Helios Technologies Inc Stock price
Compare with Peer Group
📊 Peer Group
📈 What is it?
The peer group consists of the companies with the most similar business model. They serve as a benchmark for putting a stock into context.
🧮 How is it selected?
Based on similarity of business model, meaning companies from the same industry with comparable products and a similar customer base. That's the only way to compare apples to apples.
🏛️ Why does it matter?
Whether a stock is cheap or expensive is best judged by comparison. A P/E of 18 or an EV/FCF of 20 can look cheap or expensive depending on the yardstick. The peer group gives you the most accurate one: companies with a similar business model that operate under the same conditions.
🎯 What does it mean for investors?
When a metric sits below the peer average, the stock is valued more cheaply relative to its competitors, and above the average more expensively. A discount to the peer group can be an opportunity, but it can also have a reason (for example lower growth). The comparison is a starting point, not a verdict.
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Key metrics
📘 Market Capitalization
📈 What is it?
Market capitalization shows how much a company is currently worth on the stock market.
🧮 How is it calculated?
🏛️ Why is it important?
It helps classify companies by size (Large, Mid, Small Cap) and indicates their market presence and relative stability.
🧮 Calculation
🎯 What does this mean for investors?
- Large-cap companies tend to be more stable, often pay dividends, but may grow more slowly.
- Smaller firms may offer higher growth potential but come with more volatility.
- Market capitalization is a useful indicator of company size — but not a measure of whether a stock is undervalued or overvalued.
📘 Enterprise Value (EV)
📈 What is it?
Enterprise Value represents the total cost to acquire a company — including its debt and excluding its cash reserves.
🧮 How is it calculated?
(= Market Cap + Net Debt)
🏛️ Why is it important?
EV gives a more complete picture of a company's value than market cap alone and is used in key valuation ratios like EV/FCF or EV/Sales.
🧮 Calculation
🎯 What does this mean for investors?
- Enterprise Value shows the true cost of buying a company, including all financial obligations.
- It is more accurate than just looking at market cap, especially when comparing companies with different levels of debt or cash.
- Professional investors prefer EV-based multiples because they better reflect the company’s full financial footprint.
📘 Net Debt
📈 What is it?
Net Debt shows how much debt remains after subtracting a company’s available cash reserves.
🧮 How is it calculated?
🏛️ Why is it important?
It indicates how dependent a company is on borrowed money and how easily it can service its debt in the short term.
🧮 Calculation
🎯 What does this mean for investors?
- Low or negative net debt signals financial strength and flexibility.
- Companies with strong cash positions are better positioned in crises.
- High net debt increases financial risk — especially in environments with rising interest rates or economic downturns.
📘 Cash
📈 What is it?
Cash represents all liquid assets a company can access immediately — including cash, bank deposits, and short-term investments.
🧮 How is it calculated?
🏛️ Why is it important?
It reflects a company’s financial flexibility and resilience — enabling investments, buybacks, or buffer in downturns.
🧮 Calculation
🎯 What does this mean for investors?
- A strong cash position means greater room for maneuver and crisis resistance.
- Cash-rich companies can invest, pay down debt, or repurchase shares.
- But excess idle cash might indicate a lack of growth opportunities.
📘 Shares Outstanding
📈 What is it?
Shares outstanding represent the total number of a company’s shares currently held by investors — excluding treasury stock.
🧮 How is it calculated?
🏛️ Why is it important?
It’s the basis for key metrics like Earnings Per Share (EPS), Market Capitalization, or the Price/Earnings ratio (P/E).
🧮 Calculation
🎯 What does this mean for investors?
- Fewer shares in circulation typically increase earnings per share — making each share more valuable.
- Share buybacks reduce the number of shares and boost per-share metrics.
- Issuing new shares does the opposite — diluting shareholder value and lowering per-share figures.
📘 Price-to-Earnings Ratio (P/E)
📈 What is it?
The P/E ratio shows how many times a company's earnings per share are reflected in its current share price — in other words, how "expensive" the stock appears relative to its profits.
🧮 How is it calculated?
🏛️ Why is it important?
The P/E ratio is one of the most widely used valuation metrics. It helps investors assess whether a stock appears cheap or expensive compared to its earnings power.
🧮 Calculation
📊 P/E (TTM) = Based on earnings from the last 12 months (Trailing Twelve Months):🎯 What does this mean for investors?
- A low P/E may indicate undervaluation — or signal underlying issues.
- A high P/E may reflect strong growth expectations — or an overvalued stock.
📘 Price-to-Sales Ratio (P/S)
📈 What is it?
The P/S ratio shows how much investors are paying for $1 of the company’s revenue – regardless of profitability.
🧮 How is it calculated?
🏛️ Why is it important?
P/S is especially useful for evaluating growth companies or businesses not yet profitable. It reflects how the market values the company’s sales.
🧮 Calculation
Market Cap = $2.21b | Revenue (TTM) = $891.40m
Market Cap = $2.21b | Estimated Revenue = $968.61m
🎯 What does this mean for investors?
- A low P/S may indicate undervaluation — or low profitability.
- A high P/S can reflect strong growth expectations — or excessive optimism.
- Especially helpful when evaluating companies where profits are low, volatile, or negative.
📘 Enterprise Value to Sales (EV/Sales)
📈 What is it?
EV/Sales shows how much investors are paying for $1 of revenue — considering not just equity, but also debt and cash. It’s the capital structure–adjusted version of the P/S ratio.
🧮 How is it calculated?
🏛️ Why is it important?
It’s ideal for comparing companies with different levels of debt. It reflects a company's true cost relative to its revenue.
🧮 Calculation
Enterprise Value = $2.47b | Revenue (TTM) = $891.40m
Enterprise Value = $2.47b | Forward Revenue = $968.61m
🎯 What does this mean for investors?
- EV/Sales allows for capital structure–neutral company comparisons.
- A lower ratio may indicate undervaluation; a higher one may signal strong growth expectations or overvaluation.
- Especially helpful when evaluating high-growth companies with low or negative earnings.
📘 Enterprise Value to Free Cash Flow (EV/FCF)
📈 What is it?
EV/FCF shows how many years it would take for a company to "pay back" its enterprise value using its free cash flow.
🧮 How is it calculated?
🏛️ Why is it important?
It focuses on real cash generation, ignoring accounting noise — ideal for assessing profitability and value based on liquidity, not earnings.
🧮 Calculation
🎯 What does this mean for investors?
- A low EV/FCF may signal undervaluation and strong cash generation.
- A high EV/FCF might reflect weak recent cash flow or aggressive growth expectations.
- Best suited for stable, mature businesses with predictable free cash flows.
📘 Price-to-Book Ratio (P/B)
📈 What is it?
The P/B ratio compares a company’s market value to its book value — showing how much investors are paying for each dollar of net assets.
🧮 How is it calculated?
🏛️ Why is it important?
P/B is commonly used for asset-heavy industries like banks or industrials. It helps assess whether a stock is trading above or below its net asset value.
🧮 Calculation
🎯 What does this mean for investors?
- A P/B below 1 may signal undervaluation — or weak profitability.
- A P/B above 1 implies the market expects future value creation (e.g., brand, IP, growth).
- Best used for companies with tangible assets and strong balance sheets.
📘 Dividend per Share (DPS)
📈 What is it?
Dividend per Share shows how much cash a company pays out to shareholders for each share they own – usually on an annual or quarterly basis.
🧮 How is it calculated?
🏛️ Why is it important?
DPS is the absolute value of the payout per share – crucial for income-focused investors and dividend strategies.
🧮 Calculation
🎯 What does this mean for investors?
- A stable or growing DPS often signals a strong, shareholder-friendly business.
- DPS alone doesn’t tell you how attractive the payout is – the stock price also matters (→ see Dividend Yield).
- Long-term dividend growth is often a hallmark of high-quality companies – like the dividend aristocrats.
📘 Dividend Yield
📈 What is it?
Dividend yield shows how large a company’s dividend is in relation to its current share price.
🧮 How is it calculated?
🏛️ Why is it important?
It allows investors to compare dividend payouts across stocks, regardless of price or payout size.
🧮 Calculation
🎯 What does this mean for investors?
