Q2 2024 Helios Technologies Inc Earnings Call

Nathan Jones: Operating Enterprise, delivering value and differentiation through our highly engineered, mission-critical hydraulics and electronics products, services, and system solutions. Moreover, we are staying incredibly close to our customers.

Speaker: in operating enterprise, delivering value and differentiation through our highly engineered mission-critical, hydraulics, and electronics products, services, and system solutions.

Delivering value and differentiation through our highly engineered mission critical hydraulics and electronics products services and systems solutions.

Speaker: For most, we are staying incredibly close to our customers. Our relationships are built around the engineering expertise we bring to help them solve their most complex problems, including increased efficiency, energy savings, higher productivity and/or electrification, along with achieving smaller fit and form factors. Regardless of where we are in a market cycle, the fact that we are seeing that the intersection of hydraulics and electronics enables us to help customers do more with less, always adding value for them.

Foremost, we are staying incredibly close to our customers. Our relationships are built around the engineering expertise, we bring to help them solve their most complex problems, including increased efficiency energy savings higher productivity <unk> electrification, along with achieving smaller fitting.

Nathan Jones: Our relationships are built around the engineering expertise we bring to help them solve their most complex problems, including increased efficiency, energy savings, higher productivity, and or electrification, along with achieving smaller fit and form factors. Regardless of where we are in a market cycle, the fact that we are sitting at the intersection of hydraulics and electronics enables us to help customers do more with less, always adding value for them. Our strategy to organize ourselves and serve in the region for the region also allows us to efficiently satisfy customer demands globally.

<unk> factors.

Regardless of where we are in a market cycle. The fact that we are sitting at the intersection of hydraulics in electronics enables us to help customers do more with less always adding value for them.

Speaker: Our strategy to organize ourselves and serve in the region for the region also allows us to efficiently satisfy customer demands globally. It is also worth highlighting that we are encouraged by the early interest of our sickness-reach software solution, providing remote support for IoT smart devices. With its patented protection, it can be a market disruptor and differentiator for those customers that are looking for that first mover advantage.

Speaker Change: Our strategy to organize ourselves and serve in the region for the region.

Also allows us to efficiently satisfy customer demands globally.

Nathan Jones: It is also worth highlighting that we are encouraged by the early interest in our Cygnus Reach software solution, providing remote support for IoT smart devices. With its patented protection, it can be a market disruptor and differentiator for those customers that are looking for that first mover advantage. Our results in the second quarter validate the strength of the Helios team and model.

It is also worth highlighting that we are encouraged by the early interest of our Cygnus reach software solution, providing remote support for Iot smart devices with its patented protection. It can be a market disruptor and differentiator for those customers that are looking for that first mover advantage.

Speaker: Our results in the second quarter validate the strength of the Helios team and model. Consistent with the first quarter results, our Valboa water group recovery outpaced our sales expectations, which resulted in beating our second quarter sales guidance, with our other businesses executing in line with our expectations. As we have talked about in the past, while very healthy, the Valboa business operates at a lower than company average margin level. Their outperformance, therefore, impact mix, though we were still able to generate a second quarter sequential step-up in our adjusted EBITDA margins due to our incremental from favorable volume.

Speaker Change: Our results in the second quarter validate the strength of the Helios team and model consistent with the first quarter results, our <unk> water group recovery outpaced our sales expectations, which resulted in beating our second quarter sales guidance with our other businesses executing in line with our expectations.

Nathan Jones: Consistent with the first quarter results, our Balboa Water Group recovery outpaced our sales expectations, which resulted in beating our second quarter sales guidance, with our other businesses executing in line with our expectations. As we have talked about in the past, while very healthy, the Valboa business operates at a lower than company average margin level. Their outperformance, therefore, impacts NIP. However, we were still able to generate a second quarter sequential step-up in our adjusted EBITDA margins due to our incrementals from favorable volume.

Speaker Change: As we've talked about in the past, while very healthy about Boa business operates at a lower than company average margin level there.

Speaker Change: <unk> outperformance, therefore impact mix.

We were still able to generate our second quarter sequential step up in our adjusted EBITDA margins due to our incrementals from favorable volume.

Speaker: During the second quarter, we amended our credit agreement with our debt market lenders. The syndication process yielded $100 million oversubscribed position, indicative of the strong support and relationship we have with our bank partners. I am grateful to the existing lenders that are choosing to grow, including our lead left arranger, PNC Bank, who executed our refinancing flawlessly. The other existing banks all receive name-agented roles and stepped up their commitment and hold levels. Additionally, we targeted adding specific new lenders to round out what is now stronger and deeper bank groups that optimizes our capital structure in the near term, but more importantly, it's strategically aligned to support the growth we are aspiring to achieve.

Speaker Change: During the second quarter, we amended our credit agreement with our debt market lenders the syndication process yielded $100 million oversubscribed position indicative of the strong support and relationship we have with our bank partners.

Nathan Jones: During the second quarter, we amended our credit agreement with our debt market lenders. The syndication process yielded a $100 million over-subscribed position, indicative of the strong support and relationship we have with our bank partners. I am grateful to the existing lenders that are choosing to grow with us, including our lead left arranger, PNC Bank, who executed our refinancing flawlessly. The other existing banks all received name-agent roles and stepped up their commit and hold levels.

Speaker Change: I am grateful to the existing lenders that are choosing to grow with us, including our lead left arranger PNC bank, who executed a refinancing flawlessly.

Speaker Change: The other existing banks all received named agent enrolls and stepped up their commit and hold levels. Additionally, we've targeted adding specific new lenders to round out what is now a stronger and deeper bank group that optimizes, our capital structure in the near term, but more importantly, it's strategically aligned to support the growth we are.

Nathan Jones: Additionally, we targeted adding specific new lenders to round out what is now a stronger and deeper bank group that optimizes our capital structure in the near term, but more importantly, it is strategically aligned to support the growth we are aspiring to achieve. In addition to upsizing the revolver by $100 million, we also extended debt maturities out to June 2029 and reduced our borrowing spread. These enhancements equate to improved earnings, cash flow, and available liquidity as compared to our refinanced credit agreement. We are fortunate to have assembled a formidable lender group, and we value their support immensely.

Speaker Change: We're aspiring to achieve.

Speaker: In addition to upsizing the revolver by $100 million, we are also extending debt maturities out to June 2029 and reducing our borrowing spreads. These enhancements equate to improved earnings, cash flow, and available liquidity as compared to our refinance credit agreement. We are fortunate to have assembled a formidable lunder group, and we value their support immensely.

Speaker Change: In addition to upsizing, our revolver by $100 million.

Speaker Change: <unk> also extended debt maturities out to June 2029, and reduced our borrowing spreads.

Speaker Change: These enhancements equate to improved earnings cash flow and available liquidity as compared to our refinanced credit agreement. We are fortunate to have assembled a formidable lender group and we value their support immensely.

Speaker: We are operating through the uncertain timing that one market will rebound with actions to focus on the controllables in response to sustained macroeconomic and industry. These headwinds include compounding inflation, lowered PMI readings, and the well-documented agriculture cycle weakness. In addition, a prolonged cycle with elevated interest rates has contributed to weakening consumer competence, especially for larger discretionary purchases. As a result, the industries we supply have seen lower demand in several of our end markets. All of our largest public company customers across various industries are projecting fiscal year sales contractions implied in their own fiscal year guidance.

Speaker Change: We are operating through the uncertain timing of when markets will rebound with actions to focus on the controllable in response to sustained macroeconomic and industry headwinds.

Nathan Jones: We are operating through the uncertain timing of when markets will rebound with actions to focus on the controllables in response to sustained macroeconomic and industry headwinds. These headwinds include compounding inflation, lowered PMI readings, and a well-documented agricultural cycle weakness. In addition, a prolonged cycle with elevated interest rates has contributed to weakening consumer confidence, especially for larger discretionary purchases. As a result, the industries we supply have seen lower demand in several of our end markets. Furthermore, all of our largest public company customers across various industries are projecting fiscal year sales contractions implied in their own fiscal year guidance.

Speaker Change: These headwinds include compounding inflation lowered PMI readings and the well documented agriculture cycle weakness.

Speaker Change: In addition, a prolonged cycle with elevated interest rates has contributed to weakening consumer confidence, especially for larger discretionary purchases.

Speaker Change: As a result, the industries we supply.

Speaker Change: Seen lower demand in several of our end markets.

Speaker Change: All of our largest public company customers across various industries are projecting fiscal year sales contractions implied in their own fiscal year guidance.

Speaker: While the second quarter started off strong, we saw a decline in demand in the latter part of the quarter, leading into the start of the third quarter.

Nathan Jones: While the second quarter started off strong, we saw declines in demand in the latter part of the quarter leading into the start of the third quarter. We have moderated our outlook accordingly. While we could still achieve some growth at the upper end of our range, we have adjusted our sales guidance for the second half of the year. There were several factors that contributed to our decision.

Speaker Change: While the second quarter started off strong we saw declines in demand in the latter part of the quarter meeting into the start of the third quarter.

