Q1 2023 Helios Technologies Inc Earnings Call
Okay.
Welcome to the Helios technologies first quarter 2023 earnings conference call. At this time, all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
As a reminder, this call is being recorded.
This morning, the company was having interim minute technical difficulties during the pre testing on their phone lines. They.
They have posted their prepared remarks on their website in case of any issues that arise with the sound quality of the call.
It is now my pleasure to introduce Tania Almond, Vice President of Investor Relations and corporate Communications. Please go ahead.
Thank you operator, and good day, everyone welcome to the Helios technologies first quarter financial results Conference call, We issued a press release announcing our results 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 matter stomach, our president and Chief Executive Officer, and Tricia Fulton, Our executive Vice President and Chief Financial Officer.
They will spend the next several minutes reviewing our first quarter results.
Discussing our progress with our augmented strategy reiterating our outlook for 2023, and then we will open the call to your questions.
If you turn to slide two you will find our safe Harbor statement.
As you may be aware, we will make some forward looking statements during this presentation and 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 has been provided in our latest 10-K filing as well as our upcoming 10-Q to be filed with the Securities and Exchange Commission you.
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 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.
We have provided reconciliations of comparable GAAP with non-GAAP measures in the table that accompany todays slides.
Please reference slide three and four now.
With that it's my pleasure to turn the call over to Joseph.
Thank you and thanks to everyone on the line joining us.
The vision, we have laid out is really starting to come together.
Thank you.
To execute now augmented strategy. Thank you to all of the Helios colleagues for your tireless work and critical contribution in executing our vision.
We started 2023 with strong topline results our team delivered very good sequential revenue growth of 9%, including double digit from electronics coming off the fourth quarter. We are encouraged by the continuous improvement we have seen at our health and <unk>.
Well in this business over the last few months.
We are protecting the business by achieving a sequential increase in our gross margin, while navigating the macro environment supply chain FX impact.
We are proactively investing through operating expenses over the first half of this year. This will accelerate the integration of our augmented strategy to align our long term cost structure as we continue this journey and prepare for the next wave of global growth.
We view this investment it's more of a step function and how it will play out.
Throw on that.
There are several investment areas.
Sure.
Following the acquisition and integration of several companies.
We announced the opening of two new center of excellence to be completed in Q3.
This is part of the construction highlighting on slide four prudently taking place at the Damen, adding 50000 square feet.
We just see all the lights on and took down to temporarily wall between the addition of an existing building.
We are also starting construction right next to our existing bulk ball facility in Mexico to add 68000 square feet.
Hey, Ken.
To do the work, we previously outlined relating to our manufacturing operating roadmap projects. We have several initiatives, we will execute throughout 'twenty to 'twenty, three and beyond that will drive efficiencies and improvements across the business.
An example of this is moving targeted board assembly and wire harness production from Tulsa to Tijuana.
In fact, we have been implementing this accidents to increase capacity to customer opportunities have been created midstream did we ever expanding and adjusting to.
Third we are happy to announce that we are moving to a regional organization structure for our hydraulics segment.
After reaching a critical mass from the addition of several flywheel acquisitions. The time has come to adjust our structure to position us for the next wave of growth.
A lot of time and planning has been to make this happen.
While our new regional structure Matteo outdoing, our longtime president of cure C will have oversight for the hydraulics in EMEA.
Great mortgage who has been our long standing head of manufacturing and operations.
Was just promoted to president of hydraulics for the Americas.
In December leaving Clark joined Helios is the president of the electronics segment.
Matteo Rick and Lee will work together to support our customers in APAC with our local leadership team in that region.
We now have our updated structure in place that brings strong leadership knowledge of our brands and customers great team chemistry, and lead us who work extremely well together.
Do you expect this new regional structure, the company's center of excellence, and our manufacturing and operating strategy to support growth well beyond a $1 billion total company milestone.
We believe the time is right to make those important investments, which will have a short term impact on our operating margins.
We are executing to our full year outlook with all manufacturing and operating strategy driving productivity and efficiencies.
Texting full year margin and earnings while navigating a challenging operating environment.
Now turning to slide five.
Last week, we announced a definitive agreement to acquire three product element I.
<unk> three is over 55 engineers with expertise in electronics.
Mechanical industrial embedded and software engineering.
That will further diversify our end markets through their experience across medical.
Ralph Highway recreational and commercial marine.
Power Sports health and wellness egg consumer goods, industrial and sports and fitness.
