Q4 2021 Helios Technologies Inc Earnings Call
[music].
Greetings and welcome to the Helios technologies fourth quarter 2021 financial results at this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
And even once you require operator assistance during the conference. Please press Star zero on your cell phone keypad. As a reminder, this conference is being recorded.
Now I'd like to turn the conference over to your host Tania Almond Investor Relations for Helios technologies.
Thank you operator, and good day, everyone welcome to the Helios technologies fourth 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 our conversation today.
On the line with me are Joseph metastatic, our President and Chief Executive Officer, and Tricia Fulton, Our Chief Financial Officer they.
They will spend the next several minutes reviewing our fourth quarter results discussing our progress with our accelerated growth goals, providing our outlook for 2022, and then we will open the call to your questions.
If you turn to slide two you will find our safe Harbor statement.
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-K to be filed with the securities and Exchange Commission.
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 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 accompany today's slides.
With that it's now my pleasure to turn the call over to Joseph.
No. Thank you and good day everyone.
Before we begin I would like to acknowledge those events that are occurring in our thoughts and prayers for everyone that has been directly impacted by this conflict.
With that.
Please reference slide three and four and I will summarize our highlights for the quarter and full year 2021 .
We delivered an excellent quarter in for you in these uniquely challenging times are direct results of this incredible execution from my management team and all of our colleagues around the world. Many thanks to each of them.
I believe we are demonstrating through the implementation of our <unk> business system to results. It can be realized with innovation determination resilience and flexibility.
Our organic growth of 26% in the quarter and 27% for the year are a testament to our efforts.
We are gaining market share by meeting or exceeding our customer expectations. We are innovating to create breakthrough solutions to solve complex problems and we are exercising a robust agility to meet the challenges of the global economy.
For example, in 2020 , one to combine CVC family expertise drove product development teams to exceed expectations by launching 22 new products.
This is the greatest number of new product releases in the divisions recent history and will be a flywheel for organic growth in the coming years.
I'm excited to announce we also won our first system sale across three of our businesses.
This is an international sale did came into CFP and contains an innovation controls display.
The couplings and some cartridge valves.
This is exactly the type of synergy that we described at our last Investor day, as we continue to streamline our customer experience lifecycle.
We also just announced another innovation award that we won for our fast the a b C electronic hydraulic hose coupling.
<unk> was chosen as the winner of the systems and components drove it.
Engineered choice for 2022 sponsored by D O G.
This is a big deal for our team and we could not be more pleased about this recognition.
Finally, it is worth just named Forbes 2022 list of America's Best Midsized companies. The ranking is based on earnings growth.
<unk> growth, but doing an equity and total stock return.
We are very humbled to have received this recognition and as I said at the beginning our performance is driven daily by our 3500 plus colleagues.
There's much work being done behind the scenes as well we.
Executing on our manufacturing roadmap to take out cost.
Simplify processes and addressing place noted precious.
We are carefully balancing the make versus buy choices to most efficiently meet our customers' needs and growth demands.
You're always investing where needed to ensure we have the capacity to meet demand and expect we will be in a very strong position as the world finds its new normal.
We collaborate across the organization to leverage the global R&D detail into following generic teams. We expect we can provide the solutions and the responsiveness to continue taking greater market share.
This is despite the fact that operating conditions remain less than ideal with continued supply constraints material inflation and labor challenges with the persistence of the variant outbreaks.
As I have discussed before.
We have implemented pricing strategies to help address the continued increase in costs shortages of supply and difficulties with staffing operations.
Recognized to be another loan in this unprecedented times, but believe our team is demonstrating resilience and stepping up to the challenge.
It is important to note that we have great financial flexibility and can continue investing in organic growth as well as advancing our acquisition strategy.
Our pro forma net.
Debt to adjusted EBITDA ratio is just below two times and in addition to the $29 million of cash on the balance sheet at year end, we have $158 million available on our revolver.
In fact, we generated 113 million in operating cash flow in 'twenty, one even as we invested in inventory to address the significant material shortages the industry is experiencing.