Speaker: We have moderated our outlook accordingly. While we still could achieve some growth at the upper end of our range, we have adjusted our sales guidance for the second half of the year.

Speaker Change: We have moderated our outlook accordingly.

Speaker Change: While we still could achieve some growth at the upper end of our range. We are adjusting our sales guidance for the second half of the year.

Speaker: There were several factors that contributed to our decision. Our end markets, specifically agriculture and recreational, have been most impacted. This has directly affected our faster fluid conveyance technology business, and our innovation controls displays and controllers business. Both faster and innovation met higher towards OEM direct sales. When these OEMs are experiencing their own declining sales and pushing all production schedules, this tests our ability to grow. Notably, though, our diversification into niche applications and newer markets outside of our core portfolio has been helping to offset some of the pressure we are seeing in our case business. Despite the challenging macro environment, the operational improvements we have made in the business are helping to mitigate the unabsorbed overhead from volume reductions.

Speaker Change: There were several factors that contributed to our decision.

Nathan Jones: Our end markets, specifically agriculture and recreational, have been most impacted. This has directly affected our faster, fluid conveyance technology business and our innovation controls, displays, and controllers business, both faster and innovation that's hired for OEM direct sales. When these OEMs are experiencing their own declining sales and pushing out production schedules, this tests our ability to grow. Notably, though, our diversification into niche applications and newer markets outside of our core portfolio has been helping to offset some of the pressure we are seeing in our case business.

Speaker Change: Our end markets, specifically agriculture, and recreational have been most impacted this is directly affected our faster fluid conveyance technology business and our innovation controls displays and controllers business.

Speaker Change: Both faster and innovation, that's higher towards OEM direct sales.

Speaker Change: When these Oems are experiencing their own declining sales and pushing out production schedules. This tests our ability to grow.

Speaker Change: Notably, though our diversification into niche applications and newer markets outside of our core portfolio has been helping to offset some of the pressure we are seeing in our base business.

Nathan Jones: Despite the challenging macro environment, the operational improvements we have made in the business are helping to mitigate the unabsorbed overhead from volume reductions. With the systems and processes we've implemented over the past year, we've improved our forecasting and visibility. This allows us to identify early indicators, adjust costs more quickly, and ultimately deliver more consistently on our financial guidance. We have the business position to still drive margin improvement over last year, partially because of these enhancements. Let me switch gears here to review our financials in greater detail, starting with our second quarter results that can be found on slides four through eight.

Speaker: With the systems and processes we've implemented over the past year, we've improved our forecasting and visibility. This allows us to identify early indicators that just cost more quickly and ultimately deliver more consistently on our financial guidance. We have the business position to still drive margin improvement over last year, partially because of these enhancements.

Speaker: Let me switch gears here to review our financials in greater detail, starting with our second quarter results that can be found on slides four through eight. Sales came in at 220 million, exceeding our expectations as health and wellness experienced growth, while industrial and mobile were relatively flat, and agriculture and recreational had continued sequential weakness. Net net, both of our operating segments were up sequentially, with electronics leading the way. From a geographic perspective, we were up sequentially in APAC 10 percent and America is up 3 percent, while relatively unchanged in EMEA. Compared with last year, we experienced nice growth in APAC of 12 percent against the software comparable, but the decline of 11 percent in EMEA and down 5 percent in America's reflecting challenging and market conditions in those two regions.

Nathan Jones: Sales came in at $220 million, exceeding our expectations as health and wellness experienced growth, while industrial and mobile were relatively flat, and agriculture and recreational had continued sequential weakness. Net-net, both of our operating segments were up sequentially, with electronics leading the way. From a geographic perspective, we were up sequentially in APAC 10% and Americas up 3% while relatively unchanged in EMEA.

Nathan Jones: Compared with last year, we experienced nice growth in APAC of 12% against a softer comparable with a decline of 11% in EMEA and down 5% in the Americas, reflecting challenging end market conditions in those two regions. Gross margin expanded 40 basis points compared with the first quarter. The realignments made last year in our centers of excellence have started hitting their rhythm.

Speaker: Gross margin expanded 40 basis points compared with the first quarter. The realignments made last year in our center's buy excellence have started hitting their rhythm. They have positioned us well, as we expect to sustain our margin improvements, even during a pressured sales environment. Year over year, gross profit declined 5.2 million, and gross margin contracted 120 basis points to 32.1%. We are working to return to the mid to high 30% range for gross margin over time. As you know, volume is a major contributor for us that increases fixed cost utilization. Non-GAAP adjusted operating margin of 16.4% in the quarter was nearly 200 basis points above the training quarter.

Nathan Jones: They have positioned us well as we expect to sustain our margin improvements, even during a pressured sales environment. However, year over year, gross profit declined $5.2 million, and gross margin contracted 120 basis points to 32.1%. We are working to return to the mid to high 30% range for gross margin over time. As you know, volume is a major contributor for us that increases fixed cost utilization. The non-GAAP-adjusted operating margin of 16.4% in the quarter was nearly 200 basis points above the trailing quarter.

Nathan Jones: While we still have a way to go, the sequential operating leverage clearly demonstrates how our SEA cost control efforts, combined with expanded gross margin, translate directly to earnings improvement. The 190 basis point sequential improvement in adjusted EBITDA gets us back into the 20 percentile margin range and reflects the impact of our focused efforts to deliver profitable sequential sales growth with disciplined spending. Year over year, we are comparing ourselves to last year's best quarter.

Speaker: While we still have a way to go, the sequential operating leverage clearly demonstrates how our SEA cost control efforts combined with expanded gross margin translate directly to earnings improvement. The 190 basis points sequential improvement in adjusted EBITDA gives us back into the 20% tile margin range and reflects the impact of our focused efforts to deliver profitable sequential sales growth with disciplined spending. Year over year, we are topping up against last year's best quarter. Our effective tax rate in the second quarter was 23%, and as the result of regional mix within different tax jurisdictions, diluted EPS was 41 cents, and diluted non-GAAP EPS was 64 cents in the quarter, and compared with the first quarter, they do 46% and 21% respectively.

Nathan Jones: Our effective tax rate in the second quarter was 23% and is the result of regional mix within different tax jurisdictions. Diluted EPS was $0.41, and diluted non-GAF EPS was $0.64 in the quarter, and compared with the first quarter, they increased 46% and 21%, respectively. Hydraulics financial results improved over the trailing period, demonstrating positive operating leverage. Gross profit declined $4.8 million year over year, resulting in a gross margin contraction of 180 basis points, primarily due to fixed cost absorption on lower volume and higher labor costs.

Speaker: Starting on slide 9, I'll get more color bike segment. Hydraulics financial results improved over the training period, demonstrating positive operating leverage. While sales were up 2% over the training period, operating income grew 10%. Compared with the prior year, sales were down 4% with softness across several end markets and against the challenging comparable. Sales decline in agriculture, mobile, and industrial end markets, or in exchange had an 800,000 unfavorable impact on segment sales. Sequentially, growth profit increased 400,000 per 1%, and growth margin contracted 50 basis points, reflecting mix. Growth profit declined 4.8 million year over year, resulting in growth margin contraction of 180 basis points, primarily due to fixed cost absorption on lower volume and higher labor costs.

Speaker: SEA expenses were down 1.7 million, or 7%, compared with the prior year period. We saw favorable results in the quarter due to lower labor and benefit costs. We have also targeted SEA cost control initiatives to better match the current demand environment and help streamline our businesses.

Speaker: Please turn to slide 10 and we'll discuss the electronic segment. To quenchally, the electronic segment expanded 4.6 million or 7%, driven by strong double-digit growth in health and wellness, consistent with the first quarter performance. Year over year, electronic sales declined by 1 million or 1%. Continued strength and health and wellness mostly offset the declines in industrial, mobile, and recreational markets. Actquisitions contributed 1.2 million in sales in the second quarter for an exchange with a $100,000 negative impact. To coinually, electronics gross profit took a nice step up by $3 million or 13%, and gross margin expanded 200 basis points driven primarily by volume growth, operational focus on efficiencies, and facility footprint optimizations.

Nathan Jones: Year over year, electronic sales declined by one million, or one percent. However, sequentially, electronics gross profit took a nice step up by $3 million, or 13%, and gross margin expanded 200 basis points, driven primarily by volume growth, operational focus on efficiencies, and facility footprint optimization. For the fourth consecutive quarter, we applied cash generated from operations and reduced our debt. As we embark on the second half of the year, we are confident we can continue navigating the choppy markets thanks to our diversification across geographies, markets, and customers.

Speaker Change: Year over year, electronic sales declined by $1 million or 1%.

Speaker Change: Continued strength in health and wellness, mostly offset the declines in industrial mobile and recreational markets.

Speaker Change: Acquisitions contributed $1 $2 million in sales in the second quarter.

Speaker Change: Foreign exchange was a $100000 negative impact.

Speaker Change: Sequentially electronics gross profit took a nice step up by $3 million or 13% and gross margin expanded 200 basis points, driven primarily by volume growth.

Speaker Change: Operational focus on efficiencies and facility footprint optimizations.