Innovation is the lifeblood of any successful organization.
We expect the acquisition of five three to turbocharge, our efforts to be the most innovative company focused on the intersection of hydraulics and electronics.
Yeah, well equipped tea leaves with significant value added professional services capabilities to solve customers' most complex needs and provide customization for helios platforms and solutions.
Their patented remote platform will provide support in the field for customers and their Iot devices.
Over the 28 year history I have three made a pivot in 2017 to broaden their focus to include cloud connectivity Iot and electronics.
Since that time the growth has really taken off.
It will be a powerful combination to apply to capabilities and expertise against the scale of the global helium business as we approached 1 billion in annualized revenue.
I have three fits perfectly into the telematics and data analytics roadmap, we have been articulating for quite some time. The culture is very aligned with ours. It is a rare opportunity to find a company of this kelly, but to provide top notch engineering and software capabilities.
<unk> did well plug perfectly into our own roadmap vision.
Very pleased to welcome them to the helium family.
Now, let me turn the call over to Tricia to review the financial results and reiterate our outlook. She will then hand it back to me for a few final comments Tricia. Please.
Thank you Joseph and Hello, everyone on slide six through 10, I will review our first quarter 2023 consolidated result.
We saw strong sequential improvement coming off the fourth quarter.
Sequential growth in revenue gross margin and adjusted EBITDA, while investing in our future.
This gives us increasing confidence and how we see the rest of the year unfolding relative to our original expectations.
Industrial and mobile markets realized double digit percentage growth in the quarter over the year ago period.
Within these markets there was growth in machinery construction material handling specialty vehicle power generation oil and gas forestry and renewable energy.
Agriculture demonstrated single digit annual growth, while our health and wellness markets remain contracted compared to the year ago period, but grew 36% sequentially.
Our strong revenue growth over Q4 of 22, 9% was driven by the electronics segment, which was up 17% with the hydraulics segment up 5%.
Year over year, hydraulics was up 8% or 10% in constant currency and electronic up 11%, excluding health and wellness over Q1 'twenty two.
Geographically, we saw growth across all regions sequentially led by EMEA with 15% growth, the Americas and 8% in APAC at 4%.
Over the year ago period revenues declined in all regions, reflecting lower demand primarily in the health and wellness market.
Overall, we had an unfavorable FX impact on revenue of $3 5 million in the quarter compared with the first quarter of 2002.
Most of the FX impact affects the hydraulic segment.
Sequentially gross profit grew 12% and gross margin increased 110 basis points over the fourth quarter driven by higher volumes.
Absolutely what it is that on a year over year basis, the lower volumes impacted our gross profit.
Gross margin compared with last year was impacted by reduced leverage on our fixed cost base on lower sales and the margin profile of acquisition, which were partially offset by favorable sales mix and the impact of price increases.
Our SDA expenses increased 9% sequentially to $38 1 million.
Joseph outlined we are making several important investments at this time, which drove that increase.
Sequentially adjusted EBITDA increased 10% and adjusted EBITDA margin was up 30 basis points over the fourth quarter levels.
We continue to demonstrate we can provide top tier margins through a challenging macro environment.
We achieved this while investing in our future structure to leverage the multiplier effect of integrating our flywheel acquisition.
Our effective tax rate in the first quarter was 22, 8% compared with 22, 4% in the prior year period, reflecting levels of income in domestic versus international tax jurisdiction.
Diluted non-GAAP cash EPS of 72 cents on the quarter reflect higher interest expenses compared with last year at six.
And a four cent impact for FX.
Slides nine and 10 provide visual trends on overall key metrics for the past several quarters.
We estimate the supply chain constraints escalate $12 4 million in sales this quarter relatively flat sequentially and down from $17 6 million in the year ago period.
The coil started we discussed last quarter in hydraulics is slightly improved however, this quarter, we experienced part shortages as well as some of our plant processing delays.
This quarter revealed an inflection point in our electronics segment with absolute revenue dollars growing sequentially for the first time since Q1 'twenty two.
As you know the softness we experienced in the health and wellness market coming off the billing cycle in 2021, what's the driver of that decline.
We remain cautiously optimistic this can become a sustainable trend throughout the rest of the year.
As we said last quarter, we believe the health and wellness market may have bottomed out and we are starting to see the signs of recovery in our 2023 result.
On Slide 11, you will find the highlights for our first quarter Hydraulics segment.
