Q4 2020 Helios Technologies Inc Earnings Call
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Greetings and welcome to Helios Technologies, fourth-quarter and full-year 2020 Financial results conference call.
At this time all participants are in a listen-only mode a brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press start on your telephone keypad as a reminder this conference is being recorded.
It is now my pleasure to introduce your host Tania almond vice president of investor relations and corporate Communications. Thank you. You may begin good morning. Everyone took em to the Helios Technologies fourth-quarter and full-year 2020 Financial results conference call. We issued a press release yesterday afternoon. If you do not have that release it is available on our website at I owe you will also find slides there that will accompany our conversation today when the line with me are Joseph our President Bush's chief executive officer and Tricia Fulton our Chief Financial Officer. They will spend the next several minutes reviewing our fourth-quarter results updating you on our recent acquisitions and The Helio Center of engineering Excellence provide our outlook for 2021 and then we will open the call to your questions.
Please note you can find full year twenty-twenty information in the supplemental section of the presentation.
If you turn to slide to you will find our Safe Harbor statement as you may be aware. We will make some forward-looking statements during this presentation and also during the Q&A session with these statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from where we are today these risks and uncertainties and other factors will be provided in our 10-K to be filed with the Securities and Exchange Commission. You can find these documents on our website or and I'll also point out that during today's call. We will discuss some non-gaap Financial measures which we believe are useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with gaap.
We have provided reconciliations of comparable gaap with non-gaap measures in the tables that accompanied today is slides with that. It's now my pleasure to turn the call over to Joseph.
Thank you Tanya. Good morning. Everyone. Please turn to slide 3 and I will summarize the highlights for Q4 2020 was certainly a year that will not be forgotten about it was full of Great accomplishments. Even if we Face the challenges of the global pandemic head and the hilliest team pulled together and drove results that exceeded the plans. We put in a place in the second half of the year. We protected our employees and communities. We supported our customers kept all operations running and executed and projects according to place.
acquired
Informational health and wellness electronics company in November, but boy is diversifying our offerings and our end markets. It also prints technologies that we can improve leverage to create new growth opportunities. Importantly. We ended the year on a strong note. We delivered solid Financial results all of our businesses exceeds expectations in both revenue and profitability.
He's a strong demand across the number of our end markets, especially in egg marine and Health and Wellness.
We also demonstrated robust cash generation in 2020. We generated approximately 32 million of cash from operations in the quarter and nearly 100,000 million for the full year, and we started to execute an hour flywheel acquisition strategy in 2021.
We established a hilly Ascent of engineering excellence and added a group of Highly talented professionals from BJ and Technologies with Co experiences in the engineering discipline of electrical and software systems simulation embedded circuitry and mechanical and testing design. We are strengthening our ability to innovate we believe he lives engineering will enable faster integration of Technologies for our customers.
They will leverage telling the know how across the organization this new structure will open up opportunities to drive better process speed to market system. Say you are appropriate Diversified markets and take the best ideas from each segment to create a good better best product offerings.
It's a mentioned when we close bulb ordeal. We are receiving very good feedback from some existing and potential new customers around areas for product development enabling us to innovate thoughts together.
We have already won Diversified Market customer with product offerings in the hydraulic segment and overtime expanding into the electronic segment. And we continue to have discussions to pursue additional opportunities with new customers. We are excited. The marketplace is recognizing the value we can create for them.
Please turn to slide for in fact just yesterday. We announced that we received the John Deere Supply Innovation award for twenty twenty four hour multi connection couplings with integrated brake system. This is a tremendous honor for the helius to receive around our vision in progress, since multitronics our subsidiaries fast and Son work together to combine two advantages in features of multi faster and sunny, electro-hydraulic Carthage valve into an integrated manifold reducing complexity and increasing reliability of like Alex circuit. This type of engineering collaboration is exactly the vision helius has for the cross-pollination of R&D between our subsidiaries.
On flight 5006 I will touch on some financial highlights.
The quarter pin Tricia will go into more detail during your prepared remarks.
