Q2 2025 Helios Technologies Inc Earnings Call
Operator: Ladies and gentlemen, greetings and welcome to the HELIOS TECHNOLOGIES Second Quarter 2025 Financial Results Conference Call. At this time, all participants are in the listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tania Almond, Vice President of Investor Relations and Corporate Communications. Please go ahead.
Ladies and gentlemen, greetings and welcome to the Helios Technologies. Second quarter, 2025 Financial results conference call.
At this time, all participants and the listen only mode, a brief question and answer session will follow the formal presentation.
N0 on your telephone keypad.
As a reminder, this conference has been recorded.
It is now my pleasure to introduce your host Tanya almond, vice president of investor relations and corporate Communications. Please go ahead.
Tania Almond: Thank you, Operator, and good day, everyone. Welcome to the HELIOS TECHNOLOGIES Second 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 hlio.com. You will also find the slides that will accompany our conversation today, as well as our prepared remarks. Here with me is Sean Bagan, President, Chief Executive Officer, and Chief Financial Officer. While our search process for a new CFO is ongoing, please welcome back our Vice President, Corporate Controller Jeremy Evans, as well. Sean will start the call with highlights from the second quarter, as well as comments on our CFP divestiture announcement, then hand it over to Jeremy to review our second quarter financial results in detail and our current thinking on the latest tariff impacts on our business.
Thank you, operator, and good day, everyone. Welcome to the Helios technology, second 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 HL. Io.com
You will also find the slides that will accompany our conversation today as well as our prepared remarks.
Here with me is Shaun began, President Chief Executive Officer and Chief Financial Officer.
While our search process for a new CFO is ongoing. Please welcome back. Our vice president corporate controller. Jeremy Evans as well.
Sean will start the call with highlights from the second quarter as well as comments on our cfp Devastator announcement. Then hand it over to Jeremy to review our second quarter Financial results in detail.
Tania Almond: Sean will then conclude our prepared remarks with our latest thoughts on our 2025 outlook, financial and operational priorities, and key focus areas. We will then open the call to your questions. If you turn to slide two, you will find our safe harbor statement. As you may be aware, we will make some forward-looking statements during this presentation and the Q&A session. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from those presented today. These risks and uncertainties and other factors can be found in our annual report on Form 10-K for 2024, along with our upcoming 10-Q to be filed with the Securities and Exchange Commission.
And our current thinking on the latest tariff impacts on our business.
Champs will then conclude our prepared remarks with our latest thoughts, on our 2025, Outlook financial and operational, priorities and key Focus areas.
We will then open the call to your questions.
If you turn to slide 2, you will find our Safe Harbor statement.
As you may be aware, we will make some forward-looking statements during this presentation and the Q&A session.
These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from those presented today.
Tania Almond: You can find these documents on our website or at sec.gov. I will also point out that during today's call, we will discuss some non-GAAP financial measures, which we believe are useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of comparable GAAP with non-GAAP measures in the tables that accompany today's slides. Please reference slides three and four now. With that, it is my pleasure to turn the call over to Sean.
These risks and uncertainties and other factors can be found in our annual report on form 10K, for 2024 along with our upcoming 10q, to be filed with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov
I'll also point out that during today's call. We will discuss some non-gaap Financial measures which we believe are useful in. Evaluating our performance, you should not consider the presentation of this additional information in isolation or as a substitute for results. Prepared in accordance with gaap. We have provided reconciliations of comparable, gaap with non-gaap measures in the tables that accompany today's slides.
Sean Bagan: Thanks, Tania, and welcome, everyone. We appreciate you joining us today. Before we walk through our second quarter results, I would like to take a moment to recognize a special milestone in our company's journey. This year marks the 55th anniversary of HELIOS TECHNOLOGIES, a moment of gratitude and celebration. I had the privilege of celebrating this meaningful milestone with the Sun Hydraulics team on Saturday evening, a perfect midsummer outing in the local community at the Bradenton Marauders game, the minor league affiliate of the Pittsburgh Pirates. With two outs and two runners on base in the bottom of the ninth, the Marauders were down by two runs. Then, in a thrilling finish, Tony Blanco Jr. launched a walk-off home run to seal a dramatic 6-5 comeback win.
Please reference, slides, 3 and 4. Now with that, it's my pleasure to turn the call over to Sean.
Thanks Tanya and welcome everyone. We appreciate you joining us today.
Before we walk through our second quarter results, I'd like to take a moment to recognize a special milestone in our company's Journey. This year marks the 55th anniversary of Helios Technologies, a moment of gratitude and celebration
Sean Bagan: The symbolism could not be more fitting for the Sun Hydraulics and HELIOS teams as we look ahead with renewed energy and determination to make a strong comeback in the second half of the year. We would not be here today without the vision, determination, and relentless spirit of those who came before us, specifically from our largest operating company, Sun Hydraulics. From our founders, Bob Koski and John Allen, who laid the groundwork with bold ideas and a pioneering mindset, to the generation of employees and partners who helped build and sustain this company through decades of change and growth, this milestone belongs to all of them. To every individual who has contributed to our story over the past 55 years, thank you. Your commitment, your belief in our purpose, and your dedication to excellence have shaped who we are today.
