down 4%, but gross margin remained unchanged due to targeted pricing benefits and cost improvement actions. Hydraulics contributed a certain percentage to total sales, and electronics also had its own revenue contribution percentage, though specific exact percentages weren't explicitly stated in the most precise numerical terms but can be inferred from the context of segment performance discussion.

2025 Outlook

• Sales range: $775 million to $825 million.
• Adjusted EBITDA range: $140 million to $165 million.
• First-quarter sales range: $185 million to $190 million.
• Evaluating tariffs: Assessing potential impacts on supply chain, e.g., electronics segment moved some manufacturing lines from Tulsa to Tijuana for cost savings and may move back depending on final tariff rulings. Informed forecasting with multiple inputs including customer feedback, market data, etc.

• Tariff Risks: Uncertainty regarding tariff regulations and their impact on supply chain and costs. Different scenarios need to be evaluated for supply chain realignment.
• Market Recovery Risks: If market recovery is slower than expected, revenue and profit may not reach the projected levels.

Q&A

• Q: Chris Moore - About go-to-market focus, is it specific to one segment? A: Sean - It's broad-based across the company. Focus on existing customers for cross-selling and wallet share, and driving new business growth across all segments.
• Q: Chris Moore - Significance of Alto-Shaam partnership? A: Sean - Very excited. It's a software opportunity with potential for future hardware sales, and first hardware win in commercial food service will ship this year.
• Q: Chris Moore - Free cash flow in 2025 A: Sean - 2024 was a record year for cash flow. 2025 will prioritize same financial priorities, likely to change inventory approach based on revenue guidance range, expecting to generate close to 2024 level free cash flow. Jeremy - 2024 focused on reducing inventory levels, 2025 CapEx guided at 3.25% - 3.75% of sales.
• Q: David Tarantino - Seasonality and back half growth A: Sean - Seasonality impact less than end market performance. Back half growth thesis based on order trends, OEM forecasts, PMI, NFPA data. Jeremy - Distributor inventory levels declined from Q3 - Q4, first decline in several quarters.
• Q: David Tarantino - Margins and footprint inefficiencies A: Sean - Low end of revenue guidance puts margin pressure, high end shows improvement. Volume is key factor, tariff topic also plays a role in margin consideration.
• Q: David Tarantino - Go-to-market strategy change A: Sean - Relatively unchanged. Aspiring to be preferred supplier, focusing on understanding customer needs to provide system solutions.
• Q: Mig Dobre - Mexico production and tariffs A: Sean - Can move manufacturing lines between Tulsa and Tijuana based on tariff rulings. Health and wellness market has competition and Chinese OEM factors. Jeremy - 2024 focused on reducing inventory levels.
• Q: Mig Dobre - Q1 margins and year cadence A: Sean - Incentive comp accruals and year-over-year revenue decline impact Q1 margins. Back half expected to grow due to better comps and market indicators.
• Q: Mig Dobre - Margin recovery and capacity A: Sean - Volume is key to recover margins. Reaching $1 billion revenue run rate could lead to mid to high 20% margins. Balboa business affected by post-COVID demand bubble.
• Q: Nathan Jones - Product portfolio strategy A: Sean - Continue system solutions strategy, evaluate portfolio optimization. Jeremy - Flywheel acquisitions' vertical integration and diversification strategy still in play.
• Q: Nathan Jones - Capacity and margin A: Sean - Believe in filling capacity through organic growth and go-to-market framework, tariff affects, mix optimization will bring margin improvement.
• Q: Nathan Jones - Tariff price increase impact on demand A: Sean - Balboa business affected less, but will bring supply chain changes. Consumer may feel price pressure, but supply chain may shift.