Q1 2025 Helios Technologies Inc Earnings Call

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Speaker Change: Greetings, and welcome to the Helios Technologies First Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone wants to require operator assistance during the conference, please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to introduce your host, Tania Almond, Vice President of Investor Relations and Corporate Communications. Thank you, you may begin.

Speaker Change: Thank you, operator, and good day, everyone. Welcome to the Helios Technologies First Quarter 2025 Financial Results Conference Call.

Speaker Change: We issue the press release announcing our results yesterday afternoon. If you do not have that release, it is available on our website at hallio.com. You will also find the slides that will accompany our conversation today as well as our prepared remarks.

Speaker Change: Here with me is Sean Bagan, President, Chief Executive Officer, and Chief Financial Officer. While the search process for a new CFO is ongoing, please welcome back our Vice President Corporate Controller, Jeremy Evans as well.

Speaker Change: Sean will start the call with highlights from the first quarter, then hand it over to Jeremy to review our first quarter financial results in detail. Sean will then conclude our prepared remarks with our latest thoughts on our 2025 outlook our current thinking on potential tariff impacts on our business.

Speaker Change: Financial and operational priorities, and key focus areas. We will then open the call to your questions.

Speaker Change: If you turn to slide two, you will find our State Harbor Statement.

Speaker Change: As you may be aware, we will make some forward-looking statements during this presentation and the Q&A session.

Speaker Change: If you turn white, apply, you'll find events that are subject to risks and uncertainties. As well as other factors that could cause after the result taken for materially, from those presented today. These statements, these risks and uncertainties and other factors can be found in our annual report on form of 10K for 2024. And we'll be providing as well in our upcoming 10 groups to be filed with the Security and Exchange Commission. You can find these documents on our website.

Speaker Change: at ntc.gov and we'll be provided as well. I'll also point out that during today's call, we will discuss your non-GAAP financial measures, which we believe are useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or financial measures to be prepared in accordance with our performance. We have provided recommendations of comparable chavis with non-GAAP financial measures in the table that are

Speaker Change: Jeffrey, please run forward and buy it with Gary and for now. With that, it reminds us to turn the call over with Sean.

Thank you, Tania, and welcome everyone.

Speaker Change: We appreciate you joining us today. Since being appointed permanent CEO in the first quarter, I nearly completed my listening tour with the Helios team to get deeper internal insights. We appreciate it. We have also engaged with our business partners, customers, and shareholders to get the roadside impact on our relationship with the Helios. With that feedback, we have already begun to refocus the organization. The changes in decision being made are centered on it because you have objective of driving business success.

to create prosperity for our customers who began employing this area of advisators.

Speaker Change: The ultimate sign of success makes organization on longevity, while generating career shareholder returns over the long term. I'm in amazingly bright future prehidios leveraging all our <expletive> . The ultimate sign of success is that we look back on one first quarter. We've fortified the management team and are reallocating resources towards growing our go-to-market initiative. We continue to evaluate our facility's footprint, operating structure and portfolio of the company. We believe we are in solid positions by building an actual...

and Joshua Bacher.

Speaker Change: and the capital aid of emergent opportunities are because of the <expletive> Tim Tarantino highlights how our size enables us. We were making sure that both the downstream effects of a prolonged care investigation are particularly rising highs on emerging pressures and potential impact on N-market demand.

Speaker Change: We are making long-term strategic decisions as we navigate near-term volatility. We had a better start in 2025 than expected as our first quarter as we are committed to making sales of $195 million exceeded the top end of our game's range. But remains below the prior year sales level, continues and market maintenance. That said, our early win over our go-to-market focus are promising that the title will share more details during the call.

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Speaker Change: We manage our time to absorb or to align with the lower sales over the realize, David, that has the actual expenses in your over year and 11% in your future with all of us, including capital, expenditure, inflow, which will be used only in the most impactful project, which will pay back your expenses year over year.

Speaker Change: In addition, we are being to improve our financial profile further by paying down $4 million in debt throughout which we are currently in the most 15% over last year payback and have now consistently reduced our debt for seven consecutive quarters. We have a stronger balance fee, a stronger cash-inver in quarter and nearly $400 million last-witted. And it now provides a fairly really important for us to offer infractative quarters.

Speaker Change: As a materializing meat, we expected our first-hand year-over-year new perilous would-be challenge with it, though we are prepared for the progress made against our plan to start the year.

Speaker Change: Well, the majority of our end-markets were made persistently. We are starting to see what positive trends were forming, though, in order to take over the land several months. In our largest business, the majority of our end-markets are typically locked here, but we did see their inventories continue to decline in the first quarter, which was a healthy time.

Speaker Change: We do have to make this and there was a small amount of advance purchasing from distributors at the end of the quarter, and we sponsor you there. I'm sorry, I think they're not the chair line in the first quarter, which is a help looking at our end market. We do, as I noted, we continue to see persistent weakness in most of the distributors. However, our health and wellness in reparation and market sales did experience girl over the year ago. It was good to see our electronic design number stabilizing. However, given the recent consumer sentiment readings and that work has to do. Thank you.

Speaker Change: We have not materialized for a year ago. We remain cautious. It was good to see our electronic industrial mobile and agriculture markets. We've improved the manufacturing PMI data earlier in the year. We have been encouraging, although it remains inconsistent and naturally-dependent, we are in positive tremble, yet, and agriculture markets. We are encouraging, interacting with our innovative customer-centered and going to market initiatives.

Speaker Change: We can create every old work out there. We were building out any integrating of the Manifold Center of Excellence on Indiana. Over a year, I have to make a headway on their win-back trail. Our win rate on Damon Custom Manifold's vote is improving with the ability to house, but I need to turn Prototype Manifolds within 3-Wee-Anna, which is a great benefit for our customers.

Speaker Change: We've been driving down to customer Oval to highlight our improved manifold and integrated package lead time total to deliver it with an quick return prototype, which is a great benefit. Significant progress has been achieved with notable successes from these efforts here today. On the electronic side, the innovation control team celebrated their 15-year partnership with IDANIFICULT by your own state, but this is a great example of these selling

Speaker Change: We are well-positioned and navigated near-term volatility and capitalized opportunities for Arctic conditions improved by deepening customer relationships. Let me turn the call over to Jeremy. We'll cover the details of our first quarter financial result, and then we'll come back to discuss the Ontario State Conditioner. Our outlook during this highway on that whole back road is all over to Jeremy.

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Jeremy: Thanks Sean, and good morning everyone. As I review our first quarter results, please reference slides 5 through 8. Sales in the quarter were $195 million, exceeding the top 10 of our guidance range, which was $190 million. We estimate the impact of customers pulling orders ahead as a result of announced tariffs to be approximately $195 million. Please also note that foreign exchange unfavorably impacted sales by $2.3 million compared to a year ago period as we get more cash.

Jeremy: have. Sales declined in all regions compared with last year. One green shoot to highlight was our Asia-Pacific sales in our electronics segment, which were up 24% year-over-year as the health and wellness and market has returned to growth. While year-over-year sales comparables are still negative, the profitability flow through on our sequential sales step-up validates the leverage we can quickly see in our model of economy growth.

Jeremy: for the quarter. Rose Marching can attract native 110 bases points over left here. Sequential to decline in labor and overhead blocks, we partially all say in over quality and higher material costs, primarily the reflection of the higher means of electronic vehicles.

Jeremy: and proofed margin rates as market stabilized in volume to third operational efficiency. Operating income in the first quarter was down just 3.5 million at 7.3 million reduction in the first quarter was down just 8.7% on an adjusted basis. Operating margin was 13.4% down 110 basis.

Jeremy: and Justin Bieber's up-margined decline 90 basis points compared to the prior and evasive basis. Operator and vector tactics are rating the first quarter with 23.5% reflecting the income mix in the very factor by 90 basis points compared to the previous one. Dizzuted DPS was 22 cents in the quarter. Down to 21.4% over last year. Primarily as a result of the loss of leverage from the 8th anniversary of the decline in sales.

Jeremy: diluted 9 U.N.E.P.S. was 44 to 10 to the quarter, down 17% over last year, but importantly, about 33% over the fourth quarter, and sales.

Jeremy: Starting on 5.9, I'll give it more color by segment in the quarter.

Jeremy: Hydraulic sales defined 11% over the prior year period This decline reflected weakness in agriculture, start mobile by an industrial and more more color by segment.

Jeremy: Operating income was down $4.4 million, reflecting the contraction in sales partially offset by the SBA savings. Please turn to slide 10 and we'll discuss the electronics segment.

Jeremy: Operating in company. Year over year, electronic sales remained relatively unchanged, sales higher sales and health and wellness, a recreational, healthy, after one going to clients in industrial and mobile end markets, compared with the thing here in the last year, sales remained relatively electronic, rose profit declined slightly, while rose margin held steady, seasonal. Reflecting, holding costs in line with volume and mobile end markets at the age of events, and we're down to 70% year over year due to real cost savings.

Jeremy: and Martin is one of the 140 basis points, attributable to quantifiable decrease in revenue to real-life cost savings.

Jeremy: Slide 11 shows our heavy focus on cash management continues to pay off the trailing 12-month pre-cashable conversion rate of 200 to 50 amperees at cost.

Jeremy: We generated cash from our creation of the 19 million in the quarter management, a seven percent improvement over the first quarter last half despite in lower sales.

Jeremy: of 200, this included 4.8 million insurance reimbursement related to $20.20, fire and weather related incidents. It was the first quarter last year. We, part of that asked to reduce that further in strength in our financial flexibility insurance reimbursement. The first quarter has been the last quarter of the year from a cash generation perspective. An optimizing cash flow will remain a focus for 2025 on our financial flexibility.

Greetings and welcome to the Helios technologies first quarter 2025 financial results Conference call.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

Jeremy: We've reduced inventory in the last 12 months by 24 million in the year, or 11% which contributed to lower working capital in the growing taxes for 2025.

Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to introduce your host Tony Allen, Vice President of Investor Relations and corporate communications. Thank you you may begin.

Jeremy: Our capital expenditure plan for 2025 will be prioritized with the focus on maintenance and productivity and the core to demonstrate everyday returns on about 3% of sales.

Speaker Change: Thank you operator, and good day, everyone welcome to the Helios technologies first quarter 2025 financial results Conference call. We issued a press release announcing our results yesterday afternoon. If you do not have that release. It is available on our website at H L. I O Dot com.

Jeremy: Turning to slide, well, at the end of the 14th quarter, we'll be cashing cashing, well, let's work 46 million and productivity, we have 350 every million available on our revolving credit facility.

Speaker Change: You will also find the slides that will accompany our conversation today as well as our prepared remarks here with me is Sean Bagging, President Chief Executive Officer, and Chief Financial Officer, while the search process for a new CFO is ongoing please welcome back our vice President corporate controller.

Jeremy Ovens: Jeremy ovens as well sure.

Jeremy Ovens: John will start the call with highlights from the first quarter, then hand, it over to Jeremy to review, our first quarter financial results in detail. Shawn will then conclude our prepared remarks with our latest thoughts on our 2025 outlook, our current thinking on potential tariff impacts on our business financial and operational priorities.

