Helios Technologies(HLIO) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sales for the fourth quarter came in at the higher end of expectations, with a 4% improvement in the Americas, a 10% decline in EMEA, and a 5% decline in APAC compared to the previous year [12] - Gross profit declined by $7.9 million year-over-year, with gross margin contracting 360 basis points to 28.6% [14] - Adjusted EBITDA for the quarter was$ 32.3 million, or 16.7% of sales, reflecting the impact of lower volume and investments offset by cost reduction initiatives [16] - The effective tax rate for the fourth quarter was 23.3%, with diluted Non-GAAP EPS of $0.38, which included an$ 0.08 impact from increased interest expense [17] Business Line Data and Key Metrics Changes - Hydraulics segment sales were down 5% year-over-year, with gross profit declining by $7.4 million and gross margin contracting 390 basis points [18][20] - Electronics segment sales improved by$ 3.9 million, or 7% year-over-year, but faced a 14% sequential decline [21][22] - SEA expenses for the Hydraulics segment declined sequentially by $1.5 million, or 7%, compared to the third quarter [20] Market Data and Key Metrics Changes - The health and wellness market saw year-over-year growth for the first time since Q1 2022, although it had contracted in the first three quarters of 2023 [13] - The construction and industrial markets showed mixed results, with some recovery noted in Hydraulics [47] Company Strategy and Development Direction - The company is focused on operational excellence through investments in manufacturing strategy, including the establishment of Centers of Excellence and regional manufacturing expansions [5][6] - The strategy includes filling product and solution gaps, diversifying revenues, and building talent through acquisitions [7] - The company aims to execute a profitable sales growth plan while maintaining investment and cost discipline [26][27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2024, highlighting the importance of execution and financial discipline to deliver returns on investments [29][27] - The company anticipates a challenging first half of 2024 but expects growth in the latter half, with revenue guidance of$ 840 million to $860 million [25][41] Other Important Information - The company generated free cash flow of$ 25 million in the fourth quarter, with capital expenditures at 4% of sales for the year [37] - The balance sheet remained stable, with cash and cash equivalents at $32.4 million and$ 200.1 million available on revolving lines of credit [38] Q&A Session Summary Question: What end markets have the lowest visibility and potential improvement? - Management noted mixed trends in Hydraulics, with construction and industrial areas showing some recovery, while Electronics faced challenges [47] Question: What is the mix of OEM and distributors in 2023 and expectations for 2024? - The company saw a shift towards OEMs, increasing from 55% in 2022 to over 60% in 2023, with expectations for this trend to continue [48] Question: What are the cash flow expectations for 2024? - Management indicated a focus on capital allocation in manufacturing operations, new product development, and additional capacity to support growth [49][50] Question: What is the underlying demand perspective across businesses? - Management characterized a small uptick in Hydraulics distributor inventory, with an overall increase in demand across most businesses, except for marine products [56] Question: What is the guidance for system sales and their impact? - Management indicated that while system sales are not included in guidance for 2024, there is a better than zero chance of benefits from these sales [86][87]