It's a Nordic results, exceeded our expectations fourth quarter. Net sales grew to nearly $152 million and Balboa which has been part of the helium just about two months exceeded our expectations as well our adjusted ebit margin held steady at 23.2% compared with last year non-gaap EPS of sixty cents or 11% annual growth reflects the better than expected performance of both segments, including Balboa all in a very solid performance by the entire company and we are very pleased. I will now turn the call over to Tricia to review the financial results and Outlook in a little bit more detail.
Thank you. Joseph been good morning everyone on slide seven and eight. I will review our fourth quarter Consolidated results as Joseph noted, we delivered significant growth in the fourth quarter supported by our focus on deliveries are expanding sales channels strong and markets and of course the addition of Balboa net sales grew 24% sequentially and 20% over the prior year. As we executed our growth plans.
And a quarter gross profit of 52.7 million increased 5.8 million or 12% compared with the trailing quarter and 5.3 months or 11% over the prior year period from higher volumes cost of goods sold in the quarter included 1.9 million of inventory step-up amortization related to a position. Well Consolidated organic volume was higher than the third quarter gross profit was also affected by the mix of products sold Balboa's gross margin profile and the impact on operations from increasing freight costs.
We are working to offset the impact of these items with Cost Containment adding shifts to reduce overtime and working on our Global Supply Chain efficiency programs.
Gross margin was 34.8% which reflects the 120 basis point impact on gross margin of the inventory. Step-up. I should also point out that although Volvo is business office is lower gross margins. They have a lower at the expense structure. So that allows them to still deliver performance within our Target operating margins. In fact Volvo a well-needed are greater than 20% Target operating margins in its first two months give them the high-volume. They have been producing to meet accelerated demand.
Even with changes in mix adjusted ebitda margin health study at 23.2% compared with the same period a year ago and was down just twenty basis points compared with the trailing quarter reflecting our cost management efforts productivity improvements and the contributions of Balboa non-gaap EPS improved $0.07 to $0.06 for the fourth quarter compared with the trailing quarter and was up $0.06 compared with the prior-year. Reflecting better than expected performance of the valbella acquisition.
I should point.
Note that our effective tax rate in the fourth quarter was 22.4% compared with 18.1% in the prior year. The Q4 nineteen rate reflected the impact a favorable tax incentives while the cute 420 rate was impacted by one-time non-deductible cost incurred during the Balboa acquisition for full-year. The effective tax rate was 17.6% and included certain one-time benefits in the second quarter of 2020 that reduced the full year effective tax rate in 2019 are affected package with 20%
Please turn to slide 9 for review of our hydraulic segment fourth quarter operating results.
After the consolidation of our Sarasota operation was completed or CVT business returned to the industry-leading delivery levels that our customers values. We are also increasing the amount of product being produced in China to help improve delivery schedules as well as supporting our in the region for the region strategy.
In Italy are QRC business had its highest-ever sales quarter and we are growing that business through a combination of new products and from strong demand in the construction and Agricultural and life combined these efforts delivered solid hydraulic sales of 103 million up 5% sequentially and in line with prior year. Despite the COVID-19 and markets foreign currency exchange rates provided a positive 3.7 million impact on sales.
By region Hydraulics head growth in both and a Peck reflecting end market growth QRC had its strongest you're ever in Apex driven by China.
The Americans were down due to softer and market demand, but with strength in certain pockets.
You for Hydraulics, gross profit and margins benefited from several factors. The factors include higher sales a favorable change in sales mix the effectiveness of the factory consolidation of the CVT facility in Florida and savings from Cost Containment efforts.
Operating margin of 19% compared with 19.8% last year reflects increased investment in our defense Drive future growth and corporate costs allocated like please turn to slide 10 for review of our Electronics segment fourth quarter operating results, as we said earlier Balboa, exceeded our expectations and was a significant contributor to our electronic segment sales for the fourth quarter. We could not be more excited by the potential this acquisition brings of the Forty eight point five million in total electronic sales the lower contribute to $26 billion or 54% and we'll still down for pre Cove is level mostly As a result of the change in customer base the man from the marine life has continued to grow sales also reflect the intensional shift and customer base which involved releasing certain contractual obligations enabling broader Market penetration and had a pig.