- A stable yield can reflect reliable distributions.
- Comparing 1Y and 5Y yield shows whether dividend growth keeps pace with stock price appreciation.
- A low yield isn’t always negative – it can signal strong past performance or growth focus.
📘 Dividend Growth
📈 What is it?
Dividend growth shows how much a company has increased its dividend per share over time.
🧮 How is it calculated?
5Y: Compound Annual Growth Rate (CAGR)
🏛️ Why is it important?
Consistently rising dividends are often a sign of financial strength and shareholder orientation – especially relevant for long-term investors.
🧮 Calculation
🎯 What does this mean for investors?
- Stable dividend growth is a sign of sustainable earning power.
- High dividend growth can significantly boost your total return:
- If a company pays $1 in dividends and increases it by 15% annually over 5 years, you’ll receive $2 per share in year 5 – twice as much as at the start!
📘 Payout Ratio
📈 What is it?
The payout ratio shows what percentage of a company’s earnings (per share) is distributed to shareholders as dividends.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess whether the dividend is sustainable – especially in relation to the company’s profitability.
🎯 What does this mean for investors?
- A low payout ratio means the company retains more earnings for reinvestment – typical for growth companies.
- A moderate payout (e.g. 25–50%) indicates a healthy balance between returns and reinvestment.
- High payout ratios may seem attractive but can carry risk if earnings decline.
📘 Consecutive Dividend Increases
📈 What is it?
This metric shows how many consecutive years a company has raised its dividend per share – without any cuts or pauses.
🧮 How is it calculated?
(Special dividends are not considered.)
🏛️ Why is it important?
A long track record of increases reflects financial strength, consistency, and shareholder commitment.
🎯 What does this mean for investors?
- A long dividend increase streak builds confidence – especially in volatile markets.
- Such companies are seen as reliable and income-friendly investments.
- The longer the streak, the stronger the company’s dividend discipline.
📘 Revenue
📈 What is it?
Revenue shows how much a company earns in total from selling its products and services – the gross income before any costs are deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Revenue is one of the key figures to assess a company’s size, market position, and growth potential.
🧮 Calculation
🎯 What does this mean for investors?
- Growing revenue indicates rising demand and can be an early signal of future earnings growth.
- Comparing actual and expected revenue reveals trends in the market environment and analyst sentiment.
- Note: Strong revenue alone isn’t enough – margins and profitability matter just as much.
📘 EBITDA
📈 What is it?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It reflects a company’s operating profit before the effects of financing, taxes, and accounting depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
EBITDA is widely used to evaluate a company’s operating performance – especially across capital-intensive sectors or international comparisons.
🧮 Calculation
🎯 What does this mean for investors?
- A high or growing EBITDA indicates strong operational profitability – independent of taxes, interest, or accounting methods.
- It’s especially useful for comparing companies across sectors or geographies.
- Important: EBITDA is not a net income figure – it excludes key costs like depreciation and interest.
📘 EBIT
📈 What is it?
EBIT stands for “Earnings Before Interest and Taxes.” It reflects a company’s operating profit after depreciation, but before interest and tax expenses.
🧮 How is it calculated?
🏛️ Why is it important?
EBIT is a core profitability metric that shows how well the company performs in its main business operations – independent of capital structure and tax environment.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT indicates strong profitability from the company’s core business – before financial and tax effects.
- It allows better comparison between companies with different debt levels or tax structures.
- Compared to EBITDA, EBIT already accounts for depreciation and reflects capital intensity more clearly.
📘 Net Income
📈 What is it?
Net income is the company’s total profit – the amount left after all expenses, taxes, interest, and depreciation have been deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Net income is the most comprehensive measure of a company’s profitability – showing how much actual profit remains after all business and financing costs.
🧮 Calculation
🎯 What does this mean for investors?
- Growing net income indicates that the company is managing all of its costs efficiently.
- It directly influences valuation metrics like P/E ratio and the company’s dividend capacity.
- Over time, net income trends reveal how resilient and profitable the business model really is.
📘 Free Cash Flow (FCF)
📈 What is it?
Free Cash Flow shows how much actual cash remains after a company covers its operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
FCF reflects a company’s real financial strength – regardless of accounting profits. It shows how much flexibility a company has for dividends, share buybacks, or debt reduction.
🧮 Calculation
🎯 What does this mean for investors?
- High free cash flow means the company generates real, usable cash – independent of reported net income.
- It’s often the most reliable base for sustainable dividends and buybacks.
- Declining FCF can be an early warning sign – even when profits appear stable.
📘 Revenue Growth
📈 What is it?
Revenue growth shows how much a company’s sales have changed compared to the previous year – both on a trailing basis (TTM) and based on forward projections.
🧮 How is it calculated?
Forward = (Expected revenue ÷ Revenue in prior year − 1) × 100
Forward growth is based on analyst estimates for the current fiscal year.
🏛️ Why is it important?
Rising revenue signals growing demand, business expansion, and market share gains – especially important for growth-oriented companies.
🧮 Calculation
🎯 What does this mean for investors?
- Growth is the engine of long-term value creation – especially in tech and growth sectors.
- What matters is not just current growth, but its sustainability.
- Forward projections reflect whether analysts expect continued momentum – or a slowdown.
📘 EBITDA Growth
📈 What is it?
EBITDA growth shows how much a company’s operating profit (before interest, taxes, depreciation, and amortization) has increased or decreased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBITDA ÷ EBITDA from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
Growing EBITDA indicates improving operational profitability – regardless of financing or accounting effects.
🧮 Calculation
🎯 What does this mean for investors?
- Strong EBITDA growth signals operational efficiency and scalability – especially during growth phases.
- EBITDA growth can be an early indicator of margin and earnings expansion – but should be assessed alongside revenue and EBIT.
📘 EBIT Growth
📈 What is it?
EBIT growth shows how much a company’s operating profit (after depreciation, but before interest and taxes) has increased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBIT ÷ EBIT from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
EBIT growth is a direct indicator of a company’s business performance – taking into account capital intensity through depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- Rising EBIT signals improving operating profitability – even after accounting for depreciation.
- It’s especially important for evaluating companies with significant capital expenditures.
- Combined with revenue and EBITDA growth, EBIT growth provides a well-rounded view of operational progress.
📘 Net Income Growth
📈 What is it?
Net income growth shows how much a company’s bottom-line profit has increased or decreased compared to the previous year – both on a trailing basis (TTM) and based on analyst projections.
🧮 How is it calculated?
Forward = (Expected net income ÷ Net income from prior year − 1) × 100
The forward estimate reflects analysts’ expectations for the current fiscal year.
🏛️ Why is it important?
Net income is the ultimate measure of profitability. Growing net income signals stronger efficiency, cost control, and sustainable earnings power.
🧮 Calculation
🎯 What does this mean for investors?
- Stronger net income boosts valuation, dividend potential, and investor confidence.
- If profits stall while revenue grows, it may signal margin pressure.
📘 Free Cash Flow Growth
📈 What is it?
Free cash flow (FCF) growth shows how a company’s available cash – after covering operating expenses and capital expenditures – has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
Free cash flow reflects real financial strength. Growing FCF indicates more flexibility for dividends, share buybacks, and reinvestment.
🧮 Calculation
🎯 What does this mean for investors?
- Declining FCF may point to rising investments, increasing costs, or weaker operating performance.
- Especially for dividend investors, FCF growth is critical – since dividends are paid from actual available cash.
- A negative trend isn't always bad, but it deserves closer attention.
📘 Gross Margin
📈 What is it?
Gross margin shows how much of a company’s revenue remains after deducting the direct costs of goods sold (like materials and production). It represents the company’s “raw profit” before fixed costs, taxes, and interest.
🧮 How is it calculated?
Or simply: Gross Margin = Gross Profit ÷ Revenue × 100
🏛️ Why is it important?
Gross margin indicates how efficiently a company can produce or procure what it sells. It is a key measure of product-level profitability and pricing power.
🧮 Calculation
🎯 What does this mean for investors?
- A high gross margin suggests strong pricing power and efficient production.
- Falling margins may signal rising input costs or competitive pressure.