I had the privilege of celebrating this meaningful Milestone with the Sun, Hydraulics, team on Saturday evening. The perfect Midsummer outing in the local community at the braddens and Marauders game, the minor league affiliate of the Pittsburgh Pirates with 2 outs and 2 Runners on base. In the bottom of the ninth, the Marauders were down by 2 runs. Then in a thrilling finish, Tony Blanco Junior launched a walk-off home. Run to seal a dramatic 6 to 5. Come back win.
The symbolism couldn't be more fitting for the Sun Hydraulics and Helios teams. As we look ahead with Renewed Energy and determination to make a strong comeback in the second half of the year.
We would not be here today without the vision, determination. And Relentless Spirit of those who came before us specifically, from our largest operating company. Sun, Hydraulics from our Founders, Bob Kowski, and John Allen who laid the groundwork with bold ideas, and a pioneering mindset to the generation of employees and partners who helped build and sustain this company through Decades of changing growth, this Milestone belongs to all of them.
To every individual who's contributed to our story over the past 55 years. Thank you.
Sean Bagan: As we honor that legacy, we remain firmly focused on the future, committed to innovation, to our customers, and to creating long-term value for our shareholders. Now, let us turn to the highlights of our second quarter performance. We are pleased to have delivered second quarter results that surpassed our internal expectations, demonstrating resilience and disciplined execution in a continued dynamic environment with challenged markets. While sales and earnings declined in the quarter compared to the prior year, the performance reflects solid progress against our 2025 key focus areas and financial priorities, which positions us extremely well for the second half of the year. Sales in the quarter were $212 million, exceeding our outlook on stronger-than-expected hydraulic segment sales, also aided by foreign exchange. Adjusted EBITDA margin of 18.6% was also above our outlook, even while somewhat dampened by unfavorable product mix and tariff impacts.
Your commitment, your belief, in our purpose, and your dedication to Excellence have shaped who we are today.
As we honor that Legacy, we remain firmly focused on the future committed to Innovation to our customers and to creating long-term value for our shareholders.
Now, let's turn to the highlights of our second quarter performance.
Performance reflects solid progress, against our 2025 key Focus areas and financial priorities, which positions us extremely well for the second half of the year.
Sales in the quarter were 212 million exceeding, our outlook on stronger than expected hydraulic. Segment sales also, aided by Foreign Exchange adjusted, Eva margin of 18.6% was also above our Outlook even while somewhat dampened by unfavorable product, mix and tariff impacts.
In addition to stronger than expected, second quarter sales, margins, and earnings. We also generated near record cash from operations at 37 million and use that to further strengthen our balance sheet.
We continue to reduce debt which is lower by 67 million from the year ago, period improving our net debt to adjusted ebita leverage ratio to 2.6 times. We are targeting a sub 2 times. Leverage ratio, that will give us flexibility from a capital allocation perspective.
We initiated our previously announced, share repurchase authorization by repurchasing, 200,000, shares of common stock at an average price of $32 per share in the quarter. We believe that, to be an excellent use of our Capital, especially as we consider the opportunities before us to deliver organic growth and return adjusted ebit, margins to the 20% plus range.
Also, recently announced we have signed a definitive agreement to sell custom fluid power. Our australian-based hydraulic fluid power and service. Provider business to Quest this group for 83 million Australian dollars or approximately 54 million USD equivalent at current foreign exchange rates.
On a standalone basis the custom fluid power business. Also referred to as cfp has been a remarkable Growth Company under the Helios umbrella.
Since purchasing the business, in 2018 cfp sales, have expanded every year growing to 92 million Australian dollars for 61 million, USD equivalent for fiscal year 2024.
More impressive earnings have more than doubled over that same comparable period, including adjusted, ibaa USD equivalent growing from approximately 4 million to 8 million dollars.
As we are refocusing, our go to market strategy, and prioritizing our Capital allocation to improve our roic. It became clear Helios and cfp, would be better served as strategic Partners versus related parties.
Headquartered in Sydney Quest. This is 1 of Australia's leading providers of Hydraulic Solutions and currently has approximately 850 employees across 37 locations.
We believe Questis is the ideal owner for CFP. Importantly, we have solidified our long-term relationship with Questis through an exclusive distribution agreement between them and Sun Hydraulics for that region. This fosters a partnership where each party's success contributes to the other's advancement.
Our plan is to use the cash proceeds from the transaction primarily for further debt reduction, as well as investment into our core manufacturing and Innovation. While the destitute will reduce our sales and earnings run rates. It will improve margin rates within our hydraulic segment and at a Consolidated Helios level.
In the quarter, we also made progress, aligning, our businesses to better serve our customers by structuring our people, and processes around our products and Brands within our Hydraulics and electronic segments, this structure enables our go to market strategy, and improves accountability for performance.
This approach keeps the operating teams closer to our customers to better understand their needs. In addition, we have simplified the business as mentioned last quarter. We have eliminated fixed costs and reallocated Personnel Resources from the Helios Center of engineering excellence in San Antonio, Texas. This is enabled us to concentrate our talent within Our Brands and drive accountability with the engineering teams for the products we bring to Market.
