Q1 2021 Helios Technologies Inc Earnings Call
Sure.
Greetings and welcome to the Helios technologies first quarter 2021 financial results conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
Should anyone require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Tania Almond Investor Relations and corporate Communications for Helios technologies. Please go ahead.
Thank you operator, and good morning, everyone welcome to the Helios technologies first quarter 2021 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 H L. I O Dot Com you will also find slides there that will accompany.
On our conversation today.
Well on the line with me are Joseph metastatic, our President and Chief Executive Officer, and Tricia Fulton, Our Chief Financial Officer.
They will spend the next several minutes reviewing our first quarter results.
Updating you on the execution of our augmented strategies discussing our recently announced the acquisition.
Updating our outlook for the rest of 2021 and then we will open the call to your questions.
If you turn to slide two you will find our safe Harbor statement as.
As you may be aware, we will make some forward looking statements. During this presentation and also during the Q&A session.
These statements apply to future events that are subject to risks and uncertainties as well as the 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-Q to be filed with the Securities and Exchange Commission you.
You can find these documents on our website or at SEC Dot Gov.
I'll also point out that during today's call, we will discuss the 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 accompany today's slides.
With that it's now my pleasure to turn the call over to Joseph.
On your thank you and good morning, everyone. Please turn to slide three and I will summarize all the highlights for Q1, we.
We have started the 2021 on the very strong note with all the first quarter exceeding our internal expectations. In fact, we had several records in the quarter as well we had record sales in our electronics segment supported by the outsized growth of Wellbore, which we acquired in November of 'twenty to 'twenty.
As well as innovation controls, which had its highest quarter since Q3 of 2018.
Hydraulics also performed well as market sort of recovery in fact, our quick release couplings business set of new sales records in the quarter as the AG market is quite strong and construction equipment is also driving demand for our products.
Additionally, our CVT business has returned to its best in class lead times. This combined with our top tier technologies are driving market share gains.
Continue to make great progress with the new customers, we have targeted across both business segments to taste, our diversified market strategy with.
Recently started working with another one in our cross functional teams are meeting along with the into noting the abusing collaboration.
Both of drugs and the electronics, we have started receiving orders from a number of these customers for new diversified applications.
We are very pleased with how responsive the market has been in just a few quarters worth of work validating our strategy.
Combined these all day leave, but 58% topline growth in the quarter.
Thanks to the entire Helios family for all of the incredible hard work and dedication to produce such great results.
Our operating and EBITDA margin improved nicely. Despite the supply chain headwinds that the world is facing including higher freight costs.
Material price increases and shortages of electronic components.
Gross profit reflects the changing mix in our product portfolio, but the significant operating leverage on higher volume expense operating income and margin.
We generated approximately $15 million of cash from operations in the quarter with hundreds of 70% of trailing 12 month cash conversion.
With this cash we will continue to de lever the balance sheet.
And to the top things off we've continued to execute well with all the flywheel acquisition strategy with the definitive agreements, we announced yesterday to acquire <unk>, St. John of way of electronics and Technology company.
They are a fast growing developer of control panels software system and accessories for the health and wellness industry.
This transaction positions us to cost effectively expand our electronic controls platform with more capabilities strengthening our supply chain through broader geographic reach and increases on manufacturing capacity to meet growing global demand with the opportunity to improve our margins over time.
Yeah.
The facility is the located in the Silicon Valley of China, and puts us at the heart of electronics and controls technology Advancement in Asia.
Could not be more pleased and look forward to welcoming to join the way colleagues to the Helios family.
Giving all of a strong start to the year, we are raising our full year outlook, which we will review in more detail later in our remarks.
On slide four and five I will touch on some financial highlights for the quarter sales ratio will go into more detail during her prepared remarks.
First quarter net sales grew to nearly $205 million in Baltimore, which has been part of the affiliates for about five months well exceeded our expectations, we were able to expand capacity enhance productivity to capture the increased market demand our adjusted EBITDA margin.