Sales grew 10% on a constant currency basis over the prior year period, and the unfavorable FX impact was $3 3 million acquisitions.
Acquisitions added $13 7 million.
Sequentially. This segment grew 5% over Q4 'twenty two.
The hydraulics segment gross profit increased $1 4 million or 3% sequentially over Q4 'twenty two.
Compared with the prior year period compression and profit dollars was primarily due to material price increases.
Unfavorable FX of <unk> 8 million and restructuring cost of <unk> 7 million.
The gross margin this quarter compared with Q1, 'twenty to reflect higher material and energy costs.
It's Martin was not fully recovered by pricing effort.
As well as a different margin profile of our recent acquisition.
SG&A expenses increased by $2 8 million or 15% year over year and increased 90 basis points to 14, 9% of sales.
The increases were driven by acquisitions as well as the investments we outlined related to the company's strategy. Please.
Please turn to slide 12 for a review of our electronics segment.
This segment is more concentrated in the U S currency had only a minor impact of <unk> $2 million in revenue for the quarter.
Electronic sales decreased over the prior year periods by 37% to $65 5 million with demand across all regions declining as mentioned due primarily to the contraction of the health and wellness market.
When excluding the health and wellness market. The electronics segment grew 11% over Q1 'twenty two.
End market demand was driven by industrial and mobile markets.
<unk> as mentioned, we saw very strong growth in this segment.
Electronics segment gross profit of $21 million grew 44% sequentially over Q4, 2002 with gross margin expanded 590 basis points.
Year over year, the gross profit dollars reflect the slowdown in the health and wellness market.
Gross margin increased 40 basis points over Q1, 2002 level driven by a favorable sales mix.
SCA expenses were managed and declined sequentially, 3% over the Q4 'twenty two level.
Please turn to slide 13 for a review of our cash flow we.
We had solid cash flow generative.
In Q1, we generated $12 3 million in cash from operations.
Cash and cash equivalents totaled $36 3 million up 10% over the year ago period.
Capex came in at 4% of sales for the quarter in line with our expectations to support our strategic investments for future growth as Joseph outlined on slide four.
And we recently paid our 100 steps sequential quarterly cash dividend.
Free cash flow was $72 $1 million on a trailing 12 month basis with a conversion rate of 88% compared with 79% for the full year of 2022.
You can see on slide 14 that we have a solid balance sheet and financial flexibility to execute our strategy for growth.
Total liquidity at the end of the quarter was $91 million.
Our net debt to adjusted EBITDA leverage ratio was two five times, reflecting the acquisition of <unk>.
We estimate pro forma for our recently announced <unk> three flywheel acquisition, our net debt to adjusted EBITDA leverage ratio will be approximately two six times.
As a part of that transaction a good portion of the deal consideration will be paid in Helios equity.
The talented engineering resources with our long term success of our combined strategy.
As you know we have a well established track record of managing our leverage ratios as we execute on our acquisition strategy.
As we increase above our target level for our recent acquisition, we have been able to quickly delever back to or below our target leverage ratio of two times based on our cash generation.
Turning to our 2023 outlook. Please reference slide 15 to 17.
We are reiterating our outlook for growing revenues to between $910 million to $940 million this year.
That would imply a 3% to 6% annual growth over 2022 and over 20% growth compounded over the last three years since 2020.
We continue to expect to be able to reach our 1 billion revenue milestone with top tier margins on a run rate basis, ending the fourth quarter of 2023.
Based on our strong sequential revenue growth in the first quarter. We now estimate our first half to second half revenue split to approximate 47% to 53% respectively.
With the timing of the investments, we outlined and the higher revenues in the back half of the year. We expect approximately a 100 to 250 basis point sequential improvement in EBITDA margins as we work toward our year end run rate target.
Importantly, we still see a path to deliver our original target set at our last Investor day to achieve a three year CAGR of approximately 22% growth in non-GAAP cash EPS at the midpoint of our expected range for 2023 of $3 95.
To $4 10 per share.
I would like to hand, it back over to Joseph for some closing comments before we take your questions.
Thank you so much to Asia, we are off to a solid start in 'twenty to 'twenty three we continue to build on the strong foundation, we established over the last few years by executing the augmented strategy we laid out.
We remain focused on being an industry leader in innovation and providing our costa most of their attention and dedications to have come to expect.
We continued to acquire a high quality portfolio of flywheel acquisitions that advance our technologies with industry, leading products and solutions.