Speaker: Gross margin was 34.6% and only declined by 10 basis points year over year. The sequential sales and gross profit growth saw an operating leverage in the segment. Compared with the first quarter of 2024, operating income grew 3.2 million or 45%, and margin expanded 370 basis points. This further demonstrates the incrementals that can flow through our business model as the volume returns. FDA expenses were down 1% compared with the trailing first quarter and up 9% with last year. We did not close the I-3 PV acquisition until the end of May, so the year-ago period did not have it fully loaded into the compare.

Speaker Change: Gross margin was 34, 6% and only declined by 10 basis points year over year.

Speaker Change: The sequential sales and gross profit growth drove solid operating leverage in this segment.

Speaker Change: Paired with the first quarter of 2020 for operating income grew $3 2 million or 45% and margin expanded 370 basis points.

Speaker Change: This further demonstrates the incrementals that can flow through our business model as the volume returns.

Speaker Change: SCA expenses were down 1% compared with the trailing first quarter and up 9% with last year.

Speaker Change: We did not close the <unk> acquisition until the end of May So the year ago period did not have it fully loaded into the compare.

Speaker: Please turn to slide 11 for a review of our cash flow. We have continued to improve our cash conversion cycle. We generated cash from operations of 33.8 million, up 30% over the second quarter of last year, and up 90% compared with the first quarter of this year. We continue to reduce inventory, which is down 4% since the beginning of the year. This is a meaningful part of our efforts to improve our cash conversion cycle as we step through the balance of the year. Capital expenditure in the quarter were 8.1 million per 3.7% of sales. Spending is focused on investments in machines, tooling, and the EMEA footprint optimization.

Speaker Change: Please turn to slide 11 for a review of our cash flow.

Speaker Change: We have continued to improve our cash conversion cycle we.

Speaker Change: We generated cash from operations of $33 8 million up 30% over the second quarter of last year and up 90% compared with the first quarter of this year.

Speaker Change: We continue to reduce inventory, which is down 4% since the beginning of the year.

Speaker Change: This is a meaningful part of our efforts to improve our cash conversion cycle as we step through the balance of the year.

Speaker Change: Capital expenditures in the quarter were $8 1 million or three 7% of sales.

Speaker Change: Spending is focused on investments in machines tooling and EMEA footprint optimization.

Speaker: Turning to slide 12, at the end of the second quarter, cash and cash equivalents were 45 million, and we had 308 million available on our expanded revolver. Total debt was now 4% or 22 million from the end of 2023, and has shown steady declines over the last four quarters, bringing our net debt leverage ratios down to three times. I already covered our refinancing, which gives us confidence in our financial position. We are driving our teams to accelerate our cash generation efforts and ultimately reduce debt further.

Speaker Change: Turning to slide 12 at the end of the second quarter cash and cash equivalents were $45 million and we had $308 million available on our expanded revolver.

Speaker Change: Total debt was down 4% or $22 million from the end of 2023 and is showing steady declines over the last four quarters, bringing our net debt leverage ratio down to three times.

Speaker Change: I already covered our refinancing which gives us confidence in our financial position.

Speaker Change: We're driving our teams to accelerate our cash generation efforts and ultimately reduce debt further.

Speaker: We are proud of our 27-year record of dividend payments that we will continue to prioritize from a capital allocation perspective.

Speaker Change: We are proud of our 27 year record of dividend payments that we will continue to prioritize from a capital allocation perspective.

Speaker: Turning to slides 13 to 14, as I mentioned, given the macro conditions resulting in lower order demand, our perspective on the second half of the year is more cautious, and we are adjusting our outlook for 2024 accordingly. In addition, our revised guidance reflects the operational actions we have undertaken to streamline our operating costs. The top line adjustments reflect a more challenging environment than we or some of our industries expected this year. I am pleased with the team's ability to identify actions to offset the margin impact of the volume pressure and still have line of sight to potential top line growth at the upper end of our range in this environment.

Speaker Change: Turning to slide 13 in 2014, as I mentioned, given the macro conditions, resulting in lower order demand our perspective on the second half of the year is more cautious and we are adjusting our outlook for 2024 accordingly.

Speaker Change: In addition, our revised guidance reflects the operational actions, we have undertaken to streamline our operating costs.

Speaker Change: The topline adjustments reflect a more challenging environment than we or some of our industry's expected this year.

Speaker Change: I am pleased with the team's ability to identify actions to offset the margin impact of the volume pressure and still have line of sight to potential top line growth at the upper end of our range in this environment.

Speaker: As shown, we are now moderating second half sales expectations, which implies flat to up 3% compared to the prior year period. This equates to a four-year sale range of down 1% to up 1% for 825 to 840 million. Despite the sales moderation, we are maintaining our adjusted EBITDA margin guidance, which is in the range of 19.5% to 21%. We have adjusted denuded non-gap earnings per share to be in the range of $2.25 to $2.45, with the potential growth over last year at the higher end of the range. We are basing our sales adjustments on many inputs.

Speaker Change: As Sean we are now moderating second half sales expectations, which implies flat to up 3% compared to the prior year period.

Sean: This equates to a full year sales range of down 1% to up 1% or $825 million to $840 million.

Speaker Change: Despite the sales moderation, we are maintaining our adjusted EBITDA margin guidance, which is in the range of 19, 5% to 21%.

Speaker Change: We have adjusted diluted non-GAAP earnings per share to be in the range of $2 25 to $2 45.

Speaker Change: With the potential growth over last year at the higher end of the range.

Speaker Change: We are basing our sales adjustments on many inputs are external resources, whether our own OEM customers production and sales expectations, our industry market associations, including NFPA all point towards the softening order demand we are experiencing.

Speaker: Our external resources, whether our own OEM customers' production and sales expectations, or industry market associations, including NFPA, all point toward the softening order demand we are experiencing. This is causing us to moderate sales expectations with hydraulic segments. We are not able to offset the hydraulic segment weakness with additional growth in electronics. As the OEMs, there are signaling softness through the sustained higher interest rates, limiting consumer demand for spas, boats, and recreational products. We have calibrated CAPEX projects and will continue to drive working capital efficiencies to improve our cash generation during the balance of the year.

Speaker Change: This is causing us to moderate sales expectations for the hydraulics segment.

Speaker Change: We are not able to offset the hydraulics segment weakness with additional growth in electronics as.

Speaker Change: As the Oems there are signaling softness due to sustained higher interest rates limiting consumer demand for spas boats and recreational products.

Speaker Change: We have calibrated capex projects and will continue to drive working capital efficiencies to improve our cash generation during the balance of the year.

Speaker: Given the change in volume expectations, it has and will take us time to flush through working capital. We still expect our leverage ratio to come down in the second half of the year as we strengthen our returns and realize the benefits of our working capital initiatives.

Speaker Change: Given the change in volume expectations that has and will take us time to flush through working capital, we still expect our leverage ratio to come down in the second half of the year as we strengthen our returns and realize the benefits of our working capital initiatives.

Speaker: Our third quarter estimate for sales is in the range of 192 to 200 million. Even with sequential step down in sales, we expect our efforts to improve efficiencies, combined with cost adjustments, will enable us to deliver adjusted EBITDA margin in the range of 20 to 21% for the third quarter.

Speaker Change: Our third quarter estimate for sales is in the range of $192 million to $200 million.

Speaker Change: Even with sequential step down in sales, we expect our efforts to improve efficiencies combined with cost adjustments, we will enable us to deliver adjusted EBITDA margin in the range of 20% to 21% for the third quarter.

Speaker: You can find the other modeling line items in supplemental slides. Like 14 provides some understanding of where we see our market and operational drivers by segment.

Speaker Change: You can find the other modeling line items in the supplemental slides.

Speaker Change: Slide 14 provides some understanding of where we see our market and operational drivers by segment.

Speaker: Looking to slide 15, I will speak to the progress we are making against the financial priorities we laid out at the beginning of the year for 2024. As we enter the year, we've committed to dragging sequential improvement in the first half, followed by second half year-over-year profitable sales growth. We feel very good about what the team has accomplished to date, focused on execution and driving consistent and predictable performance. The second quarter sequential top line growth, expanding margins, and discipline working capital management validate the adjustments we've made in the business are using positive outcomes. For the third consecutive quarter, the heaviest team delivered financial results that met or slightly beat our guidance.

Speaker Change: Looking to slide 15, I will speak to the progress we are making against our financial priorities, we laid out at the beginning of the year for 2024.

Speaker Change: As we entered the year, we committed to driving sequential improvement in the first half followed by second half year over year profitable sales growth, we feel very good about what the team has accomplished to date.

Speaker Change: On execution and driving consistent and predictable performance.

Speaker Change: The second quarter sequential topline growth expanding margins and disciplined working capital management validate the adjustments we have made in the business are yielding positive outcomes.

Speaker Change: For the third consecutive quarter, the Helios team delivered financial results that met or slightly beat our guidance.

Speaker: For the fourth consecutive quarter, we applied cash generated from operations and reduced our debt. We are strengthening the underlying financial discipline and structure of Helios. Our goal is to elevate the returns on our investments over time and build on the positive momentum we have delivered over the past several quarters. As we embark on the second half of the year, we are confident we can continue navigating the shopping markets thanks to our diversification across geographies and markets and customers.