10 million impact on
Revenue for the year.
Electronic segment gross profit of $17 million in Q4 increased with the acquisition Electronics gross margin was 35% This reflects the impact of the 1.9 million in inventory step-up expense as well as the different margin profile of the Balboa acquisition.
Operating income for the electronic segment of nine million nearly doubled over the trailing quarter and was 3 times greater than the prior-year. Operating margin improved for the same reason.
The 2019 fourth-quarter margin was impacted do to lower Revenue in that. As well as the impact from renegotiated customer contracts.
Please turn to slide 11 for review of our cash flow.
Gas generation of nearly $109 million in 2020 was outstanding. This demonstrated are agile response to preserve and generate cash as well as our intent to improve our working Capital management in general. Our objective is to drive strong cash generation to fund organic growth deliver our balance sheet supporter flywheel acquisition strategy off and continue our long history of dividend payments.
Given the pandemic situation our capex and 20/20 was focused on high priority in critical projects for the year have back the 14.6 million represented about 3% of sales. We expect to return to our more normalized capital investment level of approximately 5% of sales going forward free cash flow increased to ninety six and twenty twenty equating to a free cash flow conversion rate over two hundred per-cent providing us with a significant financial flexibility to further pursue our flywheel acquisition strategy.
Regarding our capital structure on 5/12 as you can see, we utilize debt and increase leverage to make the Buffalo acquisition, but it's important to note that we used our strong cash generation off-beat our expectations to end the year with a pro forma net debt to adjusted ebitda leverage ratio of 3 times better than the expected 3.4 times total debt increased to $460 million at year-end reflecting net debt repayment of $48 million throughout the year and additional borrowings of $200 million for the aqueduct at year end. We had 144 million available on our revolving line of credit.
Our financial strategy is to increase leverage for disciplined Acquisitions and then generate the cash too quickly pay that down to be positioned to continue to add new products Technologies and markets to our portfolio. We may consider using the equity markets where it makes sense to do so to support our growth plans.
importantly
We have been a consistent dividend payer over the last twenty-four years. We recently paid our 97 sequential quarterly cash dividend on January 20th of this year. Now, he's turned it's like thirteen and I will discuss our outlook for $20.21 us is optimally positioned to drive growth with End Market and product diversification additionally wage and market demand strengthening with the increased visibility in 2021 over last year's our guidance for twenty Twenty One assumes constant currency rates as well as the assumption that our office will continue to recover from the global pandemic.
We believe We are on track to deliver revenue for 2021 in the range of $675 to $705 million which implies a growth rate of approximately $29 to $35. We believe in that Revenue range, we tend to achieve adjusted ebitda margin between 23 to 24% demonstrating our commitment to our financial targets.
Interest expense at current borrowing levels and rates should be between 16 to 18 million to the effective tax rate for 2021 is expected to be in the range of 24 month 6% for your modeling purposes. Depreciation is expected to be about $22 to $24 million and amortization will be approximately 30 to Thursday.
This one that's to non-gaap EPS between $2.75 to $3.10 per share or $23 to 38% annual growth. We have a strong pipeline of new project rollout and improving visibility in many of our markets. Therefore. We are confident in our ability to execute
With that, please turn to slide 14 and I will turn the call back to Joseph for some final comments on our strategic directions.
Thank you. Thrisha, we are confident as we enter 2021 that we can drive growth and deliver strong margins are 1 billion Revenue goal is not the end game in Milestone. We have our sights focussed Beyond there is a management team. We have recently defined the Helios purpose statement and we are implementing for Value streams to augment our strategy. We believe the value streams will deliver growth diversification and market-leading financial performance as we develop into a more sophisticated globally oriented customer-centric and learning organization. The four values dreams are
Number one protect the business and ensure the cash flywheel continues to spin we plan to drive the cash flow engine through new product launches while we'll leverage existing project. We will cultivate customer centricity and are investing in expanding capacity as well as productivity improvements and will continue to execute off on our newly-developed Global manufacturing and operating strategies that will drive improve margins.
number two
Champion a global operating mindset to better leverage our assets accelerate Innovation and diversify our end markets.