Speaker Change: And key focus areas. We will then open the call to your questions.

Speaker Change: If you turn to slide two you'll find our safe Harbor statement as you may be aware, we will make some forward looking statements. During this presentation and the Q&A session.

Speaker Change: These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from those presented today.

Speaker Change: These risks and uncertainties and other factors can be found in our annual report on Form 10-K for 'twenty 'twenty, four and will be provided as well in our upcoming 10-Q to be filed with the Securities and Exchange Commission you can find these documents on our website or at SEC Gov.

Speaker Change: Also point out that during today's call, we will discuss some non-GAAP financial measures, which we believe are useful in evaluating our performance you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP, we have provided rec.

These estimates do not try to anticipate how global demand could be impacted and the potential downstream effect as we believe that is too wide of a range of scenarios to predict all possible outcomes.

Speaker Change: Filiation, a comparable GAAP with non-GAAP measures in the tables that accompany today's slides.

Sean Bagging: Please reference slide three and four now with that it's my pleasure to turn the call over to Sean.

As of today, our analysis indicates that we are relatively insulated from the impacts due to our in the region for the region strategy, which we have been executing over the last few years with the aim of servicing our geographic revenue streams more efficiently for our customers.

Sean Bagging: Thanks, Tanya and welcome everyone. We appreciate you joining us today.

Sean Bagging: Since being appointed permanent CEO in the first quarter and nearly completed my listening tour with the Helios team to get deeper internal insights and have also engaged with our business partners customers and shareholders to get the outside an external impressions of Helios.

This has proven to be very helpful. As it provides optionality to contend with the current tariff dynamics I would also point out that nearly all of the products, we produce and ship from our Tijuana, Mexico facility to the U S. Our U S. MCA compliant, which is a positive for us and a competitive opportunity.

Sean Bagging: With that feedback we have already begun to refocus the organization.

Changes and decisions being made are centered on our customers with the objective of driving business success to create prosperity for our customers employees and investors.

When you look at our direct tariff exposure by country raw material imports from China and exports to China from the U S carrier the largest tariff burden.

Sean Bagging: The ultimate sign of success, its organizational longevity, while generating superior shareholder returns over the long term.

Just on the variety of components, we are using across our different operating companies, we estimate China related tariffs to be approximately $13 million of the total $15 million direct tariff cost exposure in the second half of 2025.

Sean Bagging: I see an amazingly bright future for Helios, leveraging all our assets.

Sean Bagging: As I look back on the first quarter, we fortified our management team and are reallocating resources towards growing our go to market initiatives.

Within China, we already have electronics manufacturing capabilities from our acquisition of Joyon way plus other hydraulics manufacturing facilities that we have had in China and the APAC region for many years.

Sean Bagging: Continue to evaluate our facility footprint operating structure and portfolio of companies. We believe we are in a solid position by building and Optionality to our plans that respond quickly to the ever evolving macro environment.

We intend to leverage these facilities to help mitigate the tariff impact for our China customers.

Sean Bagging: As we'll discuss further our response to the tariff landscape highlights how our size enables us to remain nimble and act decisively to mitigate the impact on our business and to capitalize on emerging opportunities because of the shifting tariff backdrop.

We also analyze and projected our second half tariff exposure at the segment level.

When you add up the gross tariff expense of approximately $15 million roughly $9 million would be in our hydraulics segment with about $6 million in our electronics segment again to reiterate this would be the gross impact before any mitigation efforts.

Sean Bagging: We remain concerned about the downstream effects of a prolonged tariff escalation, particularly rising costs pricing pressures and potential impact on end market demand.

Another potential risk for Helios, if current imposed tariffs remain relates to our U S export sales to China based customers for the second half of 2025, approximately $20 million in sales for China based customers would have traditionally been exported from the U S, which is currently subject to punitive.

Sean Bagging: We are committed to making long term strategic decisions as we navigate near term volatility.

Sean Bagging: We had a better start to 2025 unexpected as we over drove our first quarter estimates sales of $195 million exceeded the top end of our guidance range, but remains below prior year sales levels on continued end market weakness.

Retaliatory tariffs we.

Sean Bagging: That said our early wins from our go to market focus are promising and we will share more details during the call.

We are in the process of transferring manufacturing and assembly into the region to mitigate that risk as best we can.

Sean Bagging: The additional first quarter sales volume resulted in better than expected adjusted EBITDA dollars, while delivering a margin rate of 17, 3% showing the expected incremental flow through.

It is also worth noting we see an opportunity for more sales of the products. We manufacture in the U S for our U S. Customers for example competitors that rely on their Chinese manufactured products exported to the U S have now become sales conquest opportunities due to the punitive tariffs, which allows us to play.

Sean Bagging: We generated $19 million in cash from operations, a 7% increase over last year's first quarter. Despite the sales contraction.

Sean Bagging: The actions taken by the team to improve our working capital efficiency over the last year are showing in our results, including an 11% inventory reduction as compared to the prior year.

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To contend with the costs and demand pressures from tariffs as well as to capitalize on the opportunities. They present, we have a continuous assessment and mitigation work streams across our businesses.

Sean Bagging: We manage our cost of goods sold to align with the lower sales and realized savings that SDA expenses year over year.

We are responding to developments and have deployed various mitigation tools, including pricing actions alternative sourcing use of bonded warehouses, leveraging our global manufacturing footprint and identifying ways to creatively leverage our strengths to play offense and win business.

Sean Bagging: We are being judicious with all our spending including capital expenditure flow, which will be used for only the most impactful projects with quick payback periods.

Sean Bagging: Additionally, we improved our financial profile further by paying down $4 million in debt throughout first quarter down 15% over last year and have now consistently reduced our debt for seven consecutive quarters, we have a stronger balance sheet, a stronger cash engine and nearly $400 million of liquidity.

Turning to slides 15, and 16, we have two and a half more quarters in 2025 to navigate in this rather tenuous global trade environment with shifting geopolitical tensions tariffs have created more uncertainty in the second half of 2025, we are not withdrawing our full year outlook, but we are shifting our guidance to focus on.

Sean Bagging: This provides a firm footing for us to operate from.

Just the next forward quarter, where we had the highest visibility and have established a track record with meeting our commitments over the last six quarters.

Sean Bagging: As is materializing, we expected our first half year over year comparable would be challenging though we are pleased with the progress made against our plans to start the year.

We expect second quarter sales to be in the range of $198 million to $206 million.

Sean Bagging: While the majority of our end markets remained persistently weak we are starting to see some positive transforming in the order intake over the last several months.

Step up from our first quarter sales. We also project adjusted EBITDA margin to improve over the first quarter to a range of 17, 5% to 18, 5%.

Sean Bagging: Our largest business some hydraulics distributors orders are typically lumpy, but we did see their inventories continue to decline in the first quarter, which is a healthy sign we do estimate there was a small amount of advanced purchasing from distributors at the end of the quarter in response to tariffs so not material.

The improving sequential margin profile reflects further operating leverage from the anticipated increased volume.

While the second quarter sales are expected to be down compared with the year ago period. The implied sequential sales step up is in the range of plus one to plus 5% with strong flow through to the bottom line diluted non-GAAP earnings per share is expected to sequentially increase in the range of plus five to plus 23% or four.

Sean Bagging: Looking at our end markets as I noted, we continue to see persistent weakness in most of them. However, our health and wellness and recreational end markets sales did experience growth over the year ago period.

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Sean Bagging: Good to see our electronics segment stabilize however, given the recent consumer sentiment readings.

More than tripling the rate of sequential sales growth.

Looking at the latter half of 2025, we still currently see a path for sales growth over 2024 until we know with certainty what the final tariff rulings will be and how the demand environment could start to be impacted we will keep our focus on delivering our near term commitments and be ready to respond to various demand outcomes.

Sean Bagging: The forecasted interest rate cuts have not materialized, we remain cautious.

Sean Bagging: For our industrial mobile and agriculture markets, improving manufacturing PMI data earlier in the year had been encouraging although it remains inconsistent and not showing definitive positive trends yet.

As a reminder, our second half sales comparable from last year was significantly depressed from the persistent end market weakness with our go to market initiatives supporting grow and our planned acceleration of new product introductions, we feel well positioned to capitalize on any market stabilization.

Sean Bagging: We are gradually gaining traction with our invigorated customer centric go to market initiatives are more targeted sales focus has resulted in growing our sales funnels and we are starting to get some new business wins across the finish line. We have had two recent wins leveraging our acquisition of NIM and their leading parts and body high.

These are unprecedented times.

Sean Bagging: <unk> technology.

We will stay focused on what we can control and communicate with you on the details as we have them with as much certainty as feasible.

Sean Bagging: Both wins are in the construction end market with major Oems.

Sean Bagging: We also had a new win in our Sun hydraulics business in the aerial work platform and market with a global Oems.

Turning to slide 17, and 18 I believe our results in the first quarter validate that the financial priorities, we laid out at the beginning of the year remains sound we are.

Sean Bagging: Our teams at Damon and some are also making headway on their win back strategy stemming from the backlog issues. We created when we were building out and integrating our medical center of excellence in Indiana over a year and a half ago.

We're addressing our 2025 key focus areas to Reenergize, our go to market initiatives rooted in customer Centricity returning to profitable sales growth is imperative and we have a handful of green shoots being realized despite the challenged markets we.

Sean Bagging: Our win rate on Damon custom manifold quotes is improving with the ability to expedite quick turn prototype manifolds within three weeks, which is a great benefit for our customers. We've been driving active customer outreach to highlight our improved manifold, an integrated package lead times delivery and quick turn prototypes.

We have increased the pace of new product launches so far in 2025.

We have new revenue generating incremental products launched in the first half across our four flagship brands, including innovation controls F 35 display as well as their can keep had some hydraulics expanded line of electro proportional cartridge valves fasteners, multi slide and Bill Boas peer zone water chemistry management.

Sean Bagging: Significant progress has been achieved with notable successes from these efforts year to date.

Sean Bagging: On the electronics side, the innovation controls team celebrated their 15 year partnership with IDEXX fire and safety. This is a great example of selling system solutions and evolving with our customers' needs overtime innovation also had new business when selling recently introduced displays including the F 35, and the PC.

Solution, we have streamlined our organization to capitalize on customer relationships and industry Knowhow and the exciting part is we have only just begun.

I'll conclude our prepared remarks, with where I started and that true organizational longevity goes beyond simply remaining in business. It involves building a sustainable thriving organization that can adapt innovate and continue to contribute to its industry for the long term.

Sean Bagging: <unk> into the recreational off road and commercial vehicle markets.

Sean Bagging: So within the electronics segment.

Sean Bagging: <unk> had first quarter, new business wins in the <unk> space and cold plunge markets.

In April we surpassed 55 years of being in business going back to the founding of Sun Hydraulics and $19 70 by Bob Koskey and John Allen.