These investments have helped us maintain top tier industry lead times and are contributing to our growing market share.
Our plan is to drive further growth in profits in 'twenty, two and we believe we are well positioned to continue to execute on our augmented strategy.
Let me review some financial highlights on slide five and six and then Tricia will provide more details.
Our fourth quarter net sales increased 44% to 218 million, including $26 4 million in sales from acquisitions.
We had adjusted EBITDA margin in the quarter of 22, 7%, which was impacted by material cost increases labor and freight inefficiencies based on the macro operating environment.
For the full year, our adjusted EBITDA margin was 24, 6%.
Diluted non-GAAP cash EPS was one O one up 68% over last year, reflecting strong demand our ability to capture a greater share of growth and the addition of several excellent acquisitions.
We constantly drive to outperform and the team did an outstanding job delivering in the quarter and for the full year.
<unk> team continues to excel through every challenge and I could not be prouder.
I will now turn the call over to Tricia to review the financial results and outlook in a little bit more detail.
Sure.
Thank you Joseph and good day, everyone on slide seven and eight I will review our fourth quarter consolidated results.
As just noted we outperformed and delivered outstanding growth in the fourth quarter, driven by our responsiveness to our customers' focus on lead times in meeting the strong demand across our markets. Even as we operated in a tight labor market in face the challenges of the global supply chain.
Net sales grew 44% over the prior year period, as we executed our growth plans and continue to take market share.
As Josef mentioned, we delivered very strong 26% organic growth during the quarter, even with a $1 5 million foreign currency headwind.
Fourth quarter gross profit of 74 million increased $22 million or 41% over the prior year period from higher volumes.
Gross margin was 34, 2% in the quarter and somewhat in line with last year's fourth quarter.
Well if I just were up substantially we also were aggressively addressing supply and labor constraints in the quarter to ensure we could deliver product in a timely manner to our customers.
On the Crown created challenging labor inefficiencies in the quarter and continued into the beginning of Q1.
We have done and continue to implement multiple pricing strategies, while also carefully managing the business to overcome the higher input costs shortages of supply higher freight cost and difficulties with staffing operation.
Our manufacturing strategy is driving results, even though the benefits are being partially masked by the current macro environment.
Our teams have been spending a lot of time formulating plans for each business segment to re imagine how we maximize our in the region for the region and make versus buy strategy as we integrate the acquisitions, we have made over the last year.
Adjusted EBITDA margin was 22, 7% down 50 basis points from the same period, a year ago, reflecting the impact of supply chain and labor constraints.
This was partially offset by higher volumes and our disciplined cost management effort.
Our effective tax rate in the fourth quarter was 13, 6% compared with 22, 4% in the prior year period.
The lower rate was due to the release of tax reserves related to previously disclosed tax controversies regarding transfer pricing. This.
Obviously reduced our full year effective rate down a bit lower than our expected range.
Diluted non-GAAP cash EPS improved 41 cents to a dollar one up 68% for the fourth quarter over the prior year period, reflecting strong demand across all industries.
Racial efficiencies.
<unk> outperformance from the Balboa acquisition.
And the one time tax benefit I just mentioned.
Please turn to slide nine for a review of our Hydraulics segment fourth quarter operating results.
Fourth quarter hydraulics sales of $131 million were up 27% over the prior year period and benefited from the continued broad based improved demand in our primary end markets across geographic regions. In spite of the $1 5 million headwind from foreign currency exchange rates.
This segment had very strong growth in the Americas and EMEA in the quarter organic growth in this segment was 21% over the prior year period.
Q4, hydraulics gross profit benefited from higher volume, although margin was impacted by labor inefficiencies due to AUM across as well as higher raw material freight and logistics costs.
The 210 basis point operating margin expansion to 21, 1% compared with the prior year period reflects operating leverage on higher volume as well as our disciplined execution on our manufacturing strategy.
Please turn to slide 10 for a review of our electronics segment fourth quarter operating results.
