Helios Technologies, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter ended October 1, 2022; comparisons are with the quarter ended October 2, 2021. Nine-month results cover the corresponding year-to-date periods. Amounts below are in U.S. dollars; financial statement amounts are shown in millions unless otherwise noted.
Business context and reporting period
Helios designs and manufactures engineered motion-control and electronic-control products, serving markets including construction, agriculture, industrial and mobile equipment, recreation, marine, and health and wellness. It reports Hydraulics and Electronics segments. The company completed the Daman acquisition in September 2022 and acquired Taimi assets in July 2022; both expand its Hydraulics business.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $207.2 | $223.2 | $689.4 | $651.5 |
| Gross profit / margin | $69.3 / 33.4% | $80.9 / 36.2% | $235.2 / 34.1% | $238.5 / 36.6% |
| Operating income / margin | $30.7 / 14.8% | $40.7 / 18.2% | $116.6 / 16.9% | $117.4 / 18.0% |
| Net income | $20.4 | $27.8 | $80.9 | $81.0 |
| Diluted EPS | $0.63 | $0.85 | $2.48 | $2.50 |
Q3 net sales declined 7.2% and net income declined 26.6%; nine-month sales grew 5.8%, while net income was essentially unchanged. Q3 net interest expense was $4.1 million, versus $3.8 million; nine-month expense was $11.7 million, versus $13.0 million.
Cash flow: Nine-month operating cash flow was $74.2 million, down from $82.0 million. Investing used $85.2 million, including $67.3 million for acquisitions and $21.9 million of capital expenditures. Financing provided $15.5 million. Cash and cash equivalents were $36.8 million at October 1, 2022, compared with $28.5 million at January 1, 2022.
Debt and liquidity: Debt principal totaled approximately $457.9 million, including revolving borrowings and term debt; revolving credit availability was $131.4 million. The company also reported a $300 million accordion feature, subject to pro forma compliance requirements. Management said it was in compliance with debt covenants and believed operating cash flow and borrowing availability would meet operating needs.
Balance sheet: Total assets were $1.420 billion and total liabilities were $668.1 million at October 1, 2022. Inventory was $179.7 million, up from $165.6 million at year-end. Shareholders’ equity was $751.4 million. Nine-month foreign-currency translation losses contributed to a $36.5 million comprehensive loss component, despite net income of $80.9 million.
Material changes and operating drivers
- Q3 organic sales fell 8.5%, partly offset by $2.9 million of acquisition growth. Management attributed pressure to unfavorable foreign exchange ($8.2 million), supply-chain-related delayed sales (estimated $14.7 million), and Hurricane Ian disruption (estimated $5.3 million); pricing contributed $8.1 million.
- Q3 gross margin declined 2.8 percentage points, primarily from higher raw-material and energy costs and lower volume. Pricing did not fully offset increased costs. Operating margin also reflected restructuring, acquisition and integration costs, and lower fixed-cost absorption.
- Electronics was the main source of Q3 sales weakness: segment sales declined 15.4% to $76.0 million and operating income fell 40.2% to $11.0 million. Management cited a sharp decline in health-and-wellness demand, elevated customer inventory, component constraints, and weaker APAC sales.
- Hydraulics Q3 sales declined 1.6% to $131.2 million and operating income fell 7.5% to $29.4 million. Year-to-date Hydraulics sales increased 6.6%, including acquisition growth.
- Year-to-date sales increased organically by 3.3%, with $16.7 million from acquisitions. Pricing supported sales, but foreign exchange and higher material, logistics, and energy costs weighed on margins.
Outlook, risks, contingencies, and unusual items
- Management’s stated strategic ambition is to exceed $1 billion in sales and achieve approximately 25% adjusted EBITDA margin in 2023, through organic growth and acquisitions. This is a strategic target, not specific quarterly or full-year earnings guidance. The filing forecasts 2022 capital expenditures at approximately 3%–4% of sales and says its remainder-of-year outlook assumes continued global economic recovery.
- Management cited ongoing component shortages, delayed shipments, inflation in materials and logistics, rising European energy costs, customer order delays, and foreign-exchange exposure. The Russia-Ukraine conflict may add to commodity, energy, and supply-chain uncertainty; less than 1% of sales were to Russia and Ukraine customers, and Helios reported no operations there.
- Hurricane Ian caused a Sarasota manufacturing shutdown for multiple days; the company estimated a $5.3 million adverse Q3 sales impact. COVID-19 caused no significant new Q3 disruption, but sourcing constraints originating during the pandemic persisted.
- Q3 restructuring costs were $1.8 million. Hydraulics restructuring is expected to generate $1.8 million in annual savings; Electronics changes were intended to align staffing with current demand.
- Daman’s initial cash consideration, net of cash acquired, was $64.3 million, funded with credit-facility borrowings. Its purchase-price allocation remains preliminary and may change materially during the measurement period. Goodwill and identifiable intangible assets recorded for the acquisition were $24.9 million and $29.7 million, respectively.
- Management reported no material expected liability from routine litigation; Part II reports no legal proceedings. The company disclosed $8.4 million of unrecognized tax benefits, including accrued interest, and limited transfer-pricing disputes dating back to 2008.
Most important facts for investors to verify
- Whether Electronics demand, particularly in health and wellness and APAC, stabilizes and customer inventory normalizes.
- Whether component availability, delayed orders, and higher input and logistics costs improve—and whether pricing can restore margins.
- Whether reported inventory growth and 118 days of inventory on hand convert into sales and cash without elevated obsolescence or further working-capital pressure.
- Whether Daman and Taimi deliver expected strategic benefits, and how final Daman purchase accounting and post-closing adjustments affect results.
- How debt, interest costs, available credit, and covenant compliance evolve as acquisition spending and investment continue; confirm that strategic targets are not formal financial guidance.