We're taking decisive steps to refocus the organization. In order to drive better outcomes, we are working hard to make Helios A Better Business through Relentless commitment to customer. Needs cost, discipline refined, Capital allocation, and operational efficiency.
From a governance perspective this quarter, we also fortified our Board of Directors through the appointment of Ian Walsh.
Ian is currently the CEO of fdh Aero, his strong leadership, experience in manufacturing commercial Aerospace, and defense Industries illustrates the very relevant operational and strategic expertise. He brings this Returns the board to 7 total members.
I will now turn the call over to Jeremy to cover the details of our second quarter Financial results. And then I will come back to discuss our Outlook and highlight the Innovations. We are advancing in our markets.
Thanks, Sean and good morning everyone. As I review our second quarter results, please reference slides 5 through 9.
Exceeding. The top end of our Outlook range, which was 206 million
No, foreign exchange contributed to the overachievement favorably, impacting sales by about $3 million compared with our Outlook assumptions.
We estimate the impact of customers pulling orders ahead because of the announced tariffs was minimal in the quarter.
Regionally AIA grew 5%. This quarter over last year while sales declined in the Americas in Apex.
Apex sales in our electronic segments were up 27% year-over-year, driven by the health and wellness market.
The Amia growth was driven by returning demand for faster products within our hydraulic segment.
While Consolidated 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 with volume growth.
For the quarter, gross margin, contracted 30 basis points over last year.
The decline in labor and overhead costs partially offset, lower volume, higher material costs and net tariff, impacts sequentially, gross margin expanded 120 basis points on higher volume primarily in the hydraulic segment.
We continue to prioritize operational efficiency. We believe our focus on safety quality, delivery and cost Fosters creating a culture of accountability and customer centricity that aligns with our shared values.
Operating income in the second quarter was down 4.1 million reflecting the 3.1 million decrease of gross profit, on lower volume, 0.6 million increase in Sea expenses. Primarily due to the leadership change in the electronic segment and an additional 0.4 million increase in amortization as a result of our HC. Restructuring, previously mentioned
Operating margin declined 150 basis points to 10.3%, and adjusted EVA margin also declined 150 basis points compared to the prior year period.
Our effective tax rate in the second quarter was 23.8% reflecting the income mix in the various tax jurisdictions.
Diluted EPS with 34 cents in the quarter down 17% over last year.
diluted non-gaap EPS with 59 cents in the quarter down 8% over last year primarily as a result of the loss, leverage from the 3% decline in sales, but importantly, up 34% over the first quarter,
Looking to slide 10, I'll get more color by segment.
Hydraulic sales declined 3% over the prior year period.
This decline, reflected weakness, in industrial and mobile end markets, while agriculture started to show signs of stabilizing for the first time in 8 quarters.
Foreign exchange had a favorable 1.5 million impact on the segment, compared with the prior year period.
Hydraulic gross profit and gross margin grew year-over-year by 4% and 2,220 basis points, respectively, primarily due to lower material and direct labor costs, partially offset by lost leverage on lower volume and net tariff impacts.
Operating income was up 1.1 million or 5%. Compared with the prior year, period reflecting the growth in gross profit. Partially offset by a minus operating expense increase.
Sea expenses, were up 2% mainly due to the higher labor and benefit cost and increased R&D investment.
Please turn to slide 11 and we'll discuss the electronic segment.
Year-over-year. Electronic sales were down 4%.
Sales across most and markets, declined, most significantly, from the recreational Market, this quarter.
We see end markets with shorter lead times, still under pressure such as the more consumer-facing markets though. Oems are focusing on platform development, which could lead to potential growth going into next year.
The 18% decline in electronics gross profit and 530 basis point decline. In gross margin was primarily the result of higher Freight and duties costs, including a 2.4 million expense related to a product import classification, change higher material costs, and a heavier mix of boa sales which has lower average margins.
sea expenses, were down, 2% year-over-year, primarily due to realized cost savings from the hcw restructuring previously mentioned
Operating income declined by 4.4 million, despite the cost savings reflecting the decline in gross profit.
Operating margin for the segment was 8.2% or 11.6% less. The classification true up.
Slide 12 shows our focus on cash management continues to pay off but the trailing 12 months, free cash flow conversion rate of 291%.
With our cash conversion cycle. The lowest it has been since the first half of 2022.
Inventory, increased 4% from the prior year. Period, reflecting preparation for sequential sales growth.
Capital expenditures in the quarter were $5.4 million, or 2.5% of sales.
As we've noted previously, our capital expenditure plans for 2025, will be prioritized with a focus on maintenance and productivity enhancements that demonstrate evident Returns on investment.
Turning to slide 13 at the end of the second quarter, cash and cash. Equivalents were 53 million. And we had 359 million available on our revolving lines of credit.
We paid down debt for the 8 consecutive quarter.
We've reduced debt by 13% or $66.5 million over the last 12 months. Our net debt to adjusted EBITDA leverage ratio is down to 2.6 times from 3 times a year ago.