Sean Bagging: We have also recently announced several new product launches, reflecting our accelerated pace of bringing new innovations to market driven by customer feedback by deepening customer relationships and advancing our product portfolio. We believe we are well positioned to navigate near term volatility and capitalize on opportunities as market conditions improve.

We have changed and evolved quite significantly over the past decade in particular I remain incredibly excited about our future and confident in our ability to continue executing on our commitments I would like to thank each one of the Helios employees across the globe for all their daily efforts and thank you for being part of today's call and for your on.

Sean Bagging: With that let me turn the call over to Jeremy to cover the details of our first quarter financial results and then I'll come back to discuss how we are addressing the tariffs and our outlook. During this highly uncertain macro environment.

Speaker Change: <unk> engagement and support of Helios technologies with that let's open the lines for Q&A. Please.

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.

Jeremy Ovens: Thanks, Sean and good morning, everyone.

Jeremy Ovens: As I review, our first quarter results. Please reference slides five through eight.

Jeremy Ovens: Sales in the quarter were $195 million exceeding the top end of our guidance range, which was $190 million.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

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

Jeremy Ovens: We estimate the impact of customers pulling orders ahead as a result of announced tariffs to be approximately $2 million to $3 million.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing starkey one moment. Please while we poll for questions.

Jeremy Ovens: Please also note that foreign exchange unfavorably impacted sales by $2 3 million compared to the year ago period, as we get forecasted.

Speaker Change: Thank you. Our first question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.

Jeremy Ovens: Sales declined in all regions compared with last year.

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

Jeremy Ovens: One green shoot the highlight was our Asia Pacific sales in our electronics segment, which were up 24% year over year as the health and wellness and market has returned to growth.

Speaker Change: Maybe started a little bit higher level. So Sean you talked about finishing up your listening tour with the company, maybe just a little bit more in terms of what specifically you are hearing and kind of the specific actions that are effect that came out of that those conversations that you are looking.

Jeremy Ovens: All year over year sales comparable theres still negative the profitability flow through on our sequential sales step up validates the leverage we can quickly see in our model with volume growth.

Jeremy Ovens: For the quarter gross margin contracted 110 basis points over last year.

Speaker Change: Take.

Chris Moore: Hey, Chris Good morning. Thanks.

Speaker Change: Next question.

Jeremy Ovens: The decline in labor and overhead costs, partially offset lower volume and higher material costs, primarily as a reflection of the higher mix of electronics sales sequentially.

Speaker Change: So.

Speaker Change: When I got appointed CEO in January obviously, you had the benefit of operating the prior six months as the interim CEO, which afforded me the opportunity to work very closely with our board of directors and gain alignment on.

Jeremy Ovens: Sequentially gross margin expanded 50 basis points on higher volume in both segments.

Jeremy Ovens: We continue to prioritize operational efficiency and believe our focus on safety quality delivery and cost will continue to come through with improved margin rates as markets stabilize and volume returns.

Speaker Change: Where we wanted to take the company in the future through our in depth strategic planning process and allowed the board to see myself that our talented president's and executive team operate in I think provided the confidence to remove that interim tag and with that it was important to me just really step back at that.

Jeremy Ovens: Operating income in the first quarter was down just $3 3 million at $7 3 million reduction of gross profit a lower volume was somewhat offset by a $4 4 million reduction in SG&A expenses.

Speaker Change: <unk> and.

Speaker Change: Solidify what where the internal impressions and the external impressions of the company, obviously I had formed that over my year and a half with the company, but really took the opportunity being new allowing people the non guarded way to really share strengths weaknesses opportunities.

Jeremy Ovens: Operating margin declined 90 basis points to eight 7%.

Jeremy Ovens: On an adjusted basis operating margin was 13, 4% down 110 basis points and adjusted EBITDA margin declined 90 basis points compared to the prior year period.

Jeremy Ovens: Our effective tax rate in the first quarter was 23, 5%, reflecting the income mix and the various tax jurisdictions.

Speaker Change: Where we need to invest but then also the external perspective with the customers and how they feel and our investors our analysts group.

Jeremy Ovens: Diluted EPS was <unk> 22 cents in the quarter down 21% over last year, primarily as a result of the loss of leverage from the 8% decline in sales.

Speaker Change: Outside partners.

Speaker Change: I really will boil it down to a couple of key things.

Speaker Change: That we're continuing to work on and you've certainly heard throughout our prepared remarks about the focus on go to market.

Jeremy Ovens: Diluted non-GAAP EPS was <unk> 44 cents in the quarter down 17% over last year, but importantly up 33% over the fourth quarter.

Speaker Change: Simply put that as well.

Speaker Change: We're no longer fishing, we're becoming hunters, we're being much more aggressive with our with our <unk>.

Jeremy Ovens: Starting on slide nine I'll give more color by segment.

Jeremy Ovens: <unk> sales declined 11% over the prior year period.

Speaker Change: Engagement with our customers customer Centricity weaved into all of our product development, but also driving the accountability is.

Jeremy Ovens: This decline reflected weakness in agriculture, mobile and industrial end markets.

Speaker Change: Well.

Speaker Change: The second thing is with the team getting the right team on the bus getting getting the.

Jeremy Ovens: Foreign exchange had an unfavorable $2 $2 million impact on this segment compared with the prior year period.

Speaker Change: Executive management team fortified so we've made some changes there.

Jeremy Ovens: Hydraulics gross profit and gross margin contracted year over year, 16% or 170 basis points, respectively, reflecting lost leverage on lower volume.

Speaker Change: And then lastly, just overall portfolio assessment.

Speaker Change: Since I've joined the company there were no acquisitions done but over the last decade. The company has transformed significantly from just being Sun hydraulics and as of December 2016, when innovation controls joined the Helios group.

Jeremy Ovens: Material variable cost declined year over year and were relatively flat as a percentage of sales aligning with the lower demand environment.

Jeremy Ovens: SG&A expenses were down 12% compared with the prior year period, demonstrating cost savings realized.

Speaker Change: And each one of those acquisitions, we've done has deployed a lot of capital and the company has done a remarkable job to delever and that focus is clear.

Jeremy Ovens: Operating income was down $4 4 million, reflecting the contraction in sales, partially offset by the SBA savings. Please.

Jeremy Ovens: Please turn to slide 10, and we'll discuss the electronics segment.

Speaker Change: From a capital deployment perspective, and that's not changing right now our focus is on paying down debt, but we also have a remarkable company from a diversification perspective from a profitability perspective from a cash flow generation and so it's really how do we how do we.

Jeremy Ovens: Year over year electronic sales remained relatively unchanged.

Jeremy Ovens: Higher sales in health and wellness and recreational help counter ongoing declines in industrial and mobile end markets compared with the same period last year.

Speaker Change: Do more and more of that of the progress we've made over the last year and so with the tariffs coming into the mix certainly has that.

Jeremy Ovens: Electronics gross profit declined slightly while gross margin held steady reflecting holding cost in line with volume.

Speaker Change: Foresee that obviously, when we entered the year and put out our original guidance and so we're cautious, but we actually see that as a nice opportunity as well and we've had some early wins. So that's just high level and I'm happy to go a little deeper and Daniel on that if you'd like.

Jeremy Ovens: SCA expenses were down 7% year over year due to realized cost savings.

Jeremy Ovens: Operating income improved by 13% and margin expanded 140 basis points attributable to quantifiable decreases in SBA costs.

Speaker Change: No.

Speaker Change: That's perfect. That's what I was after thank you.

Jeremy Ovens: Slide 11 shows our heavy focus on cash management continues to pay off with the trailing 12 months free cash flow conversion rate of 258%.

Speaker Change: Maybe just one or two on tariffs you talked about the $20 million from the U S to China based customers.

Jeremy Ovens: We generated cash from operations of $19 million in the quarter, a 7% improvement over the first quarter last year, despite lower sales.

Speaker Change: Just trying to how long will that take to transfer to transfer the manufacturing assembling is it.

Speaker Change: How costly is it and is this something that you would've thought of doing at some point in time, regardless of the tariffs.

Jeremy Ovens: This included a $4 8 million insurance reimbursement related to the 2023 fire and weather related incidents at faster.

Speaker Change: Yes.

Speaker Change: It's a great question and when we look at the opportunity there for the risk. However, you want to say that $20 million is just kind of generally what would we would have expected to ship.

Jeremy Ovens: We use part of that cash to reduce debt further and strengthen our financial flexibility.

Jeremy Ovens: The first quarter has historically been the lightest quarter of the year from a cash generation perspective, and optimizing cash flow will remain a focus for 2025.

Speaker Change: Product that was assembled in the U S to our China market, but the good thing is as we highlighted we do have a manufacturing footprint there and assembly capabilities, we already are doing.

Jeremy Ovens: We reduced inventory in the last 12 months by $24 million or 11%, which contributed to lower working capital and growing cash.

Jeremy Ovens: Capital expenditures in the quarter were $6 1 billion or 3% of sales.

Speaker Change: <unk> that for some of our cartridge valves from the Sun perspective.

Speaker Change: And we intend to make additional ones at the end of the day for the tariff.

Jeremy Ovens: Our capital expenditure plans for 2025 will be prioritized with a focus on maintenance and productivity enhancements that demonstrate evident returns on investment.

Speaker Change: Environment or absent the tariff environment. Our objective of this in the region for the region is all about making more products in the regions that we're selling them and absent tariffs that's still a good thing from a from our go to market perspective of our customer centricity, serving our customers.

Jeremy Ovens: Turning to slide 12.

Jeremy Ovens: At the end of the first quarter cash and cash equivalents were $46 million, we had $353 million available on our revolving credit facility.

Jeremy Ovens: Despite sales softening and unfavorable foreign exchange impact on our euro denominated debt, we paid down debt for the seventh consecutive quarter.

Speaker Change: On a more timely and then being able to localize supply chains and limit logistics cost, we see that as a good opportunity. So that that was something we were already looking at prior to tariffs, but also has accelerated some of the work from an investment perspective, it's minimal because we already have the operation we.

Jeremy Ovens: We reduced debt by 15% or $76 million over the last 12 months.

Jeremy Ovens: Our net debt to adjusted EBITDA leverage ratio was down to two seven times from three one times a year ago.

Speaker Change: Have the capacity.

Jeremy Ovens: Our capital priorities remain focused on further reducing debt generating organic growth.

Speaker Change: And beyond just our China operations, we have other Asian manufacturing capabilities as well.

Jeremy Ovens: And paying our long standing dividend as we have consistently done for over 28 years.

Speaker Change: Korea, So I would say its accelerating our focus and we think we can do that over the next quarter.

Jeremy Ovens: We also have the option to utilize our recently established share repurchase program that we announced earlier this year.

Speaker Change: B b ramped up with the with the products, we want to assemble there theyre likely still will be some export.

Jeremy Ovens: We will continue to focus on what we can control and look to maximize shareholder value from all facets by focusing on our customers.

Speaker Change: And certainly if theres any escalation in the tariff.

Speaker Change: Non punitive retaliatory tariffs.

Jeremy Ovens: Developing innovative products to maintain and expand our leading market positions for mission critical applications and solutions.

