Helios Technologies(HLIO) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sales for Q3 2024 were $195 million, down 3% year-over-year, but within the guidance range [14] - Cash generated from operations increased nearly threefold, reaching approximately$ 35 million [8] - Net debt to adjusted EBITDA leverage ratio improved to 2.8x, with total debt down 8% or $41 million from the end of fiscal year 2023 [34] Business Line Data and Key Metrics Changes - Hydraulics sales declined 2% year-over-year, with gross profit dollars remaining flat [22] - Electronics sales decreased by 6%, although health and wellness segments showed strength [27] - Operating margin improved to 11.4%, up 450 basis points from last year, while non-GAAP adjusted operating margin reached 16.6%, up 290 basis points [20] Market Data and Key Metrics Changes - Sales in the APAC region were a bright spot, contrasting with declines in EMEA and the Americas [16] - Total fluid power shipments declined by 14.9% in August 2024 and 13.9% in September 2024 [23] - The U.S. agriculture market continues to decline, impacting hydraulic sales [24] Company Strategy and Development Direction - The company is focused on cost control, operational efficiencies, and product innovation to navigate current market challenges [9][18] - There is a commitment to maintaining investments in new products, with several launches planned before year-end [25] - The company aims to capitalize on growth opportunities as market conditions improve, with a cautious optimism for 2025 [42][44] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of hurricanes on operations, estimating a revenue loss of approximately$ 10 million due to 18 lost manufacturing shifts [36] - The full-year sales guidance was adjusted to $800 million to$ 805 million, reflecting a 4% decline at the midpoint compared to 2023 [37] - Management expressed confidence in the ability to return to growth as market conditions stabilize, particularly in the second half of 2025 [42][44] Other Important Information - The company has maintained a strong balance sheet with cash and cash equivalents of $47 million and$ 325 million available on its revolver [34] - Free cash flow conversion rate was an impressive 244%, with inventory reduced by 7% since the end of the previous year [32] Q&A Session Summary Question: Can you separate out unique benefits in SG&A for Hydraulics? - Management noted a significant stock-based compensation accrual reversal in Q3, which contributed to the decline in SG&A [48][49] Question: How do you plan to address slow starts in 2025? - Management indicated a focus on discretionary expenses and cautious planning to avoid overcutting while preparing for potential market recovery [63] Question: What is the outlook for fluid power shipments? - Management does not expect a drastic recovery but is optimistic about gaining market share and improving delivery commitments [67][68] Question: How is APAC performing and what is the importance of local manufacturing? - APAC is not back to pre-pandemic levels, but local manufacturing strategies are proving beneficial, particularly in China [69][70] Question: What are the implications of recent election results on tariffs? - Management believes the localized supply chain mitigates tariff impacts, and potential corporate tax rate reductions could be beneficial [75] Question: What is the status of system win progress? - Management is excited about recent subsystem wins and the strategy to deepen customer relationships [89][90] Question: Will there be a catch-up period for revenue lost due to hurricanes? - Management expects volume recovery but acknowledges that it will depend on overall market improvements [94] Question: Which end markets are stabilizing? - Management highlighted the marine and powersports OEMs as potential early returners to growth, contingent on interest rate cuts [96]