Our capital priorities remain focused on further reducing debt, generating organic growth, opportunistically repurchasing shares, and paying our long-standing dividend, which we've consistently done for over 28 years.
Turning to slide 14. Let me provide an update on the Tariff situation and the current expected impact the Helios.
As a result of changes in the Tariff level. Since our last earnings call the total estimated impact of direct tariff cost, to the second half of 20125, has been reduced to about 8 million,
We continue to expect that. We can ultimately offset. A large portion of these impacts through our mitigation efforts and use the competitive positioning here in the US to our advantage.
As we've discussed before, we believe our in the region for the region strategy continues to work in our favor.
Slide. 15 provides the mitigation efforts we've been working on.
Some updates on our progress from the last quarter include finding alternative, non-china based suppliers for LCDs and certain Metals used in our Electronics products.
Reducing the number of our products manufactured in our Tijana Mexico facility that are not usmca compliant.
Transferring a significant portion of our previously exported sales to China from the US to be fulfilled through our APAC facilities and implementing, very targeted. Search charges on the products. Most impacted by tariffs
With that, I will now turn the call back over to Sean.
Thanks, Jeremy.
Turning to slides 16 and 17, we have delivered better than expected results for the first half of 2025. This was capped off with the month of June delivering positive sales growth over the prior year period for the first time in 2025.
We expect year-over-year growth every month for the balance of the year and are off to a good start in July.
This is encouraging after 12 consecutive quarters of sales decline, our Consolidated Helios order. Backlog has grown every month so far. This year, we have not seen this trend since the beginning of 2021.
We originally established a full year 2025 Outlook, when we reported urine results for 2024 on February 24th.
Last quarter with all of the tear up uncertainty. We said we were not withdrawing our full year outlook but we were shifting, our guidance to focus on just the next forward quarter.
This is where we have the highest visibility and have established a track record with meeting our commitments over the last 7 quarters.
We have more confidence now, based on our first half performance, that we will grow 2025 annual sales above 2024 levels, depending on the exact timing of closing the CFP transaction. We see a possible outcome of delivering fully your sales above the high end of our initial estimate of $825 million.
We will further refine this on our third quarter earnings call.
Looking forward, we are encouraged by the relative stabilization. We have seen occurring over the past few months, in our agriculture mobile European construction, and health and wellness markets.
Our EMA Regional sales are strengthening for the first time in approximately 2 years.
We also have the advantage of software comparables as we enter the second half of the year.
We have experienced continued persistent weakness in the broader industrial and recreational markets. We are calling for a stabilization of industrial and an acceleration of recreational markets, based on our orders from our customers in those markets.
PMI readings have been choppy but have shown some pockets of strength relevant to the regions. We serve
Last week's better-than-expected U.S. GDP reading has economists reducing their expectations regarding a potential recession in the near term.
Overall, our distributor inventories have declined to a level that would suggest we could be near a restocking threshold.
Stagnant, interest rates according to a dynamic and often unpredictable macro environment.
We are excited about the long-term growth prospects, with the strength of our team and the changes recently made intended to spark momentum.
We anticipate third quarter sales to be in the range of 208 to 215 million up about 9% over the prior year period at the midpoint of the range. This includes a contribution from cfp as we expect to close that transaction in about 60 to 90 days. We anticipate fourth quarter sales, growth rate to accelerate further Beyond third quarter, growth rates again. Anchor back to our strengthening order book, anticipated and market, performance, and year ago, comparables.
We are projecting adjusted ebit. Do margin to be in the range of 19.5% to 20.5% in the third quarter. Remaining a bit depressed compared with last year, due to segment, mix and tariffs, but likely continuing to show sequential Improvement.
As a reminder in the third quarter last year, there was a favorable, stock-based compensation, adjustment of 5.5 million dollars as a result of the prior CEOs, termination diluted non-gaap earnings per share are expected to be in the range of 60 to 68 cents reflecting continued advancement of the bottom line.
Turning to slide 18 to 21 The Key to Our Success will be grounded in our organic growth driven by Innovation across the organization. New products are being launched at a faster Pace as seen here by the numerous value ad solutions that we have brought to Market in 2025. I am very proud of how the team has kept their foot, on the gas and accelerated, our cycle times to market for new products, many in white spaces, provide an incremental sales opportunities, while not cannibalizing existing sales. This is a great example of how we, how we are controlling, what we can control in this Dynamic operating environment.
A central pillar of our go to market strategy, is to drive growth by deepening relationships with existing customers and expanding into new markets where we have a strong right to win.
Let me conclude by saying how encouraged I am about the progress. We have made as an organization and a relatively short time.
Customer engagement is improved. The team's excitement about our future is elevated, and the change in our operating structure has allowed for greater innovation and accountability. We continue to build the business and are creating a platform that can leverage our strengths and return the company to a premium margin profile.
The sale of CFP is a demonstration of our willingness to improve our margin profile, even if it means temporarily shrinking our sales.
This move will afford US, greater flexibility, to make more aggressive, Capital deployment decisions, to fuel our future growth.