Rose to $25 one per cent compared with last year on increase of 160 basis points.
Non-GAAP cash EPS of 99 cents was 77% annual growth reflects the better than expected performance of both segments.
All in the first quarter demonstrated a very solid performance by the entire company and was the direct results of the plans we put in place in the second half of last year with excellent execution by the Helios team against those plans.
I will now turn the call over to Tricia to review the financial results and outlook in a little bit more detail.
Tricia.
Thank you Joseph and good morning, everyone on slide six and seven I will review, our first quarter consolidated results.
As Josef mentioned, we delivered significant growth in the first quarter supported by our focus on delivery lead times are expanding sales channels strong end markets and of course, the addition of Balboa, which exceeded our expectations.
Net sales for 35% sequentially and 58 per sun over the prior year period, as we executed our growth plans.
First quarter gross profit of $75 4 million increased $22 7 million or <unk> 43 per cent compared with the trailing quarter.
And $23 5 million or <unk> 45 per cent over the prior year period from higher volume well consolidated organic volume was up over the fourth quarter. Gross profit was also affected by the mix of products sold well below its gross margin profile and the impact on operations from increasing free call.
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 $36 eight per cent and was impacted by the difference from the boat margin profile.
Why chain constraint on it.
Increased freight costs.
Adjusted EBITDA margin grew to $25, one per cent or 160 basis points compared with the same period, a year ago and was up 190 basis points compared with the trailing quarter, reflecting our cost management efforts productivity improvements and the contributions of Bell Bola.
Non-GAAP cash EPS improved 39 cents to 99 cents for the first quarter compared with the trailing quarter and was up 43 compared with the prior year period, reflecting better than expected performance of the Balboa acquisition.
I should point out that our effective tax rate for the first quarter was 23 two per cent compared with 22 three per cent in the prior year period before impairment, primarily due to increased earnings in higher tax jurisdiction.
Please turn to slide eight for a review of our Hydraulics segment first quarter operating results.
As Josef mentioned in Italy, our QR seed business had its company record high sales quarter, and we are growing that business through a combination of leveraging customer relationships deeper geographic reach and from strong demand in the construction and agricultural end markets.
The cartridge valve technology business. It's also seeing marked improvement of the distributor channels are depleting inventories and beginning to restock their shelves.
Combined these efforts delivered solid hydraulics sales of 100 of $19 million up 15% over the prior year period.
Foreign currency exchange rates provided a positive $5 7 million impact on sales.
By region, the segment had growth in both EMEA and APAC, reflecting end market demand.
You are see had strong growth in APAC driven by China.
Sales in the Americas were down due to softer end market demand, but with strength in certain markets such as egg.
Do you want hydraulics gross profit benefited from higher volume, while margin was constrained with rapidly increasing freight costs and efforts to provide deliveries on time to customers.
Operating margin of 23 six per cent compared with 27% last year reflects operating leverage on higher volume in fact, CVT has significantly improved the operational performance over the last seven months getting back to their top tier lead times and executing well on cost containment.
I should note that we are intentionally being very selective with price increases in our hydraulics business.
Instead, we are positioning to gain market share of well uncovering additional productivity efficiencies to drive margin.
Please turn to slide nine for a review of our electronics segment first quarter operating results.
As we said earlier Balboa exceeded our expectations and was the significant contributor to our electronics segment sales for the first quarter, we could not be more excited by the potential of this acquisition continues to bring.
Electronic sales were $85 7 million compared to $25 7 million in the prior period, an increase of 234%.
Growth drivers include the first full quarter of double of revenue, new product introductions, and strong demand in recreational and health and wellness and markets.
Notably our organic business was up very healthy double digits driven by record demand in the recreational market.
Electronics segment gross profit of $30 million in Q1 increased with the acquisition and higher volume.
Electronics gross margin was 35 per cent.
This reflects the impact of mix primarily related to the different margin profile of the Balboa acquisition.
Operating income for the electronics segment of $18 3 million doubled the trailing quarter and was almost four times greater than the prior year period.