- Compared to peers, gross margin offers insights into the quality of a business model.
📘 EBITDA Margin
📈 What is it?
The EBITDA margin shows how much of a company’s revenue remains as operating profit before interest, taxes, depreciation, and amortization.It reflects operating efficiency without being distorted by financing or accounting factors.
🧮 How is it calculated?
🏛️ Why is it important?
The EBITDA margin reveals how much operating income a company generates per dollar of revenue – independent of capital structure and tax effects.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBITDA margin reflects strong core profitability – before accounting distortions.
- It allows for effective comparisons across companies and sectors.
- A stable or growing margin signals efficient cost control and business scalability.
📘 EBIT Margin
📈 What is it?
The EBIT margin shows what percentage of revenue remains as operating profit after depreciation but before interest and taxes.
🧮 How is it calculated?
🏛️ Why is it important?
The EBIT margin reflects a company’s core profitability while accounting for capital intensity (e.g. machinery, infrastructure). It’s especially useful for comparing businesses with different levels of depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT margin shows that the company remains efficient even after factoring in depreciation.
- It’s especially relevant for capital-intensive industries.
- Stable or rising EBIT margins over time are a strong indicator of pricing power and business quality.
📘 Net margin
📈 What is it?
Net margin shows how much of a company’s revenue remains as bottom-line profit after deducting all costs, interest, taxes, and depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
Net margin reflects a company’s overall efficiency – across operations, financing, and taxation. It shows how much actual profit is generated from each dollar of revenue.
🧮 Calculation
🎯 What does this mean for investors?
- A high net margin means the company is not only strong operationally but also manages financing and taxes efficiently.
- Peer comparisons reveal business quality and competitiveness.
- Declining margins despite revenue growth can be a red flag for rising costs or inefficiencies.
📘 Free cash flow margin
📈 What is it?
The free cash flow (FCF) margin shows how much of a company’s revenue remains as actual free cash after covering all operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
This margin reflects the true liquidity generated by the business – independent of accounting rules or depreciation. It’s especially relevant for dividends, buybacks, and reinvestment decisions.
🧮 Calculation
🎯 What does this mean for investors?
- A high FCF margin means a company consistently generates strong cash flow.
- It’s a positive signal for financial stability and shareholder returns.
- The long-term trend is key – a declining margin may indicate rising investments or weakening operating efficiency.
📘 Equity Ratio
📈 What is it?
The equity ratio indicates what portion of a company’s total assets is financed by shareholders’ equity – in other words, how much it relies on its own capital.
🧮 How is it calculated?
🏛️ Why is it important?
A high equity ratio reflects financial strength and stability, especially during downturns. It’s a key indicator of a company’s solvency and long-term risk profile.
🧮 Calculation
🎯 What does this mean for investors?
- Companies with high equity ratios are generally more resilient and less dependent on external debt.
- Low equity ratios can signal higher risk or aggressive financial strategies.
- Important: Always assess the equity ratio in combination with the return on equity (ROE). This shows not just how stable the company is – but also how efficiently it uses shareholder capital.
📘 Return on Equity (ROE)
📈 What is it?
Return on equity (ROE) shows how efficiently a company uses its shareholders’ equity to generate profit. In other words: how much net income is earned per dollar of equity.
🧮 How is it calculated?
🏛️ Why is it important?
ROE is a core profitability metric. It helps investors understand whether a company delivers attractive returns on the capital provided by its shareholders.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROE indicates that the company is using its capital efficiently and profitably.
- It’s especially meaningful for capital-intensive businesses or firms with high equity bases.
- Important: A very high ROE can also result from high debt levels – always interpret it alongside the equity ratio to assess financial health.
📘 Return on Capital Employed (ROCE)
📈 What is it?
ROCE measures how efficiently a company generates profits from its total capital – including both equity and interest-bearing debt.
🧮 How is it calculated?
It evaluates the return on all capital employed, regardless of how it’s financed.
🏛️ Why is it important?
ROCE is ideal for comparing companies with different financing structures. It shows how well management uses capital to create value for both shareholders and creditors.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROCE means the company uses its capital efficiently – regardless of whether it's funded by debt or equity.
- The higher the ROCE compared to peers, the more value the company creates with its invested capital.
- Especially relevant for capital-intensive sectors like industrials, energy, or infrastructure.
📘 Return on Invested Capital (ROIC)
📈 What is it?
ROIC measures how efficiently a company generates returns from the capital invested in its core operations – regardless of whether the capital comes from equity or debt.
🧮 How is it calculated?
- NOPAT = Net Operating Profit After Taxes
- Invested Capital = Operating assets minus non-interest-bearing liabilities
🏛️ Why is it important?
ROIC is one of the most accurate indicators of capital efficiency. Unlike return on equity, it is not distorted by leverage and shows how much value is created for all capital providers.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROIC shows how effectively a company uses the capital that is truly invested in its core operations.
- Unlike ROCE, ROIC focuses only on the capital that is actively used to run the business – and that requires a return (i.e. interest-bearing).
- Especially useful when comparing companies with large amounts of excess cash or non-interest-bearing liabilities – giving a more realistic picture of capital efficiency.
📘 Leverage Ratio (Debt-to-Equity)
📈 What is it?
The leverage ratio indicates how much a company relies on interest-bearing debt (such as loans and bonds) relative to its shareholders’ equity.
🧮 How is it calculated?
🏛️ Why is it important?
This ratio helps assess a company’s financial structure and risk profile. High leverage can enhance returns – but also increases exposure to interest rate changes and financial stress.
🧮 Calculation
🎯 What does this mean for investors?
- A low leverage ratio signals financial strength and independence.
- A higher ratio can improve returns in good times but increases risk during downturns or rising interest rate periods.
- 👉 Always interpret in the context of industry, capital intensity, and interest rate environment.
📘 Earnings per share (EPS)
📈 What is it?
Earnings per Share (EPS) shows how much profit is attributable to a single share – and is one of the most important metrics for evaluating a company's performance.
🧮 How is it calculated?
The diluted share count reflects potential new shares that could be issued through options, convertible bonds, or other rights.
🏛️ Why is it important?
EPS is the basis for many key valuation metrics like P/E ratio, PEG ratio, or payout ratio. It enables comparisons of profitability across companies, regardless of their size.
🧮 Calculation
🎯 What does this mean for investors?
- EPS captures per-share profitability and is especially useful for comparisons over time or with analyst estimates.
- Rising EPS may signal consistent growth or share buybacks.
- Important: Always use diluted EPS for more realistic valuations – especially in companies with stock-based compensation.
📘 Free cash flow per share (FCF per share)
📈 What is it?
Free Cash Flow per Share shows how much free cash flow a company generates per outstanding share – after investments, but before dividends or debt repayments.
🧮 How is it calculated?
Free cash flow is calculated as operating cash flow minus capital expenditures (CapEx).
🏛️ Why is it important?
FCF per Share reveals how much real cash is available per share – useful for dividends, buybacks, or reducing debt. Unlike net income, free cash flow is harder to manipulate and often seen as a more reliable metric.
🧮 Calculation
🎯 What does this mean for investors?
- High FCF per share signals strong financial flexibility.
- It shows how much capital the company can effectively reinvest or return to shareholders.
- Particularly relevant for dividend payers and capital-efficient businesses.
📘 Short interest
📈 What is it?
Short interest indicates how many shares of a company are currently sold short – that is, borrowed and sold by investors who expect the price to decline.
🧮 How is it calculated?
It reflects the percentage of a company’s shares that are being shorted relative to the total shares available.
🏛️ Why is it important?
Short interest serves as a sentiment indicator: A high value may signal skepticism or bearish expectations – but also increases the potential for a short squeeze if prices rise unexpectedly.
🧮 Calculation
🎯 What does this mean for investors?
- Low short interest usually indicates market confidence in the company.
- High short interest can be a warning sign – or an opportunity if sentiment shifts.
- Especially relevant in volatile markets or ahead of key earnings releases.
📘 Employees
📈 What is it?
The employee count shows how many people a company employs worldwide – offering insights into its size, structure, and business model.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess operational scale, labor intensity, and cost structure. Combined with revenue and profit, it enables key metrics like revenue per employee or productivity.
