Q1 2024 Helios Technologies Inc Earnings Call
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Operator: Greetings and welcome to the Helios Technologies first quarter 2024 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tonya Allman, Vice President of Investor Relations and Corporate Communications for Helios Technologies. Thank you. You may begin.
Speaker Change: Greetings and welcome to the Helios technologies first quarter of 2024 financial results Conference call.
At this time all participants are in a listen only mode.
Speaker Change: A brief question and answer session will file a formal presentation.
If anyone should require operator assistance during the conference. Please press star here on your telephone keypad.
Speaker Change: As a reminder, this conflict is being recorded.
It is now my pleasure to introduce your house, Tania Almond, Vice President of Investor Relations and corporate Communications for Helio technologies. Thank you you may begin.
Tonya Allman: Thank you, Operator, and good day, everyone. Welcome to the Helios Technologies First Quarter 2024 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 hlio.com.
Tania Almond: Thank you operator, and good day, everyone welcomed to the Helios technologies first quarter 2024 financial results Conference call, We issued a press release announcing our results yesterday afternoon.
Tonya Allman: You will also find slides there that will accompany our conversation today. On the line with me are Joseph Matasevic, our President and Chief Executive Officer, and Sean Bagan, our Chief Financial Officer. They will review our first quarter results along with our outlook for 2024. We will then open the call to your questions.
Speaker Change: Do not have that really it is available on our web site at H L. I O Dot com.
Tania Almond: Also find slides there that will accompany our conversation today.
Joseph Mattera: On the line with me are Joseph matter of stomach, our president and Chief Executive Officer, and Sean Vegan, our Chief Financial Officer.
Joseph: We'll review our first quarter results, along with our outlook for 2024.
Speaker Change: And open the call to your question.
Tonya Allman: 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 other factors that could cause actual results to differ materially from those presented today. These risks and uncertainties and other factors have been included in our 10-K filing as well as our upcoming 10-Q to be filed with the Securities and Exchange Commission.
Speaker Change: If you turn to fly do you will find our safe Harbor statement.
Speaker Change: You may be aware, we will make some forward looking statements. During this presentation and meet you in a session.
Speaker Change: [noise] statements apply to future events that are subject to risks and uncertainties as long as the other factors that could cause actual results to differ materially from those presented today.
Speaker Change: These risks and uncertainties and other factors have been provided in our 10-K filing as well.
Speaker Change: What was our upcoming tend to to be filed with the securities and Exchange Commission.
Tonya Allman: 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 have provided reconciliations of comparable GAAP measures with non-GAAP measures in the tables that accompany today's slides. Please refer to slides three and four now. With that said, it's my pleasure to turn the call over to Joseph.
Speaker Change: Can find these documents on our website or at S. B C Dot Gov.
Speaker Change: 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.
Speaker Change: You should not consider the presentation of this additional information.
Speaker Change: Isolation or as a substitute.
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Speaker Change: We have provided reconciliations of comparable gap with non-GAAP measures in the tables that accompanies today's blood.
Speaker Change: Please reference like three and four now.
Speaker Change: With that it's my pleasure to turn the call over to Joseph.
Joseph Matasevic: Tanya, thank you and welcome everyone. We had a solid start to the year, and our results validate our commitment and ability to deliver to plan. Our Helios team continues to demonstrate their dedication to keeping our promises and meeting our responsibilities to our customers. Thank you to the global team for a great quarter out of the gate.
Joseph: Thank you and welcome everyone.
Joseph: We had a solid.
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Joseph Matasevic: I am encouraged by the improvement in the fourth quarter with demand setting in all regions. We just completed a trip to Asia, and not only are we starting to see green shoots in our results there, but we see long-term opportunity for real growth. While global, geopolitical, and macroeconomic conditions remain somewhat in limbo, there are clearly pockets of strength regionally and by end markets.
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Speaker Change: Political and macroeconomic conditions to remain somewhat neutral.
Speaker Change: Clearly pockets of strength regionally.
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Joseph Matasevic: The higher volume, financial discipline, and structured actions we took to protect the business delivered strong, sequential improvement. We saw this in our margins, which we expect will continue to expand as we keep executing our plan. Importantly, we are comfortable with affirming our previous guidance for 2024.
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Joseph Matasevic: Behind the scenes, we continue to make great headway as a newly integrated operating company. We have enhanced a couple of new subsystems and have officially entered the commercial food service space. And we have only just begun.
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Joseph Matasevic: We expect this market to become meaningful for us over the next several years. Importantly, we have created innovative city solutions that add value in every application. Our innovations can provide better end-user control, remote access, and greater durability with lower power consumption, enhancing total cost of ownership. We continue to advance several other opportunities as we leverage our unique position at the intersection of hydraulics and electronics. In fact, all the opportunities we previously described are still in play, and we continue to work closely with our customers to identify new ones.
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Joseph Matasevic: As we have brought the various pieces together through flywheel acquisitions and internal innovation, our system solution offerings are really starting to resonate with our customers. This has been repeatedly validated through direct feedback received from our recent customer base.
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Joseph Matasevic: Many of our distributors are making significant expansions to their own capacity, gearing up to grow with us. They understand the strategic value and opportunity of participating in subsystem sales with Helios and are already selling several examples in the market today. Just as exciting, we also announced that we have partnered with WaterGuru. As you know, having clean and balanced water is a critical factor for any water-based application.
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Joseph Matasevic: We are bringing to market an industry-leading water sensing and automated treatment solution for the spa, plunge pool, and cold plunge market. This is a truly unique collaboration where we are exclusively licensing and integrating their patented technology for the worldwide spa OEM market. This is another example of how Helios is a leader in driving innovation for the markets we serve. Additionally, this will provide another recurring revenue opportunity for our business model. You will hear more about this as the year progresses.
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Joseph Matasevic: As a part of our integration progress, we are improving our financial forecasting and instilling stronger financial processes and discipline across all the organizations. All of our operating companies are more tied to our strategy than ever before. I will now turn the call over to Shawn to discuss the progress we saw this quarter in our results.
Speaker Change: As a part of our integration progress, we are improving our financial broadcasting and feeling stronger financial processes and discipline across all the organization.
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Speaker Change: I will now turn the call over to Sean to discuss the progress we solve this quota.
Sean Vegan: Sean please.
Shawn Bagan: Thank you, Joseph. And hello, everyone.
Sean Vegan: Thank you Joseph and Hello, everyone.
Shawn Bagan: I will start to review the first quarter results, talking to slides 5 through 11. As we enter a new year, we took the opportunity to redesign our earnings presentation. We streamlined some repetitive data between these slides and the press release.
Sean Vegan: Start to review first quarter results talking to Spike Spike the 11th.
Sean Vegan: As we enter a new year, we took the opportunity to redesign our earnings presentation.
Sean Vegan: Streamline some repetitive data between these slides and the press release. In addition, we have been.
Shawn Bagan: In addition, we have incorporated new insights on our operational performance and the markets we serve. Moving on to the first quarter results, Sales came in at $212 million, above our expectations due to stronger demand and order fulfillment at our Balboa business. This drove the increase in electronics revenue both year over year and sequentially. Compared with the fourth quarter, hydraulics came off a low base as the mobile market and the APAC region really began to turn positive.