Electronic sales were 87 million up from 49 million in the year ago period, reflecting an increase of 79%, including $20 7 million from acquisition.
Organic growth in this segment was 36% in the fourth quarter.
We are seeing strong demand from the health and wellness and recreational market.
Although supply chain constraints limited sales in both end markets in the quarter.
Electronics segment gross profit of $27 5 million in Q4 increased with acquisitions and higher volumes.
Electronics gross margin of 31, 7% reflects higher costs related to omicron labor inefficiencies and macro economic supply chain challenges.
Quarter was also modestly impacted by the different margin profile of the Balboa acquisition for the E. Additional weeks, we own to help all of us in.
In the fourth quarter of 2021 versus 'twenty 'twenty.
Operating income for the electronics segment of $15 4 million was up from 9 million in the prior year period, although operating margin contracted 80 basis points.
21 fourth quarter margin reflects the difficult macro operating environment in the quarter.
We have begun to see some relief regarding labor challenges in the last several weeks as colleagues were impacted from the latest variant started returning to work.
Actually we have also started to see some pockets of relief and supply chain, so not material yet.
Yeah.
Please turn to slide 11 for a review of our cash flow.
Cash from operations was $31 2 million in the fourth quarter compared with $31 5 million in the prior year period for.
For the full year, we generated $113 2 million in cash from operation. We are carefully balancing our working capital requirements with our efforts to provide timely deliveries to our customers amidst significant demand and material shortages.
We have increased inventories, especially with longer lead time items in order to address our backlog.
Yeah.
For the quarter Capex was $9 7 million up from $7 4 million in the fourth quarter of 2020 Capex.
Capex for the full year 2021, it was $26 8 million up 84% compared with 2020 and about 3% of revenue.
This reflects investments in capacity and productivity additional capex of the acquired companies and maintenance Capex.
We are expecting capex in 2022 to be about 3% to 5% of revenue.
Free cash flow was a strong $21 5 million in the fourth quarter.
Our free cash flow conversion rate with 83% for the year lower than our typical rate, which has consistently been over 100% the previous three years.
Well in 2020, there was significant release of working capital during the onset of Covid in 2021 with the resurgence in demand working capital expanded to keep up with our growth.
Regarding our capital structure on slide 12, we consistently demonstrate our ability to rapidly delever our balance sheet.
Our strategy is to flex up leverage for strategic disciplined acquisitions, and then quickly delever using cash generated from operations.
We are now below our long term target range of pro forma net debt to adjusted EBITDA leverage of two times we.
We will continue to use cash to pay down debt as we reload for future acquisitions.
This is impressive considering we improved from three times net debt to adjusted EBITDA at the end of 2020 and shows the power of our cash flywheel.
We used $24 4 million of cash to reduce net debt in the quarter.
Total debt at quarter end was $445 million.
We also had 158 million available on our revolving lines of credit with total liquidity of $187 million.
As a reminder, our capital priorities remain debt reduction organic growth through new products and technologies acquisitive growth and distributions to shareholders.
Now, let's turn to slide 13, and I will discuss our initial outlook for 2022.
Our guidance for 2022 assumes constant currency using quarter end rates is based on organic growth only as well as the assumption that our markets are not further impacted by the global pandemic or the geopolitical environment.
As a result of our outperformance this quarter, we are establishing our revenue outlook for 2022 to be in the range of 932 $950 million, which implies an annual growth rate of approximately 8% at the midpoint of the range.
This is directly on our path to our target of at least 1 billion in revenue by 2023.
In terms of quarterly revenue flow, we expect the first half and second half to be relatively balanced percentage wise, but do expect the first quarter to be the lightest of the year. This is partially due to the timing of pricing strategies taking effect.
Our adjusted EBITDA margin outlook is 23.5% to 25%.
Slightly higher than where we ended the full year of 2021 at the top end of the range, but takes into account the operationally challenging times, everyone finds themselves in ending the year given supply chain constraints inflationary impacts on materials and freight as well as labor inefficiencies.