🧮 Calculation
🎯 What does this mean for investors?
- A high headcount can signal operational complexity – but also significant growth capacity.
- Revenue per employee is a key indicator of efficiency.
- Especially useful for comparing tech, industrial, or service-heavy companies.
📘 Turnover per employee
📈 What is it?
Revenue per employee indicates how much revenue a company generates on average per employee – a key measure of efficiency and productivity.
🧮 How is it calculated?
The employee count is typically taken from the most recent annual report.
🏛️ Why is it important?
This metric helps compare business models – especially between labor-intensive and technology-driven companies. A high value suggests automation, operational efficiency, or strong value creation per head.
🧮 Calculation
🎯 What does this mean for investors?
- A high revenue per employee indicates a scalable and margin-strong business model.
- A low figure may reflect labor-intensive operations or lower value-add.
- Especially helpful when comparing tech companies to industrial or service sectors.
Helios Technologies Inc Stock Analysis
Analyst Opinions
12 Analysts have issued a Helios Technologies Inc forecast:
Analyst Opinions
12 Analysts have issued a Helios Technologies Inc forecast:
Helios Technologies Inc Events
Past Events
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AUG
11
Q2 2026 Earnings Call
about one month ago
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MAY
12
Q1 2026 Earnings Call
4 months ago
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MAR
20
Analyst/Investor Day - Helios Technologies, Inc.
6 months ago
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MAR
3
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Helios Technologies Inc — Q2 2026 Earnings Call
1. Management Discussion
Greetings, and welcome to the Helios Technologies Second Quarter 2026 Financial Results Conference Call. As a reminder, this conference is being recorded.[Operator Instructions] It is now my pleasure to introduce Tania Almond, Vice President, Investor Relations and Corporate Communications. Please go ahead.
Thank you, operator, and good day, everyone. Welcome to the Helios Technologies Second Quarter 2026 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 (sic) [ heliostechnologies.com ]. You will also find slides there that accompany today's discussion as well as our prepared remarks.
Joining me today are Sean Bagan, President and Chief Executive Officer; and Jeremy Evans, Executive Vice President, Chief Financial Officer. Sean will begin the highlights from the second quarter. Jeremy will then review our financial results in more detail and provide our outlook for the rest of the year. Sean will return with some closing comments, and then we will open the call for questions.
Before we get started, please turn to Slide 2, where 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 2025, along with 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.
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. Please reference Slides 3 through 5 as I now turn the call over to Sean.
Thanks, Tania, and welcome, everyone. We're pleased you could join us today. It was 5 months ago at Investor Day that we introduced The CORE Strategy, laid out our 2030 financial targets and committed to a set of measurable objectives. Two quarters into that plan, our first half performance shows we are off to a strong start. The CORE Strategy is working and the stabilization plan for the business that our team mapped out over the last 2 years is now complete. We have entered a new phase of our journey defined by sustained growth that is underpinned by a fortified balance sheet. At Investor Day, we were still in the midst of that comeback, beginning to climb. Today, we're continuing to grow into the second half, gaining altitude faster than expected and we're positioned to keep climbing into 2027.
We delivered another strong set of results in the second quarter. Sales of $232 million were at the high end of our guidance range and adjusted earnings exceeded the top end of our outlook. This marks our fourth consecutive quarter of double-digit pro forma sales and adjusted earnings growth, which is a solid indicator that the strategic actions we've taken continue to translate into consistent operating and financial performance. Based on the solid first half results and improving visibility into the balance of the year, we are raising our full year outlook. 2026 could represent the highest annual sales in Helios' history.
Importantly, the order and business win dynamics behind these numbers remain robust. Our order intake grew double digits over the year ago period for the fourth quarter in a row, giving us increasing confidence in near-term demand. Our order growth is primarily driven by the combination of last year's business wins ramping and new wins continuing at a healthy pace.
These wins span both segments. In Hydraulics within MCT, Sun saw its strongest growth in China across mobile and industrial and is on pace to have a record year in its APAC region. Within FCT, Faster continues to benefit from strengthening demand from our customers in construction and agriculture, and we've rolled out a new product portfolio, completed the qualifications needed to meet industry standards and have been building some inventory to position us to start penetrating the data center thermal management market. In Electronics, we are realizing growth across recreational, health and wellness and industrial applications, supported by the investments we made in our ability to solve complex problems for our customers.
All of this gives us growing confidence that the changes we have made are driving sustainable results. The quality of our earnings continues to improve as well. Higher volumes, favorable segment mix and our operational initiatives drove another quarter of solid year-over-year margin expansion, reflecting the operating leverage inherent in our business model and the progress we're making in continued footprint optimization and productivity. Impressively, we generated record operating cash flow in a second quarter, with that cash generation allowing us to further strengthen the balance sheet, reduce our leverage ratio, increase organic investments and return capital to shareholders through our longstanding dividend and additional share repurchases. This balanced approach is fully aligned with the value creation framework we laid out as part of The CORE Strategy.
Stepping back and reflecting on our first half results, we are tracking ahead of our organic growth and margin commitments. Our sales engine is performing. Our innovative products and road maps continue to take market share. Our operational excellence initiatives are supporting ongoing margin expansion toward the long-term targets we shared at Investor Day. We will stay focused on disciplined execution and investing in high-return opportunities, positioning Helios for continued progress against our targets.
With that, I'll turn the call over to Jeremy, who will review the second quarter financial results in more detail and our raised 2026 outlook. Jeremy, over to you.
Thank you, Sean, and good day, everyone. As I review our second quarter results, please refer to Slides 6 through 8. Second quarter sales were $232 million, up 9% compared with $212 million in the prior year period and at the high end of the expectations we laid out on our first quarter call. When adjusting for the CFP divestiture and foreign exchange impacts, sales were up 16% year-over-year. Gross profit increased 19% in the quarter to $80 million, and gross margin expanded 280 basis points year-over-year to 34.6%. This is the fourth straight quarter of year-over-year gross margin expansion. In addition to volume and mix, the margin improvement reflects ongoing operational initiatives and benefits from our portfolio and footprint actions, along with the positive contribution from approximately $1 million of net IEEPA tariff refunds.
From an operational perspective, we continued to execute on footprint optimization initiatives that support margin expansion, increase productivity and drive operating leverage. During the quarter, we closed the Faster facility in Canada and further consolidated our Faster North American operations. We expect these actions to drive efficiency and cost benefits starting in the second half of 2026. Second quarter operating income rose 48% year-over-year to $33 million, and operating margin expanded 370 basis points to 14.0%, with non-GAAP adjusted operating margin up 280 basis points to 17.8%. Adjusted EBITDA increased 25% to $49 million, and adjusted EBITDA margin expanded 260 basis points to 21.2%, marking the fourth consecutive quarter with adjusted EBITDA margin above 20%.
Our operating expenses increased by $2.2 million year-over-year, primarily driven by employee benefit costs and an isolated bad debt expense. Excluding these 2 items, we managed expenses in a disciplined way, keeping them essentially flat year-over-year on a consolidated basis while increasing investment in research and development and delivering solid sales growth. This is an important contributor to the operating leverage you see in our expanding operating and EBITDA margins. Diluted EPS in the quarter was $0.66, up 94% compared with the prior year period, and adjusted diluted EPS of $0.88 rose 49%, exceeding the high end of our outlook by $0.05 per share. The upside reflects strong sales growth, margin expansion, disciplined operating performance and the net impact of IEEPA tariff refunds.
Turning to the segments, please refer to Slide 9. Growth remained wide-ranging, driven by both segments and all regions. Hydraulics sales in the second quarter were $146 million, up 14% year-over-year on a pro forma basis, normalizing for the impact of foreign exchange and the divestiture. We saw growth across the Americas and EMEA, with APAC up significant double digits on a pro forma basis. By end market, mobile saw the most strength, with the construction category continuing its growth. Agriculture also contributed to the year-over-year growth, while sales to the industrial end markets were relatively flat year-over-year.