Number three create great opportunities for growth while reducing risk and cyclic led by diversifying our markets and sources of revenue. We will add technology capacity and create differentiation to make us tough to follow.
And finally number for develop our talent through a culture of customer centricity continuous Improvement and embracing diversity engaging the team focusing and share deeply rooted values in promoting a learning organization.
Used for various dreams are interlaced with our flywheel acquisition strategy as well as our helius shared corporate values. We plan to provide more detail and all of this upcoming investigated. We will host later this year.
All of this makes the year has very exciting and we are just getting started. We are excited about the many changes. We are implementing to drive growth profitability and shareholder value it serious. I have great confidence in the ability of the hilliest seem to continue to lead successfully and believe it will show in our results with that. Let's open up the line for Q&A.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation will indicate your life in the question queue. You may press star to if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key. One moment. Please hold for questions.
Thank you. Our first question comes from line of Nathan Jones with Steve. Please proceed with your question. Good morning, everyone.
Good morning money, Nathan. I'd like to start off talking a little bit about this John Deere Supply or innovation award and what that means to the company. I know when you know when Helios acquired faster required Innovation controls that you know, a big part of the thesis there was Revenue synergies you were going to be able to generate by coming up with a look specifically like that supplier or what that you've got there. And I know Joseph that you had said that that was something that you thought could you could accelerate, you know over the next few years. He loves it. He's a big contributed to the 20-25 galles. Can you talk about where you are in that process? You know, what kind of Revenue you're generating out of putting these businesses together and what you think it can add to growth over the next several years.
Yeah, certainly Nation. I will start and
Sushi King chime in as is appropriate. So look, you know this John Deere War, you know when you you know step back and look at the long-lasting relationship fast, I had with John Deere, you know, really screen for understanding a little bit more about the John Deere strategy and what are they really have two and one of the key indicator was he always or like many other audience trying to simplify their supply chain and versus you know, having supplies coming in from gazillion of sources and having to manage that we pitched an idea of integrating and combining faster product with our CVT and some products and be presented with that and it would just a good system solution for them to reduce a lot of complexity to reduce supply chain costs money.
Integration costs and it worked out pretty much how we planted it would but on a more strategic level Nathan is when you step back and listen to seeds we planted over the last couple calls, you know, we have three different strategic objectives in terms of growing Revenue into Diversified markets one month if we take bulb or for an example, the traditional is sold into the you know, Wellness market and Laser focused on a hot tub swim spas and exercise Spas, you know did product line really fits. Well in other industrial Niche sectors
That creates a potential additional Revenue stream and that holds true for all the segments Innovation for an example largely in a creational supply chain driven customer here and we will expand those product lines in other Niche markets and protect the margins off, but then it's be combined the strength of the entire company.
That's where we see equal great opportunities to really get in as a system solution provide a way appropriate and start increasing the penetration of new customers in new markets that we traditionally never participated in. So those are kind of the three different channels of of diversification markets. Yeah, I would like to get that. Yep Cafe Trisha.
Yeah, I think I would just add on this is really a perfect example of a couple things one the synergies that we saw when we acquired faster and how we could bring together and QRC. But also what we've been describing more recently as Diversified and markets, you know, this is an application that isn't a traditional application. So I I think it's it's been a really good eye-opening experience for us to see what the opportunities are for us going forward and how we can bring these two technologies together five for a good customer win.
