Helios Technologies(HLIO) - 2021 Q4 - Annual Report

Growth Strategy - The company plans to develop new products and undertake acquisitions as part of its growth strategy[79] - The company intends to expand its presence in existing markets and enter new markets, which may require substantial capital investment[99] - The company aims to achieve $1 billion in sales through organic growth and acquisitions, targeting operating margins in excess of 20%[189] - Recent acquisitions include Balboa Water Group in November 2020, enhancing the company's electronic control technology capabilities[197] - The company continues to invest in product development, including the FLeX series of electro-hydraulic cartridge valves and the ACE™-configurable MCx controllers[194][195] Financial Performance - For the fiscal year ended January 2, 2021, net sales were $523.04 million, a decrease of 5.7% from $554.67 million in the previous year[183] - Gross profit for the same period was $196.23 million, resulting in a gross margin of approximately 37.5%[183] - Operating income decreased to $35.41 million, down 60.7% from $90.12 million in the prior year[183] - Net income for the fiscal year was $14.22 million, a decline of 76.6% compared to $60.27 million in the previous year[183] - The total assets increased to $1.30 billion, up from $1.02 billion in the prior year, reflecting a growth of 27.0%[183] - Total debt rose to $462.39 million, an increase of 54.0% from $300.39 million in the previous year[183] Market Risks - Economic downturns have historically had a material adverse effect on the company's business and results of operations, as seen in 2009[82] - The company is subject to various risks related to health epidemics, including the ongoing COVID-19 pandemic, which may adversely impact operations and financial position[91] - The potential impacts of Brexit may adversely affect business activity and economic conditions in the UK and EU, contributing to instability in financial markets[84] - The company faces significant risks related to international sales, including political and economic conditions, regulatory changes, and currency fluctuations[141] - The company is exposed to currency fluctuations that may affect its operating results and financial condition[126] Operational Challenges - The company faces risks in successfully acquiring or integrating companies that provide complementary products or technologies[101] - The company may incur significant costs related to future acquisitions, including transaction fees and integration costs[103] - The company may face increased costs and operational challenges due to evolving environmental, health, and safety regulations[96] - Disruptions in the supply chain or logistics could result in lost sales and harm to the company's reputation[118] - The company is exposed to risks from increased IT security threats, which could compromise data integrity and operational efficiency[145] Competition and Market Position - The company faces intense competition in both the Hydraulics and Electronics segments, with competitors having superior technological capabilities and financial resources[105] - Future sales prospects depend on customer acceptance of the company's products as alternatives to internally developed products[107] - The company must maintain investment in research and development to keep pace with technological changes, particularly in the Electronics segment[112] Compliance and Legal Risks - The company is exposed to risks of non-compliance with numerous countries' import and export laws, which could result in significant penalties[88] - The company is subject to various claims and investigations that could divert management's attention and incur significant expenses[149] - The company maintains product liability coverage, but there is a risk that future claims could exceed this coverage, potentially impacting liquidity and financial condition[148] - The company has a history of product liability claims and may face additional claims in the future, which could adversely affect its financial results[146] Human Resources - The company is dependent on key individuals and skilled personnel, with competition for management and engineering talent being intense[144] Tax and Regulatory Environment - Changes in tax rates and regulations could adversely impact the company's financial results[130] - The effective tax rate for 2020 was 40.9% after accounting for non-deductible goodwill impairment, compared to 20.0% in 2019[229] - The company recognizes and measures uncertain tax positions in accordance with ASC 740, reporting liabilities for unrecognized tax benefits[261] Cash Flow and Financing - Net cash provided by operating activities increased by $18.1 million, or 20.0%, totaling $108.6 million for the year[238] - Cash used in investing activities increased by $213.5 million, primarily due to the acquisition of Balboa, which accounted for $217.0 million[241] - Cash provided by financing activities totaled $137.7 million, compared to cash used of $71.7 million in the previous year[242] - As of January 2, 2021, total contractual obligations amounted to $624.4 million, with significant payments due in the near term[248] - As of January 2, 2021, the company had $255.9 million in borrowings outstanding under the revolving credit facility and $200.0 million under the term loan[269] Asset Management - The company operates a total of 2,242 thousand square feet in the Hydraulics segment, with 1,233 thousand square feet owned and 1,009 thousand square feet leased[163] - In the Electronics segment, the company has 521 thousand square feet of operational space, with 197 thousand square feet owned and 324 thousand square feet leased[163] - Goodwill is tested for impairment annually, with the carrying value assessed at the reporting unit level[255] - The company uses a combination of market and income approach methodologies to estimate the fair value of reporting units[256] - The company does not engage in off-balance sheet financing arrangements and has no material interest in variable interest entities[264] Inflation and Economic Impact - The impact of inflation on operating results has been moderate, with no expected material impact in the future[266]