Speaker Change: For the fourth consecutive quarter, we applied cash generated from operations and reduced our debt.

Speaker Change: We are strengthening the underlying financial discipline and structure of Helios.

Speaker Change: Our goal is to elevate the returns on our investments over time and build on the positive momentum we have delivered over the past several quarters.

Speaker Change: As we embark on the second half of the year. We are confident we can continue navigating the choppy markets, thanks to our diversification across geographies and markets and customers.

Speaker: As a reminder, we do not have a single customer that comprises more than 5% of our total company sales volume. We will continue to closely manage our control goals as we have made great strides in the streetlining operations and preserving important R&D investments. We know that stain on the gas with innovation is key to emerging as a stronger company when our end market stabilized. We will emerge from this market cycle stronger with great earnings power and a healthy balance sheet, positioning Helios to deliver stronger shareholder returns.

Speaker Change: As a reminder, we do not have a single customer that comprises more than 5% of our total company sales volume.

Speaker Change: We will continue to closely manage our controllable as we have made great strides in streamlining operations and preserving important R&D investments.

Speaker Change: We know that staying on the gas with innovation is key to emerging as a stronger company when our end markets stabilize.

Speaker Change: We will emerge from this market cycle stronger with great earnings power and a healthy balance sheet positioning us to deliver stronger shareholder returns.

Speaker: In conclusion, I want to extend a heartfelt thank you to the thousands of dedicated employees worldwide who are tirelessly committed to serving our customers day in and day out. They are the lifeblood of our culture and organization. I am incredibly honored and committed to leading the ongoing execution of our strategy while building upon the positive momentum we are generating throughout our organization. The future is bright for Helios, and we are excited to deliver on our second half commitments. Lastly, thank you to all our customers, suppliers, shareholders, and other stakeholders. Your partnership and support fuels our journey and drives our enthusiasm as we execute our transformation into a value-creating integrated operating company.

Speaker Change: In conclusion I want to extend a heartfelt. Thank you to the thousands of dedicated employees worldwide, who are tirelessly committed to serving our customers day in and day out they are the lifeblood of our culture and organization.

Speaker Change: I'm incredibly honored and committed to leading the ongoing execution of our strategy while building upon the positive momentum we are generating throughout our organization.

Speaker Change: The future is bright for Helios and we are excited to deliver on our second half commitments.

Speaker Change: Lastly, thank you to all our customers suppliers shareholders and other stakeholders.

Speaker Change: Partnership and support fuels, our journey and drives our enthusiasm as we execute our transformation into a value creating integrated operating company.

Speaker: With that, let's open the lines for Q&A, please. Thank you.

Speaker Change: With that let's open the lines for Q&A. Please.

Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Operator: We will now be conducting your question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two 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. One moment, please, while we pull for questions.

Speaker Change: You May press Star two if you would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change: One moment, while we poll for question.

Jeff Hammond: Our first question comes from Jeff Hammond from KeyBank Capital Markets.

Speaker Change: Our first question comes from Jeff Hammond from Keybanc capital markets. Please proceed.

Operator: Please proceed.

David Tarantino: Hey, good morning.

Speaker Change: Hey, Good morning. This is David Tarantino on for Jeff.

David Tarantino: This is David Tarantino on for Jeff.

Sean Bagan: Hey, David. David. Maybe just to start out, could you share any updated thoughts on the CEO transition, including some color on the ongoing search process and what the expected time frame is?

Speaker Change: Hey, David.

David Tarantino: Maybe just to start out could you share any updated thoughts on the CEO transition, including some color on <unk>.

David Tarantino: Maybe just to start out, could you share any updated thoughts on the CEO transition, including some color on the ongoing search process and what the expected time frame is?

Speaker Change: Ongoing search process and what the expected timeframe is.

Sean Bagan: Sure.

Speaker Change: Sure Hey, David Good morning. Thanks for the question. So our board will be conducting a search as we disclosed and utilizing a leading search firm.

Nathan Jones: Sure. Hey David. Good morning. Thanks for the question.

Sean Bagan: Hey, David. Good morning. Thanks for the question. So, our board will be conducting a search as we disclose and utilize in the leading search firm. It will be considering both internal and external candidates, but certainly my focus right now is executing on the strategy of the business. Keeping the business focus as a highlight in the prepared remarks. We've got a very talented management team supported by our regional president and corporate staff. So, we're confident we'll get through this transition period and come out stronger on the backside.

Speaker Change: There'll be considering both internal and external candidates, but certainly my focus right now is executing on the strategy of the business keep the business focus as I highlighted in the prepared remarks, we've got.

Nathan Jones: So, our board will be conducting a search, as we disclosed, and utilizing a leading search firm. They'll be considering both internal and external candidates, but certainly, my focus right now is executing on the strategy of the business, keeping the business focused. As I highlighted in the prepared remarks, we've got a very talented management team supported by our regional presidents and corporate staff. So, we're confident we'll get through this transition period and come out stronger on the backside.

Speaker Change: A very talented management team supported by our regional presidents and corporate staff. So we're confident we'll get through this transition period and come out stronger on the back side.

David Tarantino: Okay, great. Thank you.

Speaker Change: Okay, great. Thank you and maybe could you give us some color on what's informing the reiterated margin outlook, particularly what drives margins to be relatively unchanged in the second half versus the first despite what is.

Sean Bagan: And maybe could you give us some color on what's informing the reiterated margin outlook, particularly what drives margins to be relatively unchanged in the second half versus the first, despite what is a seasonal drop in sales and maybe kind of a softer than expected and market backdrops and a couple of months ago. Yeah, sure. So I think you've seen the sequential stuff that we've experienced from the back half of last year, as a lot of the work we did last year, whether it was capital expenditure related expansions or focus on efficiencies, come to fruition this year.

Margaret: Seasonal drop in sales and maybe kind of a softer than expected and Margaret and market backdrop.

Margaret: Couple of months ago.

Speaker Change: Yes sure so.

Nathan Jones: Yeah, sure. I think you've seen the sequential step up that we experienced in the back half of last year, as a lot of the work we did last year, whether it was capital expenditure-related expansions or focus on efficiencies has come to fruition this year. And we've seen those benefits in the first half. We talked about the disruption last year with our manifold center of excellence and Damon, where we expanded that facility, nearly doubled it, and moved all that production from Sarasota up there, and we are really starting to see that hit its run rate.

Speaker Change: <unk> seen the sequential step up that we've experienced from the back half of last year.

Speaker Change: A lot of the work we did last year, whether it was capital expenditure related expansions or focus on efficiencies.

Speaker Change: Come to come to fruition this year and we've seen those benefits in the first half we talked about the disruption last year with our manifold center of excellence, Damon where we expanded that facility nearly doubled it moved all that production from Sarasota up there and really starting to see that hit its run rate.

Sean Bagan: We've seen those benefits in the first half.

Sean Bagan: We talked about the disruption last year with our manifold center of excellence in Damon, where we expanded that facility, nearly doubled it, and moved all that production from Sarasota up there and really starting to see that hit its run rate. Some of the metrics we look at are kind of the past due backlog on orders and such, and we really worked that down to a normalized level and so gotten rid of a lot of the inefficiencies we experienced last year. As we get to the back half, certainly think some of the cost actions we have taken will continue to provide that benefit. We'll expect to maintain our margin profile on the girls' profit margins and get more leverage out of our operating expenses. So overall, the mix should be a little bit favorable as well and continue just to focus on margin improvement quarter and quarter up.

Nathan Jones: And we, some of the metrics we look at are kind of the past due backlog on orders and such, and we have really worked that down to a normalized level. And so we have gotten rid of a lot of the inefficiencies we experienced last year. As we get to the back half, I certainly think some of the cost actions we have taken will continue to provide that benefit. We'll expect to maintain our margin profile on gross profit margins and get more leverage out of our operating expenses. So, overall, the mix should be a little bit favorable as well, and we should continue just to focus on margin improvement quarter in, quarter out. Okay, great.

Speaker Change: Some of the metrics, we look at our kind of the past due backlog on orders and such and we really worked that down to a normalized level and so gotten rid of a lot of the inefficiencies we experienced last year as we get to the back half certainly think some.

Speaker Change: Some of the cost actions, we have we have taken will continue to provide that benefit.

David Tarantino: We expect to maintain our margin profile on the gross profit margins and get more leverage out of our operating expenses. So overall the mix should be a little bit favorable as well and continue just to focus on margin improvement quarter end quarter out.

David Tarantino: Okay great thank you all pass it on. Thank you.

Speaker Change: Okay, great. Thank you I'll pass it on.

Operator: Okay, great. Thank you. I'll pass it on.

David Tarantino: Thanks, David.

Operator: As a reminder, if you would like to join the question queue, please press star one on your telephone keypad.

Speaker Change: As a reminder, if you would like to join the question queue. Please press star one on your telephone keypad.

Operator: As a reminder, if you would like to join the question queue, please press star 1 on your telephone keypad.