Maybe when you think about the revenue Synergy opportunity for from putting all of these businesses together all the way through Balboa. Is there a quantification you can give us on kind of what you thinking that can drive in terms of Market outgrowth over over the next several years, you know, just assuming market growth is going to be whatever it is. What do you think you should be able to outgrow the markets by
yeah, I think Nathan we hinted in our prepared remarks that we have our sights set and something much larger over the years that we originally outlined, but I think it's still it's still a little bit early to to quantify that we certainly will provide more color in our investor day, you know to Target customers off by by by business segment and and territory but for an example, maybe they could help you understand this a little better if you could look at it, but boy position a thin and couple it with our Innovation segment that technology can be readily available for other industrial markets, you know, if it's stage we see Market or even if it's the commercial Foodservice Market or you know exercise
in home equipment, um with some really minor Investments needed in Pedro of
bjn acquisition that will help us integrate those two pieces of of Technologies and get us to the markets very fast, and we have targeted our our customers and one of them is pretty much in a prototype testing phase as we speak. So still a little too early to outline the full opportunity, but clearly there is great path for us to to penetrate the technology into the new Diversified markets which are true life Newmarket.
For us. I'm sure I'm sure we'll hear a lot more about it at the investor day. So I look forward to that and I'll pass it on. Thank you. Look forward to seeing you.
Our next question comes from line of me with bared. Please proceed with your question.
Yes, thank you for taking a question and good morning everyone. I'd like to stick with Nathan's line of questioning here. And I guess you know, I'm I'm thinking back here at the strategy that that you guys have laid out even even before you joined Joseph and you know as I always understood it it was it was this Evolution from from being a narrow relatively narrow hydraulic components supplier to migrating more and more towards system sales. And and the idea was that way you're not only going to have a more comprehensive comprehensive hydraulic product, but that you'll you'll be able to have the electronic portion of it to essentially move from within within the vehicle to actually in the cab as it were in terms of displays controls things of that sort. So, you know it it strikes me that the Dead.
hydraulic side of the business
Is where you have had several years worth of investment in product development and seems like it's it's manifesting itself is faster, but I'm kind of curious as to as to the foundation aspect and and how that is tying in with the with the hydraulic product because per your comments it sounds like you're you're finally starting to see some breakthroughs. Here's with customers that are buying hydraulic product, but they're looking to migrate some some of the electronics offerings on a platform as well. So can you give us some context here and maybe that the fax you this is, you know, you're going to start bumping up into larger competitors that that that essentially employ the strategy are. Are you are you able to handle those competitive Dynamic know? How is the market handling you sort of becoming a more more a broader player as it were.
Good morning, Meg. Thanks for the question. So look, I think you answered the question for me. Yes. Yes, as you outlined our strategy here, but clearly Thursday. We are, you know grading our electrification into the Hydraulics sector as well, you know one interesting thing that we heard as we start engaging with our customers more closely and did a customer study is is you know, we are truly being considered a pure-play, meaning we have an Electronics division. We have heard rollick's Division and dates would be investing. This would be a focusing on and you know, compared the we have with all the time just make us stronger and a better company cuz we can learn but they also have many other things going on in their own portfolios that wage.
And not allow them to be as agile as it's a laser focus in investing in the areas like we do so the electrification components into a system that cell is starting to get very interesting for us and we investing in this area and I forgot make what your second question was. I'm sorry.
Well, look, I mean I I was trying to understand where you are in terms of progress. I mean, can you credibly walk into an oem and you know, someone like a cocktail G or or John Deere and say hey look, you know, I have a a full solution it's developed and and you know, I want to get on the next next platform. You have that capability today got it. So we have in in many areas. We have the system capability to support them over the next twelve to twenty-four months. What we do not have is innovation pipeline also calls out for adjustments and for electrification in certain areas and dates were drove the acquisition of bjn and that's what drove that augmented strategy and yep.
Finding Power Electronics segment two of the draft.
Segment and being ready with new products to deliver and to answer that Bell make as our customers switch over to the new month in 2023 Twenty Four and Twenty twenty-five. So are we all be ready with current demands and needs? Yes. Will we be ready as the customer switching over the next 12-24 months of the year?
Okay, then I guess the switch maybe shift gears here a little bit trying trying to better understand your your the moving pieces of of your outlook on life. If I look at the Top Line, I think the the midpoint based in something like thirty 2% growth. Can you help us understand? How much of this is coming from? Bob Bob by my math is something like twenty to age and from from this acquisition alone. And how do we think about core growth for electronics and and hydraulics that that's baked into this Outlook?