As we step through the year, we would like to tighten up the low end of the range, but feel it is prudent in this current macro environment to start here.
We continue to leverage our manufacturing strategy and operational efficiencies to offset these headwinds.
This implies our expectation for adjusted EBITDA dollars are in the range of 219% to $238 million or roughly 7% annual increase at the midpoint of the range.
Additionally, we continue to invest through non capex related items into our manufacturing strategy to reap the rewards of margin improvement over the long term.
We expect interest expense to be down to 14 to 15 million at current borrowing levels and rates.
The effective tax rate for 2022 is expected to be in the range of 21% to 23%.
Depreciation should be between 24, and a half to 26 and a half million Oh look kind of amortization is down to approximately 28 to 29 million in 2022.
We expect diluted non-GAAP cash EPS to be approximately $4 35 to $4 60 per share in 2022.
This represents a 5% increase over 2021 results at the midpoint of the range.
We are driving forward with our augmented strategy and delivering results even as we address the highly unusual operating environment that we all find ourselves in.
Our efforts are focused on providing our customers innovative solutions expanding our addressable markets.
Investing in future capacity lever.
Leveraging our fixed cost base.
And advancing our manufacturing and operations to help offset the headwinds from higher material people and logistics costs.
Before I turn the call back to Joseph I, just wanted to offer a few personal remarks as we start off another new fiscal year.
These are the most exciting times of my 25 years with the company and my 16 years as its CFO .
<unk> has a tremendous honor up living through the amazing evolution that the company has experienced over that timeframe.
Over the last several years, we have really turned up our intensity as a management team through augmenting our strategy and executing on both our organic growth along with our acquisition.
I have seen the organization really grow and mature in step functions and I'm really excited by the path that we have constructed for ourselves over the coming years.
I could not be more invigorated about our strategic direction and the amazing team that I'm working with.
With that please turn to slide 14, and I will turn the call back to Joseph for some final comments.
Thank you very much Trisha.
We didnt lays out the helium business system in June last year, along with our key mission pillows or vendor strengths.
I think its worth taking a moment to reflect and to reiterate is we started in new York on what those priorities are.
We believe the business streams will deliver growth diversification and market, leading financial performance as we developed into a more sophisticated globally oriented customer centric and learning organization.
The 4 billion streams include.
Number one protect the business and then should the cash flywheel continues to spin.
We plan to drive the cash flow engine through new product launches, while we leverage existing products we.
We will cultivate customer centricity and are investing in expanding capacity as well as productivity improvements.
And we will continue to execute on our newly developed lower manufacturing and operating strategy.
We will drive improved margins over time.
Number two.
Pink and egg globally to better leverage our assets accelerates innovation and diversified end markets.
Number three creates great opportunities for growth, while reducing risk and cyclicality by diversifying our markets and sources of revenue, we will add technology capacity and create differentiation that will make us very tough to follow.
And finally.
Number four develop our talent through a culture of customer centricity and continuous improvement embracing diversity engaging to team.
On shared deeply rooted values and promoting a learning organization.
These four bedroom streams into leased with our acquisition strategy as well as our Helios shared corporate values.
I think you can see in our 21 resorts that we are doing what we said we're going to do guided by this framework.
We are clearly on our path to achieve our accelerated milestone of at least 1 billion in revenue, but 'twenty to 'twenty three with top do your adjusted EBITDA margin.
I have great confidence in our team's ability to execute.
As we enter 2022 we are confident that we can drive growth and deliver strong margins.
You have tremendous potential as an organization and I am very optimistic that it will be further unleashed as we move beyond this inflationary and macroeconomic challenges.
As I have said before we have our long term sights set on becoming a much larger company.
With this full year results I believe we are clearly demonstrating progress against those goals.
Every year I'm more excited than the last when they think about the opportunities that lie before us and like to thank you our shareholders for your continued support and confidence.
With that let's open up the lines for Q&A. Please.
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One moment, please pull for questions.
Our first question is from Mig <unk> with Baird. Please proceed.
Yeah.
Bakery there.
