Helios Technologies, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. Helios designs and manufactures motion-control and electronic-control products, operating through Hydraulics and Electronics segments. This unaudited report covers the quarter and six months ended July 1, 2023; comparisons are with the periods ended July 2, 2022. Amounts are in millions except per-share data.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $227.6 | $241.7 | $440.8 | $482.2 |
| Gross profit / margin | $75.8 / 33.3% | $82.3 / 34.1% | $146.8 / 33.3% | $166.0 / 34.4% |
| Operating income / margin | $29.5 / 13.0% | $43.0 / 17.8% | $54.3 / 12.3% | $85.9 / 17.8% |
| Net income | $16.8 | $30.0 | $30.6 | $60.5 |
| Diluted earnings per share | $0.51 | $0.92 | $0.93 | $1.86 |
- Cash flow: First-half operating cash flow was $38.4, versus $44.2 a year earlier. Investing activities used $135.8, including $114.8 for acquisitions and $19.6 of capital expenditures. Financing activities provided $90.1. Cash declined $6.2 to $37.5.
- Debt and liquidity: Debt totaled approximately $549.9 at July 1, 2023, before cash; cash was $37.5. The company reported $183.4 available on revolving credit facilities and a further $300.0 accordion capacity, subject to requirements. It reported compliance with debt covenants.
- Balance sheet: Total assets were $1,610.7 and total liabilities $763.2. Inventory was $205.7, up from $191.6 at year-end; management said inventory days rose to 122 from 103 a year earlier, primarily reflecting weaker health and wellness demand.
Material changes and management commentary
- Q2 sales fell 5.8%; first-half sales fell 8.6%. Organic sales declined 12.6% in Q2 and 14.8% year to date, partly offset by acquisition sales. Pricing contributed positively; management estimated $14.2 of sales were delayed to future quarters by supply shortages.
- Electronics sales declined 24.0% in Q2 and 30.4% year to date, mainly due to weaker health and wellness demand. Hydraulics sales rose 6.7% in Q2 and 7.2% year to date, helped by acquisitions, although organic sales declined. Segment operating income decreased in both segments year to date.
- Profitability weakened as lower volume reduced fixed-cost leverage, acquisition mix and restructuring costs pressured margins, and selling, engineering and administrative expenses increased. Higher interest rates and debt balances contributed to first-half net interest expense rising to $14.0 from $7.6.
- Acquisitions included Schultes Precision Manufacturing, completed in January, and i3 Product Development, completed in May. Initial consideration, net of acquired cash, was $84.7 for Schultes and $44.6 for i3. Purchase-price allocations remain preliminary.
Outlook, risks and unusual items
- No specific full-year revenue or earnings guidance is provided in the supplied filing text. Management forecast 2023 capital expenditures of approximately 3%–5% of sales.
- Management described improved sequential spa and bath order trends in Q2, but demand in health and wellness remained below the prior year. It also cited uncertain industrial-market conditions, supply constraints for electronic and other components, inflation and the Russia-Ukraine war. Pricing and cost-saving actions have partly mitigated inflation; management cautioned that higher costs may not be fully offset.
- Hydraulics manufacturing relocations and facility expansion for two Centers of Excellence were underway, with relocation expected to be completed in Q3 2023. Restructuring costs were higher than in the comparable periods.
- In May, the company added a $150.0 term loan maturing in October 2025, using proceeds to repay revolver borrowings. The company stated cash and borrowing availability should be sufficient for operating needs, while noting potential responses to a prolonged severe downturn could include postponing capital expenditures, reducing expenses, delaying acquisitions or reducing or suspending dividends.
- The filing reports routine litigation only and says management does not expect it to materially affect results, financial position or cash flows. The company is under state tax audit and remains subject to examinations in various jurisdictions; it reported $7.9 of unrecognized tax benefits, including accrued interest.
Important facts for investors to verify
- Whether the expected recovery in health and wellness orders materializes, and how supply-related delayed sales convert to revenue.
- Whether Hydraulics organic demand and Electronics segment performance improve, and whether margins recover as acquisition, restructuring and cost pressures evolve.
- Debt levels, interest costs, covenant headroom and available revolver capacity following acquisitions and the new term loan.
- Final acquisition purchase-price allocations and integration outcomes for Schultes and i3.
- Capital expenditure execution, inventory normalization, and the board’s future dividend decisions.