We are making significant progress implementing our manufacturing and operating strategy as we diversify revenues and market, while protecting our business and margins, all which has accelerated our growth.
So as we progress into 'twenty, two 'twenty, three our vision and goals remain unchanged.
We believe we can protect the business cash flow and earnings and that the helix business system will continue to provide the structure and discipline to execute our long term plans.
Through our organic and acquired innovations we have created a pure play hydraulics and electronics business will continue to drive shareholder value well into the future.
With that let's open up the lines for Q&A. Please.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
To ask a question you May press star one on your telephone keypad.
But as you talk about indicate you're locked into the question queue.
You May press Star two if you would like to remove your question from the Q4.
Participants using speaker equipment, it may be that sort of pick up your handset before pressing this point.
Our first question comes from a lot of Jeff Hammond with Keybanc capital markets. Please proceed with your question.
Hey, good morning, everyone.
Good morning, Jeff Good morning.
Yeah. It was just.
Is there a way to quantify kind of the one time investments or upbringing expenses Q1and what that looks like into <unk> and then just.
Maybe unpack a little bit more the you know the cadence of margin improvement I. You know you did 20 this quarter I think your exit run rates 25, just you know how do we get there. Thanks.
Yeah, Good morning, Jeff.
You know when we looked at.
The acquired companies and in particular the last two.
The wind really smoothly and and.
It had been pretty swiftly pretty nicely so with everything we have going on in terms of integration in terms of you know investing into capacity. So it's capacity investments are not dumb.
Who are waiting for the sales to come there really done methodical anticipating.
And having some line of sight that orders are underway. So to say so very similar approach to what we have done end of 2020 into 2021 proactively invest into our future and really setting up the lines in the right way.
In terms of material flow getting somewhat people Ian did we need and in having a short do a manufacturing between sun and Damien here so to transition goes very smoothly.
So all and did investment pull ahead into Q1, you just roughly around $2 million.
And we anticipate once we up and running obviously that step function in terms of margin to improve quarter over quarter.
Yeah.
Okay, and then just didn't health and wellness can you just talk about what's driving about some you know confidence in the inflection is this simply destocking behind us or is there.
You know some new wins in there maybe just a little more color. Thanks.
Yeah look we said last time, just that you know we started to get a sense for the business has stabilized you know we have spend a lot of time boots on the ground with customers.
Dealers distributors you name it.
Shows and.
You know we are continuing to see a positive trend in the right.
Directionally for.
For good three or four months now so.
We don't see any destocking per se to the new orders and the inventory levels are starting to come down.
So we are.
We are cautious and communicating our message, but it's clearly the trend is clearly going into right direction.
Okay, and then just if I could sneak in the last one it seems like.
A lot of companies are talking about supply chain improvements kind of a beacon of friction costs around you know spot buys for electronics expedited freight.
It seems like you guys are still seeing some challenges maybe just give us line of sight to when you think you'll start to see some normalization of supply chain.
We have already seen some normalization across specifically electronics there are a few things that we're still having issues getting either on a timely basis around the quantities that we need them, but for the most part we are seeing improvement and we're starting to see them a little bit of cost down as well.
Well I think our teams are doing a very good job in being able to.
Look across our supplier base globally, and finding the best place to procure the parts I think you saw that the amount of sales that was being held back by supply chain, especially in electronics came down this quarter. So we're encouraged by that.
Okay. Thanks, so much.
Thanks, Jeff.
Our next question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.
Hey, good morning, guys. Thanks for taking a couple of questions.
Maybe you go back to good morning, so much Joseph.
Prepared remarks on the the new regional structure for Hydraulics, and you know kind of just talk a little bit more about how that fits into the strategy going forward.
Sure Chris Good morning to you thanks for joining us as well.
You know look this is again, a part of our Ah well laid out journey did we communicated in our last Investor day.
We said when we get to a point.
We needed to have a sharper focus on our leverage you know we have a well established team within.
Our first group, we invested significantly not just in capacity, while manufacturing operations, but also talent did it did towards proactive investments were done to support the upcoming regional structure. So what youre going to see here is.
You know one team cutting across.
The European region and Middle East.
<unk> really just drive leverage comment consistent processes systems, our customers are very much informed and aligned and supportive over the journey. So just a higher level, Chris of discipline speed and focus to executing.
Against our vision I think this also flows in very well with what we've been talking about in the region for the region for quite a while we've now gotten to the critical mass within each of the regions given some of the acquisitions that we made over the last few years that really give us the ability to bring that to the forefront and be able to utilize.