Hydraulics' gross profit increased 9% year-over-year and gross margin expanded by 160 basis points to 34.6%, driven by higher volumes, mix and the benefit of the IEEPA tariff refund. Operating expenses were roughly flat year-over-year in absolute dollars and lower as a percent of sales, with segment operating income growing 16% to $29 million and operating margin up 200 basis points to 19.7%.
In Electronics, second quarter sales were $86 million, up 19% year-over-year, with growth in all regions and particularly robust performance in APAC. Enovation Controls delivered a record for a second quarter, with demand remaining healthy across recreational markets, including continued strength with a large OEM customer that has been a key contributor to recent volume outperformance. We are realizing growth in health and wellness, mobile and industrial, while core markets in marine remained soft. Electronics' gross profit in the quarter increased 41%, and gross margin expanded 530 basis points to 34.6%, reflecting fixed cost leverage on higher volume and direct labor cost efficiencies, as we optimize our footprint and processes, as well as the benefit of the IEEPA tariff refund.
Segment SEA expenses increased as we continued to invest in R&D, resulting in the segment operating margin expanding 490 basis points to 13.1% and operating income nearly doubling to $11 million. On Slide 10, we generated a second quarter record of $42 million of cash from operations and $31 million of free cash flow. CapEx in the quarter was $11 million, or 4.9% of sales, an increase from prior quarters and reflecting our increase in strategic organic investments. Our trailing 12 months adjusted free cash flow conversion remained healthy, and our cash conversion cycle improved by 11 days compared to the same period last year.
Flipping to Slide 11, we have updated our capital allocation priorities as our trailing 12 months net debt-to-adjusted EBITDA leverage ratio has improved to 1.4x, down from 2.6x in the prior year period and below our target operating range of 1.5x to 2.5x. In addition, our net debt declined to $264 million, the lowest since the third quarter of 2020. We have shifted our priority to investing in organic growth opportunities, maintaining our increased level of returning capital to shareholders and pursuing strategic acquisitions. We extended our history of paying cash dividends to 118 consecutive quarters, or over 29 years, with a quarterly dividend of $0.12 per share.
We also repurchased approximately 79,000 shares for a total of $6 million in the quarter, leaving $76 million remaining on our share repurchase authorization. Year-to-date, we have returned $18 million to shareholders through dividends and share repurchases, up 40% versus the first 6 months of 2025. We view this balanced approach of continued disciplined investments and capital returns while meeting our debt service obligations as a key element of our value creation framework.
Slide 12 reflects the 2026 financial priorities that we established at the start of the year. This quarter, we made progress against them all. We remain focused on operational execution and investing in high-return opportunities as we carry this momentum into the second half. Turning to Slides 13 and 14, with that strength behind us and improved visibility into the third quarter, we are raising the full-year outlook. We now expect sales to be in the range of $880 million to $900 million for the year, compared with $839 million as reported in 2025 and $792 million on a pro forma basis excluding CFP sales. This implies 12% growth over 2025 at the midpoint, driven primarily by volume growth in our core platforms and the ramping of recent commercial wins. At the midpoint of this range, we would achieve the highest annual sales in the company's history, topping our 2022 level, which is even more impressive when you consider the fact that we divested $60 million in run rate CFP sales last year.
At the segment level for the full year, we expect Hydraulics sales in the range of $555 million to $565 million, up approximately 13% at the midpoint on a pro forma basis. For Electronics, we expect sales in the range of $325 million to $335 million, up 11% at the midpoint. We expect 2026 adjusted EBITDA margin to be in the range of 20.2% to 21.0%, raising the bottom of the previous range, reflecting gross margin expansion, operating expense discipline and the full-year benefit of our portfolio and footprint actions. We expect adjusted diluted EPS in the range of $3.05 to $3.25, reflecting 23% growth at the midpoint. For the third quarter of 2026, we expect sales to be in the range of $215 million to $222 million, up 8% over last year's third quarter at the midpoint when taking the divestiture into consideration. At the segment level for the third quarter, we expect Hydraulics sales in the range of $133 million to $138 million, up approximately 9% at the midpoint on a pro forma basis. For Electronics, we expect sales in the range of $82 million to $84 million, up 5% at the midpoint.
We expect consolidated adjusted EBITDA margin for the third quarter to be in the range of 19.8% to 20.6%, down 30 basis points at the midpoint compared to the previous year and adjusted diluted EPS of $0.70 to $0.77 per share, up 2% at the midpoint compared to the previous year. As we constructed our raised outlook, we continue to remain cognizant of tougher comparisons in the second half, driven by the timing of end market recoveries and the ramp of certain commercial wins. We also are considering ongoing external factors, including rising energy and fuel prices, tariff dynamics, broader inflationary pressures and geopolitical tensions. Despite these factors, our raised full year outlook reflects the strength we see in our order trends, new business wins, and operational execution, balanced against these considerations.
With that, please turn to Slide 15 and I'll turn the call back to Sean for his closing remarks.
Thanks, Jeremy. As I conclude our prepared remarks, let me reflect on the course we charted 5 months ago and the progress we've made. At the halfway point of this fiscal year, we've' crossed an important inflection point. This is no longer a story of business stabilization -- it's a story of profitable, broad-based growth. The progress we have made isn't the result of 1 great quarter or 1 favorable market -- it's the outcome of thousands of people across Helios executing our strategic priorities every day and staying focused on serving our customers. I want to thank every Helios colleague for their commitment, collaboration and relentless focus on execution. The momentum we've built is a direct reflection of their efforts, and I'm proud of what we've accomplished together, and even more excited about what's ahead.
Heading into the second half, I'm encouraged by what I see across our businesses. What gives me the most confidence isn't just the favorable trends in our results or the financial performance we've delivered in the first half. It's the quality of that performance. We're growing through new business wins, bringing innovative products to market, improving our operations, and generating strong cash flow to keep investing in our future while returning capital to shareholders. We've moved from turnaround to takeoff, and we're entering the second half with increasing altitude, momentum and confidence while navigating through a turbulent macro environment. To our customers, distributors, suppliers, and shareholders, thank you for your continued trust and partnership. We remain focused on executing with discipline, creating long-term value and building an even stronger Helios for the years ahead.
With that, operator, let's open the lines for Q&A, please.
[Operator Instructions] Our first question, we'll hear from Mig Dobre with Baird.
2. Question Answer
So Sean, if I heard correctly in your prepared remarks, you talked a little bit about some footprint or restructuring action that you were taking at Faster. I'd like to hear more about that as to what's going on there? And maybe more broadly, how you're thinking about capacity and your footprint in Hydraulics business. Related to this, your CapEx guidance, 4.5% of sales, that's a pretty healthy number. So you guys are obviously continuing to invest. Maybe you can clarify as to what the areas of investment and what you see as the most compelling opportunities.
Mig, thanks for the insightful questions. So I'll start, and then I'll pass it to Jeremy to talk through some of the CapEx dynamics. But with respect to the Hydraulics footprint, specifically Faster, so what we're referencing there is, first, a consolidation of our American operations, which resulted in a facility in Toledo, Ohio. It is called Maumee, where we've established a presence. But now we're building that out. We've added a North American General Manager that we've hired from the outside and moving some of the operations from Mishawaka, Indiana, where we're continuing to see tremendous growth out of Daman and our manifold assemblies. We have worked through all of those operational challenges, so it creates more capacity there. In fact, they had their -- it's a data point. They had a record order week 2 weeks ago at Daman. So we continue to see a lot of growth there. And so that frees up availability to add some more automation and equipment in that Indiana facility.
And as such, then we also closed a Canadian facility for Faster as it related to a tiny acquisition and move that production effectively over to Italy. So just some moving pieces. And then as we're gearing up and ramping up for our entry into the thermal data center coupling market, having the capacity, distribution, inventory available here as the U.S. represents the largest market opportunity for that. And Jeremy, maybe you could speak to some of the CapEx dynamics and tightening of the range.
Sure. The updated guidance reflects a CapEx range of 4% to 4.5%. And part of that guidance change is due to increasing our sales expectations. So we've actually taken the top end of that range down a little bit. But it reflects a few things. First is the investment that we've been making in the thermal management just in creating capacity to make the data center couplings, establish a clean room for that. So that's a piece of it. Second, we continue to invest in our low-cost centers for engineering, specifically Tijuana, Mexico. We've got low-cost manufacturing as well in India, in China. And we had a plan to leverage those centers more. And when the tariff situation really began to flare up in early 2025, we put some of those efforts on hold.