We remain focused on improving our margins across the board and will continue to evaluate all opportunities within our product, portfolio to drive efficiency and generate higher profits.
I remain confident in our ability to continue executing on our commitments. I would like to thank each 1 of the Helios employees across the globe, for all their daily efforts. As they are building the pathway to a very bright future for our Collective company.
As we celebrate our 55th anniversary, we stand on the shoulders of the remarkable CEOs who paid the way for Sun Hydraulics in its earlier days, including Bob Kowski, Al Carlson and Clyde Nixon. We honor their Vision leadership and dedication. We also recognize the legacy of the companies that have become part of the Helios family, their Decades of innovation and expertise. Now, enriched the vibrant unified organization, we are building together.
Thank you for being part of today's call and for your ongoing engagement with and support of Helios Technologies. With that, let's open up the lines for Q&A, please.
Thank you, ladies and gentlemen, we will now be conducting a question and answer session.
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Our first question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Please go ahead.
Hey, good morning, everyone.
It's still mixed but you're winning because of, you know, better customer engagement to go to market approach or or some of these, you know, new new products.
Yeah. Jeff I would answer that kind of by our business and where we've seen over the kind of the first half of this year.
Growth was still in the health and wellness sector, and that's frankly a market recovery. It's still not at a healthy spot from an overall market perspective, so there's still more room to grow, but that's just on the easier account. For the first half of the year, that business was up.
What evolved in the second quarter was with our faster business in Europe, uh, our European region, grew, and that was heavily. Egg driven starting to see some clear signs of AG recovery. After, you know, 4 years of prolonged,
Downturn at least in the US market from a registration perspective and I think that's just the indication of healthier dealer inventory levels and those channels and the oems get more confident, you see it in in, in their results, and stock prices and valuations, and all that as well. So those were the emerging ones, but as we now kind of look ahead into the back half of the year, we actually believe all of our main businesses will grow Sun Hydraulics, faster, Innovation controls and Below at
There's a clear, uh recovery coming in our Innovation, controls business, and the recreational markets. And again, I would point that to a little bit like the a cycle where, uh, it's been depressed and, and we're benefiting from the software comps that we had last year, but we're seeing that those channels, uh, starting to get refilled. And, and that is us being a supplier into that. Uh, we feel that earlier, you see that earlier. So those are some of the, the moving pieces we see. But uh, we we're we're really confident in the back half, uh, with the growth, we're seeing
Okay, great. And then, uh,
I I think I understand that the the custom fluid power, the vesture, just wondering if there's anything else you're considering, you know, from a non-core standpoint and then I, I know you've gotten a lot of questions around, you know, all the capacity ads and how you're thinking about, you know, maintaining capacity or, you know, or perhaps cutting it back and just just wanting to update there. Yeah. And I, I just start on the cfp dste and highlighting. What a remarkable business, it has been and an asset it has been. It's just doesn't fit, uh, strategically. And what I point you there is, uh, roughly 10% of cfp sales are actually Sun hydraulic cartridge files, the other 90%.
Really doesn't have anything to do with our business, it's Engineering Services. It's selling other other competitive products through their distribution channel. So we're remarkably excited, uh, by partnering with questis group for a long-term exclusive distribution for Sun Hydraulics with their scale and reach. Uh, we expect that to be a a top performing market and and significant new growth opportunities for us with that business. And by the way, for our shareholders it has been a a good good investment. Um, we've continued to grow the business as we indicated in our prepared, remarks. Every year, we've owned owned that business. However, over the last 3 years, uh, last 12 quarters our, our human dealers Revenue was shrunk. And so from a mixed perspective with their, uh, ebit profile where it's at relative to the company, it's been fairly diluted. And so, um, we're excited about what the financial profile look like uh, going forward as it relates.
To our other businesses. I would say it's an ongoing assessment that that we're always looking at our portfolio. Um, nothing imminent. Nothing further planned at this point, but I'd point to the cfp decision coming out of our strategic planning process. We did as an organization last year, uh, about last summer at this time and uh, just a little more deal color in that, the, the recommendation to the board was made in, December to sell that CFB business, and it took a little bit of
As well. And then your last part on the capacity side. Um, absolutely continue to look at that. And our desire to to run all of our plan. Sufficiently uh, is standard work and continuing to look at utilization and such and given our back half plan. I I've said this, uh, already on previous calls, we want to grow into that capacity. We want to show we can do that and get the leverage. And I think I mean just just looking at our Hydraulics performance over the over the last quarter from the first quarter to the second quarter, you see those incremental come through strongly, almost 15 million dollars, more of Revenue and significant expansion on the gross profit line and uh we implied in our guide. Uh you you'll see more of that in the back, half of the year and why that gives us confidence to continue to grow into that capacity. And then the last thing on it, is each 1 of those businesses, it's the beauty of Helios from a diversification perspective and and, and such but each of those business.
Comes with their own manufacturing plans, we don't have combined manufacturing, between Innovation and faster and son, and below and all the other acquisition companies, we've Acquired. And so, um, it's not as easy as just selling off a big facility, it's or selling off a portion of the facility. So we're know that we're continuing to look at it. Uh, plan a is to grow into it, but if we do not get that growth, we will be, uh, more aggressive from a capacity perspective.