Oh I'm.
I'm sorry can you hear me, Okay, I'm I'm, having some difficulty with my phone.
Yeah, we can hear me now when they make okay great.
Good morning, sorry about that.
So I guess, where I'd like to start as well.
You know you talked about the supply chain.
The challenge obviously, we're hearing back from everyone, but kind.
Kind of looking at your performance in the fourth quarter. You know you kind of well you exceeded the top end of your revenue as well as EBITDA guidance I'm.
And I'm sort of curious how.
How have you managed to deliver that in terms of just your own internal efforts to manage the supply chain.
You talked about the fact that you're sort of maintaining them.
Lead times that are much better than your competitors. So I'm kind of looking for some color on that if you can quantify it at all.
And you know.
This whole idea.
Superior lead times, leading to market share gains you've pointed out. The fact that you are seeing those market share gains.
Any context, you can provide us around that as well.
Certainly good morning Mig.
Look as we said a few times now you know.
During the Covid times when you.
The next step in this journey would be and could be.
Very cyclical in terms of material supply versus demand. So pits will be initiated on manufacturing strategy basically, meaning clearly identifying our capacity globally.
North America, low cost country, and see how much should be actually make which is how much would be by.
And then.
Step two was developed a very structured approach, where we invested internally in <unk>.
Having folks within our supply base protecting our core competencies did we need to maintain debt.
Industry lead times, we had been talking about anywhere between six to seven to eight weeks. So there was a host of.
Perhaps assistance structural things, we have done with the business.
To position ourselves that we do not.
Clearly we're going through.
You know challenges like.
Many other companies do but not as significant.
As you May think just but it will be two of our manufacturing strategy of driving towards improvements internally.
And as far as the share gains that you referenced.
Yeah. So you know if you look at it.
You know over the last in particular over the last.
You know six seven months, we have seen strong indications.
From many customers coming our way and and calling and most of those customers are pretty new to us.
Just by the virtue of the extended lead times that there are been getting and hearing.
Ranging anywhere from from 20 weeks to 28 weeks to 48 weeks and we were able which was Australia would you actually be able to maintain our lead times six to eight weeks. So that's what I'm referring to.
So the backlog is filled up pretty nicely across the board.
That's where I was referring to make.
Okay and to that point on backlog.
You you know trying to.
Get a better sense for how you derive your 8% top line growth guidance.
Can you comment at all in terms of what your visibility is here based on what you're seeing in terms of backlog or with new customer wins.
So curious if there was any way to differentiate between hydraulics and electronics and for electronics specifically.
How resilient do you think.
The health and wellness component of the business will be in 'twenty. Two just given the very difficult comparisons that you have relative to 2021.
[laughter], yeah suddenly so let's start with the most difficult one on the health and wellness.
No clearly Mig you know I'll be going to see an additional you know.
40% to 50% year PNC. There's no are we going to see this business falling off the cliff D&C is always or no.
You know we have it.
Really position ourselves.
With all the lead time and.
No we have one manufacturing facility, we've just seen Baja Mexico did we have.
Invested in pretty heavily over the last year.
<unk>.
And what was the diversified our markets and customer base.
And.
With the demographic shift even in and in the European and Asian regions.
We are still seeing very strong demand coming out of this market.
And we will continue to see our growth rates on both sides not just them, but boy side, but also on the innovation side.
In terms of growth overall make you know we are.
Well balanced between hydraulics and in electronics.
The vast majority of the granting of the organic growth, it's truly growth not pricing.
And look we we have a strong confidence level with everything we have done here over the last year and a half.
With the new products did we have introduced and continued to it to do as you know.
Coupled with our augmented strategy and.
And the lead times, we have and structuring for product cost around sales and marketing really built this competitive weapon that our backlogs continue to be very strong.
We have pointed out that our.
Our top line is primarily driven based on organic growth only.
And as we continue to work down the leverage our goal was to be at.
Two a slight below two.
But yeah, and we achieved that and we should be able to turn on some.
Quizzes tiv.