And now that the tariff situation seems to have stabilized, we're putting some of those activities back in motion. And so it's just setting up those facilities to receive some incoming manufacturing activities. And those are the, I would say, 2 primary focus of the incremental spend, with a third component being continue to invest in our automation and productivity capabilities. We've had some aged machines throughout the facilities that we're starting to upgrade, as well as some targeted productivity enhancements as well.
I guess my follow-up on the Electronics business. You've had a lot of growth in the first half here organically. And when I'm looking at the full year guidance for revenue, that implies solid double-digit growth. It seems to me that the end markets that you're exposed to here are not growing anywhere near double digit organically. So maybe I'm misunderstanding something here, correct me if I'm wrong. But if what I'm saying is correct, how should we think about this outgrowth? What's driving the outgrowth? Is it specific customer wins? I think you hinted at that. Maybe give us more context there? And how sustainable do you think this could be as we think about 2027?
Yes, I'll take that one, Mig. So on the Electronics side, Billy Aldridge and his team have been very aggressive from a go-to-market perspective and had numerous wins. We talked a lot about those ones at Investor Day. We showed a chart and that trend has continued. When we get here to the back half and as we tried to telegraph as we set out our operating plan this year, the back half obviously gets much tougher. So very impressive growth in the first half, easier comps. Our challenge now is to continue to grow here in the back half.
You can see in the third quarter, we're still projecting mid-single-digit growth from the Electronics segment. But I think part of your question and your observation there in terms of the markets are more challenged certainly than on the Hydraulics side. And one of the big reasons there continues to be interest rates. A lot of the products that we supply into those OEMs are financed product. And so as the interest rates haven't come down, that hasn't stimulated growth. And you see that whether it's with the marine market that we see as the most challenged still or even just the recreational market.
What is encouraging is what Billy has done from an organizational perspective is really combining the businesses to drive synergy, drive 1 head of engineering that drives the same engineering processes, product plans and how we can leverage our manufacturing plants better. And so we're moving some production to a lower cost manufacturing facility in Tijuana that will help with our margin profile.
But we really are encouraged because that health and wellness market, which is a significant portion of our Electronics segment, has rebounded off of those COVID highs and post-COVID lows. It's now stabilized, and we get decent market data in terms of how that market is performing, and it's really shifted. There's quite a lot of growth coming out of Asia, and we have our footprint there with Joyonway. The North American market is more challenged, but we continue to see opportunities to go deeper there and diversify. Our WaterGuru relationship is providing some nice growth. As we've talked about our Purezone product that we have come to market with, and we're developing a whole range of new Balboa product that will be coming out here over the next 6 to 9 months that will help grow that as well.
So yes, the markets remain challenged. Part of that's macroeconomic, but we're also outpacing that with wins. And as we talk about internally all the time across all of our business, we operate in smaller niche markets, and we're not going to pay as much attention to what markets are doing. Our focus is on outgrowing the markets and continuing to expand our breadth of products and going deeper with those existing customers, and that's exactly what Billy and his sales team have done.
And next we'll move to Jeff Hammond with KeyBanc Capital Markets.
So Sean, I think the concern originally in your guide was, "Hey, we can only see so far out, and we've got some tough comps." Maybe you can remind us some of the moving pieces in the fourth quarter. But it does seem like the program wins that you got last year are ramping and it seems like you're stacking more wins. And it feels like on the margins, maybe the markets are getting better, at least in Hydraulics. So just maybe talk through the cadence and why we step down if we've got all this momentum, both from a market and win perspective.
Yes. So the way we constructed the plan is we've laid out heavier first half, lighter second half. I think we still see that playing out. If you look at 4 of the last 5 years, it's 52% to 54% of revenue in the first half and then back half, obviously, the remainder. And last year was the anomaly. I would point to what you mentioned in terms of the starting of the ramp of the wins because it took time to get our go-to-market engine going. And so generally, seasonality-wise, if you call it, that's just how it plays out. What our hesitation and why we didn't come out of the gate with more confidence in the back half is, obviously, there was a lot of uncertainty as we began the year. But our order visibility is really about a quarter out.
Anytime you look at our order backlog, it's just about -- just over 1 quarter's worth of sales for us, given that some of the shorter cycles in terms of order for distribution or orders for our Balboa business. Now the OEMs provide longer-term forecasts, but they don't lock them until it gets closer to the near quarter. So again, some of those data points that we're looking at, we wanted to be cautious going in.
Now that we've seen the momentum, we've seen the ramp of the wins, our pace of new wins this year has also continued to support the higher pace, that gave us the confidence to raise. And in fact, as we got to July, we had our best July ever from a revenue perspective and our best July order intake ever as a company. And that's something, too, because we're stripping out roughly $60 million of annualized revenue with our CFP business. So we believe we have the momentum, and it's going to continue to carry. And the other part there is that new product -- portfolio of products we launched last year that's continued this year, will continue to accelerate in the back half, gives us a lot of confidence.
And then 2 more. One, on data center, I think you said you're positioning some inventory. Just what's your line of sight on wins or customer announcement there? Obviously, you must have some visibility if you're starting to create space and starting to build inventory. And then separately, industrial end market, which maybe is a little bit of a catchall, but seemed flat in 2Q. But I think in the guide commentary, you moved it up. Maybe just talk about that end market and what you're seeing there.
Yes, sure. So from a data center perspective, obviously, we're trying to penetrate and enter a new large market. That's with a product we know very well out of Faster in our couplings. And before you obviously become a supplier, you need your product validated and the technical validation is more stringent certainly than we've experienced from an ag or construction perspective. Certainly, product quality, reliability are paramount. You can't be leaking fluid in a data center. But then obviously, ramping up our own manufacturing capabilities, demonstrating that we can deliver timely product and have availability within all the regions, it's a big undertaking.
Now we have started to build some inventory. We have not built in any revenue into our back half guidance, and that's just being cautious. But again, I think we said that last quarter, we'd be disappointed if we didn't generate some revenue, but we now have samples out with about a dozen prospective customers that are sampling our products. So we believe an order would be imminent here in the back half. But it's taken some investment and upfront realignment back to Mig's question on some of the changes we've been making from a plant perspective to get ready for this. This represents our single largest opportunity across Helios today. And so we're treating it that way and are very excited about the opportunity it presents to help support our CORE Strategy growth. Jeremy, maybe you can take the second part.
Yes. I'll touch a little bit on the end markets and comment about industrial. First, we track the orders and the sales down to our end market level. And if you look at industrial on an as-reported basis, for us, it's down, but that includes the sales that were through our CFP entity that were divested. But when we take that out, we see that in the first half, industrial is fairly stable, just up a little bit. We've got it characterized as stable in our presentation that we put out yesterday.
I think where we're seeing the strength from an end market perspective continues to be mobile, and that is where we roll up construction and construction for us has been up, as well as the health and wellness. That market, as Sean described, has recovered and we're seeing some decent growth there year-over-year.
The other area that's up is aerospace, and we have that within our Hydraulics segment. It's on a smaller base, but we're seeing nice growth there as well. So it's really the mobile, aerospace and health and wellness that we see as the positive catalyst for the growth in our outlook. Industrial for us is more stable. And then the one market that is fairly large for us in Electronics is that recreation marine. We still haven't seen that turn. That market is still depressed when we track what we see coming in from an order perspective.
And next, we'll hear from Tomo Sano with J.P. Morgan.
I would like to ask about the gross margin has expanded for 4 consecutive quarters. How should we think about sustainability? And if you decompose mix, productivity and footprint actions in back half and then some color for the components into 2027, please?
Tomo, this is Jeremy. Specific to the gross margin expansion, as we've been communicating, the biggest lever that we have when it comes to gross margin is our volume and just filling up the capacity that we have. And as we've returned to growth, we're seeing that come through. Our incremental margins in Q2 were a little higher, but they are being impacted by the IEEPA tariff refund. So there's roughly a $1 million benefit flowing through our gross profit. If you strip out the IEEPA tariff refund impact, it was still good flow-through, more consistent with what we would expect as our volume ramps.