Speaker Change: <unk>.

Speaker Change: It won't be something that we would necessarily change the direction on anyhow.

Jeremy Ovens: I'll remaining agile as we navigate the continually evolving macro landscape.

Speaker Change: Got it very helpful. I'll leave it there jumped back in line. Thank you.

Sean Bagging: I'll now turn the call back over to Sean.

Chris Moore: Thanks, Chris.

Speaker Change: Thanks, Jeremy turning to slides 13, and 14 I will frame the current tariff landscape for Helios, which has created more uncertainty as we step through fiscal year 2025. This is not unique to Helios and we believe we are well prepared and positioned to manage through this unprecedented period.

Speaker Change: Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

Nathan Jones: Good morning, everyone.

Speaker Change: Hi, Nathan Nathan.

Nathan Jones: I guess I'll start off with.

Chris Moore: With one on the competitive positioning around tariffs you talked about it a little bit in your prepared remarks, but I mean, clearly there should be some pretty nice opportunities if you're manufacturing in the U S and your any of your competitors are imported from China.

Speaker Change: We have estimated the various potential cost impacts in the second half of 2025 to be $15 million. If we took no tariff risk mitigation action as it impacts on the first half of 2025 are limited due to inventory capitalization accounting methods.

Chris Moore: Just given what now massive cost differences on that front.

Speaker Change: Any information you can give us on where you think those opportunities are.

Speaker Change: These estimates do not try to anticipate how global demand could be impacted and the potential downstream effects. As we believe that is too wide of a range of scenarios to predict all possible outcomes.

Speaker Change: What percentage of the market is imported I think for a lot of your businesses are 100% manufactured in the U S. So just why you say that all of those opportunities and does it create opportunities to go after market share gain or price to market and improve margins or some of both and what's the priority there.

Speaker Change: As of today, our analysis indicates that we are relatively insulated from the impacts due to our in the region for the region strategy, which we have been executing over the last few years with the aim of servicing our geographic revenue streams more efficiently for our customers. This has proven to be very helpful. As it provides optionality.

Speaker Change: Yes, Nathan I think for us the way we're looking at it as is.

Speaker Change: Market share gain opportunity not necessarily.

Speaker Change: A cost play.

Speaker Change: A lot of our competitors.

Speaker Change: <unk> to contend with the current tariff dynamics.

Speaker Change: Let's just take the hydraulics versus electronics, and so from our hydraulics perspective, there's plenty of copycat Chinese product.

Speaker Change: I would also point out that nearly all of the products, we produce and ship from our Tijuana, Mexico facility to the U S. Our U S. MCA compliant, which is a positive for us and a competitive opportunity.

Speaker Change: From our son cartridge valve perspective, and so that's an immediate opportunity for those folks that do not have some sort of U S based manufacturing capability to your point, it's become it's not cost competitive at 145% tariff on U S imports.

Speaker Change: When you look at our direct tariff exposure by country raw material imports from China and exports to China from the U S. Clearly the largest tariff burden.

Speaker Change: Based on the variety of components, we are using across our different operating companies, we estimate China related tariffs to be approximately $13 million of the total $15 million direct tariff cost exposure in the second half of 2025.

Speaker Change: Other opportunity is with our fastener business too and we've seen some wins there already and the coupling business where.

Speaker Change: They're our U S operations, but rely on Chinese manufacturing and those are those sales conquest opportunities. We've already realized I think on the electronics side, so a little bit different.

Speaker Change: Within China, we already have electronics manufacturing capabilities from our acquisition of Joyon way plus other hydraulics manufacturing facilities that we have had in China and the APAC region for many years.

Speaker Change: Competitive landscape, if you look at like our Bell Boa business. As you are aware, we have our Tijuana facility that majority over 95% is U S. MCA compliant of our products, but some of our competitors have different footprints there and so we see that also as an opportunity and on the innovation controls.

We intend to leverage these facilities to help mitigate the tariff impact for our China customers.

Speaker Change: We also analyze and projected our second half tariff exposure at the segment level.

Speaker Change: When you add up the gross tariff expense of approximately $15 million roughly $9 million would be in our hydraulics segment with about $6 million in our electronics segment again to reiterate this would be the gross impact before any mitigation efforts.

Speaker Change: As much as our our manufacturing footprint this year.

Speaker Change: Truly all also the App development and hardware enabled sales by the software that we developed and so we're continuing to double down on our software development and differentiation and actually have some really cool.

Speaker Change: Another potential risk for Helios, if current imposed tariffs remain relates to our U S export sales to China based customers for the second half of 2025, approximately $20 million in sales for China based customers would have traditionally been exported from the U S, which is currently subject to punitive.

Speaker Change: <unk> products that we have already soft launched one.

Speaker Change: One notable one is in the off road recreational marine space called no roads that we're pretty excited about that opportunity to again try and conquest sales from our competitors.

Speaker Change: Retaliatory tariffs we.

Speaker Change: We are in the process of transferring manufacturing and assembly into the region to mitigate that risk as best we can.

Speaker Change: These parts.

Speaker Change: We're implementing the extremely quickly and so those tariff impacts on some of those competitors importing from China are going to happen pretty quickly.

Speaker Change: It is also worth noting we see an opportunity for more sales of the products. We manufacture in the U S for our U S. Customers for example competitors that rely on their Chinese manufactured products exported to the U S have now become sales conquest opportunities due to the punitive tariffs which allows us.

Speaker Change: And I'm sure your customers are scrambling looking for domestic sources.

Jeremy: It is something that we could see the benefit out to your results in the second quarter or is it a quarter I mean I imagined this stuff happens it can happen pretty rapidly.

Speaker Change: To play offense with early wins already occurring.

Jeremy: Yes, as you can imagine we are aggressively identifying those opportunities and going after them in line with our go to market kind of targeted approach.

Speaker Change: To contend with the costs and demand pressures from tariffs as well as to capitalize on the opportunities. They present, we have a continuous assessment and mitigation work streams across our businesses.

Jeremy: I see it more as a back half opportunity just given the inventory positions that.

Speaker Change: We are responding to developments and have deployed various mitigation tools, including pricing actions alternative sourcing use of bonded warehouses, leveraging our global manufacturing footprint and identifying ways to creatively leverage our strengths to play offense and win business.

Jeremy: A lot of folks have.

Jeremy: Three to six months type inventory level, so that stuff.

Jeremy: Tariff burden and will burn through the system, but again, we have seen wins already and we will get some Q2 revenue out of that but we're not counting on it to be a significant impact until the back half and that's only if.

Speaker Change: Turning to slide 15, and 16, we have two and a half more quarters in 2025 to navigate in this rather tenuous global trade environment with shifting geopolitical tensions tariffs have created more uncertainty in the second half of 2025, we are not withdrawing our full year outlook, but we are shifting our guidance to focus on.

Jeremy: July nine annex one rulings come up and.

Jeremy: This is so we've all been in changing by the day.

Jeremy: That could change drastically as well, but nonetheless, we think once we get in and the stickiness of our business and the quality of our products.

Speaker Change: Just the next forward quarter, where we had the highest visibility and have established a track record with meeting our commitments over the last six quarters.

Jeremy: Even with that if you get in that there is an opportunity that to land that particularly if it's in an OEM.

Speaker Change: We expect second quarter sales to be in the range of $198 million to $206 million a sequential step up from our first quarter sales. We also project adjusted EBITDA margin to improve over the first quarter to a range of 17, 5% to 18, 5%.

Jeremy: Opportunity, where it's related to the design of the product and you get into the manufacturing cycle. So we see it as a good opportunity and trying to pursue all that aggressively.

Jeremy: Understood I guess, a follow up question I wanted to talk about the go to market strategy.

Speaker Change: The improving sequential margin profile reflects further operating leverage from the anticipated increased volume.

Jeremy: You talked about hunting patient can you talk about a little bit of what you thought was incorrectly positioned in terms of the commercial organization what changes that you've made.

Speaker Change: While the second quarter sales are expected to be down compared with the year ago period. The implied sequential sales step up is in the range of plus one to plus 5% with strong flow through to the bottom line diluted non-GAAP earnings per share is expected to sequentially increase in the range of plus five to plus 23% or 40.

Jeremy: Hunting fishing actually means the Helios.

Jeremy: Yes definitely so.

Jeremy: Yeah.

Jeremy: When I look at the organization and our products great products.

Speaker Change: <unk> to 54.

Speaker Change: More than triple the rate of sequential sales growth.

Jeremy: Great quality, typically outlast whatever application machine theyre going into yet being a very critical component for those products and if that goes down that whole piece of the equipment goes down.

Speaker Change: Looking at the latter half of 2025, we still currently see a path for sales growth over 2024 until we know with certainty what the final tariff rulings will be and how the demand environment could start to be impacted we will keep our focus on delivering our near term commitments and be ready to respond to various demand outcomes.

Jeremy:

Jeremy: And for US it was a bit of a.

Jeremy: And in broad brush in the organization I am going to go into a little bit more specifics on the four flagship brands, but progress of us just not being aggressive just sitting back a bit of the fishing comment is a little bit of the system sales organization that we had of of expecting this volume to come to us and my background at an OEM.

Speaker Change: As a reminder, our second half sales comparable from last year was significantly depressed from the persistent end market weakness with our go to market initiatives supporting growth and our planned acceleration of new product introductions, we feel well positioned to capitalize on any market stabilization.

Jeremy: I clearly understand how Oems buy and they don't buy on a.

Speaker Change: These are unprecedented times.

Jeremy: System from a perspective, particularly with us when you're trying to pair hydraulics with electronics youre dealing with different purchasing groups different buyers.

Speaker Change: We will stay focused on what we can control and communicate with you on the details as we have them with as much certainty as feasible.

Jeremy: And so a lot of the sales were just taken in intake of.

Speaker Change: Turning to slide 17, and 18 I believe our results in the first quarter validate that the financial priorities, we laid out at the beginning of the year remained sound.

Jeremy: Opportunities that would come to us when I talk about the hunting. It was it goes back to the strategic planning and really understanding those product categories in markets that we're entitled to win with our products and then taking those targeted segments and going after them specifically with aligning resources.

Speaker Change: We are addressing our 2025 key focus areas to Reenergize, our go to market initiatives rooted in customer centricity.

Speaker Change: Turning to profitable sales growth is imperative and we have a handful of green shoots being realized despite the challenged markets.

Speaker Change: We have increased the pace of new product launches. So far in 2025, we have new revenue generating incremental products launched in the first half across our four flagship brands, including innovation controls F 35 display as well as their can keypad. Some hydro its expanded line of electro proportional cartridge valves.

Jeremy: And our process behind that to go win new business.

Jeremy: And then also with our existing customers going deeper with them and we've got <unk>.

Speaker Change: Got new wins in that and we tried to highlight some of them in the call as well and then on the back end, it's really about how we incentivize our sales team and the things we're trying to accomplish that supports our strategy because I'm a firm believer in our our system solution strategy, when we pair our businesses together and the products.