Nathan Jones: Our next question comes from Nathan Jones from Stevele. Please proceed. Good morning, this is Adam Farley on for Nation. Yeah, I wanted to follow up on your comments about having potential line-up sites to the top end of your sales guidance.

Speaker Change: Our next question comes from Nathan Jones from Stifel. Please proceed.

Speaker Change: Good morning, This is Adam Farley on for Nathan.

Adam: Hey, Adam.

Speaker Change: I wanted to follow up on your comments about having potential line of sites.

Speaker Change: The top end of your sales guidance.

Operator: top end of your sales guidance. Now, what areas could lead to the upper end of your revenue guidance range?

Sean Bagan: What areas could we to the upper end of the revenue guidance range? So if I look at it by business, I'll just kind of go around our hydraulics and electronic segments. But from our hydraulics perspective, what we keep an eye on, our largest business on hydraulics, is those distributor inventory levels, and we've seen them kind of operate in the same range for the last three quarters. Not necessarily elevated, not necessarily low, so fairly consistent in that part of the hydraulic segment drove significant increases year over year in the first half, and we expect that to continue in the back half.

Speaker Change: What areas could lead to the upper end of revenue guidance range.

Speaker Change: So if I look at it by business just kind of go around.

Speaker Change: Our hydraulics and electronics segment, but from Hydraulics perspective, what we keep an eye on our largest business sun hydraulics as those distributor inventory levels and we've seen them kind of operate in the same range for the last three quarters.

Speaker Change: Necessarily elevated not necessarily low so fairly consistent in that part of the hydraulics segment drove significant increases year over year.

Speaker Change: First step and we expect that to continue in the back half on the flip side over in Europe, with our fastener business heavily concentrated to AG, we have experienced year over year declines and expect that to continue into the back half as we have great line of sight with our large Oems.

Sean Bagan: On the foot side over in Europe, with our faster business heavily concentrated to ag, we have experienced year over year declines and expect that to continue into the back half, as we have great line of sight with our large OEM customers that provide long range indicative orders that get locked as they get closer to the current quarter. But given the outlook there, that's what would be just to drop in some of the hydraulic guidance in the back half. On the electronic side, you have the innovation-controlled business that's more indexed to that wreck marine customer, and similar to the faster OEMs, we get good indicative orders. But we've seen them continue to have weakness on the Pell Bull side to help them on this. Seen a nice recovery there; we know we are popping up against a lower period coming out of COVID, but continue to drive year-over-year growth. So what could change to get to the answer? Your question, I think with interest rates, that certainly could help stimulate some end market demand that would help give OEMs more confidence to build, and as they raise their production schedules, that would increase purchase order by the end of the year for us.

Speaker Change: Customers that provide long range.

Speaker Change: The indicative orders that get locked as they get closer to the.

Speaker Change: The current quarter, but given the outlook there that's what would lead us to drop in some of the hydraulics guidance in the back half.

Speaker Change: On the electronics side.

Speaker Change: You have the innovation controls business, that's more indexed to that rec marine customer and similar to the faster Oems, we get good indicative orders, but we've seen them continue that have weakness on the <unk> side, the health and wellness seen a nice recovery. There. We know we are comping up against a lower period come.

Speaker Change: Out of Covid, but continues to drive.

Speaker Change: Year over year growth, so what could change to get to the answer to your question.

Speaker Change: Sure.

Speaker Change: With interest rates.

Speaker Change: That certainly could help stimulate some end market demand that would help give oems more confidence to building as they raise their production schedules that would increase purchase orders by the end of the year for us.

Sean Bagan: But as we took down our second half guidance, we factored that in considering where our current order rates are at. So, we think we're balanced with our updated guidance, but could have the opportunity.

Speaker Change: But as we took down our second half guidance.

Speaker Change: <unk> factored that in considering where our current order rates are at so we think we're balanced.

Speaker Change: With our updated guidance, but could have the opportunity and then the last piece I would highlight is geographically, we're seeing real strength and recovery out of the APAC region and so if that pace continues that that could be another opportunity to.

Sean Bagan: And then the last piece I would highlight is geographically, we're seeing real strength and recovery out of the APAC region. And so, if that pace continues, that could be another opportunity to get to that upfront.

Speaker Change: Get to that upper end.

Sean Bagan: All right.

Speaker Change: Alright. Thank you that's really helpful and then.

Sean Bagan: Thank you. That's really helpful.

Sean Bagan: And then I just wanted to shift gears related to capacity additions.

Speaker Change: I just wanted to.

Speaker Change: Shifting gears.

Operator: Related to capacity additions, are all your capacity additions complete now, and what progress has been made on generating incremental widths to fill capacity?

Speaker Change: Related to capacity additions are all your capacity addition is complete now and what progress has been made on generating incremental wins with full capacity.

Sean Bagan: Are all your capacity additions complete now? And what progress has been made on generating incremental wins to fill capacity?

Sean Bagan: Can you repeat the end of that question, Adam?

Speaker Change: Sorry can you repeat the end of that question Adam.

Sean Bagan: Yeah, there's been any progress made on generating incremental wins to fill the capacity additions.

Adam: Yes has there been any progress made on generating incremental wins to fill the capacity additions.

Sean Bagan: Yeah, incremental wins; I just didn't think I could do. So, from overall footprint perspective, nearly all are complete. I would say the remaining one would be over in Europe at our faster facility. It's less about adding a significant amount of capacity. It's more about efficiency and optimizing our overall footprint within Europe. So the ones we undertook last year within the Americas, particularly here, with the Damon addition, and then also with our Tijuana facility down in Mexico, are fully complete and running. So, in terms of filling up that additional capacity, the teams are aggressively pursuing new markets, expanding with existing customers as we look for system solution opportunities, whether that's within a segment, so a subsystem solution within electronics or a subsystem solution within hydraulics, meaning we're bringing together existing products within the portfolio or collectively bringing them all together for a full system solution.

Speaker Change: Got it incremental and sorry, I, just didnt pick up the so from a overall footprint perspective, nearly all are complete.

Speaker Change: I would say the the remaining one would be over in Europe at our faster facility.

Adam: Less about adding significant amount of capacity, it's more about efficiency and optimizing our overall footprint within Europe.

Adam: So.

Adam: Once we undertook last year within the Americas, particularly here with the Damon addition, and then also with Tijuana facility down in Mexico.

Adam: Our fully complete and running so in terms of filling up that additional capacity the teams are.

Adam: Aggressively pursuing new markets expanding with existing customers as we look for system solution opportunities, whether thats within a segment. So a sub system solution within electronics or a subsystem solutions within hydraulics, meaning we are bringing together existing products within the portfolio.

Adam: Or collectively bringing them all together for a full system solution all of those opportunities are still in play and we continue.

Sean Bagan: All of those opportunities are still on play, and we continue to increase that funnel of opportunities.

Adam: To increase the funnel of opportunities from a diversification perspective, we've talked about commercial foodservice has in the past we do have incremental revenue that will be coming in the back half related to that market that will be insignificant, but as we get into next year creates a significant growth opportunity for us.

Sean Bagan: From a diversification perspective, we've talked about commercial food services in the past. We do have incremental revenue that will be coming in in the back half related to that market that will be insignificant, but as we get into next year, it creates a significant growth opportunity for us, given the amount of potential customers we're working with on solutions there. And then finally, I would highlight some of the niche markets that we are in, provide a bit of a diversification for us in an opportunity to continue to grow. Whether that's geographically toward the markets or customers that we serve, and just to highlight a few of mine mining applications for a street, pharmaceutical, dental, medical, devices, aerospace, and entertainment.

Adam: Given the amount of potential.

Adam: Potential customers, we're working with on solutions, there and then finally I would highlight some of the niche markets that we are in provide.

Adam: Provide.

Adam: A bit of a diversification for us and an opportunity to continue to grow whether that's geographically or the markets or customers that we serve and just to highlight a few of mine.

Adam: Mining applications forestry pharmaceutical dental medical devices Aerospace and entertainment. So those are the ones that are that could potentially fill up some of that capacity.

Sean Bagan: So those are the ones that could potentially fill up some of that capacity.

Sean Bagan: That's great.

Operator: That's great! Thank you for taking my question.

Speaker Change: That's great. Thank you for taking my questions.

Sean Bagan: Thank you for taking my questions. That's great. Thank you for taking my questions.

Adam: That's right. Thank you for taking my questions.

Chris Moore: Thanks, Adam. Our next question comes from Chris Moore from CJS Security.

Ed: Thanks, Ed.

Speaker Change: Our next question comes from Chris Moore from CJS Securities. Please proceed.

Chris Moore: Please proceed.

Chris Moore: Hey, good morning, guys. Thanks for taking a few questions. Hopefully we won't ask any of the asked already at some phone issues.

Chris Moore: Hey, good morning, guys. Thanks for taking a few questions.

Chris Moore: I won't ask any of the asked already I had some phone issues.

Sean Bagan: Maybe just thank you for kind of giving the Q3 pieces in the guide.

Chris Moore: Maybe just thank you for kind of given the Q3 pieces in the guide can you just provide a little more detail on the flow between Q3, and Q4 and the biggest wildcards.