Yeah, you know we we've suspended guidance back in March of 2020 and this is really our first reintroduction of guidance coming out with think it's prudent to provide overall Helios guidance at this time and and not at the segment level per se if you can get a good feel for the numbers that we gave you for the first month a couple of months that we owned Balboa of what their capabilities are going forward, but we aren't going to provide individual guidance at the segment level at this time. We want to wait a little bit this we're continuing to come out of COVID-19.
Well, then, I guess my my follow-up and maybe last question is is on on the electronics leaving Balboa to the side. It seems to me like you're young. You're pretty optimistic on a vehicle Technologies portion of the business. Marine is doing well. Although I like a little more color on on some of these supply chain disruptions that that you kind of cold out and how you took those work themselves through but I'm also wondering what you're seeing in a powercontrol side of the business because that that's where you have a lot of sort of industrial stationary applications off Highway vehicles in a theory. Those end markets should be rebounding pretty strongly in 2021, and I'm curious if you see a differently. Thank you.
Yeah on the power control side, which is you know, the more the the non vehicle Technologies business of innovation. We own gas is still challenged for them from an End Market perspective. But definitely seeing opportunities on the mobile equipment side in that that's part of the business going forward into twenty one. There's quite a few opportunities as you might recall when we roll out products that we tend to roll out new product introduction for renovation in the recreational space and then they they flow into the what we used to call power controls business or the the end markets outside of recreational. We're starting to see some of that happened but we we do have a lot of recreational rollouts for recreational vehicles coming this year that that will trickle down in, Georgia.
with other end markets as well from the
Supply chain perspective. Yeah, I mean we we do know just like everybody else. We probably will have some supply chain challenges on the electronic side for both elbow and Innovation wage, and we've already started addressing those we're doing you know blanket POS for multiple years make sure that we're we're so we're covering our supply. We're buying ahead where we can for certain components it seem to have shortages or that are critical to some of these specific products in rollouts that we have so long it's going to be challenging and it has been challenging but I think it's something that we feel we have a pretty good grip on at this point and we're trying to stay ahead of the curve to make sure that we can get product out the door and meet the demand of our customers in 2021 which you know on the electronic side appears to be very strong.
I appreciate it. Thank you.
Our next question comes from line of Josh poker zielinski with Morgan Stanley. Please proceed with your question.
Hi. Good morning. Good morning, Josh.
Just a couple of questions here, maybe 2 to pick up the thread from the the last question. Just what do you think of as kind of the the big markets that are still under earning that you're looking forward to recover? Cuz you know, I think Hydraulics first electronic probably doesn't slice the end markets quite find enough, uh to see where the real opportunity has and then sort of related to that anything that could necessarily help those from a stimulus perspective. I'm thinking like an infrastructure bill or something like that. But given that you guys don't necessarily do the the bigger equipment and neither of those businesses. Just trying to calibrate, you know, sort of where is the easiest comp and and we're off work to the dollars flow from, you know, some sort of incentive package that you know, that would drive incremental demand.
Yes, he doesn't need Josh great question. So look on and think to your first question. The construction side is would be my my answer to a question. We are seeing a recovery. It's actually trending in a very nice Direction. So that would be one area that we would continue to watch it very closely and I feel you know, optimistic that it will continue to do what it says is going to do in terms of the stimulus. You know, when I looked across all of our companies here, you know, we really don't have anything baked in into our plans in terms of a potential upside down like Trisha mentioned earlier. We feel very good very strongly about twenty Twenty-One. We issued a would be feel a very strong narrow guidance here.
and
If they are additional investments in in infrastructure roads and bridges over time, obviously, this will be an upset for us since we don't have it backed into our plans. And as we continue our strategy of system sales where appropriate and protect our margins, that's where I see the biggest opportunity as the infrastructure starts kicking and and the roads and bridges start taking off with the demand of you know, the terrorists of the world of the month and it talks of the world. So that's where we can participate but that would be an upset for us Josh.