Fasteners, multi slide and the lowest peer zone water chemistry management solution, we have streamlined our organization to capitalize on customer relationships and industry Knowhow and the exciting part is we have only just begun.

Speaker Change: It's a powerful value proposition, so incentivizing that cross selling and also engaging more deeply with our customers and driving that accountability culture, not only internally with our teams, but also with our customers.

Speaker Change: I'll conclude our prepared remarks, with where I started and that true organizational longevity goes beyond simply remaining in business. It involves building a sustainable thriving organization that can adapt innovate and continue to contribute to its industry for the long term.

Jeremy: Nathan This is Jeremy taking my questions.

Speaker Change: In April we surpassed 55 years of being in business going back to the founding of Sun Hydraulics and 1970 by Bob Koski in John Allen.

Jeremy: Hey, Nathan this is Jeremy I, just wanted to add I come from a distribution background and Sean talked about the Oems, but we have a similar focus on our distribution partners. There are key in our go to market strategy and we've been engaging with them to understand where they're growing how do we partner with them.

Speaker Change: We have changed any ball quite significantly over the past decade in particular I remain incredibly excited about our future and confident in our ability to continue executing on our commitments I would like to thank each one of the Helios employees across the globe for all their daily efforts and thank you for being part of today's call and for your honor.

Jeremy: Them to get more.

Speaker Change: <unk> face time with those end customers and really promote those new products that we're coming out with then and I would I would echo what Sean said I think it was a bit more passive I am sure. It's fluctuated over time, but since my joining the company I think it's been more of a passive relationship and.

Speaker Change: <unk> engagement and support of Helios technologies 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.

Jeremy: Our teams have done a really good job in the last months of re engaging with those distribution partners as well.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

Jeremy: Awesome, Thanks for taking my questions.

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

Jeremy: Thanks Nathan.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey one moment. Please while we poll for questions.

Speaker Change: Our next question comes from the line of Jeff Hammond with Keybanc. Please proceed with your question.

Speaker Change: Hey, good morning, everyone.

Jeff Hammond: Good morning, Jeff.

Thank you. Our first question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.

Jeremy:

Jeremy: Maybe just starting with the $15 million of tariff headwind.

Jeremy: How much would you expect to cover of that with price what price increases it would be kind of implemented already through the systems and then if we looked at if we looked at 2026, and we annualize the $30 million.

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

Speaker Change: Yeah, maybe started a little bit higher level. So showing you talked about finishing up your listening tour with the company, maybe just a little bit more in terms of what specifically you're hearing and kind of the specific actions that are effect that came out of that oh, those conversations that youre looking at.

Jeremy: How much can you take that number down through sourcing bonded warehouse with stuff you laid out on slide 14.

Chris Moore: Take.

Jeremy: Okay.

Jeff Hammond: Hey, Jeff Thanks for the question.

Chris Moore: Hey, Chris Good morning. Thanks.

Jeremy: Right now we.

Chris Moore: Thanks for the question.

Jeremy: Have deployed price increases across all four of our kind of flagship brands.

Chris Moore: So.

Chris Moore: When I got appointed CEO in in January obviously, you had the benefit of operating the prior six months as the interim CEO, which afforded me the opportunity to work very closely with our board of directors and gain alignment on.

Jeremy: Our intent overall to the tariff risk wherever it lands is to cover the dollars it could put some margin pressure.

Chris Moore: Where we wanted to take the company in the future through our in depth strategic planning process and allow the board to see myself and our talented president and executive team operate in I think provided the confidence to remove that interim tag and with that it was important to me just really step back.

Jeremy: Obviously, if you just cover on the dollar impact but.

Jeremy: We're trying to attack it from all angles. So.

Jeremy: Using the using the local China Assembly example, that one you can solve obviously without.

Jeremy: Putting a.

Jeremy: Price increases in place and in fact, there's likely opportunities to get some margin enhancement. If we can build the products.

Chris Moore: At that point and.

Chris Moore: Solidify what where the internal impressions and the external impressions of the company, obviously I had form that over my year and a half with the company, but really took the opportunity being new allowing people to non guarded way to really share strengths weaknesses opportunities.

Jeremy: At a more cost competitive position than we do in the U S.

Jeremy: So.

Jeremy: Really it's a bit of a reaction so ultimately where the final ruling is land and with the objective again of building products, where theyre consumed where our customers are and so that's kind of the first step, but then certainly we know we have direct cost impact that we're feeling already.

Chris Moore: Where we need to invest but then also the external perspective with the customers and how they feel.

Chris Moore: And our investors our analysts group.

Jeremy: We're not going to feel as much of it in the FERC <unk> to the second quarter, just due to our inventory position coming into the second quarter and capitalizing those costs, but as those start rolling out those price increases will help offset some of that.

Chris Moore: Outside partners.

Chris Moore: I really would boil it down to a couple of key things.

Chris Moore: That we're continuing to work on and you've certainly heard throughout our prepared remarks about the focus on go to market.

Chris Moore: Simply put that as well.

Jeremy: We're continually looking at our supply chain and sourcing and what we can do on the back end like we said with the bonded warehouses that that may not come into play as much particularly U S MCA stays intact.

Chris Moore: We're no longer fishing, we're becoming hunters, we're being much more aggressive with our with our.

Chris Moore: Engagement with our customers customer Centricity, we've been to all of our product development, but also driving the accountability.

Jeremy: At least for our health and wellness wellness space, but then.

Jeremy: I go back to the volume and the go to market initiatives and the aggressiveness on trying to conquest wins and that's a bit of that plan on offense.

Chris Moore: Well.

Chris Moore: The second thing is with the team getting the right team on the bus getting getting the <unk>.

Chris Moore: Executive management team fortified so we've made some changes there.

Jeremy: Just the incremental volume, we can create will help offset that and actually help expand margins as we know we've got a bit of a overcapacity situation right now with the company and so.

Chris Moore: And then lastly, just overall portfolio assessment.

Chris Moore: Since I've joined the company there were no acquisitions done but over the last decade. The company has transformed significantly from just being Sun hydraulics and as of December 2016, when innovation controls joined the Helios group and each one of those acquisitions. We've done has deployed a lot of capital and the companies.

Jeremy: Filling that up will help us leverage that fixed cost basis. So all in intense is to cover a dollar for dollar.

Jeremy: But we're being flexible with where the final rulings plant.

Jeremy: Okay.

Speaker Change: Okay, Great and then Sean you mentioned.

Chris Moore: Done a remarkable job to delever and that focus is clear.

Sean Bagan: Kind of assessing the portfolio, maybe as part of your your listening tour.

Chris Moore: From a capital deployment perspective, and that's not changing right now our focus is on paying down debt, but we also have a remarkable company from a diversification perspective from a profitability perspective from a cash flow generation and so it's really how do we.

Sean Bagan: Do you think that entails.

Sean Bagan: Divestitures of maybe some of the more recent acquisitions you made or.

Sean Bagan: It's it's more fine tuning them up.

Chris Moore: Do more and more of that of the progress we've made over the last year and so with the tariffs coming into the mix certainly has didn't foresee that obviously when we entered the year and put out our original guidance and so we're cautious, but we actually see that as a nice opportunity as well and we've had some early wins. So that's just high level and I'm happy to go.

Speaker Change: Yes, I think we're keeping.

Speaker Change: An open mind to all of it I think as I step back it's looking at first the strategic fit.

Speaker Change: And the financial performance of the various businesses.

Speaker Change: We've had a lot of cycles and a lot to.

Speaker Change: Due to Covid and a lot of end market weakness that we're still battling.

Chris Moore: A little deeper into any of them if you'd like.

Speaker Change: So a bit of it is do we see a path to growth and a path to accretive returns.

Chris Moore: No that that's that's perfect. That's what I was after thank you.

Chris Moore: Maybe just one or two on tariffs you talk about the $20 million from the U S to China based customers.

Speaker Change: We have taken some small actions already within the business that we've talked about.

Speaker Change: Trying to how long will that take to transfer to transfer the manufacturing assembling is it you know how costly is it and is this something that you would've thought of doing at some point in time, regardless of the tariffs.

Speaker Change: Particularly on the engineering side of the organization to get it much more targeted and focused in absorbing that into the business, which does involve cost savings on your taken away a rooftop or in their office. Additionally on the on the backend with the manufacturing footprint tariffs, causing us to move some things around but also.

Chris Moore: Yes.

Chris Moore: It's a great question and when we look at the opportunity there for the risk. However, you want to say that $20 million is just kind of generally what we would've expected to ship a product.

Speaker Change: We had absorbed the faster U S operations into our Indiana, and Florida facilities and so we'll continue to look at the backend but.

Chris Moore: Product that was assembled in the U S to our China market, but the good thing is as we highlighted we do have a manufacturing footprint there and assembly capabilities, we already are doing.

Speaker Change: Absolutely we will be evaluating the portfolio and continue to look at does it fit and does it have a path to helping.

Speaker Change: Helping our accretive returns over time.

Chris Moore: Doing that for some of our cartridge valves from the Sun perspective, and we intend to make additional ones at the end of the day for the tariff.

Speaker Change: We also.

Speaker Change: Are not interested in cutting our way to growth either and so if if we ever are looking into.

Chris Moore: Environment or absent the tariff environment. Our objective of this in the region for the region is all about making more products in the regions that we're selling them and absent tariffs that's still a good thing from a from our go to market perspective of our customer centricity, serving our customers.

Speaker Change: Shrink the portfolio, we would be in a much better capital position to then get more acquisitive from an M&A perspective like the company has done over the last decades, but currently have to focus on debt reduction to to have that flexibility to start.

Chris Moore: More timely and then being able to localize supply chains and limit logistics cost, we see that as a good opportunity. So that that was something we were already looking at prior to tariffs, but also has accelerated some of the work from an investment perspective, it's minimal because we already have the operation we.

Speaker Change: Looking at M&A, more seriously, which likely won't happen until next year, given the current projections for the company.

Speaker Change: Okay. Thanks, a lot John.

Jeff Hammond: Thanks, Jeff.

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

Chris Moore: Have the capacity.

Speaker Change: Our next question comes from the line of main debris with Baird. Please proceed with your question.

Chris Moore: And beyond just our China operations, we have other Asian manufacturing capabilities as well.

Speaker Change: Good morning. So Q1 came in ahead of your initial expectations. When you look at your Q2 guide how does that compare relative to the original plan.

Chris Moore: Korea, So I would say its accelerating and our focus and we think we can do that over the next quarter.

Chris Moore: B b ramped up with the with the products, we want to assemble there theyre likely still will be some export.

Speaker Change: Hey, Mike Good morning. Thanks.

Speaker Change: Thanks for the question.

Chris Moore: And certainly if there is any escalation in the tariff.

Speaker Change: So from our original plan perspective, obviously, we guided first quarter and we guided to the full year.

Chris Moore: Non punitive retaliatory tariffs.

Speaker Change: I would tell you that we are.

Chris Moore: It won't be something that we would necessarily change the direction on anyhow.

Ahead from a first half perspective relative to our internal plan. So its better when you combined our first quarter actual results and our second quarter guide. So we're feeling pretty good going into the first half of the year and.