Sean Vegan: Corporate new insights on our operational performance in the market research.
Sean Vegan: Moving through the first quarter results sales came in at 212 million above our expectations do stronger demand in order <unk> at our double a business.
Sean Vegan: This drove the increase in electronics.
Sean Vegan: Over here and sequentially.
Sean Vegan: Paired with the fourth quarter hydraulics came out of a low base mobile market and the APAC region really began to turn positive.
Shawn Bagan: We expect that normalization of inventories, order patterns, and demand will provide moderate support through the year from these categories. In addition, our new Hydraulic Manifold Solutions Center of Excellence, located in Mishawaka, Indiana, is continuing to ramp up.
Sean Vegan: You expect that normalization of inventories order patterns and demand will provide moderate support through the year from these categories.
Sean Vegan: In addition, our new hydraulic maniples solution center of excellence located in Mishawaka, Indiana is continuing to ramp up.
Shawn Bagan: Geographically, we were up in all regions quarter over quarter. Compared with last year, we had improvements in the Americas and APAC of 1% and 5%, respectively. However, there was a 7% decline in EMEA, reflecting the slowing of the broader agricultural market, as well as other geopolitical impacts that continue to negatively impact the region.
Sean Vegan: Graphically, we were up in all regions quarter over quarter compared with last year, we had improvements in the Americas and a pack of one per cent and five per cent respectively.
Sean Vegan: 7% decline in EMEA reflect in the swelling of the broader agricultural market as well as other geopolitical impact continues to negatively impact the region.
Shawn Bagan: On a year-over-year basis, health and wellness is performing strongly. We expect the spring season to remain solid, while the latter half of the year will likely level off, more so from a seasonality perspective. Marine, agriculture, and recreational vehicle markets are in various stages of their own cycles and, for now, have moderated at a lower level compared with the last few years. The improvement in volume helped drive gross profit up 22%. Gross margin expanded 310 basis points compared with last year's fourth quarter, with further room for improvement as the year progresses.
Sean Vegan: On a year over year basis health and wellness is performing strong.
Sean Vegan: We expect spring season to remain solid while the latter half of the year will likely love Allah more so from a seasonality perspective.
Sean Vegan: Marine agriculture, and recreational vehicle markets are in various stages of their own cycles and for now moderated at a lower level compared with the last few years.
Sean Vegan: The improvement in volume helped drive gross profit up 22%.
Sean Vegan: Gross margin expand at 310 basis points compared with last year's fourth quarter with further room for improvement.
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Shawn Bagan: Gross profit declined $3.8 million, and gross margin contracted 160 basis points year-over-year to 31.7%. As a reminder, our health and wellness business has a lower average gross margin profile that is offset with lower SEA expenses, which in a normalized capacity utilization structure gets to a very similar operating margin as the rest of our electronic segment. As it ramps back up to full capacity to the degree that it outperforms our plan, we can have a short-term mixed impact.
Sean Vegan: Gross profit declined $3.8 million in gross margin contracted 160 basis points you over here she's 31.7 per cent.
Sean Vegan: As a reminder, health and wellness fitness has a lower average cross marching profile that is upset with lower S. C. A expenses, which in a normalized capacity utilization structured gets to a very similar operating margin as the rest of our electronic segment.
Sean Vegan: As in his ranking back to full capacity to the degree that outperforms. Our plan. We can have a short term <unk> of course, we are focused actions. We are taking to continue to improve productivity rationalized cos and deliver higher margin profile solutions, which will also continue elevating those margins.
Shawn Bagan: Of course, we have focused actions we are taking to continue to improve productivity, rationalize costs, and deliver higher margin profile solutions, which will also continue elevating those margins. Non-GAAP-adjusted operating margins of 14.5% in the quarter were nearly 200 basis points above our low in the trailing quarter. Our facilities are positioned to realize further operating leverage inherent in the business as our volumes continue to grow along with disciplined pacing of investments and expenses. We were encouraged by the improvements delivered in the first quarter but acknowledge we are not yet optimized and still have work to do to get back to historical financial returns.
Sean Vegan: non-GAAP adjusted operating margins of 14.5 per cent and a quarter nearly 200 basis points above are low and the trailing quarter.
Sean Vegan: The cities are positioned to realize further operating muggeridge inherent in the business as our volumes continue to grow.
Sean Vegan: Long as disciplined tasting of investments and expenses.
Sean Vegan: And encouraged by the improvements delivered in the first corner.
Sean Vegan: Knowledge, we are not yet optimized and still have work to do to get back to the store and financial returns.
Shawn Bagan: We have added both cost of goods sold and operating expenses, reflecting our investments to expand our capabilities and capacity. We expect these investments to yield expanded volume and to grow into higher-margin business, enabling us to revisit historical return levels. Year over year, adjusted EBITDA in the quarter of $38.6 million for 18.2% of sales contracted 210 basis points for all the reasons I've discussed. However, encouragingly, and despite the unfavorable segment sales mix, the sequential improvement of 150 basis points reflects the impact of our focused efforts to deliver profitable sales growth and disciplined spending. Our effective tax rate in the first quarter was 23.2 percent.
Sean Vegan: We have added in both cost a good show and operating expenses, reflecting our investments to expand our capabilities and capacity.
Sean Vegan: Expect these investments to yoga expanded volume.
Sean Vegan: Rowe into higher margin business, enabling us to revisit historical return levels.
Sean Vegan: Year over year adjusted EBITDA in the corner of 38.6 million or 18.2 percentage of sales contracted 210 basis points for all the reasons I've discussed.
Sean Vegan: And despite the unfavorable segment sales mix the sequential improvement of 150 basis points reflects the impact of our focus efforts to do other profitable <unk>.
Sean Vegan: Spending.
Sean Vegan: Alright tax rate in the first quarter was 23.2%. This is driven by the original mix of different tax jurisdictions and the impact of discrete items.
Shawn Bagan: This is driven by the regional mix of different tax jurisdictions and the impact of discrete items. Diluted non-gap EPS of 53 cents in the quarter reflects the impact I've mentioned. It also includes a 4% impact from increased interest expense from higher interest rates and average debt balances compared with last year. 335 segment On slide 9, you will find the first quarter review of our hydraulic segment; sales were up 7% over the trailing period with improvements very broad-based across nearly all markets. However, sales were down 4% over the prior year across several end markets against more challenging comparables despite the benefit of $1.9 million in acquired revenue.
Sean Vegan: Diluted non-GAAP E. T. S 53 cents in the quarter reflects the impact is mentioned.
Sean Vegan: It also includes a four cents impact from increased interest expense from higher interest rates and average that balance as compared with last year.
Sean Vegan: Briefly segment on slide nine you will find the first quarter review of our hydraulic segment.
Sean Vegan: Sales were up seven per cent over the trailing period with improvements very broad based across nearly all markets sales were down 4% over the prior year across several and markets against more challenging comparable despite the benefit of $1.9 million in acquired will Avenue.