Companies here soon so that's kind of where you're on mute.
Yeah, I would also add that our visibility on the backlog side is.
Pretty good in all of the businesses across the segments I'm, especially for the first half of the year, where we have some really good indicators someone's Joseph pointed out the demand in our end markets has been really strong what we've seen towards the end of Q4 and into Q1. So I think we're very encouraged by that.
Okay, and if I may one final one.
Just sort of a clarification on pricing.
No you you you talked about Q1 being a little bit lighter given the timing of pricing deterioration. Maybe you can you can sort of.
Add some additional context on that comment.
I'm trying to square this with Joseph comment that you.
You know the 8% growth guidance is now.
Not really pricing driven.
Based on everything we're seeing everywhere in the world that would [laughter] pricing.
Theory would be a pretty big component to that 8% correct me, if I'm wrong and yeah, but.
Color on that would be helpful.
Okay.
Yeah.
Pricing clearly has some effect on it but the majority of it really is driven by the organic volume most of our pricing strategies and the businesses are rolling out some time in Q1 or towards the beginning of Q2, So we aren't getting a full year effect of them and certainly not a full effect in.
Q1 in any of the businesses, but.
Pricing will drive a little bit more probably in the back half of the year, but we wanted everyone to understand that they are not going to be the primary driver of what we're seeing in Q1, it will be the organic growth piece.
There. So yeah. We're I think we're happy with where we are on on the pricing, but it's not going to have a big impact on Q1.
Okay. Thank you.
Okay.
And can make.
Our next question is from Nathan Jones with Stifel. Please proceed.
Yeah.
Yeah.
Jason are you there.
Hey, Good morning, this is Adam Farley on for Nathan.
Yeah.
Hey.
Your net leverage below your target 2.0 times wage maybe you could talk about your M&A pipeline.
Active is the pipeline and what is what is the current pricing like in the economy.
Mhm.
You know as previously mentioned all of them you know we continue to be you know very disciplined stewards of the business and our shareholders, obviously and our pipeline on the flywheel acquisitions is very strong.
You also have a separate pipeline did focuses on breakthrough technologies with our transformational acquisitions. The pipeline is relatively strong and we have been working on both elements here over the last few months.
Pricing is a mixed bag you know it's it's.
Considering this macro economic environment, you know unfortunately, there have been companies, who have not done as well as to probably should so in some cases, we have seen some attractive.
Targets coming to the market did actually priced pretty decently and priced well.
In other cases.
The multiples are just nuts [laughter]. So you know we're not in any.
Diet situation, because you have to do something.
Yesterday, it was just really sticking to our strategy.
And not buying companies to grow the topline we can do this ourselves very well.
Doses, adding differentiation.
Into the business that will continue make a stop to follow so clearly we are getting closer on some targets.
We've been very transparent about this from day, one as we labored down to the two.
We will start to look at companies again, which we are.
But it would be methodical it will be structured and he will not be too Ed just topline.
Okay.
Okay. Thanks for that and then on the internal side it seems like gross investments or our accretion in 2022 could you provide some color on.
Where those gross gross gross investments are going.
Right.
Yep.
I'll start with Washington, Tricia can take it all the one big component, obviously will be in the capacity.
As Tricia mentioned, the only we are due to our lead times and.
And many new products, we have introduced and continued to introduce you saw a couple of press release, they've just come out very recently.
You know we are watching our capacity very closely and.
A piece of our investment will go and adding additional capacity and also on the opex as well virtually Ah people in Opex dollars.
So that's one big.
<expletive> .
Ponant in Campos, you can take it from there yeah. It's just to point that out on the call. I mean, we have our targets set on being a much larger company. So we're kind of now is building out some of that infrastructure to make sure that we're ready to be that much larger company and this includes.
Some S E resources, whether that's engineering for innovation.
Innovation.
Or.
Our resources for our manufacturing strategy, which is well underway, but clearly as we move around the move operations potentially.
In different locations, we're going to need additional resources on the manufacturing side as well to make sure that those are are playing out well for us as we grow.