Speaker Change: Got it very helpful. I'll leave it there jump back in line. Thank you.

Chris Moore: Thanks, Chris.

Chris Moore: Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

Nathan Jones: Good morning, everyone.

Speaker Change: Certainly then it changed when the tariffs came on to add more uncertainty, but as we said in our prepared remarks.

Speaker Change: Hi, Nathan Nathan.

Chris Moore: I guess I'll start off with.

Speaker Change: With one on the competitive positioning around tariffs you you talked about it a little bit in your prepared remarks, but I mean, clearly there should be some pretty nice opportunities if you're manufacturing in the U S and your any of your competitors are importing from China.

Speaker Change: We still believe and see a path to growth this year over prior year, which effectively was closer to that midpoint of our original annual guidance, but from the first half perspective.

Chris Moore: Just given what are now massive cost differences on that front.

Speaker Change: We feel we're ahead.

Speaker Change: Okay.

Chris Moore: Any information you can give us on where you think those opportunities are.

Speaker Change: Then in sort of the implication here in a way were kind of like modeling and thinking about the business.

Chris Moore: Percentage of the market is imported.

Chris Moore: A lot of your business is 100% manufactured in the U S. Just where you say that those opportunities and does it create opportunities to go after market share gain or price to market and improve margins or some of both and what's the priority there.

Speaker Change: We should take your prior EBITDA guidance.

Speaker Change: The $15 million worth of cost impact that you outlined for the second half.

Speaker Change: And then maybe make some mobile some of our own.

Chris Moore: Yeah, Nathan I think for us the way we're looking at it is is a market share gain opportunity not necessarily.

Speaker Change: Assumptions on demand I mean is that how you think about it in the $50 million drag.

Speaker Change: Just wanted to be fully realized in the back half or is it less than that.

Chris Moore: A cost play.

Chris Moore: A lot of our competitors.

Speaker Change: You're raising price you have some kind of mitigation strategies that you qualitatively discuss previously.

Chris Moore: Well, let's just take the hydraulics versus electronics and so from our hydraulics perspective, there's plenty of copycat Chinese product.

Speaker Change: Yeah definitely the latter Meg it won't be just taken and layering on $15 million of cost.

Chris Moore: From our son cartridge valve perspective, and so that's an immediate opportunity for those folks that do not have <unk>.

Speaker Change: We don't feel there is that impact that big of an impact here in the second quarter, certainly we didn't really feel much in the first quarter. It's obviously a cash flow drain because we got to pay the tariffs.

Chris Moore: Some sort of U S based manufacturing capability to your point it's become.

Chris Moore: It's not cost competitive.

Chris Moore: 45% tariff on U S imports.

Speaker Change: At the time of important the products, but it's really the back half and as I said, our intent is to cover the tariff the $15 million now theres going to be some timing issues with that and how quickly can we absorb it and does anything change, but I wouldn't layer on just $15 million of cost I would I would at least.

Chris Moore: The other opportunity is with our fastener business too and we've seen some wins that are already in the top line business where.

Chris Moore: There are U S operations, but rely on Chinese manufacturing and those are those sales conquest opportunities. We've already realized I think on the electronics side, so a little bit different <unk>.

Speaker Change: $10 million to $15 million of abatement through the actions, we take and by the way a $15 million might not be that high if we're moving production then.

Chris Moore: Competitive landscape, if you look at like our Bell Boa business. As you are aware, we have our Tijuana facility that majority over 95% is U S. MCA compliant of our products, but some of our competitors have different footprints there and so we see that also as an opportunity and on the innovation controls.

Speaker Change: Abating the tariffs from the current ruling so we're going to be flexible as they change and adapt quickly and I think that's a huge benefit to the size and scale of our company relative to bigger conglomerates that we can move quickly and we also have that footprint already talked about one of the things I love about our organization.

Chris Moore: As much as our our manufacturing footprint this year.

Chris Moore: Truly all also the App development and hardware enabled sales by the software that we developed and so we're continuing to double down on our software development and differentiation and actually have some really cool.

Speaker Change: The diversification of it and you look at even our revenue were just over half of that is in the U S and call it a quarter and a quarter in EMEA.

Speaker Change: And Asia Pacific and our employee count emulates that as well and so it speaks to the capabilities of the operations just to move quickly and adapt so.

Chris Moore: <unk> products that we have already soft launched one.

Chris Moore: One notable one is in the off road recreational marine space called no roads that we're pretty excited about that opportunity to again try and conquest sales from our competitors.

Speaker Change: We're trying to provide a little bit more color than just what you asked but I would not add in $15 million of cost with no assumption of recovery.

Speaker Change: Yes, because I mean thats the question.

Speaker Change: Sure.

Chris Moore: These parts.

Speaker Change: Understandably, you're kind of pulling the full year guide, but in terms of the right setting right. So I think the numbers for the back half of the year.

Chris Moore: Were implemented extremely quickly and so those tariff impacts on some of those competitors importing from China or it can happen pretty quickly.

Speaker Change: The message here is look we have the $15 million of headwind, but we think we can mitigate most of that then it would seem to me that relative to the prior to the original guidance that you have issued the only variance would really be change in demand whether or not demand is actually getting worse relative to.

Chris Moore: And I'm sure your customers are scrambling looking for domestic sources is this something that we could see the benefit out to your results in the second quarter or is it third quarter I mean, I imagine this stuff happens it can happen pretty rapidly.

Chris Moore: Yes, as you can imagine we are aggressively identifying those opportunities and going after them in line with our go to market kind of targeted approach.

Speaker Change: Where you initially guided.

Speaker Change: Correct me, if I'm wrong, there, but related to both the question is in the month of April other than the pre buy that you talked about have you seen any other changes in demand either from your customers or your distributors that would suggest.

Speaker Change: I see it more as a back half opportunity just given the inventory positions that a lot of folks have.

Chris Moore: Three to six months type inventory level, so that stuff isn't.

Chris Moore: Isn't tariff burden and will burn through the system, but again, we have seen wins already and we will get some Q2 revenue out of that but we're not counting on it to be a significant impact until the back half and that's only if.

Speaker Change: Directionally kind of what might happen here as the year progresses.

Speaker Change: 100% alignment with you on how you characterize that and Thats, how we thought about it coming into the call in terms of the guidance.

Speaker Change: We're not going to try and predict the various outcomes of the tariff rulings and ultimately what that downstream effect is on the back half of the year. So that's why we were trying to be very specific on our on our Q2 guidance.

Good.

Chris Moore: July nine annex one rulings come up and I mean this is so we've all been in changing by the day.

Chris Moore: That could change drastically as well, but nonetheless, we think once we get in and the stickiness of our business and the quality of our products.

Speaker Change: Honestly for as I've shared on prior calls when we get to these calls it really comes down to an execution play to deliver our forward quarter because.

Chris Moore: Even with that if you get in that there is an opportunity that to Atlanta, particularly if it's in an OEM.

Speaker Change: We do see positive demand trends in.

Chris Moore: Opportunity, where it's related to the design of the product and you get into the manufacturing cycle. So we see it as a good opportunity and trying to pursue all that aggressively.

One thing I would say it is our order intake is exceeding our quarterly sales in the first quarter for five consecutive months. Our order book continued to increase so we are seeing positive signs but is.

Speaker Change: Understood I guess, a follow up question I wanted to talk about the go to market strategy.

Speaker Change: Is that going to stick is there going to be impacts from from tariffs longer term.

Speaker Change: You talked about hunting and outpatient can you talk about a little bit of what you thought was incorrectly positioned in terms of the commercial organization what changes that you've made.

Speaker Change: So.

Speaker Change: That's we didn't try to be cute with our guidance and then pretend like we have the precision in the back half because there is just too many variables and uncertainties right now, but I will reiterate we see a path to growth. This year, just as we did coming into the year and so.

Speaker Change: Hunting not fishing actually means to Helios snacks.

Speaker Change: Yes definitely so.

Speaker Change: When I look at the organization and our products.

Speaker Change: Products.

Speaker Change: It's not about as much about pulling our guidance are affirming our guidance. It's just acknowledging that that demand in the back half is a big question Mark but.

Speaker Change: Great quality typically out last whatever application machine theyre going into yet being a very critical component for those products and if that goes down that whole piece of the equipment goes down.

Speaker Change: What we have in our control and what we're focused on is that go to market and customer Centricity and I think you've probably seen that with some of the product launches we've done and some of the changes we've made made there to really attack those underserved markets.

Speaker Change: And for US it was a bit of a.

Speaker Change: And in broad brush in the organization I'm going to go into a little bit more specifics on the four flagship brands, but progress of us just not being aggressive just sitting back a bit of the fishing comment is a little bit of the system sales organization that we had of.

Speaker Change: <unk> revenue streams, and driving that accountability with our customers to be on this journey of growth with us good Jeremy.

Speaker Change: <unk> this volume to come to us.

Speaker Change: A couple other points to add to the demand comment.

Speaker Change: My background at an OEM I, clearly understand how Oems buy and they don't buy on a system from a perspective, particularly with us when you're trying to pair hydraulics with electronics youre dealing with different purchasing groups different buyers.

Speaker Change: For first time in a while we saw the recreational space within electronics grow we've been talking a lot about that that being down that that was a positive sign in the quarter.

Speaker Change: Well is.

Speaker Change: In terms of the orders.

Speaker Change: And so a lot of the sales were just taken in intake of.

Speaker Change: The orders in hydraulics.

Speaker Change: We're up.

Speaker Change: And higher than the sales and one of the things. We mentioned was the wind back focus with our son and Damon business. When we establish the the center of Excellence. We know we created some disruption within our customer base. There we had a backlog that was growing and extended lead time.

Opportunities that would come to us when I talk about the hunting. It was goes back to the strategic planning and really understanding those product categories in markets that we're entitled to weigh in with our products and then taking those targeted segments and going after them, specifically with aligning resources and.

Speaker Change: So.

Speaker Change: We've got that back.

Speaker Change: Our process behind that to go win new business.

Speaker Change: Where it needs to be from an operation perspective, and we're engaging with those customers and we're seeing some early progress there in terms of quote and order win so.

Speaker Change: And then also with our existing customers going deeper with them and we've got we've got new wins and that we tried to highlight some of them in the call as well and then on the back end, it's really about how we incentivize our sales team and the things we're trying to accomplish that supports our strategy because I'm a firm.

Speaker Change: The broader demand.

Speaker Change: Environment, what's going to happen what happens with the tariffs a lot of uncertainty there.

Speaker Change: But at least as we entered into Q1 and throughout Q1, there were some positive signs for us.

Speaker Change: Believer in our our system solution strategy, when we pair our businesses together and the products are.

Speaker Change: Understood. One final question for me you.

Speaker Change: It's a powerful value proposition, so incentivizing that cross selling and also engaging more deeply with our customers and driving that accountability culture, not only internally with our teams, but also with our customers.

Speaker Change: You talked about not cutting your way to growth.

Speaker Change: I can appreciate that comment but.