Shawn Bagan: We had $0.2 million unfavorable foreign exchange impact on the segment compared to the prior year period. However, sequentially, hydraulic sales improved by a relatively healthy $8.7 million. sequentially, gross profit increased $3.3 million, or 8%, and gross margin expanded 50 basis points, reflecting the growing volume. Gross profit declined $5.5 million year-over-year, resulting in a gross margin contraction of 260 basis points, primarily due to fixed cost absorption on lower volume and higher labor costs. SEA expenses grew by $0.9 million, or 2%, compared with the prior year period.
Sean Vegan: We at 0.2 million unfavorable foreign exchange impact. So this segment compared to the prior year period sequentially hydraulic sales improved a relatively healthy 8.7 million.
Sean Vegan: Sequentially gross profit increased $3.3 million or 8% and gross margin expanded 50 basis points, reflecting the growing volume.
Sean Vegan: Gross profit declined $5.5 million you over here, resulting in gross margin contraction of 260 basis points, primarily do the fixed costs absorption and lower volume and higher labor costs.
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Shawn Bagan: Our cost containment measures help to offset the run rate impact of acquisitions with labor and operating costs while maintaining our investments in R&D. Please turn to slide 10, and we'll discuss the electronics segment. Given its U.S. sales concentration, foreign currency has no effect on this segment currently.
Sean Vegan: Our cost containment measures help to offset the run rate impact of acquisitions with labor and operating costs, while maintaining our investments and R&D.
Sean Vegan: Please turn to slide 10, and you will discuss the electronics segment.
Sean Vegan: Given you a sales concentration foreign currency has nominal best for this segment currently.
Shawn Bagan: Year-over-year, electronic sales improved by $4.1 million, or 6%, including $2.0 million in revenue from acquisitions, double-digit growth in health and wellness, along with positive contribution from off-road vehicles, partially offset by the continued weakness in the marine and industrial end market. The electronics segment expanded $9.9 million, or 17%, driven by double-digit growth in health and wellness and modestly improving conditions in the industrial market. Higher volume led to a $1.7 million increase in gross profit year-over-year, or 8%, resulting in a gross margin of 32.6%, up 50 basis points. Sequentially, electronics gross profit was up 8.6 million, or 61%, and gross margin expanded 900 basis points.
Sean Vegan: Year over year, electronic sales improved by $4.1 million or 6%.
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Sean Vegan: Double digit growth in health and wellness, along with positive contribution from off road vehicles, partially offset by the continued weakness in the marine in industrial and markets.
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Sean Vegan: Electronics segment expand at $9.9 million or 17%.
Sean Vegan: Double digit growth and health and wellness and modestly improving conditions in the industrial markets.
Sean Vegan: Your volume to 1.7 million increase in gross profit year over here for 8%, resulting in gross margin of 32.6 per cent of 50 basis points.
Sean Vegan: Sequentially electronics gross profit.
Sean Vegan: 8.6 million, 461% gross margin expanded 900 basis points.
Shawn Bagan: The sequential revenue and gross profit growth drove solid operating leverage in the segment. Compared with the fourth quarter of 2023, operating income grew $6.1 million, or 610%, and margin expanded 850 basis points. This is where the incrementals start to really show through in our business model as volume returns. SEA expenses were up 16% compared with last year and up 19% compared with the trailing fourth quarter. We did not close the Schultes acquisition until the end of January last year and the I3PV acquisition until the end of May. So the year ago period did not have either of those fully loaded into Compara.
Sean Vegan: The sequential revenue in gross profit drove solid operating luggage in the segment.
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Sean Vegan: <unk> income grew 6.1 million for 610% and margin extended 850 basis points. This is worth incremental start to really show through in our business model is the volume returns.
Sean Vegan: S. G expenses were up 16% compared with last year, 19% compared with the trailing fourth quarter.
Sean Vegan: We did not close the showpiece acquisition until the end of January last year, and they I three P. D acquisition until the end of May So the year ago period did not have either of those fully loaded into the compare.
Shawn Bagan: Please turn to slide 11 for a review of our cash flow. This quarter demonstrated our financial priority to shorten our cash conversion cycle. We generated cash from operations of $17.8 million, up from $12.3 million in the first quarter of last year. The first quarter is historically our weakest for cash generation, so this level coming out of the game is encouraging, but also leaves room for further improvement. We had free cash flow of $12.3 million in the quarter, measurably improved over the prior year's first quarter of $3.2 million. This was also our first sequential quarterly inventory decline in the past seven quarters.
Sean Vegan: Please turn to sign 11th review of our cash flow.
Sean Vegan: This quarter demonstrated financial priority to shorten our cash conversion cycle.
Sean Vegan: Generate a cash from operations at $17.8 million.
Sean Vegan: $12.3 million in the first quarter of last year.
Sean Vegan: The first quarter is historically, our weakest for cash generation. So this level coming out of the games encouraging but also leaves room for further improvement.
Sean Vegan: Free cash flow of $12.3 million in the quarter measurably improved over the prior your first order a 3.2 million.
Sean Vegan: This was also our first sequential quarterly inventory declined over the past seven quarters.
Shawn Bagan: We are executing on our inventory reduction plan and expect more optimized inventory management processes to be a meaningful contributor to our improved cash conversion cycle as we step through the balance of the year. Capital expenditures for the quarter of $5.5 million, for 2.6% of sales. We're primarily focused on maintenance CAPEX, tooling, and the expansion at FASTER in Italy. Turning to slide 12.
Sean Vegan: Executing on our inventory reduction plan and expect more optimized inventory management processes to be a meaningful contributor to our improved cash conversion cycle as we stepped through the balance of the year.
Sean Vegan: Capital expenditures for the quarter of $5.5 million for.
Sean Vegan: 2.6 per cent of sales.
Sean Vegan: Primarily focuses uhm maintenance capex truly and the expansion at faster in Italy.
Sean Vegan: Turning to slide 12.
Shawn Bagan: At the end of the first quarter, cash and cash equivalents were $37.3 million, and we had $197 million available on our revolving lines of credit, providing us ample liquidity. Total debt was down modestly from the end of 2023 and has shown steady declines over the last three quarters. At quarter end, our net debt to adjusted EBITDA leverage ratio was 3.08 times.
Sean Vegan: At the end of the first quarter cash and cash equivalents for $37.3 million and we had $197 million available on a revolving lines of credit providing us ample liquidity.
Sean Vegan: Total debt was down modestly from the end of 2023, and it's showing steady declines over the last three quarters.
Sean Vegan: At quarter end, our net debt to adjusted EBITDA leverage ratio was 3.08 times with.
Shawn Bagan: With our targeted ratio between 2 to 3 times, we think at the midpoint of our guidance, we would be close to 2.5 times in ending 2024. Ultimately, as we get closer to the lower end of our target range, we have the ability to flex up for acquisitions and other investments. Turning to slides 13 to 14, we are affirming our outlook for 2024. We are presenting the key metrics here, and you can find the other modeling items in the supplemental slides with no changes to our 2024 fiscal year estimates from what was communicated with our February 2024 press release and earnings materials.
Sean Vegan: With our targeted ratio between two to three times, we think at the mid point of our guidance, we would be close to 2.5 times and in 2024.
Sean Vegan: Ultimately as we get closer to the lower end of our target range, we have the ability to what's up for acquisitions and other investments.