Got it. And then I guess sort of related to supply shortages or any sort of bottleneck anything that you can you can share with us even anecdotal we on how you feel customer inventories are and I I understand it's not your product going through distribution. It's more about you know, maybe finished product for your customers in your inventory at customers anything that would sort of speak to the health of that supply chain, and where customers are sort of catching up on on their own backlogs.
Yeah, certainly. I will start in 3 Chevrolet it a little bit more color here, you know, obviously we saw that coming and we anticipated, you know coming out of covet here that long as everyone is trying to ramp up. We anticipated a supply chain shortage if it's you know, National or International is so in many cases Josh we did a month. We had a pre-buy program. We had some hedging going on, you know on the Hydraulics side particular without distribution Partners, you know, they're seeing the inventories coming down so they will drive a additional.
Elemental buying but I mean look over all we're going through the same thing that probably everyone else is going through where we do have the rest of our portfolio is you know, in particular and hydraulic side 90% of our supply chain is pretty much located in the Midwest and been with us for 30 plus years. So take the relationship drove some substantial compensation of protecting our our manufacturing operations plans globally and we place ourselves in a pretty good position. Now, if something else happens in overtime that obviously we will communicate this accordingly, but as we stand right now days
Is it good path for us meeting to guidance? We have issues this morning. Yeah, I would just ask Josh on the supply chain side. We recently appointed berdych to SBP of manufacturing and operation. One of the key things that he is focused on our is supply chain optimization specifically on the exact Raonic side. There's been a lot of work already between Bobo and elevation looking at there, and suppliers and where we can you know, share products if needed and bring together from a cost perspective what we're buying from each of the suppliers. So we're definitely focused on that and there's already been a lot of work done at home clearly take some time to do that. But it it seems to be working well from the get-go.
Got it. That's helpful. Appreciate the time phones.
Thank you, Josh.
Our next question comes from line of Jeff Hammond with KeyBank. Please proceed with your question. Hey, good morning. Everyone twenty Jeff. So just back on makes a question on guidance. I understand not wanting to give kind of the the segments but I don't know if there's a way to think about just organic growth within the guide. You know, I know there's some ethics help wage cuz the the math I'm getting on Balboa is you know, you did twenty six million on less than two months. So that would that would support pretty high numbers for about Bo and I just don't want to get ahead of my scheme on I'm thinking about that growth, right?
Yeah, it's so you know it if we look at the organic growth piece that we have embedded in in the guidance. We're looking at high single-digit growth for the organic wage. And so go ahead very had a very strong end to Q4. They definitely are seeing demand remained strong in their end markets off. I'm not sure that we're ready yet to extrapolate that eight weeks into what the full year would look like, but they they should have a very strong first-half that you know coming out of that with given the backlog that they have.
Okay, and then just on the back so it sounds like Balboa margins in the in the fourth quarter were accretive to the overall. Margin is that wage something that can sustain?
Yes, they were.
was the profitability
at the ebitda level they're at or above what our Target is in our guidance. That's also something that we're we're working off to be able to make sure that they have the the capacity and they're able to generate the margins that we think they can over time as we as we work through the the first year of ownership. Okay, so then just just on the the ebitda margins so you did twenty-three and you're saying 23 to 24, but it seems like oh, you know you're going to you should get good incrementals on high single-digit organic growth and you know, if double is additive it just seems like you'd have more lift based on kind of you. Just your first name incrementals. Is there something you know temp cost coming back Investments inflation that that I'm not thinking about
Yeah.