Okay, appreciate the color.
Thanks, Jeff. Thanks.
Thank you.
Uh, next question comes from MC dobre with RW bed. Please go ahead.
Hey guys, this is Peter Carey. And on for Mig this morning, thank you for taking my questions. Um, I guess I'll start on margin. Um is there any color? You can provide uh for the second half by segment. Here I'm trying to parse out what you expect for Hydraulics margin in the second half. Um and what the moving pieces might be there.
Hey Peter, uh nice to hear from you. Thanks for calling in. So with respect to the segment margin, we don't provide that level of of guidance, but I will talk to you at high level and I think looking at past performance is a good indicator of of future. And so, when you look at our guidance that we've put forward, both for the full year and then more specifically to the segments, for the third quarter, uh, our on our hydraulic side, we plan to be up between 3 to 8% over the third quarter last year and at those levels. Um, that's going to indicate a nice uh continued Revenue step up for the hydraulic segment. Um,
Potentially at the higher end. And so with that, you can see the q1 to Q2 step up in the margins. If we're able to continue to grow that, we expect that, that would grow.
On the electronic side, uh we will expect to see much higher growth rates year-over-year from a revenue perspective and from a mixed perspective, we as a kind of indicated that to Jeff's response on which of the markets are are growing. We really see a lot of that growth coming out of innovation. Um, and when when you look at what has happened with our mix over the last, even in the first half of this year, going back into the late half of last year. We we, Although our overall Hydraulics, electronic mix is stayed pretty consistent 2/3. Hydraulics, a third Electronics, within both of the segments, we've had on favorable mix profiles. Uh, we've talked about the a weakness that's been, uh, hampered. The, the faster business that has generally a higher return profile than the sun business. And then from an Electronics perspective, clearly Innovation, uh, commands, a higher gross margin profile than our health and wellness business at below. And that's what had been growing. And so now, we're going to see
A little bit of that invert here, uh, in the back half of the year. And so we should get some nice uh, margin uplift from that as well.
Awesome. Thank you for the color sound really helpful. Second part of my question here in sticking in Hydraulics, but thinking longer term, you know, there's still excess capacity um and I apologize if I missed this earlier on the call, but is there a way to quantify the excess capacity that you still have in the hydraulic segment and then zooming out? Um, you know, what would be your best guess on a timeline uh to get this business back to you know, call it a 2223.
yeah, so I don't
These markets recover but also seen some of the new products we've launched. And these are incremental revenue streams for us and some broader uh broader opportunities that we haven't announced yet that we're that we're looking to bring to Market as well. So um that's how I'd answer that 1.
Yeah, in terms of the the next question on, you know, when do we get to to ibida plus 20% margins, uh, is Sean said, we we get a lot of Leverage with with the volume growth and, uh, sales have been down, you know, the last several quarters. So we expect to see that growth in the second half. If that continues, uh, we would expect to, to see um continued margin Improvement, the the cfp, the vesture will contribute some to that. Uh, it's about plus or minus 50 basis points, uptake, we would expect to see flow through to ebita. And then as we make other changes, I, I would highlight, uh, uh, also, the 8 CE, uh, that we communicated a couple quarters ago that we completed here in the second quarter. Uh, we, we did see some savings, we shut down the, the, the operation that was there in Texas. They came through an acquisition. So we're looking at, um, in addition to the, the overall portfolio optimization looking at smaller changes. We can make to, uh, to
Drive the uh, profitability.
Awesome. Thank you for that. If I can just sneak in one more question here, more of a granular one, but is there any update on the commercial food service and market? I noticed that this is listed as a positive catalyst for you guys in the slide deck. I know it's a bit of a new market for Helios. So, any color there? Is there a way to quantify how big this end market currently is for you guys?
Yeah, Peter, this is a very exciting growth opportunity for us, purely from the perspective that it's brand new; it's all incremental. Um, we've had our first win with Cleveland. They're part of the Well Built Ali group, and it's on the 1st Steamer product. So,
Engaging with them more deeply and looking for opportunities to take that technology and its innovation, controls electronics, win new business from a display perspective and other things in the guts of the steamer, if you will, that not only provides a value proposition for the OEMs to potentially take out costs and quantity and weight.
When you think about replacing, uh, dials and switches and lights and things with a, with a nice Modern Display, but also provides uh, training and opportunities for for operators. And then further beyond that, um, we're we're really excited about the alto shaam relationship on the software side. We've we have rolled out the sign.
Just reach platform that was a product. We came to the Helios portfolio via the I3, PD acquisition. And what signis reaches is effectively a remote diagnostic tool that
Clearly, Alto Shaam monitor equipment helps remind their operators when things need to be serviced.
Uh, kind of preventive type maintenance, early indicators of potential failures. We see this and that. That it's a great example of one end market that we are early into that has.