Speaker Change: The question is whether or not there it needs to be cutting or restructuring of any form.

Speaker Change: To adjust for the volume conditions that you do have it and I'm talking about the hydraulics business specifically.

Speaker Change: And Nathan Jeremy taking my questions.

Speaker Change: Yes.

Speaker Change: This is Jeremy I, just wanted to add I come from a distribution background and Sean talked about the Oems, but we have a similar focus on our distribution partners right. There. There are key in our go to market strategy and we've been engaging with them to understand where they're growing how do we partner with them to get more.

Speaker Change: When we're sort of looking at your gross margins are looking pretty materially different than they did back in 2022 2023 admittedly the revenue is lower as well.

Speaker Change: But within your cost structure right SG&A has really not been we're aware the drag has been on your hydraulics margins really been gross margin.

Speaker Change: Face time with those end customers and really promote those new products that we're coming out with in and I would I would echo what Sean said I think it was a bit more passive I'm sure. It's fluctuated over time, but since my joining the company.

Speaker Change: So.

Speaker Change: As you mentioned there is there is a.

Speaker Change: <unk> issue here, there was a lot of capacity and not enough volume to sort of support it so I guess.

Speaker Change: Question would be this one.

Speaker Change: What point in time.

Speaker Change: It's been more of a passive relationship and.

Speaker Change: Do you start really thinking hard about about the amount of capacity that you have in this business.

Speaker Change: Our teams have done a really good job in the last months of re engaging with those distribution partners as well.

Speaker Change: Because realistically we have seen now.

Speaker Change: Multiple quarters, we're running on almost two years of organic declines in the hydraulics business. So how do you how do you think about that.

Speaker Change: Awesome, Thanks for taking my questions.

Speaker Change: Thanks Nathan.

Speaker Change: Our next question comes from the line of Jeff Hammond with Keybanc. Please proceed with your question.

Speaker Change: Curious cyclical component of the business and what you have to do just from a short term standpoint to manage that gross margin relative to maybe something that's a little more structural to get us back to where we were a couple of years ago, even on lower volume.

Jeff Hammond: Hey, good morning, everyone.

Speaker Change: Good morning, Jeff.

Jeff Hammond: Maybe.

Jeff Hammond: Maybe just starting with the $15 million.

Jeff Hammond: Tariff headwind.

Jeff Hammond: How much would you expect to cover of that with price what price increases if you kind of implemented already through the systems and then if we looked at if we looked at 2026, and we annualize the $30 million.

Speaker Change: Yes, that's a good up survey and I would answer it in a couple.

Speaker Change: Different ways relative to faster than relative to sun, but even a broader comment.

Speaker Change: Certainly the absorption to me.

Jeff Hammond: How much can you take that number down through sourcing bonded warehouse a stope you laid out on slide 14.

Speaker Change: The number one opportunity there I want to address that not going to cut our way to growth, but I will highlight we have been judicious with our costs. If you look over the last four quarters, we need to.

Jeff Hammond: Okay.

Jeff Hammond: Hey, Jeff Thanks for the question.

Jeff Hammond: Right now we.

Speaker Change: Taken our operating expense SGA costs down and tried to manage that but now as you look up to the to the top of the P&L in that cost of goods sold line absolutely the volume.

Speaker Change: Have deployed price increases across all four of our kind of flagship brands.

Speaker Change: Our intent overall to the tariff risk wherever it lands is to cover the dollars it could put some margin pressure.

Speaker Change: It is causing the dilutive effect on the gross margins.

Speaker Change: The other thing I would highlight just broad is that.

Speaker Change: Obviously, if you just cover on the dollar impact but.

Speaker Change: Our profile of our hydraulics business has change acquisitive, Billy and as I said earlier.

Speaker Change: We're trying to attack it from all angles. So.

Speaker Change: Using the using the local China Assembly example, that one you can solve obviously without.

Speaker Change: On one of my <unk>.

Speaker Change: The answers to the question that all of our acquisitions that have come in since we were Sun hydraulics has been dilutive states or what.

Speaker Change: Without putting a price increase.

Speaker Change: Increases in place and in fact, there's likely opportunities to get some margin enhancement. If we can build the products at a more cost competitive position than we do in the U S. So.

Speaker Change: Sun Hydraulics was on a standalone basis, so theres, a little bit of the mix dynamic there, but I also see that as a.

Speaker Change: Tremendous opportunity when I go back to my listening tour and hearing from an acquisition integration perspective, we've got way more opportunities to do more with what we have bought and <unk>.

Speaker Change: Really it's a bit of a reaction so ultimately where the final rulings Lan.

Speaker Change: And with the objective again of building products, where theyre consumed where our customers are and so that's kind of the first step, but then certainly.

Speaker Change: <unk> pursuing that Jeremy just referenced one with our win back strategy and Damon.

Speaker Change: When I look at faster specifically as we know they're highly indexed agricultural segment and that.

Speaker Change: We know we have direct cost impacts that we're feeling already we're not going to feel as much of it in the FERC or to the second quarter, just due to our inventory position coming into the second quarter and capitalizing those costs, but as those start rolling out those price increases will help offset some of that.

Speaker Change: Industry that markets continued to be down for four years in a row in the U S. With registrations, we are seeing positive.

Speaker Change: Signals there in indicative order books.

Speaker Change: And the team doing a tremendous job from a diversification perspective to get more into the commercial and construction space just over at bomber, where I know you were as well you just see the tremendous opportunity.

Speaker Change: We're continually looking at our supply chain and sourcing and what we can do on the back end like we said with the bonded warehouses that that may not come into play as much particularly U S MCA stays intact.

Speaker Change: And major Oems, there liebert palm finger that that we've got great relationships to go deeper with so we feel.

Speaker Change: At least for our health and wellness wellness space, but then.

Speaker Change: I go back to the volume and the go to market initiatives and the aggressiveness on trying to conquest wins and that's a bit of that playing on offense and just the incremental volume. We can create will help offset that and actually help expand margins as we know we've got a bit of a overcapacity situation right now with the company and so.

Speaker Change: Faster is clearly on the right path and we see growth for that business for the balance of the year, if if there isn't something disruptive.

Speaker Change: The overall geopolitical macro space, including tariffs from a sun hydraulics perspective, it's all about partnering with our distributors as you know we go to market through distribution on that business with some OEM direct business, where it makes sense like we talked about a aerial work platform opportunity that we won in the first quarter.

Speaker Change: Filling that up will help us leverage that fixed cost basis. So all in intense is to cover a dollar for dollar.

Speaker Change: But we're being flexible with where the final rulings plant.

Speaker Change: But the distributor business when we talk about go to market is really partnering with them and getting back to what made some great.

Speaker Change: Okay.

Sean Bagging: Okay, Great and then Sean you mentioned kind.

Speaker Change: Kind of assessing the portfolio, maybe as part of your your listening tour.

Speaker Change: We spent a lot of time with our customer engagement the product trainings our largest customer.

Sean Bagging: Do you think that entails.

Speaker Change: Distribution customer in the U S. We just had a great event with them here in Sarasota.

Sean Bagging: Divestitures of maybe some of the more recent acquisitions you made or.

Speaker Change: Celebrate that and it's really driving that accountability, and putting data and statistics and analytics behind it to demonstrate where we do have underperforming distributors, we need them to improve.

Sean Bagging: It's more fine tuning than that.

Sean Bagging: Yes, I think we're keeping.

Sean Bagging: Open mind to all of that I think as I step back it's looking at first the strategic fit.

Speaker Change: And if they arent then we're going to find the right partners and give the distributors that we have very longstanding relationships and success with.

Sean Bagging: And the financial performance of the various businesses.

Sean Bagging: We've had a lot of cycles and a lot.

Sean Bagging: Due to Covid and a lot of end market weakness that we're still battling.

Speaker Change: Bet on them and give them more territory and opportunity to continue to grow with us.

Sean Bagging: So a bit of it is do we see a path to growth and a path to accretive returns.

Speaker Change: But at the end of the day, we see a lot of tremendous.

Speaker Change: Green shoot opportunities that order book that distributor inventory level declining again for the third quarter in the U S gives.

We have taken some small actions already within the business that we've talked about particularly on the engineering side of the organization to get it much more targeted and focused in absorbing that into the business, which does involve cost savings on your taken away a rooftop or in their office.

Speaker Change: It gives us gives us positive.

Speaker Change: Signs that as this grows which the NFPA our main industry Association. We belonged to you on the fluid power side shows that second half recovery coming. So we are we are excited and we'll do what's needed to create that growth.

Sean Bagging: Additionally, on the on the backend with the manufacturing footprint tariffs is causing us to move some things around but also we had absorbed the faster U S operations into our Indiana, and Florida facilities and so we will continue to look at the back end, but.

Speaker Change: So it sounds like we're waiting for more volume rather than.

Speaker Change: Restructuring.

Speaker Change: I would say everything's on the table, though I mean.

Sean Bagging: Absolutely, we'll we'll be evaluating the portfolio and continue to look at does it fit and does it have a path to helping our accretive returns over time.

Speaker Change: Were not.

Speaker Change: We're not satisfied absolutely with where we're at but I'm not disappointed in what the customers and our team delivered in the first quarter and the path we're on right now.

Sean Bagging: But we also.

Speaker Change: If growth doesn't materialize for the third consecutive year, we absolutely need to do something from a capacity perspective, so I wouldn't consider anything off the table on keeping a very open minded that but I will highlight again, we are very optimistic about the green shoots in the new products we've launched in.

Sean Bagging: Are not interested in cutting our way to growth either and so if if we ever are looking to achieve.

Sean Bagging: The portfolio, we would be in a much better capital position to then get more acquisitive from an M&A perspective like the company has done over the last decade, but currently have to focus on debt reduction to to have that flexibility to start.

Speaker Change: The customer engagement, we have that.

Speaker Change: We'd like to we'd like.

Sean Bagging: Looking at M&A, more seriously, which likely won't happen until next year, given the current projections for the company.

Speaker Change: To grow our way into this but the growth doesn't materialize, yes, other actions will be on the table.

Speaker Change: Thank you very much.

Sean Bagging: Okay. Thanks, a lot Sean.

Mike: Thanks, Mike.

Sean Bagging: Thanks, Jeff.

Mike: We have reached the end of the question and answer session Usama do I'd like to turn the floor back over to you for closing comments.

Sean Bagging: As a reminder, if you would like to ask a question press star one on your telephone keypad.

Mike: Great. Thank you operator, and thanks, everyone for joining US today, we look forward to seeing a number of you at upcoming trade shows and investor conferences as always if you have any follow up questions feel free to reach out to me directly have a great day.

Speaker Change: Our next question comes from the line of Marine debris with Baird. Please proceed with your question.

Speaker Change: Good morning. So Q1 came in ahead of your initial expectations. When you look at your Q2 guide how does that compare relative to the original plan.

Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

Speaker Change: Hey, good morning. Thanks.

Speaker Change: Thanks for the question.

Speaker Change: So from our original plan perspective, obviously, we guided first quarter and we guided to the full year.

