Helios Technologies, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended July 2, 2022; comparisons are to the periods ended July 3, 2021. Figures below are in millions of dollars except per-share data. Helios supplies engineered motion-control and electronic-control products through its Hydraulics and Electronics segments.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net sales | $241.7 | $223.4 | $482.2 | $428.3 |
| Gross profit | $82.3 | $82.2 | $166.0 | $157.5 |
| Gross margin | 34.1% | 36.8% | 34.4% | 36.8% |
| Operating income | $43.0 | $42.1 | $85.9 | $76.7 |
| Operating margin | 17.8% | 18.8% | 17.8% | 17.9% |
| Net income | $30.0 | $30.7 | $60.5 | $53.3 |
| Diluted EPS | $0.92 | $0.95 | $1.86 | $1.65 |
- Q2 sales increased 8.2%; management attributed $6.6 million to acquisitions and $11.7 million to organic growth. First-half sales grew 12.6%, comprising $13.8 million of acquisition-related sales and 9.4% organic growth.
- Q2 gross profit was nearly flat despite sales growth; higher raw-material costs and unfavorable foreign-exchange effects pressured margins. First-half operating income and net income increased, aided in part by lower intangible amortization and lower interest expense.
- Cash flow: First-half operating cash flow was $44.2 million, versus $49.5 million a year earlier. Investing used $9.2 million, including $13.5 million of capital expenditures; financing used $24.8 million. Cash and restricted cash rose $12.8 million to $41.4 million.
- Liquidity and debt: At July 2, cash and cash equivalents were $41.3 million; reported availability on revolving facilities was $174.2 million, plus a $300 million accordion feature subject to compliance requirements. Total debt was approximately $419.5 million on a gross basis; the revolving balance was $223.8 million. Helios reported compliance with debt covenants.
- Current assets were $390.3 million and current liabilities $162.8 million. Inventory was $178.9 million, up from $165.6 million at January 1, 2022.
- Quarterly dividend declared was $0.09 per share; the first-half dividend declared was $0.18 per share.
Material changes and segment results
- Q2 Hydraulics sales grew 7.4% to $142.8 million, while operating income fell 3.7% to $31.1 million and operating margin declined to 21.8%. First-half sales rose 11.0% to $279.9 million; operating income increased 3.8% to $62.7 million.
- Q2 Electronics sales grew 9.4% to $98.9 million and operating income rose 3.6% to $20.3 million; operating margin declined to 20.5%. First-half sales increased 14.9% to $202.3 million and operating income increased 7.7% to $40.8 million.
- Foreign exchange reduced Q2 consolidated sales by $7.5 million and first-half sales by $12.2 million. Q2 organic sales grew in the Americas and EMEA but fell 15.0% in APAC; China lockdowns and weaker regional demand affected results.
- Supply constraints delayed an estimated $6.0 million of Hydraulics sales and $9.1 million of Electronics sales into future quarters. Inventory days rose to 103 from 81 a year earlier.
Outlook, management commentary, and risks
- Management’s stated strategic target is to exceed $1.0 billion in sales and achieve approximately 25% adjusted EBITDA margin in 2023, through organic growth and acquisitions. The filing does not provide a specific 2022 earnings or sales forecast.
- Management said the 2022 outlook assumes continued global economic recovery, while noting uncertainty about future COVID-19 effects. COVID-related Chinese shutdowns affected operations and sales through May, with recovery in June. Component shortages, shipment delays, logistics costs, wage pressures, and inflation remained concerns.
- Higher material costs were not fully recovered through pricing: Q2 consolidated gross margin fell 2.7 percentage points year over year. Management warned that future cost increases may not be fully offset by price increases.
- Helios incurred $1.7 million in Q2 Hydraulics restructuring costs for site consolidation and organizational changes; estimated annual savings are $1.8 million. The filing also reports first-half acquisition and integration costs of $3.5 million, separate from $13.8 million of acquisition-related intangible amortization.
- Russia’s invasion of Ukraine increased economic, energy, raw-material, and logistics uncertainty; Helios had no operations there and less than 1% of sales to customers in Russia and Ukraine. The company reported no material change in market-risk disclosures and no material legal proceedings.
- In July 2022, after the reporting-period end, Helios acquired the assets of Taimi R&D, a Canadian hydraulic-components manufacturer. The filing does not provide the purchase price in the supplied text.
- Foreign-currency translation contributed to a $19.6 million first-half other comprehensive loss, including a $26.9 million translation loss; this reduced shareholders’ equity but did not represent operating net loss.
Important facts for investors to verify
- Whether pricing and organic volume growth can offset elevated material, labor, energy, and logistics costs and restore gross margins.
- Timing and realization of the approximately $15.1 million of estimated delayed sales, and the trajectory of China/APAC demand and component availability.
- Progress toward the 2023 sales and adjusted EBITDA-margin targets, including the contribution and integration costs of acquisitions such as Taimi.
- Debt, interest-rate exposure, refinancing maturities, and available borrowing capacity; the filing reports $270 million of interest-rate swaps with maturities through 2025.
- Working-capital demands, particularly elevated inventory, and the effect of foreign-exchange movements on reported sales, earnings, and equity.