Operating margin improved to 21, 4% up 270 basis points for the same reason.
The 2021 first quarter margin reflects the strong operating leverage inherent in this segment.
Please turn to slide 10 for a review of our cash flow.
Cash from operations was $15 1 million in the first quarter.
We are carefully balancing our working capital requirements with our efforts to provide timely deliveries to our customers from its record demand.
For the quarter Capex of 5 million represented about 2% of sales.
Well, our plan for $30 million to $35 million in Capex for 2021 is unchanged as a result of higher sales it will likely be closer to approximately 4% of sales for the full year based on our updated outlook.
Free cash flow was $10 1 million at the end of first quarter equating to a trailing 12 month free cash flow conversion rate of 170% as Josef mentioned.
We believe we have significant financial flexibility to further pursue our flywheel acquisition strategy.
Regarding our capital structure on slide 11, we continue to rapidly delever, our balance sheet with a pro forma net debt to adjusted EBITDA leverage ratio of 2.65 times. This is improved from the three times at the end of 2020.
Total debt was 452 million at quarter end, reflecting total repayment of $10 million during the quarter.
At quarter end, we had $150 million available on our revolving lines of credit with total liquidity of $176 million.
As most of you are aware of our financial strategy is to increase leverage for disciplined acquisitions, and then generate the cash to quickly pay that down.
Our capital priorities are debt reduction.
Organic growth through new products and technologies of <unk>.
Positive growth and finally distributions to shareholders we.
We have been a consistent dividend payer over the last 24 years. The recently paid our 98 sequential quarterly cash dividend on April 20th of this year.
Now, let's turn to slide 12, and I will discuss our outlook for the rest of 2021.
While the second half of 2021 is not yet fully visible the are definitely encouraged with the strength, we're seeing in our end markets and the success, we're having in diversifying our markets and gaining new customers.
Our guidance for 2021 assumes constant currency using quarter end rates as well as the assumption that our markets will continue to recover from the global pandemic.
We are raising our revenue outlook for 2021 to the range of $740 million to $750 million, which implies a growth rate of approximately 42% at the midpoint of the range.
Adjusted EBITDA margin outlook remains unchanged at 23 to 24 per cent as we continue to leverage our manufacturing efficiencies to offset the higher raw material costs and freight expenses in the macro environment.
This implies we are raising our expectations for adjusted EBITDA dollars to the range of $170 million to $180 million or 44% annual growth rate at the midpoint of the range. Additionally, we continue to invest through non capex related items into our manufacturing strat.
Of the G to reap the rewards of margin improvement over the long term.
Interest expense outlook at current borrowing levels and rates remains unchanged at 16 to 18 million. The effective tax rate for 2021 is expected to be in the range of 24% to 26% depreciation is expected to be about 22 to 24 million and amortization will.
Approximately $30 million to $31 million yeah.
We are raising our non-GAAP cash EPS outlook to between $3 30 to $3.50 per share for our 52 per cent increase over the prior year at the midpoint of the range.
The increase in our guidance for 2021 is driven by the strong end market demand we had in the first quarter and expect to continue throughout 2021, we are able to leverage our fixed cost base and maintain our strong margins, even given the headwinds on material costs on logistics and our decision to manage pricing to our call.
Put it to the advantage.
With that I will turn the call back to Joseph for some final comments.
Vishal. Thank you.
Again, we had a very strong start to 2021 and are encouraged with the results. We're having in the early stages of all of them mission to diversify our products and end markets.
We're making excellent progress on our augmented strategy, we are structuring the organization to deliver long term growth with top tier margins and we are confident in the management team's ability to execute.
We are creating an organization that provides greater benefits to our customers and is rooted in our shared corp bandwidth system to deliver on our mission.
We are very excited about where we are going as the company and hope you will join us synthetic segment.
Yeah of hosting on institutional Investor and professional analysts day in Houston series sort of on June 15th.
And hope.
Did you would be able to join us.