The capacity and resources that we have in each region.
Got it I appreciate that.
And maybe just switch gears, a little bit, but can you talk a little bit about the the energen roll out you know the kind of the expectations for the balance of 'twenty three and are there specific milestones that you're thinking about.
Yeah, we're we're still looking at the testing that we're doing with a few of the customers specifically on energen and we're getting feedback that there's some good opportunities for it but we do still have more testing that we need to do before we can roll that out on a larger scale.
I think we do anticipate that we're going to get some revenue in 2023 out of that but it's probably not going to be material. This year, but it's setting us up very well to roll that out broader probably into 'twenty four.
Yeah.
Got it I appreciate it I'll leave it there thanks guys.
Thank you.
Yeah.
Our next question comes from the line of Big debris with Robert W. Baird. Please proceed with your question.
Thank you.
Good morning, everyone can.
Can we put a finer point on your expectations for the electronics segment, maybe give us a sense here as to how you envision revenue progressing first half second half what's embedded in your outlook.
And you know what you've seen in Q1 versus your initial expectations. When you. When you first issued this guidance.
Tricia will get into the numbers he is pulling it up right now make but in the meantime, good morning to you.
You know Rob.
But really the biggest change was did consistent.
Improvement trend in the health and wellness.
We still anticipated some spotty some spotty or the.
Trend, but it has been really in.
<unk> to see that it's it's going the right direction and then the second part we anticipated actually and it is going exactly according to plan.
In some cases better than plan is that continuous strength.
Within our innovation business.
Thats really going in a nice direction, largely driven based on our new product investments, we have done over the last two or three years.
The orders are flowing theyre coming there's no consolation team is performing extremely well and having now the balance between.
You know our U S manufacturing and Tijuana.
It gives us additional uplift on the margin and the journey will continue.
Over the next 12 to 18 months as we fully capitalize on this low cost footprint, we are investing in with the second factory now.
With regard to the first half second half part of your question Mig we're looking at a very similar breakout to what we see on a consolidated basis of the 47 53.
<unk> is expecting little bit of a pickup as we roll through the quarters.
Sequentially on the elbow a business and it includes some of the rollout that we're continuing to have on the innovation side as well for the new products that are coming out.
You know.
It's Matt here with your.
And I don't know.
Correct me, if I'm wrong, but it seems to me like.
The assumption here is that revenue ramp sequentially by call it $10 million relative to Q1, and then that youre going to get to somewhere around that $80 million run rate for the back half electronics.
And look I mean, there there's just been so much variation in this segment that I'm just trying to make sure that we all level set of expectations that we understand what you guys are thinking and Ah I mean, please confirm if I'm wrong, but if that's correct you would look to me like the $80 million run rate would not really be all that far from where we were in two.
'twenty one so.
Implicitly the health and wellness market. How do you think is going to progress in 'twenty, three and what the exit run rate into 2004.
Sorry, there was a lot for that question.
I was going to say is there a question in there.
I just kidding I felt I think that you're 80 number from a run rate perspective for all of electronics by the time, we are rolling out to Q4 seems very reasonable.
I don't know that we want to necessarily break that down quite yet for health and wellness, we're still trained.
See where the market is going and how quickly. This is going to pick up we are seeing that orders are picking up every month.
On an overall basis, but we probably still aren't quite to where we we want to be to be able to break that out a little bit more specifically and make when we initially you know put our guidance together at the 19% to 940, we had made some assumptions and I'm pretty conservative ones around what Hal.
And wellness might do in the year. So you know we assumed.
Could potentially go back to pre acquisition levels, and then kind of had a band of assumptions you know above and below that and so you know I think we we felt like we started the year from a pretty conservative place.
Okay I.
I guess my final question.
Going to hydraulics.
On the on the slides.
Some comments on price cost.
You haven't really been able to recover some of this cost inflation with your pricing.
And you know given the fact that your lead times are relatively low you don't really run with a ton of backlog I'm sort of curious as to why youre still seeing this lag.
And how do you expect to manage that going forward.
Yeah.
Where.
Very close to even on the price cost part on the hydraulics piece, but there's still some things that are from an inflationary perspective, hitting us probably a little bit more than we expected energy cost continues to be one of those logistics continues to be one of those as well. We also have a lot going on in that segment.
Right now.
Looking at the.