We continue to drive the productivity and leveraging the low-cost centers of manufacturing. The more recent activities, the Faster consolidation, the closing of the Faster Canada office and some of the things we have in motion are going to play out more in the second half of the year and when we get into 2027. For the quarter and the first half, I would say that was minimal compared to how we exited 2025. But what we're really seeing is the volume ramp. There are some cost pressures that we see there as well, specifically on the product components that we have to mitigate, specifically around printed circuit boards and memory chips and some of the aluminum that we're managing through. But definitely pleased with how we've been able to expand the gross margins, and it's a clear focus, one of the priorities that we set out as we entered the year.
And follow- up on The CORE Strategy versus the measurable objectives under The CORE Strategy, after 2 quarters, what's tracking best? And what's proving more challenging than expected?
I would say, Tomo, the best certainly is our organic growth. We're committing to a 5% organic outgrowth of the market GDP, if you will, model, and we're pacing well ahead of that. And I think implied with our full year guidance, that holds. And certainly, as Jeremy just highlighted, that's the number one lever for us in terms of driving profitability and return metrics. So I think when you look at roughly just over 100 basis points of expansion from operating income and EBITDA on an adjusted basis, we're pacing ahead of that as well, implied with our midpoints of our full year guidance. So we feel great about our progress out of the gate. And now the challenge will be the sustainment of it. We really characterized this past second quarter as us completing that stabilization phase and now it's growing on tougher comps.
That said, when we look at the second half, whether you measure it on a 2-year or a 3-year basis, we are actually accelerating our growth. And so we think the trajectory is there. Certainly, from an M&A perspective, that's a core part of our growth plan, and that's really going to be driven by our ability to delever and have our balance sheet in much better shape. And certainly, that also was a turning point in the second quarter with our adjusted net leverage getting down below 1.5x, which we said we want to operate in that 1.5x to 2.5x. So that gives us more optionality in our capital allocation moving forward, and we've highlighted that on that prepared slide in our earnings material. That debt paydown is now going to be deprioritized as we continue to look for opportunities to invest, whether it's with our share repurchase program in ourselves or outside M&A opportunities as well. But generally feeling really good about our early innings, 2 quarters out of 20 of our 2030 plan, ahead of plan.
And our next question, we'll hear from Chris Moore with CJS Securities.
A couple. So China was one of the hardest hit geographies during COVID. It looks like currently seeing strength there, both in Electronics and Hydraulics, finally getting back to where you were. The question really is, do you see China potentially as a nice growth driver from here?
Chris, this is Jeremy. Yes, China as well as the APAC market, but really driven by China, has been a bright spot for us, both in Hydraulics and Electronics. In Electronics, we have the Joyonway business down there. That came through an acquisition, and we've really seen it over the last several quarters, increase -- the business increase the capabilities that we have. We have a great team down there and the Electronics management team is really executing well.
And then when we look at Hydraulics, there was some business shift middle of last year, driven by the tariff escalation. But even beyond that, we've seen the business there grow. And the business that we exited with CFP was primarily in APAC. When you strip that out, we're seeing a really, really strong growth within Hydraulics as well. One of the dynamics that we see is that a lot of manufacturers and OEMs are moving manufacturing into China and exporting out of China into Europe. So we're seeing a little bit of that dynamic. We think that's driving it, but also just having a strong presence there, a strong management team with solid execution, we think we're growing with our customers there as well. So it's definitely a good market.
Got it. Very helpful. And maybe just a couple more on data center. So as Sean said, it might be the biggest opportunity that sits in front of you right now. Hopeful for perhaps some orders in Q4. Just from a cadence perspective, when you look at it, would be '27 start to ramp revenue a little bit, '28 is probably where it gets more meaningful. Is that a fair way to look at it? Or could there be big orders at some point in '27? I'm just trying to understand how you're thinking about it at this stage.
Yes. That's how we're looking at it internally. As we said, we don't have anything in the '26 outlook, but we would, again, be disappointed if we didn't see orders come through. We've got a little bit of sales in our '27 expectation with a gradual ramp from there. Obviously, one of the criteria is just getting qualified, if you will, by the large hyperscalers and some of the other customers in the market. We have been building prototypes and building some inventory. We've got product samples out with various customers now that are evaluating the products. And so it's just the process that you have to go through, it's very lengthy. But we would expect some sales in '27 and then a gradual ramp outward.
The other piece I'd add to that, Chris, is later this month, we've got some key internal meetings that will help us chart that plan out even further. And then in September, we're going to have our grand opening of the aforementioned Toledo Faster facility. We've got some key customers coming and some key prospective customers upcoming meetings that we'll be able to put some good color around that later this year and obviously as we guide into next year. But again, I'll reiterate, it's by far our largest opportunity in front of us and it's a little bit of our ability to scale with it because there's such a shortage of couplings and quick disconnects within that market space. So we're pretty excited, obviously.
And just a final one there. I know you have some out to hyperscalers. Ultimately, who are you selling to? Are you selling directly to hyperscalers? Are you selling through distributors? Or are you selling through both channels?
Mainly to integrators that are building the equipment, building the cooling racks. But to Jeremy's point, the product needs to get validated by the hyperscaler. So we've got NDAs with multiple hyperscalers and going through all of that process. But our sale will be to an integrator, typically.
Just to clarify, the comment about having product samples out, that's not primarily focused on the hyperscalers. It's other potential customers that we're talking to.
[Operator Instructions] Next, we'll hear from Nathan Jones with Stifel.
I'll do one on data centers as well. Sean, you've been talking about this being the largest growth opportunity in front of Helios. Can you talk about what you think the addressable market is? And you also mentioned that there's a shortage of supply in here. Is there product differentiation where you think your product performs better than other products? Or is that not necessary, It's just you have to be qualified, you have to show you have a product that does the job here and there's so much demand that you'll be able to gain share, I guess, that way?
Yes. So we had -- in terms of addressable market to start with, we did have a little bit in our Investor Day materials. But effectively, we see that opportunity for that data center space almost -- larger than our existing addressable markets when you look at ag and construction. And so massive opportunity for us. But again, we're entering later and having to displace either existing strong competitors, albeit competitors that we run up against and compete with and win against in other markets, or as I mentioned, just the shortage in the market of having a quality product.
Now, the differentiated product, what we're best at, and we feel really great about is our leakage rates, right? And that's super important in the data center application. And so we've tested competitive product and feel very good about where ours stack up from a performance perspective, but also bringing some of the MultiFaster-type technology to the market as well. So we're going to continue to launch a series of products. We've announced some, but we will continue to do that and believe we are positioned very well to capitalize on that. Otherwise, we wouldn't be making the amount of investments we've made as well on that.
I guess my follow-up question is going to be around capital allocation. Obviously, the balance sheet's in really good shape now. So I guess one following up to Mig's question on CapEx, 4% to 4.5% this year. What do you think the sustainable rate of CapEx is? And then I assume given some of the Investor Day targets, that we're moving into a period where we're going to see more M&A. Can you talk about what the strategic priorities for M&A are? What kind of size of deals you're looking at? Any help you can give us there.
Sure. So I'm going to just take the first part on the CapEx and Jeremy will talk M&A as well. But first, yes, this year is a little bit higher from a percentage of sales or dollar perspective. We're typically running anywhere from 3% to 4%. The last couple of years since I joined the company, there was no need to add capacity and the opportunities for the growth at that point wasn't about that.
Now it's a bit of, we've spent some capital on optimization, we've spent some capital on equipment and we're going to continue to do that to become more efficient in our plants that have the paybacks. But as we now see the growth returning, we'll continue to optimize that footprint. But we're nowhere near needing significant capacity expansion as we can continue to grow likely about 50% of what our current sales are with our existing footprint.
The other piece, though, that just from a capital allocation and a CapEx perspective of how we are prioritizing and evaluating capital with the highest returns, you look at our Hydraulics business and the significant uptick we've started to see and why we've raised our guidance, gives us a lot of confidence to continue to invest. We look at between Rick Martich's MCT business, the legacy Sun Hydraulics business and Matteo Arduini's Faster business over in Italy. We really look at that NFPA data. We parse that with PMI, industrial production, all increasing, and so we need to be ready.
