Q2 2021 Helios Technologies Inc Earnings Call

[music].

Greetings welcome to the Helios technologies second quarter 2021 financial results Conference call. At this time, all participants are in a listen only mode of course.

And the answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host kind of Alban Vice President of Investor Relations and corporate Communications you may begin.

Thank you operator, and good morning, everyone welcome to the Helios technologies second quarter 2021 financial results Conference call. We issued a press release yesterday afternoon, and 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 our conversation today.

1 of 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 second quarter results discussing our progress with our accelerated growth goals.

Reviewing our recent NIM 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 2 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.

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-Q to be filed with the securities and Exchange Commission.

You can find these documents on our website or at SEC 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 the reconciliations of comparable GAAP with non-GAAP measures in the tables that accompany today's slides.

And with that it's now my pleasure to turn the call over to Joseph.

Thank you and good morning, everyone.

Please turn to slide 3 and I will summarize the highlights from Q2 of.

The team delivered another excellent quarter with strong sales and earnings surpassing our expectations at every level.

I want to thank the entire Helios family for all of the hard work and tireless dedication to our customers.

We have excellent operating momentum as we execute our augmented the strategy and all of them the right path to achieve our accelerated goal of $1 billion in revenue, while delivering top tier of adjusted EBITDA margins by the end of 2023.

There is 2 years earlier than our previous plan.

You had very strong double digit organic growth driven by serving our customers well and diversifying our market.

In fact, we believe we are gaining market share as we provide industry best lead times.

As we have been winning over the hearts and minds of our customers. We are focused on the remaining flexible to meet their needs in this very volatile macro environment.

In addition, we of bringing new products of the market in an accelerated pace to help make the more competitive as well in total we had 87% growth in the quarter with 37% organic growth.

In addition to driving the top line, we are gaining traction with our manufacturing strategy as well.

It helped drive solid operating and EBITDA margin expansion.

In fact, we posted the best margin results, we've had in 3 years.

The implemented targeted pricing strategies to help offset the continuing supply chain headwinds that the industry is facing.

<unk> higher freight cost of raw material price increases and shortages of components.

We are focused on cash generation with the approximate $35 million of the cash from operations in the quarter and 137% trailing 12 months free cash flow conversion.

And through to our growth strategy, we can very quickly the delay with the balance sheet well sales funding of bolt on acquisitions.

We're making excellent progress with our acquisition strategy too.

Most recent success is in them, which we closed in less than 30 days.

Net is the innovative hydraulics solution company, providing customers the material handling construction industrial vehicle and egg application to its global OEM customer base.

Net is ideally located in northern Italy in the region, which happens to be amongst the world's most innovative and technology trends in the area in the hydraulic industry.

None of them enhances our electro hydraulic product offering and provides us the geographic expansion with gray the global presence.

The addition of the manufacturing and engineering capacity also provides the scale to address new markets.

Finally, <unk> has very strong brand recognition and hydraulics sales technology and the deep application expertise will enable us to grow our OEM business.

We could not be more pleased to have welcomed the lam team into the helio spend.

Given our outperformance we are raising our full year outlook again, which we will review in more detail later in the old remarks.

On slide 5 I will touch on some financial highlights for the quarter and Tricia will go into more detail during her prepared remarks.

Our second quarter net sales grew to over 223 million of which 60 million was from acquisitions.

Our adjusted EBITDA margin grew to 25, 7% compared with last year, an increase of 310 basis points.

Non-GAAP cash EPS was $1.20, an increase of 118% over the last year, reflecting the better than expected performance of both segments.

All in the second quarter demonstrated strong execution by the entire company.

I'm incredibly proud of the healy's team and the excellent momentum we are building as we execute our augmented the strategies to drive growth.

Generally the cash and deliver top tier of adjusted EBITDA margins.

Now I will turn the call over to Tricia to review the financial results and the outlook in the little bit more detail.

Attrition.

Thank you Joseph and good morning, everyone on slide 6 and 7 I will review, our second quarter consolidated results.

Let me start by saying that we heard your request for greater transparency on acquired revenue and are pleased to give you what you need to better understand our strong performance.

You will find in our press release, the table that shows the organic revenue by quarter and the contributions of acquisitions.

As Josef noted, we outperformed and delivered outstanding growth in the second quarter supported by our focus on delivery lead times.

Our expanding sales channels strong end markets, managing our operations efficiently and our most recent transformative acquisition of Balboa, which exceeded our expectations again.

Net sales grew 9% sequentially and 87% over the prior year period, as we executed our growth plans and continue to take market share.

Second quarter gross profit of $82.2 million increased $6.8 million or 9% compared with the trailing quarter and $37.5 million or 84% for the prior year period from higher volumes.

Gross margin of 36, 8% was flat sequentially and year over year was impacted by improved fixed cost leverage on higher volume the difference from the elbow with margin profile as well as supply chain challenges and increased material and freight costs.

We are implementing multiple pricing strategies, while also carefully managing the business to overcome the higher input costs.

Manufacturing is performing well given the juggling act required to get product out the door.

The factoring operations are extremely flexible and agile in balancing available materials and staffing to ship products to our customers.

Adjusted EBITDA margin grew to 25, 7% up 310 basis points from the same period, a year ago, and up 60 basis points compared with the trailing quarter, reflecting our disciplined cost management effort productivity improvements and the contributions of Bell Butler.

Non-GAAP cash EPS improved 21 to $1.20 for the second quarter over the trailing quarter.

It was up 65 compared with the prior year period, reflecting strong demand across all industries and better than expected performance in the bubble of acquisition.

Our effective tax rate in the second quarter was 17, 6%.

Which was lower than expected due to the settlement of the transfer pricing dispute.

Please turn to slide 8 per review of our Hydraulics segment second quarter operating results.

Second quarter hydraulics sales of $133 million were up 30% over the prior year period and benefited from broad based improved demand in most of our end markets showing growth in all geographic regions.

Sales included a positive $6.7 million impact from foreign currency exchange rates.

Q2 of hydraulics gross profit benefited from higher volume, while margin increased 160 basis points to 38, 3%, primarily driven by fixed cost leverage on higher sales and production labor efficiencies.

These drivers were partially offset by rapidly increasing freight costs and efforts to provide deliveries on time to customers.

The 280 basis point operating margin expansion to 24.3 per cent compared with the prior year period.

Flex operating leverage on higher volume as well as our disciplined execution on our manufacturing strategy.

Please turn to slide 9 for a review of our electronics segment second quarter operating results.

Electronics sales were $90.4 million up from $17.2 million in the year ago period, reflecting an increase of 426 per cent.

Notably we had very strong organic growth in the segment year over year.

We are seeing the positive impact of the new product rollouts in the recreational market that we have been discussing for some time and by comparison last year's second quarter was the most heavily impacted by the pandemic for this segment.

Acquisitions contributed $62 million in revenue for our electronics segment sales for the second quarter.

In addition, Balboa continues to exceed our expectations.

The capacity expansion investments, we made have enabled <unk> to meet the ongoing growth in demand. We are very excited by the potential of this acquisition has brought to our business.

Electronics segment gross profit of $31.2 million in Q2 increased with the acquisition and higher volume.

Electronics gross margin was $34.5 per cent and reflects the impact of mix primarily related to the different margin profile was about both the acquisition.

Well as increased costs, resulting from the supply chain challenges to meet strong customer demand.

Operating income per the electronics segment of $19.6 million increased $1.3 million or 7.1% from the trailing of the first quarter and was up from 900000 in the prior year period.

Operating margin improved 30 basis points.