Sean Vegan: Turning the slides 13th 14th we are affirming our outlook for 2024, we are presenting the key metrics here and you can find the other modeling items in the supplemental slides with no changes to our 2024 fiscal year estimates from what was communicated with our February 2024 press release and Ernie.
Sean Vegan: Materials.
Shawn Bagan: As shown, sales are expected to be in the range of $840 to $860 million, adjusted EBITDA in the range of 19.5 to 21%, and diluted non-GAAP earnings per share in the range of $2.35 to $2.75. Given our solid sequential results in the first quarter paired with further sequential bottom line improvements anticipated for the balance of the fiscal year, we are confident in affirming our full year guidance for 2024. As we did for the first quarter, we would like to establish our second quarter estimates for sales in the range of $213 to $218 million at an adjusted EBITDA margin of 19.0 to 20.5%.
Sean Vegan: And Sean sales are expected to be in the range of 842 860 million adjust.
Sean Vegan: Chested EBITDA in the range of 19.5% to 21%.
Sean Vegan: And diluted non-GAAP earnings per share in the range of $2.35 to $2.75.
Sean Vegan: Given our solid sequential results in the first quarter paired with further sequential bottom line improvements anticipated for the balance of the fiscal year. We are confident in the burning a full year guidance for 2024.
Sean Vegan: He did for the first quarter, we would like to establish our second quarter estimates for sales in the range of 213 to 280 million and adjusted EBITDA margin of 19 point out to 25 per cent.
Shawn Bagan: Current demand and order levels support further sequential sales improvements. This incremental expected sequential volume, coupled with operational improvements and disciplined cost management, supports further profitability rate expansion. As we signaled earlier in the year, we continue to expect the first half of 2024 to be tougher on a year-over-year basis. Slide 14 is a new slide intended to provide some understanding of where we see our market and operational drivers by segment. Looking to slide 15, I want to remind you of our financial priorities for 2024.
Sean Vegan: Current demand and order level support further sequential sales improvements.
Sean Vegan: Mental expected sequential volume.
Sean Vegan: Coupled with operational improvements and disciplined cost management support further profitability raise expansion.
Sean Vegan: As we signaled earlier in the year, we continue to expect the first half of 2024 to be tougher on a year over year comparable basis.
Sean Vegan: 514, as a new slide intended to provide some understanding of where we see our market and operational drivers pregnant.
Sean Vegan: Looking to slide 15, I want to remind you of our financial priorities for 2024.
Shawn Bagan: As I've said before, this year is all about execution and driving consistent and predictable performance. We are strengthening the underlying financial discipline and structure of Helios, and we expect the resulting cash generation and profitability will provide improving returns on our investment. Now, I turn it back to Joseph for some closing remarks.
Sean Vegan: I've said before this year is all about execution and driving consistent and predictable performance, we are strengthening the underline financial discipline and structure of Helios.
Sean Vegan: We expect the resulting cash generation and profitability will provide improving returns on our investments.
Sean Vegan: So let me turn it back to Joseph for some closing remarks.
Joseph Matasevic: Thank you very much, John. As we committed, 2024 is the year of execution and elevation as we leverage the strong foundation we have built and start seeing the returns on our invested capital growth. The traction we are gaining on our financial priorities is already showing positive improvements in our results. We will maintain our strong focus and collaboration with our customers, suppliers, and employees, ensuring we have an aligned strategy. When we started this journey several years ago, we discussed perception and other services with our customers, investors, and with our people as we augmented our strategy.
Joseph: Thank you much if you're committed 2024.
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Joseph: We will maintain a strong focus in collaboration with our customers.
Joseph: Liars and employees.
Joseph: We have a number of lines strategy.
Joseph: When we started this journey several years ago, we've completed reception and other service without customers investors and without the ball is the argument that <unk>.
Joseph Matasevic: We continue to value and incorporate the voice of the business in all that we do. In fact, feedback from our customers gives us the conviction to make the investments across innovation, acquisitions, and regional capacity, which has now primed us for growth as the market recovers. With a good deal of integration work completed and our regional structure and protocols improvements in place, we expect to get back to our normalized gross margin levels over time.
Joseph: Continued to value any corporate.
Joseph: Voice of the business in all <unk>.
Joseph: In fact, the feedback from our customers.
Joseph: Give us the conviction to make the investments that girls innovation acquisitions and regional capacity, which is now <unk> <unk> <unk> <unk>.
Joseph: With a good deal of integration work completed and having a regional this direction radical improvements in place.
Joseph: Okay.
Joseph: Who are normalized gross margin by most of the time.
Joseph Matasevic: As many of you know, the way our model is structured is that as volume grows, incrementals show up. We have been redefining Helios and securing our place as a global leader in the industrial landscape that can deliver top-tier margins and cash flow. Our strong foundation, coupled with the methodical investment, sets us up for continued growth and profitability for years to come. With that, let's open up the lines for Q&A, please.
Joseph: As many of you know.
Joseph: The whale marvelous structure <unk> stinker of Mentos Shaw.
Joseph: We have been redefining.
Joseph: Securing I'll place is the global leader in the industrial landscape.
Joseph: Can you believe that that's your mortgages and cash flow.
Joseph: Foundation, coupled with the methodical investment.
Joseph: Softball continue grill.
Joseph: The ability for us to come.
Speaker Change: With that let's open up the lines will Q&A. Please.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Thank you you will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation Tamil indicate your line is my question can you give.
Speaker Change: Give me a quest star two and you would like to remove your questions on the queue.
Speaker Change: For participants using speaker equipment may be necessary to pick up your handset before pressing this darkies one moment. Please while we pulled for question.
Operator: One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.
Speaker Change: Thank you. Our first question comes from the line of Chris more with C. J S. Securities. Please proceed with your question.
Chris Moore: Hey, good morning guys. Congratulations on a good start to the year. Thanks for taking a couple of questions. Maybe we can start on the commercial food service space. Can you maybe just talk a little bit more about the nature of these applications and when you might expect to start them? You know, have them start impacting revenue.
Chris Moore: Hey, good morning, guys. Congrats on it could start to the year. Thanks for taking a couple of questions.
Chris Moore: Maybe we can start on the commercial foodservice space can you maybe.
Chris Moore: Maybe it's just talk a little bit more about the nature of these applications and and when you might expect to.
Speaker Change: You know have them start impacting revenue.
Joseph Matasevic: Good morning, Chris, and thank you. In terms of commercial food services, as everyone is aware, that has been a target market of ours for a couple of years. And we certainly geared up with the product, the technology, and the differentiation we needed to not just compete and enter the market but also, you know, lock up the market in certain applications where we knew we had a chance to win. So this is a very large market for us.
Speaker Change: Every morning, Chris and thank you and sense of commercial food services, everyone is aware.
Speaker Change: There has been a target market Gonzales now for a couple of years.
Speaker Change: And you certainly geared up with.
Speaker Change: But technology and <unk> and you needed to.
Speaker Change: They'll just compete and entered the market, but <unk> you know <unk>.
Speaker Change: The market in certain applications, where we knew we have a chance to win so.
Speaker Change: So.
Speaker Change: Very large market Flores.