Sean Bagan: Can you just provide a little more detail on the flow between Q3 and Q4 and the biggest wildcards?

Sean Bagan: Hey, Chris.

Chris: Hey, Chris.

Sean Bagan: Sure. So, yeah, we so implied in the in our compare remarks where we're a guidance range of 192 to 200 million for Q3. We would expect that Q3 and Q4 could end up looking very similar.

Chris: Sure so yes so.

Speaker Change: Quiet in the in our prepared remarks, where we're our guidance range of 192 to 200 million for Q3.

Speaker Change: We would expect that Q3 and Q4 it could end up looking very similar however.

Sean Bagan: However, I want to preserve the opportunity for those in further earlier questions, some of the incremental opportunities. So, we're trying to really, as we have been in the past couple of quarters, be very specific in where we see it, and we have a great line of sight in the current quarter. Many of our customers, as we've talked about, the large OEMs give us a long-range forecast. But then there are the other businesses where they're, where they're shorter cycle from an order perspective, so we don't have as much visibility. So, like with our health and wellness that has been really strong in the first half and over to our expectations, typically get kind of four to six weeks of firm orders there.

Chris: Want to preserve the opportunity for those.

Chris: Per the earlier question some of the incremental opportunities. So we're trying to really as we have been in the past couple of quarters to be very specific in where we see it and we have great line of sight in the current quarter.

Chris: Many of our customers as we've talked about the large Oems give us long range forecast, but then there are the other businesses, where they are where they are shorter cycle from an order perspective. So we don't have as much visibility so like with our health and wellness that has been really strong in the first half and over achieved our expectations typically get kind of four to six week up firm orders there.

Sean Bagan: And as we head into the back half of the year, we know seasonality-wise that they'll go business typically trails off in the fourth quarter. But there could be an opportunity there for the current strength that we experience in the first half to sustain. And then, even with our largest business on hydraulics, as you all know, our lead times are very strong. We did get a little behind past you through that Center of Excellence transition last year with Damon. But we really have worked through that entire backlog. And so that's one differentiation competitive advantage we have is our ability to fill orders quicker.

Chris: And as we head into the back half of the year, we know seasonality wise that although our business typically trails off in the fourth quarter, but there could be an opportunity there for the current strength that we experienced in the first half to sustain and then even with our.

Chris: Our largest business some hydraulics.

Chris: As you all know our lead times are very strong.

Damon: Did get a little behind past due through that centre of excellence transition last year with Damon, but we really have worked through that entire backlog and so thats. One differentiation competitive advantage. We have is our ability to fulfill orders quicker and so that will and we see that with the distributor inventory levels not carry.

Sean Bagan: And so that will, and we see that with the distributor inventory levels, not carrying as much inventory. So that could provide a nice opportunity as well.

Chris: In as much inventory, so that could provide a nice opportunity as well.

Sean Bagan: Got it very helpful.

Operator: Got it. Very helpful. I didn't hear much talk in terms of the big system sales that you're working on with the OEMs. Just fair to say that those are still progressing nicely.

Speaker Change: Got it very helpful.

Sean Bagan: I didn't hear much talk in terms of the big system sales that you're working on with the OEMs. Just fair to say that those are still progressing nicely.

Speaker Change: I didn't hear much talk in terms of the big system sales that youre working on with with the Oems just fair to say that those are.

Speaker Change: Still progressing nicely.

Sean Bagan: Yeah, I would characterize it that any system sale we've ever alluded to or spoke to are still in play. It's just a very long cycle and me coming from that OEM space. There's various stages that they come in, and when we're pursuing a large one that is displacing different suppliers. If you think across a manifold, a valve, a coupler, a controller, a display, even added in our signal software on the backside, that's a pretty drastic change that you're displacing many different suppliers. So whether it's very upfront in the stage of product planning, product validation, working with engineers from the potential customer to then getting into the bill of materials and productions and pre productions and validated.

Speaker Change: Yes, I would characterize it that any system. So we've ever alluded to or spoke to are still in play. It's just very long cycle and me coming from that OEM space Theres various stages that they come and then when we're pursuing a large one that is displacing different suppliers. If you think across a man.

Speaker Change: Before the bell of our coupler a controller of display even added and are seeing the software on the back side, that's a pretty drastic change that youre displacing many different suppliers. So whether it's very upfront in the stage of product planning product validation working with engineers from the potential <unk>.

Speaker Change: Customer to then getting into.

Speaker Change: The bill of materials.

Speaker Change: Productions in preproduction and validating to actually us getting a purchase order and then putting into production. That's a long cycle multi years, but in addition to the ones. We've spoken about there are many new ones. We are pursuing as well and we are firmly committed we think thats a significant value creator of value proposition that we bring.

Sean Bagan: Actually, that's getting a purchase order, and I'm putting in production.

Sean Bagan: That's a long cycle multi years, but in addition to the ones we've spoken about, there are many new ones we are pursuing as well, and we are firmly committed. We think that's a significant value creator value proposition that we bring that no one else does from an electro-hydraulics perspective that really will help drive value and grow for us in the longer term. Got it, helpful.

Speaker Change: That no one else does from an electrical hydraulics perspective that really will help drive value and growth for us in the longer term.

Operator: I got it. Helpful.

Speaker Change: Got it helpful on that front.

Sean Bagan: On that front, another kind of a fixed timeline to some of this stuff, but in terms of the current market environment, eggs still so off lots of economic uncertainty. Does that likely, does the backdrop likely, or potentially accelerate these system deals as they're looking, companies looking to further drive competitive positioning, or does it more likely cancel the process because of so much uncertainty? Well, that's where we'd like to believe and think, and that's why we try and bring these solutions to those customers, even before these OEMs may even know the whole capability of what we offer, and so potentially could accelerate it.

Speaker Change: None of those kind of fixed timeline to some of the stuff but.

Operator: On that front, I know there's kind of a fixed timeline for some of this stuff, but... In terms of, you know, the current market environment, agriculture still faces lots of economic uncertainty. Does the backdrop likely or potentially accelerate these system deals as companies look to further drive competitive positioning, or does it more likely slow the process because of so much uncertainty?

Speaker Change: In terms of the current market environment AG still saw off lots of economic uncertainty.

Speaker Change: Does that likely just the backdrop likely or potentially accelerate the system deals as they are looking at companies looking to further drive competitive positioning or.

Speaker Change: Or is it more likely kind of slow the process because of so much uncertainty.

Speaker Change: Well, that's where we'd like to.

Speaker Change: I believe and think and Thats why we try and bring these solutions those customers even before they these Oems may even know the full capability of what we offer and so potentially could accelerate that typically our annual production launches and you've got to hit that cycle and that obviously varies by industry by market, but potentially.

Sean Bagan: Typically, our annual production launches, and you got to hit that cycle, and that obviously varies by industry, by market, but potentially could be something that would accelerate because it is a clear differentiator for those OEMs, the solution we provide.

Speaker Change: Could be something that would accelerate because it is a clear differentiator for those Oems.

Speaker Change: The solution we provide.

Sean Bagan: Got it.

Speaker Change: Got it I will leave it there I appreciate it guys.

Operator: Got it. I will leave it there. I appreciate it, guys.

Chris Moore: I will leave it there.

Chris Moore: I appreciate it, guys. Thanks, Chris.

Operator: Thanks, Chris. Thanks, Chris.

Chris Moore: Thanks, Chris Thanks, Chris.

John Brett: Our next question comes from John Brett from Oppenheimer. Please proceed.

Operator: Our next question comes from John Brett from Oppenheimer. Please proceed.

Speaker Change: Our next question comes from Jon Brandt from Oppenheimer. Please proceed.

John Brett: Good morning, Sean, and Tania.

John Brett: Good morning, Sean, Tonya.

Jon Brandt: Good morning, Sean Tanya.

Jon Brandt: Okay.

Jon Brandt: Sean.

John Brett: Sean, are you making any labor force adjustments, and I'm thinking in particular maybe at faster, the egg cycles down, and sometimes these egg cycles aren't one-year phenomenon. They can be two, three-year cycles, and so has there been any adjustments in the labor force, maybe beyond attrition, and is that something that would be contemplated? Yeah, so John, thanks for the question. With respect to faster, not only are we focused on the labor and attrition, we haven't taken any significant layoff, but we are taking the opportunity, particularly through the summer holiday period and planning for the holiday period at the end of the year, to reduce production levels.

Jon Brandt: Are you, making any labor force adjustments and I'm thinking in particular, maybe it faster.

Speaker Change: The AG cycle is down.

Pan: And sometimes these cycles aren't one year phenomenon that can be two to three year cycles Pan.

Speaker Change: Has there been any adjustments in the labor force.

Speaker Change: Maybe maybe beyond nutrition, alright, and is that something that would be contemplated.

Jon Brandt: Yes, so John Thanks for the questions.

Speaker Change: Respect to faster not only are we focused on the labor and attrition.

Speaker Change: We haven't taken any significant layoff, but we are taking the opportunity, particularly through the summer holiday period and planning for the holiday period at the end of the year too.

