Helios Technologies, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended April 2, 2022; comparable period ended April 3, 2021. Amounts below are in U.S. dollars unless noted.
Business context and results
Helios designs and manufactures motion-control and electronic-control products through its Hydraulics and Electronics segments, serving industrial, mobile, recreational, marine, and health-and-wellness markets. The company operates globally and reported Q1 results amid supply constraints, higher input costs, and COVID-related disruptions.
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $240.5 million | $204.8 million | +17.4% |
| Gross profit / margin | $83.6 million / 34.8% | $75.4 million / 36.8% | Profit +10.9%; margin -2.0 points |
| Operating income / margin | $42.9 million / 17.8% | $34.6 million / 16.9% | Income +24.0%; margin +0.9 points |
| Net income | $30.5 million | $22.6 million | +35.0% |
| Diluted EPS | $0.94 | $0.70 | +34.3% |
| Operating cash flow | $14.7 million | $15.1 million | -$0.4 million |
Sales growth included $28.5 million of organic growth (13.9%) and $7.2 million from acquisitions, partly offset by a $4.7 million unfavorable foreign-exchange impact. Price increases contributed $9.6 million. Gross margin declined as higher material, freight, and logistics costs were not fully offset by pricing. The effective tax rate was 22.4%, versus 23.2%.
Segments and material changes
- Hydraulics: Sales rose 15.1% to $137.1 million; operating income increased 12.5% to $31.6 million. Operating margin eased to 23.1% from 23.6%, and gross margin fell 1.0 point to 37.1%. Management estimated component shortages delayed about $6.6 million of sales into future quarters.
- Electronics: Sales rose 20.7% to $103.4 million; operating income increased 12.0% to $20.5 million. Operating margin declined to 19.8% from 21.4%, and gross margin fell 3.3 points to 31.7%. Component shortages were estimated to delay about $11.0 million of sales.
- Consolidated operating income benefited from lower acquisition-related amortization, including completion of amortization of the Balboa sales-order backlog intangible in 2021, and improved leverage of selling, engineering, and administrative costs. Acquisition and integration costs were $2.0 million in corporate and other expenses.
Cash, debt, and liquidity
Cash and cash equivalents were $33.0 million at April 2, 2022. Total debt was approximately $438.5 million, including revolving and non-revolving borrowings; cash less total debt was approximately $405.5 million. The company reported $159.4 million of available revolving credit and an additional $300 million accordion feature subject to pro forma compliance requirements. Management said operating cash flow and borrowing availability should be sufficient for operating needs; it also noted that capital spending, operating costs, or dividends could be adjusted if conditions severely worsened. The company was in compliance with debt covenants.
Operating cash flow was affected by working-capital investment: inventory reduced cash by $15.5 million and receivables by $17.4 million. Inventory on hand increased to 100 days from 81 days a year earlier. Capital expenditures were $5.6 million. The quarterly dividend was $0.09 per share.
Outlook, risks, and unusual items
- The company’s stated strategic goal is to exceed $1.0 billion in sales and achieve approximately 25% adjusted EBITDA margin in 2023. This is a strategic target, not specific Q1 2022 full-year guidance; the filing provides no clear numerical 2022 sales or earnings forecast. Capital expenditures for 2022 were forecast at approximately 3%–5% of sales.
- Management cited ongoing shortages of electronic and other components, shipment delays, higher material and logistics costs, labor inefficiencies, and periodic COVID-related shutdowns in China. Price increases may not fully offset continued inflation.
- The Russia-Ukraine conflict contributed to energy and raw-material cost increases, logistics issues, and reduced orders from some European customers. Helios reported no operations in the region and less than 1% of sales to Russia and Ukraine.
- Management said the 2022 outlook assumed continued global economic recovery but could not predict future COVID-related impacts. The filing also noted early signs of slowing incoming orders in some electronics industry indicators.
- In March 2022, Helios sold real estate to an executive officer for $1.85 million based on an independent appraisal and purchased other property from the officer for $0.97 million at a below-market valuation based on original cost plus improvements. Management said routine litigation was not expected to materially affect results, financial position, or cash flows; no material changes to the Form 10-K risk factors were reported.
Investor facts to verify
- Whether component availability, the estimated $17.6 million of delayed segment sales, and customer demand support shipment recovery in subsequent quarters.
- Whether pricing can catch up with material, freight, energy, and labor cost inflation without further margin pressure.
- Working-capital conversion, particularly the higher inventory days, and the resulting effect on cash generation and debt reduction.
- Progress toward the 2023 strategic sales and adjusted EBITDA-margin targets, including the impact of acquisitions and integration costs.
- Terms and governance review of the executive-related real-estate transactions, as well as the company’s ongoing tax exposures and contingent consideration obligations.