You can't travel to our location the event will be broadcast through our website as well.
Our plan is to help you see how we will deliver outsized growth did we are disciplined acquirers with the well constructed plant and debt our margin journey provides expansion potential.
With that let's open up the lines for Q&A.
Yeah.
At this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad of confirmation tone will indicate your line is on the question queue. You May Press Star two if you would like to remove your question from the queue for those using speaker equipment and may be necessary to pick up your handset before pressing the star.
Mark each.
One moment, please by all of the poll for questions.
The first question is from Nathan Jones from Stifel. Please go ahead.
Good morning, everyone.
Good morning Nathan.
I wanted to start on on some of the pricing commentary that you were making true share and you guys are looking to offset some of this inflation that you're seeing with productivity rather than pricing that's been a fairly unusual position for most of the companies I cover at least this quarter, who are looking to pass through inflation at least dollar for dollar and some of them.
With margin on it I think the comment was specifically on the hydraulics products. So maybe you can talk about a little bit about that strategy.
What benefits do you think it's going to get yeah in terms of share and then whether that's the same kind of outlook on electronics.
Yeah on the head on the Hydraulics side, you know we have made manufacturing improvements we had a lot of discussions probably over the last 18 months or so about the CVT business in particular, bringing together of the operations in the Sarasota plant and I think.
They've done a very good job of increasing the capacity of those plants and being able to get more product out the door in a more efficient way. So we believe that that's going to benefit us going forward. In addition to that we have of new expansion project going on and it'll lead to ramp up the capacity that we.
Have in the main factory for QR C business.
That project has started and will continue probably over the next 18 months or so we already have started getting machines into those into that business. So we're seeing increased capacity already from those new machines being in place, but we're also going to be expanding the actual footprint of the factory.
We're also looking on the on the C. D T side of the Coen, Sean plant that we have in China and are bringing in more capacity there as well. So we think we're in a really good position to be able to leverage what we have in place and the new things that are coming on to be able to.
Get more product out the door as we continue to see demand ramp in both QR C. N CVT throughout the hydraulics segment. So I think that we have some of the opportunity here to take market share as we move forward without having to take a severe pricing action.
Even though we are seeing some cost increases on the material side.
And then and then any comment on pricing on the electronic side I would assume that the inflation they've been worse there than.
And then it is in the hydraulics business day, you're are you keeping pace with pricing there or are you looking for productivity on that side as well.
It's a little bit of both there we already had a small price increase on the Bobo aside for the plastic business.
We saw a pretty steep ramp in the resin cost for our plastic products, primarily through Balboa, but also some innovation as well and we were able to put through a price increase a quickly on the bell boll aside to cover some of those costs, we are seeing a pricing ramp up on.
On the component side for the electronics, but we're also doing I think with our supply chains of really good job of getting ahead of that and placing orders even out into the end of 'twenty 'twenty two to make sure. The one we have supply, but also that we're getting some.
Some decent pricing on that as well in this very difficult pricing environment. So it's a little bit of both and we're you know in the Mexico factory on the electronics side. We've made some really great strides over the last few months of being able to get more capacity out of that factory on a daily basis.
Also we see very strong demand in the health and wellness and that seems to be continuing as we go on go into 2021. So we want to make sure that we have the capacity to be able to meet that demand and I think we've done an excellent job of ramping that up pretty quickly.
And just one on the distributor inventories I think you said.
You believed it.
Distributor inventories declined in the first quarter, so sell out more than sell in.
What is included in guidance, so what kind of expectation do you have the restocking at the distributor level for the rest of the year.
We don't have a specific percentage of of restocking, but we're anticipating based on the feedback that we've gotten from distributors. Both in the reports that we get from them quarterly as well as discussions with them that they're starting to ramp back up specifically on the larger Oems of their servicing with.
Parts, and we're starting to see that flow through the order patterns, specifically at CVT, because that's where the majority of the distributor businesses.
Great. Thanks for taking my questions I'll pass it on.
Thank you.