Joseph Matasevic: We are taking very methodical steps to get a strong entry. We now have a total of three wins in hand, two separate customers on one product line, and that is not baked in to our 2024 guidance. We're still dealing with this headwind of the economy, but we do believe, when we get beyond this, that this will be a significant play for us for the years to come and a profitable play, and then looking to expand, you know, beyond just one or two product lines into other areas of the commercial food service space, not just from a commodity play but more from a closed-loop systems play.
Speaker Change: We have taken very methodical steps to get us throng entry we have.
Chris Moore: Got it. Very helpful. Thank you, Joseph.
Speaker Change: Now <unk> pretty wins in hand.
Speaker Change: Two separate customers on one product line.
Speaker Change: And that is <unk> baked in two hour 2024 guidance.
Speaker Change: Still dealing with this headwinds so.
Speaker Change: They're kind of neat.
Speaker Change: But we do believe.
Speaker Change: When we get beyond is that this would be a significant play for us.
Speaker Change: Or they used to come into profitable play.
Speaker Change: And then looking.
Speaker Change: Looking to expand beyond just one or two product lines into other areas of the commercial foodservice.
Speaker Change: Space.
Speaker Change: From a commodity play, but more from a closed loop systems play.
Joseph Matasevic: Um, it sounds like the bigger system deals are still progressing, you know, OEMs, perhaps not looking for you to discuss at this stage. Is there anything else you can share to give us a better feel for the scope, and maybe the second part of that is, is it reasonable from where you sit today to expect that at some point in 2024 you will be discussing specifics on a couple of these bigger deals?
Speaker Change: Got it very helpful. Thank you Joseph.
Speaker Change: Mhm it sounds it sounds like the bigger system deals you still progressing you know Oems, perhaps not looking for you to discuss at this stage.
Speaker Change: Is there anything else you can share or to give us a better feel for the scope.
Speaker Change: Yeah, and maybe the second part of that is is it reasonable from where you sit today to expect that at some point in 2024, you will be discussing you know specifics on a on a couple of these picker deals.
Joseph Matasevic: Yeah, it shook me, our expectation to, um.., continue to keep all of you folks obviously updated. We have invested in this area. We have... a little bit. Above and beyond that, we are. We are still finishing our capacity expansion in Europe to support the two, Global Alliance. And then, you know, in terms of communication, everyone in this market is super sensitive about getting, you know, a leg up, some type of exclusivity, so we continue to discuss and negotiate with our customers at what point in time we can communicate accordingly. But to answer your question, the deals are still in play, and we have every attention to communicate once we get the green light.
Speaker Change: And certainly our expectation to.
Speaker Change: T U T ball a few folks obviously updated we have invested in that area we have.
Speaker Change: I was thrown corporation with our customers all those large and large of deals continues to being play.
Speaker Change: <unk> the geopolitical situation, obviously has an impact on dead or we could have gone a little quicker and faster.
Speaker Change: Above and beyond bad we are.
Speaker Change: Still finishing our capacity expansion in Europe to support <unk> too.
Speaker Change: Global lunch.
Speaker Change: And then you know in terms of communication evidenced everyone does market is super sensitive about getting you know a leg up and.
Speaker Change: Some type of <unk>. So we continue week to discuss and negotiate with our customers at what point in time can you communicate accordingly so.
Speaker Change: But to answer your question deals are still in play.
Speaker Change: And the attention to communicate once we get the green light and.
Tanya Allman: And Chris, this is Tanya. I just think it's worth adding, too, Joseph had mentioned in his prepared comments that there are some subsystem sale wins with smaller and medium-sized OEMs, which, you know, we've started to win. And, you know, we've already talked about how a lot of our distributors are already selling our products in subsystem sales, and they're investing in additional capacity to sell more. So, you know, we really think that all of this points to the market validating that we've got the right products in the right strategic direction. You know, everyone knows the largest of the OEMs; those timelines can be a long process, but we feel very encouraged by all the additional data points that we're seeing from other parts of our channel.
Christmas: Christmas is Tanya I, just think it's worth adding to Kansas had mentioned and is prepared comments.
Christmas: There's some subsystems tailwinds with smaller and medium sized Oems, which you know.
Christmas: Sorry to win and we've already talked about how alive or distributors are already selling our products and services themselves and they are interested in additional capacity to sell more so you know we.
Christmas: We we really think that all of this points to get the market validating debit debit right.
Christmas: Alright strategic direction, yeah, everyone knows the largest of the aliens uhm.
Christmas: This timeline can be a long process, but we feel very encouraged by the additional data points everything from <unk> channel.
Joseph Matasevic: And maybe, Chris, just one more data point on an additional system sale in terms of the recent WaterGuru announcement we did in the health and wellness industry. You know, there's been obviously a pinch point in the health and wellness industry for a long time, having clean balance. So when you look at that partnership we have established with Watergold here, it gives us, it leverages both companies' strengths and gives us the ability to not only send but also treat the water over time through an automated system coupled with an AI application that you can log on and see on your phone the water clarity, the chemical levels, and as it gets low, its automated dispensing system kicks in, and then if there's any parts needed or any chemicals needed, Certainly, I will take it in.
Christmas: And maybe please just one more data point on an additional systems sailing to himself Theresa and water glue.
Chris Moore: Got it. Very helpful. I will pass it on for here. Thank you very much.
Christmas: Announcing than we did in the health and wellness.
Christmas: That's been obviously, a pinpoint and.
Christmas: <unk> for a long time, having clean balance.
Christmas: What application and so when you look at the <unk>, we have established with water gloomy here. It gives us the leverage is both company strength and gives us the ability to another in the sense.
Christmas: <unk> all the time.
Christmas: <unk>.
Christmas: <unk>, an automated system coupling with an application.
Christmas: You can log on and and see a new phone.
Christmas: You know the <unk>, the chemical levels and.
Christmas: Get slowly automated dispensing system kicks in and then if there's any parts needed, though and you can negotiate it automatically since the orange or to the supplier. So.
Speaker Change: This is a pretty significant deal for us.
Speaker Change: It would be <unk>.
Speaker Change: Certainly paid dividend.
Speaker Change: Got it very helpful. I will pass it on for here. Thank you very much.
Speaker Change: Thank you Sir.
Operator: Our next question comes from the line of Jeff Hammond with CBAG. Please proceed with your question.
Christmas: Our next question comes from the line of Jeff Hamman.
Jeff Hamman: Please proceed with your question.
Jeff Hamman: Hey, good mortgages.
Christmas: Yeah.
Joseph Matasevic: So I'm really just trying to get a better sense of what you think is improving cyclically versus seasonally. You know, it seems like historically 1Q is better than 4Q. There seems to be some seasonality, certainly in health and wellness, but what are you seeing actually getting fundamentally better versus kind of a seasonal uplift? And then, I think you mentioned mobile as well, kind of moving off the bottom. And I'm wondering maybe what within mobile feels better because it seems like construction and, you know, rental and markets seem to be, you know, weakening along with ag.
Jeff Hammond: So, um...
Christmas: So.
Jeff Hamman: I'm really just trying to get a better sense of what you think is improving sick.
Christmas: Cyclically versus seasonally I, you know it seems like historically, one keeps better than four Q.
Christmas: It seems to be some seasonality certainly in health and wellness, but you know.