Speaker Change: <unk> production levels the other.

Sean Bagan: The other level we have that faster businesses in source versus outsourcing of different manufacturing processes, so we're bringing more of it in house, which allows us to flex up and down, obviously our production levels and absorb our costs more efficiently, but also on the periods of upswings allows us to ramp quicker as well when we do outsource. So we've got a few things on our control, and what I would highlight is our faster business. Let me tell you, we need a special remarkable job navigating those changes in markets and those cycles, but he also has done a nice job to diversify away from being so well-earned on egg, and so there are other pockets that are performing well for that faster business, and particularly our faster business overseas from the EMEA perspective. So, the Asia Pacific region, our Brazil business, our America's business, are actually performing pretty strong that are helping offset some of that weakness.

Speaker Change: <unk> level, we have with the fastener businesses in source versus outsourcing of different manufacturing processes. So we're bringing more of it in house.

Speaker Change: <unk> allows us to flex up and down obviously, our production levels and absorb our costs more efficiently, but also on the periods of upswings allows us to ramp quicker as well when we do outsource. So we've got a few things in our control and what I would highlight is our fastener business led by material or do we need does a remark.

Speaker Change: Couple job.

Speaker Change: NAV gating those those changes in.

Speaker Change: End markets and those cycles, but he also has done a nice job to diversify away from being so reliant on AG and so there are other pockets that are that are performing well for that fastener business and particularly our fastener business overseas from the EMEA perspective, So the Asia Pacific region, our Brazil.

Speaker Change: Business, our Americas business are actually performing pretty strong that are helping offset some of that weakness. So overall, the leathers that they have and the automation that we've invested in over there has really helped maintain the margins.

Sean Bagan: So overall, the leathers that they have and the automation that we've invested in over there has really helped maintain the margins.

John Brett: Thank you.

Speaker Change: Thank you and secondly, the health and well as you pointed out the health and wellness market has been pretty good first half of the year.

John Brett: And secondly, the health, as you pointed out, the health and wellness market has been pretty good for a staff of the year. And obviously it has exposure to the consumer. Are you surprised in regard to its strength?

Speaker Change: And obviously it has exposure to the consumer are you surprised.

Speaker Change: In regard to strengthen and how do you see that unfolding.

Sean Bagan: And how do you see that unfolding as we go forward beyond, beyond maybe the seasonal decline that we typically see? Yeah, that's a great question because I would say no on that surprise. Where it's at and it from the perspective to put it in perspective where we're operating right now for the first step provided nice growth year over year. But the comparable is very soft, and even the first half one right isn't back to kind of pre-acquisition levels. So it has opportunity to run now; it ran significantly throughout COVID, more than doubled. So we're coming off of softer comfort from a year-over-year.

Speaker Change: As we go forward beyond beyond maybe the seasonal decline that we typically see.

Speaker Change: Yes, that's a great question, because I would say no I'm not surprised at where it's at.

Nathan Jones: Yeah, that's a great question because I would say, no, I'm not surprised at where it's at. From a perspective, to put it in perspective, where we're operating right now for the first half, we provided nice growth year over year, but the comparable is very soft. And even the first half run rate isn't back to kind of pre-acquisition levels, so it has the opportunity to run. Now it ran significantly throughout CO

Speaker Change: From our perspective to put it in perspective, where we're operating right now for the first half provided a nice growth year over year, but the comparable is very soft and even the first half run rate isn't back to kind of pre acquisition levels. So it has opportunity to run now it ran significantly throughout COVID-19 more than doubled so we're coming off of <unk>.

Speaker Change: Softer comps, but from a year over year, it's nice growth, where I am also encouraged as we had announced a.

Nathan Jones: So we're coming off a softer comp split from a year ago, but it's still nice growth. Where I'm also encouraged is we announced a strategic alliance with Water Guru, which gets us into a new segment of products to distribute. And we already have our first OEM that's committed to that solution. And so just as a reminder, it's monitoring of chemicals and water temperature and such, and it's integrated into our Balboa app so customers can see and view all

Sean Bagan: It's nice growth where I'm also encouraged is we have announced a strategic alliance with Water Guru, which gets us into a new segment of product to distribute. And we already have our first OEM that's committed to that solution. And so just as our minor, it's monitoring of chemicals and water temperature and such, and it's integrated into our elbow app with our customers can see and view all the all the key indicators for the performance of their spot. And over time, we'll get into the treatment and the chemical side. So it's a significant green shoe for us of a piece of that market that we have never played in before.

Speaker Change: Our strategy strategic.

Speaker Change: <unk> Alliance with water Guru, which gets us into a new segment of <unk>.

Speaker Change: Product to distribute and we already have are.

Speaker Change: First OEM, that's committed to that solution and so just as a reminder, its monitoring of chemicals and water temperature and such and it's integrated into.

Speaker Change: Our mobile app with our so customers can see and view all the all the.

Speaker Change: Key indicators for the performance of their spa and over time, we'll get into the treatment and the chemical side. So it's a significant green shoot for us.

Speaker Change: Piece of that market that we have never played in before so very confident that we'll continue to drive growth and get that back.

Sean Bagan: So very confident that we'll continue to drive growth and get that back to a more normalized level.

Speaker Change: To a more normalized level, okay. John Thank you very much.

John Brett: Okay, Sean, thank you very much. Thanks, Sean.

John: Thanks Scott.

Meg Dobry: Our next question comes from Meg Dobry from Baird. Please proceed. Hey, good morning, Sean and Tonya.

John: Our next question comes from Mig <unk> from Baird. Please proceed.

Mig: Hey, good morning, Sean and.

Joe Garbowski: It's Joe Garbowski on from Meg this morning.

John: Joe Grabowski on for Mig This morning.

Joe Garbowski: Hey Joe. Good morning. Most of my questions have been answered.

Nathan Jones: Good morning. Most of my questions have been answered. I did maybe have just a few more cleanup questions. You know, I guess when you talked about the declines in demand in the latter part of the quarter leading into the start of the third quarter, could you maybe talk about that a little more? Was it kind of gradual at the end of the quarter into the third quarter? Or was it abrupt? And does it feel like, you know, demand has leveled off here as of early August, or are things still sort of choppy?

Jim: Hey, Jim.

Jim: Good morning.

Speaker Change: Most of my questions have been answered I did maybe have just a few more cleanup questions I guess when you talked about.

Sean Bagan: I did maybe have just a few more cleanup questions. You know, I guess when you talked about the declines in demand and the latter part of the quarter leading into the start of the third quarter, can you maybe talk about that a little more? Was it a kind of gradual at the end of the quarter into third quarter? Was it abrupt? And does it feel like, you know, demand has leveled off here? Is you know early August, or are things still sort of choppy? Yeah, no, I would say it was gradual. It wasn't a significant cliff drop-off.

Speaker Change: The declines in demand in the latter part of the quarter leading into the start of the third quarter can you maybe talk about that a little more was it was it kind of gradual at the end of the quarter into third quarter with it abrupt.

Speaker Change: Does it feel like.

Speaker Change: Man has leveled off here.

Speaker Change: Currently August or are things still choppy.

Nathan Jones: Yeah, no; I would say it was gradual. It wasn't a significant cliff drop-off, more so what we did experience last year. I would also highlight that we have seen some of the weakness in longer-term orders that weren't committed that as they get closer to the second half, and come into that lock period. And so concentrated though in that ag market and the recreational market most specifically, and then just with that shorter lead time on Balboa and knowing we're getting into the lower seasonality side of that health and wellness, just want to be cautious and not overcommit there, not assume that our over delivery in the first half for health and wellness would continue.

Speaker Change: Yes, no I would say it was gradual it wasn't a significant cliff drop off more so what we did experienced that last year.

Sean Bagan: So we did experience that last year. I would also highlight that we had seen some of the weakness in the longer term orders that weren't committed, that as they get closer to the second half come into that locked period. And so concentrated though to that ag market and the recreational market, most specifically, and then just with that shorter lead time on Belboa and knowing we're getting into the lower seasonality side of that health and wellness.

Speaker Change: I would also highlight that we had we had seen some of the weakness in the longer term orders that werent committed that as they get closer to the second half come into that lock period end.

Speaker Change: Concentrated though to that AG market and the recreational market. Most specifically and then just with that shorter lead time on Bell boll and knowing we're getting into the lower seasonality side of that health and wellness.

Sean Bagan: I just want to be cautious and not over commit there, not assume that are over delivering the first half or helping wellness would continue. And so I wouldn't call it necessarily a significant surprise. It was clearly leading indicators by our public company customers. Seven of our top 20 customers are public companies and kind of seeing what they have reported and their adjustments and all calling for the clients you over here and their fiscal year sales. So didn't catch us by surprise, but again, we think our recalibrated back half expectation for your expectation covers the most like the scenario that we have visibility to right now.

Speaker Change: Just want to be cautious and not over commit there not assume that our over delivery in the first half for health and wellness would continue and so I won't call. It.