Lots of opportunities but then you just as I described say the sign, this Reef platform where we could take that um into whether it's all of our existing markets or many others. So we're we're very excited about our our software development and opportunities we have even beyond the sign this reach platform.
Awesome. Thanks. Sean.
Thanks Peter.
Thank you. Uh, next question comes from Nathan Jones with stifel. Please go ahead.
Good morning, everyone.
Good morning. Nathan from
Start with a a question on competitive positioning in the US being an advantage, which is a comment you guys made during the call. Uh, obviously having manufacturing footprint in the US is going to give you a cost Advantage versus you know, folks that are uh that are importing stuff from overseas. Can you talk about, you know,
Where in the business do you think you have that competitive Advantage? How you plan to use it does it, you know, give you the opportunity to price to Market to expand margins or Price, where you to cost, where you can, you know, compete for additional share, how you plan to to leverage that, uh, advantage.
After it and and won that back.
Haven't seen significant amount come, but I think that's partially because of the, the deescalate, the tariffs, but we absolutely still see that as an opportunity in our pursuing it and I, I believe some of it isn't fully coming through that. When you think about our Sun Hydraulics business, we go to market through an independent, uh, distribution Channel, and we're clearly seeing upticks uh signals for that in the back half of the year. And I believe there's likely some of that happening at that level, but also when when I go to the electronic side, um, our Innovation product doesn't compete on price. We're never chasing high volume, low, margin product, we're we're winning business on our differentiation, and we feel very strongly that we already have that competitive positioning. Um, that that's a sustainable Advantage for us. Over a lot of our Asian, uh, competitors there. And for us it's more.
So, how do we continue to innovate and stay ahead? So that as people are catching up with us, we're already that much further ahead.
Yeah, and I would just add add to that out outside the US, when we look at, uh, China and the health and wellness, uh, because of some of the, the tariffs of products coming into the, the US from China, we have seen the local manufacturing, their pick, pick up in our, uh, our facility that we have their, uh, within Balboa had a had a strong quarter in in Q2 and we see that as a as a competitive Advantage as well.
Thanks for that. Uh, follow-up question is on, uh, changes to the organizational structure that you talked about. I know you've talked fairly extensively about changes to the commercial organization. So 1 an update on on how that's going and and how far you know towards completion you think you are on that. And then are there any other changes that you're either contemplating or implementing in the organizational structure that you think will make Helios more efficient? Thanks.
Thanks, Nathan. Yes, so we are again going back to the strategic planning process. We went through that. To me, it became evident that we needed to reorganize and restructure how we do our daily work. And what that led to was first, where do we want to go? Who do we want to be? The values of the company and then, um,
From the regional structure that was put in place.
Uh really unwinding that to go back to focusing on Our Brands and our products the beauty of Helios as I said earlier is our diversification, but it also created complexity with the regional structure when we were trying to go to market. Say what hydraulics in Europe with uh the team on the ground. That's faster. That is typically selling direct to an oem and selling a coupler versus through distribution and selling a technical cartridge valve. And so really going back to having 1 liter for each of the brands, uh, and then supporting those uh, leaders from a, from a human resources Finance, it perspective, and then building around the sales organization because again, going to market for these different products is very different. It's a very similar on the electronic side, where a health and wellness customer with the direct OEM relationship and all
Also distribution is very different than selling to a recreational product, uh, manufacturer. So, it's really focusing how we do that, I would say where you are. We are well along in the, in the structure side of it and having the people in the right seats and we've injected new Talent from the outside into the organization as well.
On there was 1 that we had in the portfolio last year, they are all brand new incremental, revenue streams, and they're not cannibalizing existing sales. They're, they're augmentation of our existing offerings or an improvements and so we're pretty excited, uh, how this is all coming together and, uh, granted, we, we need to bend the curve because I'm it's not lost. I mean we've had 12 consecutive quarters of sales, declines. And uh, looking ahead. We we feel very confident that we can grow this business.
Awesome. Thanks for taking my question.
Thanks, Nathan.
Thank you.
Our next question comes from Chris Moore with CJs Securities. Please go ahead.
Hi. This is willan for Chris. Can you provide an update on the Strategic agreement with, uh, water Guru, where are you in integrating the technology into some of Balboa's products? And what is a reasonable expectation? In terms of generating noticeable Revenue?
Yeah, thanks Chris. This is, this is Jeremy will, I'm sorry, will yeah, Chris Susan on, sorry. Um, yeah, great. Great question. Uh, we, we entered that strategic relationship, uh, last year to both, um, design and manufacture the hardware for the spa Market, as well as cassettes. That will, uh, sense, the, the water quality and all of that tied into a, a mobile app that users can can see. And, uh, we spent a lot of time, uh, developing that and coming up with the
The right manufacturing process, but also a very quality design as well as manufacturing. Uh, I'm sorry, as well as packaging consumer packaging. So we launched that in the, the second quarter and we expect that to, uh, to pick up. But it is a, it's going to be a ramp. Uh, obviously we want to get the hardware units out, we've got a design that it can be set into the spas of, is a floating type. We're also working with oems to integrate that into the, uh, the overall Spa design and the new spot models. And the more of those that get out into the market, the the higher, the recurring Revenue, we would expect on the cassettes that lasted about 3 to 4 months before they need to be replaced. So really, really excited about that. The team did a great job, um, launching that we've got the app up and running. Uh, but again, we don't expect that to have a, a material impact, on our sales and profits this year. But as we get into 26, we definitely expect that to ramp
Thank you, very helpful. And then just one more. If we get a 75 to 100 basis point reduction in interest rates over the next six months, would that have a meaningful impact on how you're thinking about, uh, 2026 revenue? And you know, what areas would be the most impacted?