Christmas: What are you seem actually getting you know fundamentally better versus kind of a seasonal upper abdomen.
Christmas: You mentioned mobile is.
Christmas: You know kind of moving off the bottom.
Christmas: And I'm wondering maybe what within mobile feels better cause it seems like construction and.
Christmas: You know rental and markets seem to be in a weakening along with with <unk>.
Christmas: Yeah.
Joseph Matasevic: Project the improvements we are seeing. (Inaudible) That improvement has now three quarters under the belt, and it's clearly going in the right direction.
Christmas: So Jack the improvements we have seen.
Christmas:
Christmas: In health and wellness.
Christmas:
Christmas: <unk>.
Christmas: Now <unk>.
Christmas: Three quarters under the Bell then it's clearly.
Christmas: In the right direction. So we do have some confidence level dead.
Joseph Matasevic: So we do have some confidence levels that the market is starting to rebound not just in North America but also in APEC and at a slower pace in Europe. We see a very stable, good... U.S. egg market, at least in our product offerings. Europe, on the other hand, has contracted, as everyone knows, in the egg, in the ag industry. On the industrial side, we see alternative energy, and mining. The general industry has been pretty stable for us, on the mobile side.
Christmas: The market is starting to.
Christmas: Really bound not just in North America, but also in a pack and.
Christmas: Slower pace in Europe.
Christmas: We see a.
Christmas: Very stable good.
Christmas: U S market at least in our product offerings.
Christmas: You up on the other hand has contract within 71 no in the egg.
Christmas: And the egg industry.
Christmas:
Christmas: On the industrial side, we see alternative energy Miami.
Christmas: The general industry been pretty stable for us.
Christmas:
Christmas: Side stable.
Joseph Matasevic: The only one that's contracted somewhat is the European one, in the mobile industry, and then we have China, obviously, that is still in the process of recovering and rebounding to certain pockets that are coming back nicely. There's others that will take longer. It's just kind of... hopefully, the summary that you were looking for. Yeah.
Christmas: The only one that's contracted some what is the European one.
Christmas:
Christmas: And the mobile industry and then we have the.
Christmas: China.
Christmas: He's still in the process of recovering and rebounding.
Christmas: Certain pockets that have come in bag <unk>.
Christmas: Mislead.
Christmas: August it will take longer.
Christmas: So it gets kinda.
Christmas: Hopefully this somebody because you were looking for.
Joseph Matasevic: Yeah, okay, and then Joseph, I know you spent time in commercial food service. It sounds like you got multiple wins there on single product lines. It does seem like... that market, you know, those players in that market want to go to common controls across product lines. And I'm wondering if your customers are of that view and what it takes to kind of, you know, broaden out the portfolio beyond a single product line to more of those common controls.
Speaker Change: Yeah Okay.
Christmas: And then.
Christmas: Joseph I know you spent time in commercial foodservice it sounds like you've got multiple Windsor on single product lines. It does seem like.
Christmas: That market you know those those players in that market Wanna go to common controls across product lines and I'm wondering if your customers are of that view and what it takes to kind of it.
Christmas: It'll broaden out the you know the portfolio beyond a single product lines tomorrow those common controls.
Joseph Matasevic: Yes, certainly Jeff. That has obviously been a desire in Ted's field for a long, long time.
Speaker Change: Yeah, certainly address that has been obviously a desire to you for a long long time.
Joseph Matasevic: You know, the challenge was there was really not, you know, one single belly button who could have the product offering, so it became very complicated in terms of the supply chain, and that's what we have invested in now for going on two years. Um, it is a path we have that not only to switch over to a common control platform, but also to have different variations within that offering coupled with wire harnesses, and also AI applications and algorithm applications and our sickness monitoring system that can connect the entire Commercial Food Service Kitchen, and so the equipment can talk to one another and independently if you have.
Speaker Change: The challenge was there was really not.
Christmas: You know one single bellybutton boot can have good product offerings became very complicated.
Christmas: In terms of supply chain and this would be a invested in now for going on two years.
Speaker Change: It is.
Speaker Change: So we have the.
Speaker Change: Not only.
Speaker Change: Switch over to a common control plans for them, but also have different variations with <unk> with <unk> offering coupled with while you're on this.
Speaker Change: And also.
Speaker Change: Yeah, Hi applications and all good as a modification and now a sickness monitoring system that can connect then tire.
Speaker Change: Food service kitchen.
Speaker Change: So it's equipment.
Speaker Change: Talk to one another and independent if you have.
Joseph Matasevic: One brand or numerous competing brands in the kitchen will still be able to use that application. Dan Horatio is coming up here shortly, and I'm sure you will be there, Jeff, so we can demonstrate some of those applications we're talking about.
Speaker Change: Uhm, one brand or numerous competitive branch in the kitchen as to who will be able to use it application. So.
Speaker Change: January shows coming out to you shortly and I'm sure you will get the address so we can demonstrate some of those applications we're talking about.
Jeff Hammond: Okay, great. And then, just last one, Sean, it sounds like working capital, you think, is a pretty big opportunity around shortening cash conversion. Just wondering if you have any initial views on how much working capital you think you can take out of the system over a couple years?
Speaker Change: Okay, Great and then just just last one.
Speaker Change: You know Sean sounds like you're working capital you think is a pretty big opportunity around shortening cash conversion. Just wondering if you have any initial views on how much working capital you think you can take out of the system over a coupla years.
Shawn Bagan: Yeah, yeah.
Shawn Bagan: Yeah, Jeff, thanks for the question. So definitely a huge area of focus for us, given where it's trended the last couple years. And as we got into this year, I think the first quarter, we showed a little bit of improvement. Historically, the company was able to operate in the 100, 110 day kind of cash conversion cycle. We didn't take out quite 10 days in the first quarter, but we did take a reduction from the end of the year.
Speaker Change: Yeah.
Speaker Change: So the question so.
Sean Vegan: Definitely a huge area of focus for us given where it's <unk>. The last couple of years and as we got into this year I think the first question, we showed a little bit of improvement.
Speaker Change: Historically, the company was able to operate in 100, 110 day kind of cash conversion cycle.
Speaker Change: We didn't take out quite 10 10 days in the first quarter, but we did take a a doctor from the end of the year, we're not going to get back to those levels. This year, but over time, that's the target to get back to those historical level. So we'll we'll enter here the <unk>.
Shawn Bagan: We're not going to get back to those levels this year, but over time, that's the target to get back to those historical levels. So, we'll enter here the first quarter, and enter the second quarter around 135 days or so. So, continue to drive that down towards that 100 target over the long term. Okay.
Speaker Change: And the first quarter enter the second quarter around 135 days or so so continue the drive that down towards that hundred target longer term.
Speaker Change: Okay. Thank you.
Speaker Change: Okay Sir.
Operator: Our next question comes from the line of Nathan Jones with Stiefel. Please proceed with your question.
Speaker Change: Our next question comes from the line of Nathan Jones at Stifel. Please proceed with your question.
Nathan Jones: Good morning, everyone.
Nathan Jones: Morning Nathan. Good morning Nathan.
Nathan Jones: Burning Nathan Nathan.