Nathan Jones: And so I wouldn't call it necessarily a significant surprise. It was clearly leading indicators by our public company customers, seven of our top 20 customers, our public companies, and kind of seeing what they have reported and their adjustments, and all calling for declines year over year in their fiscal year sales. So it didn't catch us by surprise, but again, we think our recalibrated back half expectation and full year expectation covers the most likely scenario that we have visibility on right now.

Jim: Certainly adds significant surprise it was.

Speaker Change: Clearly leading indicators by our public company customers.

Jim: Seven of our top 20 customers are public companies and kind of seeing it seeing what they have reported and their adjustments and all calling for declines year over year in their fiscal year sales.

Jim: It didn't catch us by surprise, but.

Speaker Change: Again, we think our recalibrated back half expectation full year expectation.

Jim: Covers the.

Speaker Change: The most likely scenario.

Speaker Change: We have visibility to right now.

Operator: Got it. Okay. And then I know there's been a couple of questions about the sales guidance and kind of the cadence of that guidance. I'm going to maybe take another shot at it.

Speaker Change: Got it Okay, and then I know theres been a couple of questions about the sales guidance and kind of the cadence of that guidance and maybe take another.

Sean Bagan: And then I know there's been a couple questions about the sales guidance and kind of the cadence of that guidance. I'm going to maybe take another shot at it. The midpoint of your Q3 sales guidance, I sales down 3%, and then I wouldn't mean that the midpoint of your four-year sales guidance Q4 would be up 6%, and that would be the first top-line growth in the last several quarters.

Speaker Change: Another shot at it the midpoint of your Q3 sales guidance. Thanks, Tom.

Tom: 3% and then that would mean that the midpoint of your full year sales guidance Q4 would be up 6% and.

Speaker Change: And that would be the first top line growth in the last several quarters so that.

Sean Bagan: So, that Q4 kind of implied 6% growth, is that just kind of bumping into a couple years of easier comparisons, or is there anything maybe with the new capacity additions that would allow the Q4 growth to be in that range? Yeah, I do believe the comparison to that. In addition, I would highlight that the capacity expanses, as I mentioned last year, are now at run rate. So, we were impacted last year by building up that backlog from our Manifold Center of Excellence. And so, from that perspective, Q4 was a little bit impacted last year, so it makes for the easier comp this year. But we agreed with your observation that it would be the first quarter that would provide growth, and given our visibility in the order demands and the way the markets are performing, we're confident we can drive growth in the fourth quarter.

Nathan Jones: The midpoint of your Q3 sales guidance would have sales down 3%. And then that would mean that the midpoint of your full year sales guidance, Q4, would be up 6%. And that would be the first top-line growth in the last several quarters. So that Q4 kind of implied 6% growth, is that just kind of bumping into a couple years of easier comparisons? Or is there something maybe with the new capacity additions that would allow the Q4 growth to be kind of in that range?

Speaker Change: Q4 kind of implied 6% growth is that just kind of bumping into a couple of years.

Speaker Change: Your comparisons or.

Speaker Change: Or anything maybe with the new capacity additions.

Lawanda: Quarter to quarter, Lawanda Q4 growth could be kind of in that in that range.

Nathan Jones: Yeah, I do believe the comparison plays into that. In addition, I would highlight that the capacity expansions, as I mentioned last year, are now at run rate. So, we were impacted last year by building up that backlog from our manifold center of excellence. And so, from that perspective, Q4 was a little bit impacted last year, so it makes for an easier comp this year. But we agreed with your observation that it would be the first quarter that provided growth. And again, given our visibility into order demands and the way the markets are performing, we're confident we can drive growth in the fourth quarter.

Speaker Change: Yes, I do believe the compare plays into that.

Speaker Change: In addition, I would highlight that the.

Tom: Capacity expenses as I've mentioned last year are now at run rate.

Operator: Got it. Okay. Thank you.

Speaker Change: So we were we were impacted last year by building up that backlog from our manifolds center of excellence.

Tom: And so from that perspective Q.

Speaker Change: Q4 was a little bit impacted last year. So it makes for the easier comp this year, but.

Speaker Change: We I agree with your observation that it would be the first quarter that.

Speaker Change: Would provide growth and given our visibility into order demands.

Speaker Change: And the way the markets are performing.

Tom: We're confident we can drive growth in the fourth quarter.

Operator: And then a final question. I know we've talked about new customer wins, new end markets. I wanted to maybe ask specifically about food equipment. I know you guys had an innovation, and had a booth at the NRA show in Chicago in May. But I also know that Josef had some connections to the food equipment end market. Maybe any updates you can give us around penetration into food equipment.

Sean Bagan: Got it. Okay. Thank you.

Speaker Change: Got it okay. Thank you and then a final question.

Sean Bagan: And then, a final question. I know we've talked about new customer wins, new end markets. I wanted to maybe ask specifically about food equipment. I know you guys had an innovation, had a booth at the NRA show in Chicago in May, but I also know that Joseph had some connections to the food equipment and markets. So, maybe any updates you can give us around penetration into food equipment. Yeah, we're very excited about the up-to-the-food equipment present. Certainly, no one person is driving that. In fact, our president of our electronic segment, Lee Wicklatch, that I referenced in the prepared remarks, spent a significant part of his career in that segment.

Speaker Change: We've talked about new customer wins, new end markets I wanted to maybe ask specifically about food equipment.

Speaker Change: I know you guys harder.

Speaker Change: <unk> had a booth at the <unk>.

Speaker Change: And our ratio in Chicago in May.

Joseph: But I also know that Joseph had some connections.

Speaker Change: Food equipment.

Tom: And market so maybe any.

Speaker Change: Any updates you can give us a brown.

Speaker Change: Penetration into food equipment.

Nathan Jones: Yeah, we're very excited about the opportunity Food Equipment presents. But certainly, no one person is driving that.

Speaker Change: Yes, we are.

Speaker Change: Very excited about the opportunity food equipment presents certainly no. One person is driving that in fact, our president of our electronics segment Lee with glass that I referenced in the prepared remarks spent a significant part of his career in that segment.

Nathan Jones: In fact, our president of our electronic segment, Lee Wicklash, that I referenced in the prepared remarks, has spent a significant part of his career in that segment, and with his experience and the sales team's opportunities, what the funnel currently looks like for that, we're confident that it's going to provide incremental growth as we get into next year. In fact, we'll generate a little bit of revenue in the back half of this year from that.

Sean Bagan: And with his experience and the sales team's opportunities, what the funnel currently looks like for that, we're confident that's going to provide incremental growth as we get into next year. In fact, we'll generate a little bit of revenue in the back half of this year from that. So, a lot of focus there. We think we bring a lot of value proposition to that marketplace, particularly on the electronic side with our displays and controls. And then we've been in our Cygnus software remote platform. So, in addition to the show you referenced, we are also out the Vegas ES show and got significant interest, not only food service, but other markets that that software could be very meaningful as we get into next year as well.

Speaker Change: His experience and the sales teams opportunities, but the funnel currently looks like for that we're confident that's going to provide incremental growth as we get into next year. In fact, we will generate a little bit of revenue in the back half of this year from that so a lot of focus there. We think we bring a lot of value proposition to that.

Nathan Jones: So a lot of focus there. We think we bring a lot of value to that marketplace, particularly on the electronic side with our displays and controls and then weaving in our Cygnus software remote platform. So, in addition to the show you referenced, we are also at the Vegas ES show and got significant interest not only in food service but other markets that that software could be very meaningful as we get into the next year as well.

Speaker Change: Marketplace, particularly on the electronic side with our displays and controls and then we've been anr sickness software remote.

Speaker Change: Platform so.

Tom: In addition to the show you reference where also the Vegas CES show and got significant interest not only foodservice, but other markets that that software could be very meaningful as we get into next year as well.

Operator: Got it. Okay. Thanks for taking my question. This concludes our question-and-answer session. I would like to turn the floor back over to...

Sean Bagan: Got it. Okay.

Operator: Got it. Okay. Thanks for taking...

Speaker Change: Got it okay. Thanks for taking my questions.

Sean Bagan: Thanks for taking my questions.

Operator: This concludes our question and answer session.

Speaker Change: This concludes our question and answer session I would like to turn the floor back over to Tania Almond for closing comments.

Tania Almond: This concludes our question-and-answer session. I would like to turn the floor back over to Tania Almond for closing comments.

Tania Almond: I would like to turn the floor back over to Tanya Alman for closing comments. Great. Thank you, operator, and thanks to everyone for joining us today. Feel free to reach out to me if you have any follow-up questions.

Tania Almond: Great. Thank you, operator. And thanks to everyone for joining us today. Feel free to reach out to me if you have any follow-up questions. Enjoy the rest of your summer. It's disappearing quickly, and we'll look forward to seeing you back on the road soon.

Tania Almond: Great. Thank you operator, and thanks to everyone for joining us today feel free to reach out to me. If you have any follow up questions.

Tania Almond: Enjoy the rest of your summer. It's disappearing quickly, and we'll look forward to seeing you back on the road soon. Have a great day.

Speaker Change: Julien rest of your summer, it's disappearing quickly and we look forward to seeing you back on the road soon have a great day.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you.

Operator: Have a great day. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: ?? ?? ??

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].