Helios Technologies, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended April 3, 2021; comparable period ended March 28, 2020. Unless stated otherwise, amounts are U.S. dollars in millions. Helios designs and manufactures hydraulic and electronic controls technologies and reports Hydraulics and Electronics segments.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Net sales | $204.8 | $129.5 | Up 58.1%; includes Balboa acquisition contribution and organic growth. Currency added $5.8, or 2.8%. |
| Gross profit / margin | $75.4 / 36.8% | $51.9 / 40.1% | Profit up 45.3%; margin down 3.3 percentage points, mainly due to Balboa’s different margin profile. |
| Operating income (loss) / margin | $34.6 / 16.9% | $(10.0) / (7.7)% | Prior year included a $31.9 goodwill impairment. Excluding that charge, management said operating margin was 16.9% in both periods. |
| Net income (loss) | $22.6 | $(17.2) | EPS was $0.70 versus $(0.54). |
| Operating cash flow | $15.1 | $15.1 | Similar year over year; receivables and inventory growth absorbed cash. |
| Cash and available revolving credit | $26.0 and $150.1 | — | At April 3, 2021; an additional $300.0 accordion feature is subject to pro forma compliance requirements. |
| Total debt | $452.8 | — | Gross revolving and non-revolving borrowings at April 3, 2021; net debt was not presented as a balance-sheet line item. Management reported average net debt of $431.7 during the quarter. |
Segment sales were $119.1 for Hydraulics, up 14.7%, and $85.7 for Electronics, up 233.5%. Segment operating income was $28.1 and $18.3, respectively. Hydraulics operating margin rose to 23.6% from 20.7%; Electronics rose to 21.4% from 18.7%, while its gross margin fell to 35.0% from 47.5%.
Balance sheet, cash flow and capital
- Current assets were $292.6 and current liabilities $142.1 at April 3, 2021. Total assets were $1,311.5; shareholders’ equity was $625.3.
- Cash increased $0.7 during the quarter. Investing used $7.5, including $5.0 of capital expenditures and $3.4 of acquisition-related payments. Financing used $9.5, including debt repayments and $2.9 of dividends paid.
- Accounts receivable increased to $124.4 from $97.6 and inventory to $119.8 from $110.4 since January 2, 2021. The company reported 55 days sales outstanding and 81 days of inventory on hand.
- Quarterly dividend declared was $0.09 per share. Debt covenants were reported in compliance as of the filing date.
Material changes, outlook and risks
- Balboa Water Group, acquired in November 2020, contributed substantially to Electronics growth. Helios also acquired BJN Technologies’ assets in January 2021 and issued 62,599 shares as partial consideration.
- Management said first-quarter demand exceeded expectations as markets recovered sooner and more strongly than projected. It cited improved demand in European agriculture and construction equipment and U.S. recreational marine, as well as pandemic-supported health and wellness demand.
- Management’s outlook assumes continued global economic recovery but provides no specific revenue or earnings guidance in this filing. Planned 2021 capital expenditures were approximately $30–$35 million.
- Supply constraints for electronic components and higher raw-material, freight and logistics costs are risks; procurement efforts and production scheduling had limited their impact to date. COVID-19 and potential disruption from conditions in India could affect operations or supply chains. Management said it could not predict the pandemic’s future effects.
- Other exposures include economic cyclicality, currency fluctuations and interest rates. Interest expense rose to $4.8 from $3.0, primarily due to borrowing to fund Balboa. Interest-rate swaps had $195 million aggregate notional value.
- The company disclosed $12.3 million of unrecognized tax benefits. Resolution of a transfer-pricing dispute and statute expirations could produce a net benefit of $0–$2.4 million within 12 months. Management said routine litigation was not expected to materially affect results, financial position or cash flows.
- On April 30, 2021, the President of Electronic Controls informed the company of her intention to resign, with employment expected to continue through June 1, 2021.
Important facts for investors to verify
- How much of sales and profit growth reflects organic demand versus Balboa and currency effects.
- Whether Electronics component availability, input costs and the segment’s lower gross margin improve or worsen.
- Working-capital conversion, particularly receivables and inventory, and the sustainability of operating cash flow.
- Debt levels, interest costs, covenant headroom and available borrowing capacity, including conditions on the accordion feature.
- Progress toward the $30–$35 million capital expenditure plan and the company’s longer-term $1 billion sales and greater-than-20% operating-margin goals.