Okay.
Thanks for taking my questions.
Yes.
I guess, thank you Adam.
Our next question comes from Jon Braatz, with Kansas City Capital. Please proceed.
Good morning, everyone.
When you breakdown.
Joseph.
When you were previous two questions before them.
A little bit about the price volume.
Hum matrix.
Are you.
Limiting price increases a little bit below.
Below your cost.
Your inflationary pressures are it seems like I would've thought that maybe pricing would be greater but I get the sense that that.
But maybe you have decided to take a little bit less price am I correct in that.
Would you seen here John is you know we have taken pricing.
Pretty much you know throughout last year.
But you also remember comment I made a couple of earnings calls ago in some areas it would be very targeted.
Due to the effect to be already have a very strong offering and strong earnings.
And we wanted to bell instead with.
Pricing was versus market share gain and still be in a position to maintain the top tier margins that our shareholders enjoy it was kind of a methodical approach. It's not one size fits all because we really didn't need to.
It was really taking the stand that we have done so much.
And our operating front that we can protect.
Our day to day, and really went after targeted market shares with the new we can win.
You will see John a little bit of both okay. Okay understand.
Secondly, you know since our since.
Since the invasion in the Ukraine grain prices.
Absolutely surged and.
When you talk to your customer base.
Do you get any sense that the.
The growers around the world are going to ask.
Accelerate their capital spending plans or.
Or take a more measured approach and just sort of wait and see.
Do you get any sense from from again for your your your customer base out there, there's going to be an uptick in an agricultural spending.
Yes, certainly jumped it obviously hasn't been.
On top of our radar in there has been a lot of discussions with all of our customers.
Would we continue to hear and see is quite strong optimism in terms of where we are.
And in the cycle, we can honestly say we.
You know.
We are preparing internally and have been preparing for another small haircut in.
In terms of.
Where the industry is going but I think towards plans have been put now in the back shelf not just on the shelf, but on the back shows because we don't see it.
And and we continue just to see a very strong market at least in in the areas we participate.
So John with.
This would be see [laughter], yeah, yeah, okay, Okay, and one last question.
Relatively speaking it looks like Asia was a little bit in terms of our sales a little bit weaker than than your other markets.
Is there anything there that hum.
Contributors to that relative weakness.
I don't think there's anything specific that contributed to it but yeah. We did see it across multiple end markets, where our China construction, China health and wellness or kind of.
<unk> to pointing down a little tiny.
Hi, Nick.
Or or what but it there's.
Theres nothing specific that we can tie it to but we did note that as well that we saw some softening in China, Okay, alright, thanks very much.
Thank God.
Yeah.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Jeff Hammond with Keybanc capital markets. Please proceed hey.
Good morning.
Good morning.
Just really wanted to go through the margin dynamics, three Q4, Q and what got more difficult specifically and then just how to think about.
So margins for Q2, <unk>, given you know it sounds like supply chain is getting a little bit better labor still a little bit of an issue.
Q3 to Q4 I mean in Q4, we had less work days, we saw some pretty stiff.
Yes.
Cost pressures on the PPP side in Q4 as well.
We had some labor inefficiencies that we pointed out on the call as well due to Oh micron it's challenging.
From from that perspective, but we're also making investments in Q4 as we were heading into 2022, knowing that we're going to see growth again in 2022 off of really a pretty phenomenal 'twenty 'twenty. One number. So we were happy with where we were able to.
And Q4, we had a really strong year in 2021 and now looking into 2022 as we look Q4 to Q1, we are starting to see a little bit of easing up on the supply chain constraints.
Which is encouraging we said, it's not quite material yet to us but.
It's really being driven by a lot of the work that we're doing on the manufacturing and operation strategy. That's going to continue to drive margin growth I pointed out to make earlier that we aren't going to get all of the pricing in Q1 that we will probably in the following quarters, but we're still encouraged by.
What we're seeing on the supply chain side, and our ability on the operation side to really drive improvement.