So clearly the investment part of a Jeff would play a key role in to this as we continue to invest in our manufacturing plants. We are going to add another layer of local manufacturing and start leveraging this outside of just our Mexico operations. So so one answer to your question would be there's an investment plant throughout 20-21 that will ultimately pay off with improved margins getting the equipment upgraded many cases getting some Automation in you know, Hydraulics side of the business and then secondly, yeah, they dropped off there are some costs add-backs clearly we were able to take costs out of the business throughout COVID-19 some of it because we couldn't travel but discretion. Yep.
cops came out of the business last year and we have
Said that most of those were temporary and will come back the first quarter first half of the Year still seems like travels going to be a little bit limited but we are very anxious to get back in front of customer as soon as they will let up and we will we will start that as soon as we can. So we will see those costs coming back back to Joseph's investment, Clearly. Our first investment was bjn. We have an investment in a great group of talented Engineers that are going to help us accelerate are moving into the Diversified end markets that will ultimately result in, you know, a lot of growth on the top line and profitability, but for right now that that is an investment.
okay, and then just just last one, you know, you mentioned Tricia I think you know a lot of new product rollouts driving growth and I think you know a lot of discussion about the the deer supplier watch some of the the synergies but is there anything baked into your guidance from you know Balboa, you know growing outside of its kind of core health and fitness or is that you know something that starts to to hit in, you know, 20 22 23
Yeah, I mean some of the new product rollout is already baked into the forecasting but we can foresee that we will have others that come along as we're walking through bringing together the electronics businesses to create the good better best product strategy and be able to rule that out to customers we have some as well. I draw that was mostly focused on electronic but we have product rollouts also new things coming out in both Q R C and C CB t as well on the hydraulic side.
Okay. Thanks.
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Thank you for taking a follow-up. Just a little more color on pricing. If you would I history here at Trish would have you know, the prices quite quite nicely in 20 21 in Hydraulics at least as as volumes rebound. I'm curious. What do you have announced already for a 20 21? I don't know if I missed that in your birth marks and how you're sort of thinking about the year as a whole and related to this price cost. Do you do you think you're in a position to be to be balanced for 2021 there or should we be thinking that price cost can actually be a headwind for you? And that's kind of what's reflected in the guidance the margin guidance.
We have not taken any pricing action so far in 2021 there probably are some opportunities there. We have not raised pricing and some of the businesses in a while back but given the the Covent had wins and at times in the past our deliveries were not on par with what we wanted them to be surprising with difficult. But I do think we have some pricing opportunities in general in 2021. But also when you're looking at the price cost if we start to see cost increases on the material side wage should be able to get some of that in pricing as well. We need to look at that and evaluate that as we go along and and evaluate what we are seeing those material costs increases. We've tried to mitigate those as much as we can so far and I think we've done a pretty good job at that, but there's definitely some Opera
And and do you do you think I'm sorry, do you think you can be neutral or balanced from a price cost perspective in Twenty-One? Yeah. The goal is to be neutral at a minimum on that for 20 21.
Great, and then lastly, you know, you talked about you kind of going out and and trying to protect your your own supply chain and and you know ordering out several periods in advance cuz you knew that or going to be some disruptions as we were coming out of coal-bed. That'll make sense. I'm I guess I'm wondering are your own customers taking a similar approach and I'm thinking back here at the 2016/2017 when you know, we were kind of seeing some, you know ordering in advance, which is why you kind of built backlogs or something similar. Thanks.
From our customer perspective. We have a lot of long-term agreements in place both with our customers and with our suppliers. So in many cases pricing is set with at least the oems on the sales side and with our larger suppliers on the supply side where we have a little bit more flexibility is is with the the customers where we don't have long-term contracts in in place per se and we've seen some of our customers are increasing prices as a getting into twenty Twenty-One. So we're also taking that opportunity to go back to them to to get increases.
Right, I wasn't asking about price. I was simply asking if your customers are trying to secure production slots from you in advance, and they're double ordering.
Yeah, so we have seen steady steady flow here. Nothing out of the norm MC. You know so far. We seen a slight uptick in the electronics segment in segments in building a little better backlog than originally anticipated, but nothing really significant enough to to you know, really the windshield guess.
Okay. Thanks for taking a follow-up. Good luck. Thanks make.
Mister Madison, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.
I think to operate them. Well, thank you so much for joining us today. We really appreciate your interest in Helios and look forward to updating all of you on our first quarter in may we have a great comeback and be a super proud of the accomplishments we have made as a team over the last year and look forward to our future growth. Thank you to the entire helius family around the globe for your tireless efforts life Partners our communities and each other if a great day and stay healthy.
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