Hey Will, before I answer that, I I didn't get a chance to jump in before that. Second question. I wanted this also highlight with respect to the water Guru relationship, we will be manufacturing, and our manufacturing, those products and cassettes and um, we've displaced the water Guru supplier that was China based. And so almost parlaying back to Nathan's question, this is a bit of a conquest win and certainly will help uh improve our return profile on those products by having the manufacturing with respect to interest rates. Absolutely would see that as a helpful Tailwind for us, particularly when you look at our consumer discretionary, exposures
More indexed to our electronic segment. Thank toots. Um, and our great customers there. Not Tikes Master crafts, the recreational product customers, uh, also with the health and wellness space, a lot of those products are financed. And so um, any sort of reduction in rates will bring more of those coupon buyers back to the market that have been sitting on the sidelines.
Even further within our hydraulic segment, there's a bit of that as well. Um, you think about some of the big equipment that's financed, and so all of that is very helpful if we see reductions. But that said, we've been operating in this current environment, and we think we can grow without— we haven't planned for that in the back half of the year, even though.
The pundits have continued to call for reductions. That haven't materialized. So we'll see if if we see that uh we see that as a very helpful development and also just with our current debt stack that we're carrying it will help reduce our own interest expense and cash out flow as well.
Thank you very much.
Thanks, thank you.
Ladies and gentlemen, a reminder to all the participants. If you would like to ask a question, please press star and 1 on your telephone keypad.
Our next question is a follow-up from Jeff Hammond with KeyBanc Capital Markets. Please go ahead.
I just had a couple of housekeeping items. 1. Can you explain the dip in interest expense? It looks pretty low for the second half. And then, um,
Just for the guide, what do you have for custom fluid power? Is it closing at the end of the third quarter, or is it in there for the full year? Thanks.
Yeah.
Sounds good, Jeff. Yeah. So from an interest rate perspective, implied in our full year guide, as a significant drop in interest expense obviously we've been uh, prioritizing our our debt repayment and continue to do that. Actually, this is the eighth consecutive quarter that we've reduced that and, uh, with um, expectations, hopefully it rates you come down that could also help us. Although we haven't built that in, we have built in further debt reduction. Um, I'll highlight the second quarter despite our Revenue being depressed was our second best cash flow quarter, uh, from an cash flow from operations in our company's history. And so continuing to focus on that. We feel good, we can continue that streak. And so obviously that just reduces, uh, the amount that that we have to pay the other big mover if you recall last year, we refinance refinanced, our debt, a little early. Um, we would it would have matured in October of this year and we didn't want to bring that short term onto our balance sheet and so we had kicked that off last.
Spring. And we're successful in refinancing that in June of 2024 and with that, renegotiated some lower rates in terms of our borrowing spreads. And as we continue to manage our leverage rate down, uh the spreads get even lower. So, all of those things are very helpful and then the biggest mover was due to the fact that when we refinanced our debt, we had 2 interest rate swaps outstanding that were both in the money. Uh the accounting rules, require you to put that on the balance sheet because we had to terminate them early because the bank didn't decide to continue to participate in our new debt facility. So we had to terminate the swaps. Um, so you just hold that on your balance sheet and you recognize the gain and the period, the swap, uh, would have expired or matured, and so that's in the fourth quarter this year. And so you'll see about a just over a 5 million dollar run, rate reduction, purely from that. And so that that's what uh, that's what baked in there and then regarding the cfp, I mean, we don't know. I mean,
We we're planning 60 to 90 days for a closed just to give ourselves some room. Uh, so obviously, if we do that earlier, um, that will help us pay down more debt quicker because that's what we intend to do, with those proceeds, obviously, it would lower our run rates, Jeremy, you can speak to the revenue on ebita run rates and what we would expect there. Maybe from a quarterly perspective. Yeah. Cfp is has been about a 60 million USD business on, on an annual basis. We, we would
Expecting, depending on the timing, around $15 million that may come out of our Q4. As we said in our opening remarks on the IBA dots, probably about a $2 million EBA impact if it closes by the end of this quarter. So, that's how we're looking at it in terms of the timing and potential impact of Q4.
Okay, thanks a lot.
Thanks, Jeff. Thank you. Thank you.
As there are no further questions, I would now like to hand the conference to Tania Almond for closing comments.
Great, thank you so much for joining us today. We will be on the road, in the coming weeks and months and look forward to connecting with you in person. In the meantime, we hope you enjoy the remaining bits of the summer season here in North America. Please reach out to me. If you have any follow-up questions and have a great day.
Thank you, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.