The next question is from Mig <unk> from Baird. Please go ahead.
Yes. Thank you.
Good morning, everyone.
Good morning, Mike I'm wondering yeah. Good morning, I'm wondering if we can get a little more specific on the.
The electronics business the dump.
The well.
Can you can you give us a sense for what the revenue contribution for about the whole was in the quarter and how did that go relative to kind of what you were expecting three months.
Well look.
I think Patricia mentioned in his prepared remarks. The you know in terms of the organic growth component of all of our business is actually ahead of healthy double digit growth, so but boy clearly contribute the very very significant but so did the everyone else.
So we are really well balance in terms of organic growth and.
Growth through acquisition.
Okay. So you're not willing to provide specifics in terms of the revenue contribution I'm trying to calculate the organic growth for the business in the quarter.
Yeah, we we are not going to give specifics on the Balboa business I think Joseph framed it pretty well by saying that the organic business of <unk>.
Grew at healthy double digits. We also commented that on a nation itself had its highest quarter since Q3 of 2018.
We're reporting on segments and we'd like to keep it on the segment level.
If I look at your revenue outlook for the year of it.
The change in outlook you raised your revenue guidance by $55 million the.
At the midpoint and I'm sort of curious as to what.
The buckets are the moving pieces to this guidance adjustment as you know how much of the pace.
Maybe your hydraulics business are doing a little bit different than what you planned initially.
The verses, maybe balboa of being better than you expected versus the core the electronics business.
I think it's pretty even many of you know if you look at our gross our spectrum of businesses you know curious in Italy.
We have more visibility into that area and feel.
The cure of C will continue.
To have just thrown the a and b.
And the ZIP code of healthy double digit growth here quarter over quarter.
When we host our distribution calls here on the monthly basis and get their feedback in terms of inventory levels.
You're starting to get a sense for.
The replenishment will start kicking in.
We just don't know at what level of at what speed, but we know they're coming.
And Thats why our strategy is you know when we talked about the pricing, we certainly will take some pricing actions in some commodity this but our strategy will shift to.
More of the market share gain with the manufacturing strategy.
Porting.
Margin improvement journey.
In the electronics business.
We have also a little bit more visibility on the board of size.
On the recreational side, we know on new product launches have begun.
And they are rolling out with specific customers and takes no cancellations.
On the rolling out on time.
So all combined Mig gets us to a comfort level debt. This guidance is a real it's fair and we can achieve it.
I'm glad you feel that way.
Then I guess may.
Maybe maybe my final question.
I'm sure I'm trying to think through the cadence of the year here right I mean, if I if I look at your the way you framed the the the top line.
It seems to imply to me the Q1 has the highest.
Is the highest revenue quarter of the year subsequent quarters or kind of are going to have lower revenue.
On which to some degree of at least to me counterintuitive.
I'd imagine that the business sort of build sequentially in terms of end market demand and there is also on sort of kind of like the seasonality aspect of the.
Q2, and Q3 the embedded in Q1.
But again, that's kind of how it used to be.
Back when we were just talking about the CVT business and you've added.
So for some new components. So I'm kind of curious here is it is it balboa that debt that is guys sort of like really strong seasonality of really in the year and it's reflected in Q1 sort of results.
We should be expecting that to kind of wane as the year progresses.
Or is there some other cadence of bad debt.
You feel comfortable sharing with us thank you.
For Q1, yes, I mean, the bubble of business came out stronger than we had anticipated we had the demand there we had the backlog of <unk>.
What we were lacking a little was the throughput, but with some of the improvements that we've made in the Mexico facility.
Through the the global Ops team I think we've done a good job of being able to get more product out the door than we thought we were going to be able to or the the.
They were you know before the acquisition or even into Q4, so that came out a little stronger than the we had anticipated a CVT was also a little stronger than we thought but you might recall for the last couple of quarters, we've been talking about AG being strong recreational being strong health and wellness.
Being strong so they've been strong for several quarters.