Centers of excellence that we're rolling out this new regional strategy and we do anticipate that we're going to see growth from both of those things, but those aren't going to happen more in the back half of the year.
So that's really where we're going to start to get the leverage.
And a big part of this Mega is is every time.
To be Super transparent here, you know, we are adding significant amount of capacity in it Damon and moving pretty much.
And Tayo manifolds operation so to say from one state to another.
And after.
After them so many of them in the past eventually you learn how to do them well. So this one has to go right has to go well and.
And it's growing extremely exactly according to plan. So there's a little bit of proactive investment here to assure once it's done it's done right and we can come out of the gate swinging as this business with the Diamond business will go.
And almost triple overnight. Once we are complete in terms of revenue. So you'll see some of the calls into that but once that is that is behind us and the operational that's going to go away.
I appreciate that I guess my my question was really more on the on the pricing side.
Got it there's sort of one thing that were hearing consistently from companies is that.
Pricing power has been significant and you know many of them are more than fully caught up on a on a permanent basis. So.
You know historically in hydraulics, you have enjoyed good pricing power.
But again I'm wondering if anything changed here given the lag.
No no nothing changed we did put through pricing.
In the beginning of the year on the C D T side or at least on the funding side right.
Sometimes there are restrictions on when we can look at pricing on the OEM side for faster specifically.
Okay. Thank you.
Again, thank you Mick.
Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your questions.
Good morning, this is unemployed on Sundays.
I wanted to start with the hydraulics Todd.
Top line.
I appreciate the color you gave in the prepared remarks, but could you maybe give a little more detail on which end markets and regions are showing the most strength and are you seeing any weakness in any areas.
Yeah, so on the hydraulics side T M.
You know.
When we look at.
On the <unk> side or <unk> side, you know the areas to continue to be relatively strong.
At the construction side the AG side.
The general industrial piece.
General mobile piece continues to be strong.
Bill and more is still you know our international businesses in China.
So kind of a mixed bag.
So just open U S. Construction overall remains to be good not great but good.
Construction is going well.
So overall it is.
<unk> stable.
On our end.
Did we can see right now.
Yeah.
Okay, but would you be taking my question.
Thanks Anna.
As a reminder, ladies and gentlemen, it is star one to ask a question.
Our next question comes from the line of Jon Braatz with Kansas City Capital. Please proceed with your question.
Hey, everyone.
Good morning, John .
Joseph a.
I know, it's small, but I had a couple of questions about the I three acquisition.
You used the term term turbocharge and you also talked about how the growth of the company has really accelerated since 2017.
I guess I'm trying to understand how you will use this business.
And maybe to an extent.
If you had this business three years ago.
What would you have been able to do with it and I'm trying to get a sense of maybe the opportunities that the new opportunities that may be in front of you with this acquisition.
Yeah.
John I'll tell you I I really appreciate that question.
This is.
This is really especially one that we've been looking for quite honestly from day number one not just from a cultural and talent standpoint, but as you heard me speak for quite some time now about.
Our closing our product gap and and being able to.
Started switching over to a forget it system sale.
And eventually you guys heard me talk about you know telematic application and having.
Software embedded into.
Into our <unk>.
Into our technology towards guys do exactly that.
This was kind of the missing piece that we can build upon.
Throughout our entire company, but at the same time it provides us a vehicle to really now being able to compete as a pure play hydraulic extended electronics.
And Hefted food told.
Into the customer base, we have been talking about for a couple of years now so the turbocharge comments came in as we needed to figure out how do we.
Not just gets back then, but how do we provide the necessary information and data.
The customers need it.
And at some point in time.
A.
You know recurring revenue stream that is kind of at the entry point for us to get us to this point.
Going to invest in inter company and.
And continue to build out that Iot application did we need.
Secondly, also plug it into their markets with a really strong with our brand so yeah.
Yes, it's smaller scale on the revenue side, but its one of two things John you plug in.
The right phone days and so building out that was in Peru, if you've got a pretty nice house at the end of the day. So we are really excited about that.
Joseph This is more of an OEM relationship type of business.
Pretty much yes, so revenue driven and Oems Okay, alright, Thank you very much.
You bet. Thank you.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Great. Thank you operator, and thanks, everyone for joining US today. We appreciate your interest in Helios and we look forward to seeing you out and about and a number of different investor conferences that we'll be participating in our third quarter. We look forward to updating you on our second quarter results in August please feel free to reach out to me with.
Any follow up questions and have a great day. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.