And what's getting better on the supply chain and saying that you said, it's early but.
Anything specific.
We're just starting to see parts flow a little bit better than we did in Q3 and throughout most of Q4.
We've been able to procure parts, we're starting to get parts in that we've been waiting for for several months that were on very long lead times, but they're starting to come in now I'm on the electronic side in particular that was very challenging as we work through Q2, and Q3 and you know.
At the end of Q4 start to free up a little bit.
Okay. Thanks, so much.
Our next question do you have them.
Our next question comes again from the line of Mig Dobra with Baird. Please proceed.
Hey, Thanks for taking a follow up and.
Kind of wanted to follow up on what Jeff was asking here.
Do you know.
If we're looking at margin sequentially Q4 into Q1 E D.
Do you expect any improvement in margins sequentially to retrench and I'm I'm thinking about revenue in Q I mean normal seasonality I think we'd have your revenue off in Q1 relative to Q4, but we obviously know omicron. It's been an issue in Q1 do you think that normal seasonality cold.
You know this is a really difficult environment for us to try to predict what's going to happen next where we're trying to be cautious in the way that we're approaching.
The business in Q1 could margins improve.
With higher top line revenue theres going to be leverage that we got on some of the fixed costs, but we are still seeing a lot of P. P D flow through and it's a matter of what products, we're making and what products have that P. P b attached to them.
And that's still a daily battle that we're fighting to make sure that we have all the parts to be able to ship product and.
It's encouraging that we're seeing our past dues come down throughout Q1. So I think that's a good sign for where where we can take you know topline and margin in a very tough environment, but.
Yeah.
So in the short I think the answer is it's possible, but we're cautiously optimistic on that answer.
Right and I mean I.
I get it.
The fact that there is a lot of unknowns, but just to make sure that we all kind of have our expectations properly said I mean, we're.
We could be talking about potentially less than 23% EBITDA margin to kind of start out the year, that's essentially what you're saying.
Which would imply you know pretty pretty healthy ramp to be able to get to sort of the midpoint of your guidance. So I guess my question is.
Yeah.
Where are you on a price cost sort of balanced do you do you think.
You think you'd be able to be at least price cost neutral.
Coming in Q2.
With these price increases that you referenced.
Previously on the call.
Yeah, I think that we could be price cost neutral in Q2, it's probably not going to.
Happen entirely in Q1 because of the way the pricing.
Rolling out, but certainly that's our goal to achieve that neutrality.
Or even even better in some cases as we continued with our manufacturing and operation strategy that we're rolling out globally right now that's the whole purpose of that really is to continue to drive margin improvement.
From our own internal perspective, yeah.
I think it's.
Remiss, if I don't remind us there was a similar question.
At the beginning of last year and I certainly hope it does we have established a track record here. What we're doing will just says he's going to do it.
We are in a very similar situation.
Trust me when I'm, telling you if if the situation would be slightly different here with with.
With the supply chain challenges and and.
And labor challenges in freight and what's going on in Europe and in Asia, We would probably never have this conversation right about now so he's just allowing dead.
Precious to work itself out of the system, but we feel overall.
I don't know facing side, the 'twenty to 'twenty two could be another very strong year for us and for our shareholders.
You know I hope, we can all look beyond just this.
These current times, but.
Full year I believe we have demonstrated significant strength and and if the processes and systems in place into products to really really win and with a little bitter.
A little bit of a.
Push it even overachieve our guidance. So there's clearly some caution baked in here by design, because we don't want to get ahead of ourselves, but that's what the market is telling us right now so.
Okay.
Appreciate the color.
Certainly.
Thank you.
There are no further questions at this time I'd like to hand, the call back to management for any closing comments.
Thank you.
So thank you everyone for joining us today, we really appreciate your interest in Helios and very much look forward to updating all of you on our first quarter results in May we remain super confident in our ability to continue to outgrow and deliver value for all of our stakeholders here.
Have a great day and please stay healthy.
Yeah.
This concludes today's conference. Thank you very much for your participation you may now disconnect.
Okay.