There is not full visibility as we start into the back half of the year. We can see you know the first the first half of it seems like it's still staying pretty strong, but just a little less visibility that we have going into the third and fourth quarter. So from the.
There is no normal seasonality right now.
Especially if we look at the historical.
So on business I think we have to sort of throw seasonality outright now given some of the dynamics that are in the end markets.
We're very happy with the really strong Q1 that we had we do have very strong demand continuing in many of these on markets. If I look at our internal and the market chart. There is a lot of green on it and you know that feels good but there's also always that little bit of uncertain.
T about where the back half of the year is going.
Okay.
Get back on the queue.
Yeah.
The next question is from Josh <unk> from Morgan Stanley. Please go ahead.
Hey, good morning, everyone.
Josh.
Yeah.
Just a follow up on on some of the pricing commentary and questions there.
Yeah, I would agree with the the early observation I think it was from Nathan that it's kind of atypical of amongst industrial companies right now and we've heard probably a bit more on trying to gain share through you know well where lead times are kind of more consistent delivery rather than price. So just wondering if.
If you could sort of comment on what you're seeing out there with with your customers or are you kind of yourselves on you know any dislocation in the lead times.
And if that's something that is yeah. It was maybe.
Putting more of a focus on price if you know with lead times in some of those industries Arnez.
You know, maybe just some differentiated versus peers.
Yeah on anything.
So you look when we originally built out the strategy you know of part of our augment the strategy is to have a manufacturing roadmap debt.
Sure.
Supported by a strong plan in the supply chain operations manufacturing of materials area and build out a bps margin journey over the next two or three years that will contribute to improved the overall margins with debt strategy is complete and is being rolled out as we speak and led.
But a very strong team.
So thats the piece number one piece number two when you look at across all of the spectrum and some of the folks we compete with [noise].
Excuse me.
The lead times have significantly increased where we're out of lead times are back to where it should be in.
And the leading leading categories. There was data point number two.
And we certainly have taken pricing action on some commodities.
But you know.
Putting all together and and and and looking at this from a holistic strategics.
The standpoint, I really felt that.
This is our time.
To take some market share and take advantage of the lead times, we have we have very strong products Ben.
Been launched in terms of new products existing products into the customers have reacted.
That's what I was saying you know, yes about boy was very strong in terms of Q1, but let's not forget that the organic business across the spectrum of our businesses has in all of these are very healthy in the double digits.
So its really a balanced approach and we are benefiting from those good lead times, we are benefiting.
On really strong orders and.
And we feel good where we're going and that's why we are very methodical what pricing actions. We are taking because we believe we can get to the other side.
Post that stretch in supply chain much throng of much better with a significant organic growth component.
Got it and I guess, just sort of related to that is the more with new customers existing customers E. All of it is it some sort of platform win that you're targeting where it ends up being sticky you just sort of what gives you the confidence that you're not renting share.
In the short term versus something that may be a bit more sustainable.
Yeah on the hydraulics side, clearly it's with existing.
Existing customers and.
In many cases, new customers as well as they really don't have anywhere to go to get the to get the product as quick as the one two.
And then our diversified market strategy, obviously contributes.
Two debt very healthy as well on the electronic side is is it's pretty much bulk of it is all with existing customers.
Got it and then just last question as it pertains to the visibility I know you guys don't really talk about backlog so much but that was the bit of of driver last year I think in the third quarter that you said.
<unk> <unk> was better than folks thought because we we.
Chewed up some backlog.
In the meantime in the little little leaner coming in the second half what's the status of the sort of rebuilding that now and then and how do you guys calibrate that and in the you know kind of moderation in revenue trends here as the year goes on.
I know visibility is clearly.
The tied into our guidance. So we have put out as guidance.
The very carefully very methodically and we believe we can hit it.
So you know I really don't want to get into specific backlogs at this point, but we have enough visibility within the business that we feel we will hit our guidance with the expected margin portfolio and we will continue to grow this business organically and through acquisition.
We already.
I noticed one of this quarter.