Speaker Change: I would tell you that we are ahead.

Speaker Change: Ahead from a first half perspective relative to our internal plan. So its better when you combined our first quarter actual results and our second quarter guide. So we're feeling pretty good going into the first half of the year and certainly then it changed and when.

Speaker Change: Tariffs came on to add more uncertainty, but as we said in our prepared remarks.

Speaker Change: We still believe and see a path to growth this year over prior year, which effectively was closer to that midpoint of our original annual guidance, but from the first half perspective.

Speaker Change: We feel we're ahead.

Speaker Change: Okay.

Speaker Change: Then is sort of the implication here.

Speaker Change: In a way were kind of like modeling and thinking about the business.

Speaker Change: We should take your prior EBITDA guidance.

Speaker Change: Approximately $15 million worth of cost impact that you outlined for the second half.

Speaker Change: And then maybe make some more some of our own assumptions on demand I mean is that how you think about it is the 50 million dollar drag.

Speaker Change: Just wanted to be fully realized in the back half or is it less than that because you're raising price you have some kind of mitigation strategies that you qualitatively discuss previously.

Speaker Change: Yeah definitely the latter Meg it won't be just taken and layering on $15 million of cost.

Speaker Change: Hum.

Speaker Change: We don't feel there is that impact that big of an impact here in the second quarter, certainly we didn't really feel much in the first quarter. It's obviously a cash flow drain because we got to pay the tariffs.

Speaker Change: At the time of important products, but it's really the back half and as I said, our intent is to cover the tear up to $15 million now theres going to be some timing issues with that and how quickly can we absorb it and does anything change, but I wouldn't layer on just $15 million of cost I would I would at least.

Speaker Change: $10 million to $15 million of abatement through the actions, we take and by the way a $15 million might not be that high if we're moving production then and abating. The tariffs from the current ruling so we're going to be flexible as they change and adapt quickly and I think that's a huge benefit to the <unk>.

Speaker Change: Size and scale of our company relative to bigger conglomerates that we can move quickly and we also have that footprint already talked about one of the things I love about our organization is the diversification of it and you look at even our revenue were just over half of Thats in the U S and call it a quarter and a quarter in EMEA and <unk>.

Speaker Change: Asia Pacific and our employee count emulates that as well and so it speaks to the capabilities of the operations just to move quickly and adapt.

Speaker Change: Trying to provide a little bit more color than just what you asked but I would not add in $15 million of cost with no assumption of recovery.

Speaker Change: Yes, because I mean thats the question.

Speaker Change: Sure.

Speaker Change: Understandably, you're kind of pulling the full year guide, but in terms of the right setting right sizing the numbers for the back half of the year.

Speaker Change: The message here is look we have got $15 million of headwind, but we think we can mitigate most of that then it would seem to me that relative to the prior to the original guidance that you have issued the only variance would really be change in demand whether or not demand is actually getting worse relative to.

Speaker Change: Where you initially guided.

Speaker Change: Correct me, if I'm wrong, there, but related to both the question is in the month of April other than the pre buy that you talked about have you seen any other changes in demand either from your customers or your distributors.

Speaker Change: I would suggest.

Speaker Change: Directionally kind of what might happen here as the year progresses.

Speaker Change: 100% alignment with you on how you characterize that and Thats, how we thought about it coming into the call in terms of the guidance.

Speaker Change: We're not going to try and predict the various outcomes of the tariff rulings and ultimately what that downstream effect is on the back half of the year. So that's why we were trying to be very specific on our on our Q2 guidance.

Speaker Change: Mostly for as I've shared on prior calls when we get to these calls it really comes down to an execution play to deliver our forward quarter because.

Speaker Change: We do see positive demand trends.

Speaker Change: One thing I would say it is our order intake is exceeding our quarterly sales in the first quarter for five consecutive months. Our order book continued to increase so we are seeing positive signs but.

Speaker Change: Is that going to stick is there going to be impacts from from tariffs longer term.

Speaker Change: So.

Speaker Change: That's we then try to be cute with our guidance and then pretend like we have the precision in the back half because there's just too many variables and uncertainties right now, but I will reiterate we see a path to growth. This year, just as we did coming into the year and so.

Speaker Change: It's not about as much about pulling our guidance are affirming our guidance. It's just acknowledging that that demand in the back half is a big question Mark but what.

Speaker Change: What we have in our control and what we're focused on is that go to market and customer Centricity and I think you've probably seen that with some of the product launches we've done and some of the changes. We've made made there to really attack those underserved markets incremental revenue streams and driving that accountability with our customers.

Jeremy Ovens: Beyond this journey of growth with us good Jeremy.

Speaker Change: Couple of other points to add to the demand comment.

Speaker Change: For the first time in a while we saw the recreational space within electronics grow we've been talking a lot about that that being down that that was a positive sign in the quarter.

Speaker Change: As well as in terms of the orders the orders in hydraulics where were.

Speaker Change: And higher than the sales and one of the things. We mentioned was the wind back focus with our son and Damon business. When we establish the the center of Excellence. We know we created some disruption within our customer base. There we had a backlog that was growing in that.

Speaker Change: And extended lead times so.

Speaker Change: We got that back.

Speaker Change: Where it needs to be from an operation perspective, and we're engaging with those customers and we're seeing some some early progress there in terms of quote and order win so.

Speaker Change: The broader demand.

Speaker Change: Environment, what's going to happen what happens with the tariffs a lot of uncertainty there.

But at least as we entered into Q1 and throughout Q1, there were some positive signs for us.

Speaker Change: Understood. One final question for me you.

Speaker Change: You talked about not cutting your way to growth.

Speaker Change: I can appreciate that comment but.

Speaker Change: The question is whether or not there it needs to be cutting or restructuring of any form.

Speaker Change: To adjust for the volume conditions that you do have and I'm talking about the hydraulics business specifically.

Speaker Change: When we're sort of looking here your gross margins are looking pretty materially different than they did back in 2022 2023 admittedly the revenue is lower as well.

Speaker Change: But within your cost structure right SG&A has really not been we're aware the drag has been on your hydraulics margins really been gross margin.

Speaker Change: So as you mentioned there is there is a.

Speaker Change: <unk> issue here, there was a lot of capacity and not enough volume to sort of support it so I guess.

Speaker Change: Question would be this one.

Speaker Change: What point in time do.

Speaker Change: Do you start really thinking hard about about the amount of capacity that you have in this business.

Speaker Change: Because realistically we have seen now.

Speaker Change: Multiple quarters, we're running on almost two years of organic declines in the hydraulics business.

Speaker Change: How do you how do you think about that.

Speaker Change: Curious cyclical component of it.

Speaker Change: The business and what do you have to do just from a short term standpoint to manage that gross margin relative to maybe something that's a little more structural to get us back to where we were a couple of years ago, even on lower volume.

Speaker Change: Yes, that's a good observation and I would answer it in a couple.

Speaker Change: Different ways relative to faster than relative to sun, but even a broader comment.

Speaker Change: Certainly the absorption to me.

Speaker Change: The number one opportunity there I want to address that not going to cut our way to growth, but I will highlight we have been judicious with our costs. If you look over the last four quarters, we've taken our operating expense SGA costs down.

Speaker Change: And tried to manage that but now as you look up to the to the top of the P&L in that cost of goods sold line absolutely the volume.

Speaker Change: It is causing the dilutive effect on the gross margins.

Speaker Change: The other thing I would highlight just broad is that.

Speaker Change: Our profile about hydraulics business has change acquisitive really and as I said earlier.

Speaker Change: On one of my.

Speaker Change: Answers to the question that all of our acquisitions that have come in since we were Sun hydraulics has been dilutive state to what Sun.

Speaker Change: Sun Hydraulics was on a standalone basis, so theres, a little bit of the mix dynamic there, but I also see that as a.

Speaker Change: Tremendous opportunity when I go back to my listening tour and hearing from an acquisition integration perspective, we've got way more opportunities to do more with what we have bought and <unk>.

Speaker Change: <unk> pursuing that Jeremy just referenced one with our win back strategy and Damon.

Speaker Change: When I look at faster specifically as we know they're highly indexed agricultural segment and that industry that markets continued to be down for four years in a row in the U S. With registrations, we are seeing positive.

Speaker Change: Signals there in indicative order books.

Speaker Change: And the team doing a tremendous job from a diversification perspective to get more into the commercial and construction space just over at bomber, where I know you were as well you just see the tremendous opportunity.

Speaker Change: And major Oems there lieber Pal finger that that we've got great relationships to go deeper with so we feel.

Speaker Change: Faster as is clearly on the right path and we see growth for that business for the balance of the year, if if there isn't something disruptive.

Speaker Change: The overall geopolitical macro space, including tariffs from a sun hydraulics perspective, it's all about partnering with our distributors as you know we go to market through distribution on that business with some OEM direct business, where it makes sense like we talked about a aerial work platform opportunity that we want in the first quarter.

Speaker Change: But the distributor business when we talk about go to market, it's really partnering with them and getting back to what made some great.

Speaker Change: We spent a lot of time with our customer engagement the product trainings our largest customer.

Speaker Change: Distribution customer in the U S. We just had a great event with them here in Sarasota.

Speaker Change: Celebrate that and it's really driving that accountability, and putting data and statistics and analytics behind it to demonstrate where we do have underperforming distributors, we need them to improve and if they arent then we're going to find the right partners and give the distributors that we have very long standing relationships and success.

Speaker Change: What to bet on them and give them more territory and opportunity to continue to grow with us.

Speaker Change: But at the end of the day, we see a lot of tremendous.

Speaker Change: Green shoot opportunities that order book that distributor inventory level declining again for the third quarter in the U S gives.

Speaker Change: It gives us gives us positive.

Speaker Change: Signs that as this grows which the NFPA our main industry Association. We belonged to you on the fluid power side shows that second half recovery coming. So we are we are excited and we will do what's needed to create that growth.

Speaker Change: So it sounds like we're waiting for more volume rather than.

Speaker Change: Restructuring goodbye.

Speaker Change: I would say everything's on the table, though I mean, we're not.

Speaker Change: We're not satisfied absolutely with where we're at but I'm not disappointed in what the customers and our team delivered in the first quarter and the path we're on right now.

Speaker Change: If growth doesn't materialize for the third consecutive year, we absolutely need to do something from a capacity perspective, so I wouldn't consider anything off the table and keeping a very open minded that but I will highlight again, we are very optimistic about the green shoots in the new products we've launched in.

Speaker Change: The customer engagement, we have that.

Speaker Change: We'd like to we'd like.

Speaker Change: To grow our way into this but the growth doesn't materialize, yes, other actions will be on the table.

Speaker Change: Thank you very much.

Speaker Change: Thanks, Mike.

Speaker Change: We have reached the end of the question and answer session Usama do I'd like to turn the floor back over to you for closing comments.

Speaker Change: Great. Thank you operator, and thanks, everyone for joining US today, we look forward to seeing a number of you at upcoming trade shows and investor conferences as always if you have any follow up questions feel free to reach out to me directly have a great day.

Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.