Nathan Jones: I wanted to follow up on Jeff's question about the mobile market and the improvement that you're seeing there. I think it's fairly clear from some of the machinery OEMs' reports that mobile equipment production is going to be down in 2024. Is this, the improvement here, more of a, you know, destocking is running at a lower level rather than any actual thoughts that the market itself is going to improve, and there's going to be more units produced? And is there still de-stocking going on in the channel at the OEMs, and when do you expect that to come?
Nathan Jones: I wanted to follow up on Jeff's question, I got the mobile market and and the the improvement that you're saying there I think it's fairly clear from some of the machinery Oems reports that mobile equipment production, it's gonna be down in 2024.
Nathan Jones: Is is is the improvement him more of a.
Nathan Jones: Stocking is running at a lower level rather than any actual.
Nathan Jones: Thoughts that the.
Nathan Jones: Market itself is going to improve there's gotta be more units per juice.
Nathan Jones: And is there still destocking going on in the channel and when do you expect that to come to an end.
Shawn Bagan: Hey Nathan, it's Sean. So I think on our first slide on our net sales within our earnings side, we kind of showed the quarter over quarter trend. I think a little bit of the dynamic for us is we're coming off a pretty soft second half last year where we felt a lot of that impact. So, from a sequential perspective, it improved, and I think specific to where we're seeing strength is in the Asia Pacific market, particularly China and South Korea strengthening significantly.
Nathan Jones: Hey, Nathan it's Sean so on our first slide on our net sales within our earnings sides, we kind of showed the quarter over quarter trend and I think a little bit of a dynamic for US is we're coming off a pretty soft second half last year, where we felt a lot of that impact.
Shawn Bagan: From a sequential perspective, it improve and I think specifics. We're we're seeing strength is over in the Asia Pacific market, particularly China, and South Korea, strengthening significantly and so we're feeling some of that coming back someone that was validated just and I were just over there last month, then and clearly.
Shawn Bagan: And so we're feeling some of that coming back. Some of that was validated. Joseph and I were just over there last month and clearly saw some green shoots, as he highlighted in his prepared remarks there. So, I think that's a little bit of what we're feeling. We were probably on the earlier side of the cycle from a supply and a manufacturer, and I think we're kind of getting through that already.
Nathan Jones: Seeing some green shoots to see highlighted in his prepared remarks, there. So I think that's a little bit of what we're feeling we're probably on the earlier side of the cycle from Ah supplying a manufacturer and we're we're kind of getting through that already.
Nathan Jones: Okay. Thanks for that and then my.
Nathan Jones: Okay, thanks for that. And then my follow-up question, I wanted to ask about the gross margin rebound in electronics and look at a little bit more color there, obviously a huge improvement, 900 basis points from the fourth quarter. What were the drivers behind that, sustainability of gross margins at those levels, and any expectation for further improvement?
Speaker Change: My follow up question I wanted to ask about the gross margin rebounding and electronics and.
Nathan Jones: It looked to get a little bit more <unk>, obviously, a huge improvement 900 basis points from the full of quota to kind of what we could drive is behind that sustainability of gross margins at those levels and and any expectation for further improvement.
Shawn Bagan: Yeah, so there are two key drivers there. And as you know, last year, we made some pretty significant investments in manufacturing centers of excellence down in our Tijuana plant. And, you know, we had some of that headwind in our margin last year because some of that cost was coming on as we finished that plant. But what went on in the first quarter relative to the fourth quarter were two big dynamics. First, on the Balboa side, the health and wellness side, orders were really strong and outpaced our expectations.
Speaker Change: Yeah. So there are two key drivers there and as you know last year, we made some pretty significant investments in manufacturing centers of excellence down in Tijuana plant in.
Nathan Jones: You know we had some of that headwind in our March and last year. Some of that cost is coming on as we finish that plan.
Nathan Jones: But what went on in the first quarter relative to the fourth quarter is too Big dynamics first was on the bubble aside the health and wellness strength. The orders were really strong and <unk> our expectations. So we were even able to overdrive, our internal plans on that and it should be kind of the upside to our to our feet from our guide.
Shawn Bagan: So we were even able to override our internal plans on that, and I would attribute kind of the upside to our, to our guide from our guide to that specifically. And those incrementals on that, because it was so contracted in the second half of last year and, frankly, most of all of last year, those incrementals came through quickly. The other piece was in our innovation controls business, although the revenue and top line weren't as strong and the growth wasn't there, all those actions we took in the fourth quarter last year from a cost perspective. And then some of the integration efforts that we had by moving some production from Tulsa to Tijuana and that lower cost certainly helped as well. So those were the main drivers of the sequential improvement.
Nathan Jones: To that specifically in those incrementals on that because it was so contracted in the second half of last year and frankly, most of all of last year. Those incrementals come through quickly. The other piece was at our innovation controls business, although the the the revenue and top line wasn't as strong in the.
Nathan Jones: Wasn't there all those actions we took in the fourth quarter last year from a cost perspective, and then some of the integration efforts that we have I'm moving some production from Tulsa to Tijuana and at lower cost certainly helps as well so.
Shawn Bagan: The main drivers to the sequential improvement.
Nathan Jones: Thanks very much for taking my question.
Speaker Change: Thanks, very much for taking my questions.
Operator: As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Meg Dobre with Baird. Please proceed with your question.
Nathan Jones: As a reminder, if you would like to ask a question press star one on your telephone keypad.
Mark Duver: Our next question comes from the line of make do very with Bird. Please proceed with your question.
Meg Dobre: Thank you for the question. I want to follow up on hydraulics as well. Trying to get a sense for how you think about revenue sequentially here and sort of what's embedded in the guide for the second quarter versus the second half. And when you kind of look at Americas versus EMEA, EMEA is over-indexed to agriculture, where obviously we know that production is coming down quite a bit for OEMs. But what are your assumptions around America that sort of support your revenue outlook? Thank you.
Meg Dobre: Thank you for the question.
Meg Dobre: I want to follow up on hydraulics as well.
Meg Dobre: I'm trying to get a sense for how you think about revenue sequentially hearing sort of what's embedded in a guide and second.
Bird: Second quarter versus second half.
Meg Dobre: And when you when you kind of look at America's versus versus a me.
Meg Dobre: You know any of his overindex too to agriculture, where obviously, we know that production is coming down quite a bit for Oems, but.
Meg Dobre: What are your assumptions around America is that.
Bird: Sort of support your revenue helpful. Thank you.
Shawn Bagan: Hey Meg, it's Sean. Thanks for the question. So yeah, you're spot on in terms of the geographic mix with respect to EMEA and our faster business, highly indexed to agriculture. And that's where certainly some of the pressure is felt from a top line perspective, and the growth would be more so coming from our Sun Hydraulics business, which is more indexed to the Americas, but also Asia. And some of that strength I mentioned in Asia earlier is contributing to some of that.
Speaker Change: It may I get Sean Thanks, a question so.
Shawn Bagan: So yeah, you're spot on in terms of the geographic next with respect E. M E. A and R faster business highly index to agriculture, and that's where certainly some of the pressure is off from a top line perspective, and the growth would be more so coming from our son hydraulics business, which is more in depth to the Americas, but also.
Shawn Bagan: So Asia and some of that strength I mentioned in.
Bird: In Asia earlier is contributing to select from a from a kind of quarterly look.