Okay. Thanks for the color.
Thank you.
The next question is from Jeff Hammond from Keybanc capital markets. Please go ahead.
Hey, good morning, guys.
Good morning, gentlemen.
Just maybe going back to kind of the moving pieces on the guy because it seems like versus my model. You know it was electronics that really drove a lot of the upside and particularly Balboa.
Based on your of your comment on the core and so I'm just trying to you know.
Is the guide I think you said Joseph pretty balanced or you know is the lion's share of the guidance raise.
On the electronics slash bubble of aside.
Yeah.
So it's the first one.
Jeff we were.
We have for a very healthy balance here between organic and inorganic growth.
Okay.
Okay.
Yeah.
Okay, and then just on the the 8% revenue guidance range.
Youre, leaving your EBITDA margins range unchanged and.
Yes, when I think of your business I think of kind of.
And of 30 to 35 per cent kind of Incrementals.
But this kind of ink.
The percent increase would imply you're you're kind of incrementals in the low twenties is that you know kind of the price versus the share dynamic or is there conservatism in there or is there something else on mission.
Well.
Clearly the majority of the big part.
As well.
Would you just said, it's it's the very methodical pricing that we're looking I mean, you know some of the commodities obviously.
<unk> have increased because of higher freight cost.
And we are very disciplined on how are we approaching this.
So you know you did see an increase obviously in the overall dollars you know based on our guidance, but yes to answer your question at all.
Related to supply chain, and we feel long enough to them with the manufacturing strategy. We have in place we will get to a much bled to a much better place you.
A couple of three quarters from now taking the current approach we are taking on gaining market share.
And position our customers to be able to compete more effectively.
And the start shifting more of the our direction.
Yeah.
Okay, and then anything you can give us on this acquisition in terms of kind of relative size.
Size, you know on what the what the annual revenues are.
What kind of the long term growth rate of the businesses.
Yeah.
First of all we just signed the deal we haven't closed on the deal we expect to close sometime in the third quarter. This is not gonna be of material acquisition.
For us from a top line perspective, it really brings us.
Technology.
And scaling their existing products that gives us manufacturing in China.
That will help us with our in the region for the region strategy, which also will as Joseph pointed out continue to drive those margins upward over time. So we're looking at this not from a.
A big plug on the revenue topline side, but more as a technology expansion and footprint expansion within our electronics segment.
Yeah.
Okay, and then if I could just sneak one more in.
Just help me understand kind of the difference between the EMEA strength in hydraulics versus.
Versus kind of the the relative weakness in Americas is that.
The timing is kind of the backlog dynamic that maybe Josh referenced.
Just help me understand because it seems like most of my companies are kind of talking about North America.
Leading us out here thanks.
I think it's partly end market, driven and partly sales channel driven so on the EMEA side. The majority of the faster business is with large Oems and that's really what's driving the EMEA for growth that you see on the hydraulics side on the Americas side, it's a.
Very highly driven by the distribution channel for the CVT business.
And as you know they had excess inventories in place at year end that they were working through.
And if you recall, we're also comparing to a period in Q1 of 'twenty, where we had very high <unk>.
Backlog in the CVT business, and we were shipping as much as we possibly could so the it's a difficult comparison on the CVT side as well for Q1.
But I I think that we are seeing strong demand coming back now in the Americas, and we will see that ramping up of betting already have but what drove.
The EMEA hydraulics really was the strength of the faster business in Q1 on the AG side.
Okay. Thanks, so much.
Mhm.
Yeah.
As a reminder, it is star one to ask the question.
The next question is from Mig <unk> from Baird. Please go ahead.
Oh, yes, and thank you for taking the follow up on.
I guess.
My question is the sort of on the on the cost structure.
Kind of in general and I'm wondering Trish.
You know you you have a fairly short cycle business. So you know on I'm sort of assuming that you are kind of fully experiencing the the.
The full force on Brian.
Higher input costs higher freight.
You know the supply chain disruptions.
On <unk>.
Correct me, if I'm wrong on that I guess I'm just wondering you know is there.
Potential here for things to actually get worse or more challenging as you look at maybe like Q2 or Q3 in terms of how this of these inflationary pressures flow through your P&L.
Or or not or are you basically caught up with the embar minions of it is what it is and it's kind of reflected in the result.
Yeah, I mean, we are seeing cost pressure on the component side of it clearly.
Worse on the electronics side than on the hydraulics side at this point in time.
We did anticipate some of those coming into the year, we were already getting indication that there were shortages and that we needed to buy ahead and reserve our spots and how the secondary sources. So you know sometimes the secondary sources do create a little bit of pressure on the the cost of the components that were.
Buying but we had built some of that in already we are seeing higher freight a lot of our free.
Costs are coming from all of us trying to get the the product to the OEM customers as quickly as we can so that they are able to get product out the door for them as well. So we're definitely seeing it but we also as you know in this business get some pretty strong leverage on our fixed.
Cost of on the higher revenue levels. So yeah, we're definitely seeing the advantage of that in Q1, as well and should continue to see that throughout the year, if the revenue levels stay high.
Mhm, yeah that makes sense.
I guess in some ways, where I'm kind of going with us.
If I look at your of Hydraulics business. You know you had very nice margins in Q1 operating margin of 23 and a half per cent.
And.
The way you were sort of talking about demand kind of building out and hopefully the distribution portion of the business is picking up here, which I presume that's margin accretive for you doing doing business through distributors.
I'm just sort of wondering here is there a reason for us to think that margins would be lower sequentially in your hydraulics business in subsequent quarters relative to Q1, because if that's the case, it's not entirely obvious to me as to why that would be.
The.
The what could cause that would be if we start to see the AG business slowing back down as we pointed out it's been strong for several quarters. So if if we see that slowing down we lose some of the leverage opportunities that we have in the faster business the that could affect the.
In the back half of the year on the hydraulics side, but you're right the distribution business and CVT in general can get tremendous leverage off of their higher revenue. So it is a delicate balance between the two technologies within the hydraulics segment.
Understood.
Lastly.
The sort of a similar line of line of thought for.
For the electronics.
If we're recognizing that a good portion of the.
Outgrowth.
Relative to your expectations came from Balboa.
Youre going to of to remind me here, but my sense was that Balboa was coming in with operating margins that were.
Now in line to maybe below the.
Segment average and the electronics I don't know, if that's correct or not.
Once once again do as the year progresses.
Is there reason to think that margins need to be meaning.
Meaningfully lower than what you had experienced in Q1 in this business.
And that's it for me guys.
On the Bell bolus side.
We've pointed out of a couple of times. The gross margin profile is very different from what we've seen historically and innovation.
But they also don't have the engineering cost in the S. C. A that we see in the elevation. So theyre able to very quickly leverage on the higher volumes that we're seeing now with the increased output that we've been able to achieve in the Mexico factory I'm really good.
Leverage at the operating income level, even though there their gross margin profile was different coming in they are still able to contribute very well at the operating income level.
And going forward.
Oh going for it I would expect of that would continue I mean, we're we're still making a lot of productivity improvements are in the Mexico plant, which is the primary manufacturing facility for Balboa. So as we continue to.
Make those changes in how they are doing production and bringing in some new equipment into that factor as well I think we're going to continue to see that they're going to get our leverage definitely at the operating margin, but probably over time also ticking up the gross margin.
Thank you I appreciate it.
Yep.
This concludes the question and answer session I would like to turn the call back over to Joseph net of <unk> for closing remarks.
Thank you.
Well. Thank you much for joining us today, we certainly appreciate your interest in Helios and look forward to updating all of you on our second quarter. In August 21 is shaping up to be of very strong year for us. But this is just the early stages of our journey. We are confident in our ability to continue to grow and deliver the.
<unk>.
For Great day and stay healthy.
This concludes today's conference you may disconnect your lines at this time, thank you for for your participation.
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