Shawn Bagan: From a kind of quarterly look, we expect hydraulics to look pretty similar every quarter in terms of the top line. And again, the faster business will be pressured. We expect, just given the current order demand that we're seeing and the kind of run rates, but overall, more of that growth will come from some businesses.
Shawn Bagan: We expect hydraulics look pretty similar every corner in terms of the top line and again the the.
Shawn Bagan: Faster business will be will be pressured we expect just given the current order demand that we're seeing.
Shawn Bagan: And kind of run rates, but overall more of that broke accompany some business.
Meg Dobre: I see. And the net effect then for margins through the year here. Is there a sort of cost management component that you're applying to this specific segment? Or should we sort of think that... Margins are going to be similar to Q1, given that revenues are going to be similar?
Shawn Bagan: I C N N. The net effect and four margins through through the year here.
Meg Dobre: Uhm.
Meg Dobre: Is there a sort of kind of like cost management component that you're applying to the specific segment.
Meg Dobre: Or should we sort of thing that.
Meg Dobre: Margins are gonna be similar to cute one given with that revenues are going to be similar to.
Shawn Bagan: No, we're going to expect to see increasing margins despite revenue levels being similar. The key drivers there are a lot of the pricing actions that went into play in hydraulics at the end of last year, and so we really didn't get much of that uptick in the first quarter because those orders were already in place. In addition, there's been some center of excellence movements, as you know, in the Americas that we put in place last year that are really starting to hum now.
Meg Dobre: No. We're gonna expect to see increase your margins despite revenue level as being similar the key drivers. There is a lot of the pricing actions that went in to play in hydraulics was at the end of last year.
Shawn Bagan: So we really didn't get much of that uptick in the first quarter because those orders were already in play. In addition, there's been some center of excellence movement as you know in the Americas that we couldn't play last year that is really starting the starting to harm now we saw are working through a bit of a test you backlog without Damon.
Shawn Bagan: We still are working through a bit of a past-due backlog with our Gaiman and Manifold center of excellence, but similarly, in Europe, we're going through a bit of a consolidation as well. As you know, we've grown acquisitively in Europe, whether that's with Baxter or NEM, and so really looking to leverage those facilities in addition to our sun, our existing footprint there. So those will help support the growing margins as we go, and certainly we're being very disciplined on cost, particularly in areas where our top line is under pressure.
Shawn Bagan: <unk> Medical center of excellence, but similarly in Europe, we're going through a bit of.
Shawn Bagan: Consolidation as well that is as you know we've grown <unk> typically in Europe with faster.
Shawn Bagan: So really looking to leverage those facilities. In addition to our son existing footprint. There. So those will help support the growing margins as we go and certainly we're being very disciplined on costs, particularly the areas where our top line is under pressure.
Meg Dobre: Okay, one final one, if you'll allow it. Going back to the commercial food discussion here, I guess I'm trying to get a better sense for exactly what it is that you're selling into this vertical. Are you selling full controls for things like high-speed ovens or something like that? And, you know, when I'm thinking of the classic innovation control-type offerings, they don't seem to sort of fit that vertical. So I'm assuming this is probably something that comes out of your Balboa group that's been adapted.
Speaker Change: Okay. One one final one if you allow it uhm.
Joseph Matasevic: So maybe you can clarify that. And I'm also curious as to what the opportunity is here. So if I look at, say, marine electronics in your electronics business, I think that's, what, $15 to $20 million worth of business. Can commercial food be of similar size as marine electronics at a point in time?
Meg Dobre: Going back to the commercial food discussion here.
Joseph Matasevic: I guess I'm I'm I'm trying to get a better sense for exactly what it is that you're selling into this vertical are you.
Joseph Matasevic: Are you feeling full controls for things like high speed ovens or something like that and you know what I'm thinking of the classic innovation control type offerings state they don't seem to sort of fit that vertical. So I'm. Assuming this is probably something that comes out of your <unk>.
Joseph Matasevic: <unk> group that's been adapted.
Joseph Matasevic: So maybe you can clarify that and I'm also curious as to what the opportunity is here. So if I look at a marine.
Joseph Matasevic: In in in your electronics business, I think that's what $15 million to $20 million worth of business.
Joseph Matasevic: <unk> commercial food B.
Joseph Matasevic: Similar sizes Marina at a point in time I mean, how do you how do you train this opportunity for investors. Thank you.
Meg Dobre: I mean, how do you frame this opportunity for investors? Thank you. Do you want me to say good morning from?
Joseph Matasevic: Good morning. In terms of granting the opportunity, you mentioned 20. $20 million, and could it be larger or bigger? We look at that, a market much larger than that, over the years to come. As you know, it's a significant market space. In terms of products that we are selling, it's actually, as you remember, we had a good, better, best strategy in place, and we're certainly leveraging those products. We have developed and invested in new products internally to enter the market space, leveraging our bug boards and innovation capabilities, whether it's through different screen sizes or motherboards or algorithms or software and hardware.
Speaker Change: Good morning from in terms of.
Joseph Matasevic: <unk>.
Joseph Matasevic: You know.
Joseph Matasevic: Mentioned in 2020.
Joseph Matasevic: 20 million and could it be allowed to a <unk> we look at that.
Joseph Matasevic: Market much larger than that.
Joseph Matasevic: Over the years to come.
Joseph Matasevic: As you know, it's a significant market space.
Joseph Matasevic: I'm, so proud of selling.
Joseph Matasevic: Selling it's actually as you remember we had a good better best strategy in place and we certainly let me change those products, we develop within invested in new products.
Joseph Matasevic: Internally to entertain market space, <unk>, but balls and innovation capabilities.
Joseph Matasevic: Decided to different screen sizes all.
Joseph Matasevic: Board, So I'll go with them, so software and hardware. So I'll focus was not so much selling commodities, which is selling our system.
Joseph Matasevic: So our focus was not so much selling commodities versus selling a system. So that will include the system and, in many cases, subsystems and replacements. We are starting pretty much at the level of the hot and cold side, and then over time, we will expand into the beverage area. That's kind of where we are.
Joseph Matasevic: So that will include the system and in many cases subsystem ended and replacements.
Joseph Matasevic: We all starving pretty much a.
Joseph Matasevic: Level of hot and cold sides.
Joseph Matasevic: And then over time expand into the beverage area.
Speaker Change: That's kinda.
Joseph Matasevic: Where we are.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you me.
Tonya Allman: Thank you. We have reached the end of the question and answer session. Ms. Elliman, I would now like to turn the floor back over to you for closing comments.
Speaker Change: Thank you we have reached the end of the question and answer session.
Elliman: I would now like to turn the floor back over to you for closing comments.
Tonya Allman: Thank you, everyone, for joining us today and for your interest in and support of Helios Technologies. We will be attending a number of investor conferences over the next couple of months, so we look forward to seeing all of you on the road. Please feel free to reach out to me with any follow-up questions. Have a great day.
Elliman: Thank you everyone for joining us today and for your interest in and support affiliates technologies, we will be attending a number of investor confidence is over the next couple of months.
Tonya Allman: Look forward to seeing you on the road. Please feel free to reach out to me that any follow up questions have a great day.
Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.