We can't get back to the point where we've been in the past where we get behind on delivery dates, and we're not hitting commitments and deadlines. And so we look at inventory levels, for instance, with the Sun distributors. We've seen that come down for 4 quarters in a row in a period when the market is increasing. So we know they're at restocking levels. So that's a really good sign, and that's coming through in the orders. And so while I'm weaving this back to, as we think about capital allocation priority, we're going to invest in ourselves first here in the near term because we're getting that growth. Back to Tomo's question, we're double the pace of what we committed to in our CORE Strategy and if we can continue to do that, we see that as lower risk, higher probability of success than M&A.
That said, M&A is going to play a key part of our future growth because our strong cash flow generation continues to push our debt down and push our leverage ratio down, and we're going to allocate capital adequately to drive shareholder returns. And so as we think about M&A and we gear up for more of it, Jeremy and I have not done one of those since we've been at Helios and we're thinking about it a lot different than it was done in the past, and we've had the opportunity to really assess. What we look at, though, is we really like the portfolio of what we have. Particularly the large companies that we bought are starting to really generate nice returns. And as we go forward, I'll pass it to Jeremy to talk more about our philosophy.
Yes. It's really important is that we identify acquisition opportunities that really complement our existing portfolio. As Sean said, we're really excited about what we have. The teams have been executing really well. And you've heard us talk about our long-range planning process that we kicked off for the first time in 2024. In 2025, we used that time to really develop the CORE Strategy and come up with those financial targets that we set out for 2030. And we're heading into that same planning process this year and M&A is going to be a big piece of that, talking through what are those white spaces that we want to address, what are those strategic areas that we believe we need to get into and accelerate growth. Some of it comes down to a build versus buy. What can we do internally? What can we accelerate if we go inorganically? But also, what are some of those emerging trends that we're seeing and who are the companies and capabilities that can help us get there faster, but also in an accretive way? So we're going to take a very disciplined approach. It starts as we have done for the last 2 years, getting the management team together, really working through and aligning on the focus areas. And from that will be a springboard into an execution.
And there are no further questions at this time. I would like to turn the floor back to Tania Almond for closing remarks.
Great. Thank you, operator, and thanks, everyone, for joining us today. We hope you can enjoy the last few weeks of summer. We'll be on the road and look forward to seeing many of you at the fall conference circuit. Please reach out to me if you have any follow-up questions, and have a great day.
Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Helios Technologies Inc — Q2 2026 Earnings Call
Helios Technologies Inc — Q1 2026 Earnings Call
1. Management Discussion
Greetings, and welcome to the Helios Technologies First Quarter Fiscal Year 2026 Financial Results Conference Call.
[Operator Instructions]
It is now my pleasure to introduce your host, Tania Almond, Vice President of Investor Relations and Corporate Communications. Thank you. You may begin.
Thank you, operator, and good day, everyone. Welcome to the Helios Technologies first quarter 2026 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 slides there that accompany today's discussion as well as our prepared remarks.
Joining me today are Sean Bagan, President and Chief Executive Officer; and Jeremy Evans, Executive Vice President, Chief Financial Officer. Sean will begin with highlights from the first quarter. Jeremy will then review our financial results in more detail and provide our outlook. Sean will return with some closing remarks, and then we will open the call for questions.
Before we get started, please turn to Slide 2, where 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 2025, along with 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.
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. Please reference Slides 3 through 5, as I now turn the call over to Sean.
Thanks, Tania, and welcome, everyone. We appreciate you joining us today. Anyone who watched this year's Kentucky Derby saw more than just a winner. They saw focused execution under pressure at exactly the right moment. Golden Tempo stayed focused, found his stride and delivered when it mattered most. We believe our first quarter performance tells a similar story.
Helios entered 2026, having done the hard work, sharpening our go-to-market model, strengthening our balance sheet and building a team and culture aligned around the CORE 2030 strategy we introduced at our Investor Day. And like that Saturday race, the results for Helios this quarter weren't just a one headline moment. They were a collection of firsts and records, the highest quarterly sales ever for Enovation Controls, our largest Electronics segment business, a record first quarter of cash generation for the company and our first ever regular dividend increase of 33%. And perhaps one of the most telling measures of how far we've come, we reduced our net leverage by more than a full turn in just 1 year, bringing us to 1.6x net debt to adjusted EBITDA, the lowest level since the first quarter of 2018.
The balance sheet position isn't just a financial milestone. It's a strategic one, opening a meaningful level of optionality in how we deploy capital as we pursue the next leg of our growth. 2025 was our year of repositioning. 2026 is where that work finds its stride. As we came out of the starting gates on the 2030 financial targets, a plan built on 5% plus organic sales growth annually, our first quarter performance didn't just meet that bar. It cleared it decisively, giving us early momentum against a 5-year road map that we intend to run all the way through.
The CORE Strategy laid out a clear set of performance priorities to double our sales by 2030 and expand adjusted operating and EBITDA margins to 20% plus and 25% plus, respectively. The work we have done over the last 18 months to sharpen our go-to-market model, invest in innovation and enhance operational excellence across our global footprint is an outcome of our momentum model, the engine behind this performance. Our first quarter results reflect the effectiveness of the Helios business system as we are executing on our organic sales growth plans and improving our margins year-over-year while we manage through a choppy geopolitical environment and invest for future growth.
Let me summarize the first quarter. With a more robust demand environment than expected, total sales exceeded the high end of our outlook range, up 17% year-over-year to $228 million. On a pro forma basis, excluding the Custom Fluidpower or CFP divestiture and the impact of foreign exchange, sales grew 23% with both segments and all regions contributing to the increase. Our profitability measures kept improving as higher sales volume drove significant year-over-year expansion in our margins. We continue to deeply engage with our existing and prospective customers seeking out opportunities leveraging our enhanced go-to-market model. Our teams from both hydraulics and electronics across our relevant major brands attended the CONEXPO trade show in the first quarter and showcased our latest products with a record level of show attendees present. Based on the level of booth activity and leads we extracted, we are seeing healthy activity across most of the markets we address. On a consolidated pro forma basis, we saw year-over-year growth across all the major end markets that we serve.
With our balance sheet in excellent shape, our Board of Directors approved the aforementioned increase to the quarterly dividend in March, and we continue to return capital to shareholders under our existing $100 million share repurchase authorization. These actions reflect our confidence in the long-term outlook and alignment with the value creation framework we shared as part of the CORE Strategy.
With that, I'll turn the call over to Jeremy to review the financial results in more detail. Jeremy?
Thank you, Sean, and good day, everyone. As I review our first quarter results, please refer to Slides 6 through 8.
First quarter sales were $228 million, up 17% compared with $195 million in the prior year period and above the expectations we laid out on our fourth quarter call. Changes in foreign exchange had nearly a $6 million favorable impact on a year-over-year basis and contributed approximately $2 million to the overachievement of our Q1 outlook. As a reminder, we divested CFP at the end of September, so the first quarter comparison is more meaningful on a pro forma basis. Excluding the CFP sales in last year's first quarter and the foreign exchange impact, sales for the quarter were up 23% year-over-year.
Higher sales and improved absorption drove gross profit up 25% in the quarter to $75 million and gross margin expanded 220 basis points year-over-year to 32.8%. In addition to higher volumes, margin expansion was driven by favorable segment mix, operational initiatives and benefits from the CFP divestiture, partially offset by net tariff impacts and higher overhead expenses driven by equipment maintenance and energy costs.
First quarter operating income rose 76% year-over-year to $30 million and operating margin expanded 440 basis points to 13.1%, demonstrating the operating leverage inherent in the business. On a non-GAAP basis, adjusted operating margin in the quarter was 16.7%, up 330 basis points year-over-year. Adjusted EBITDA margin was 20.4% in the first quarter, up 310 basis points over the prior year and the third consecutive quarter above 20%. Diluted EPS in the quarter was $0.59, up 168% compared with the prior year period and diluted non-GAAP EPS of $0.80 rose 82%, exceeding the high end of our guidance range and a great start toward our expectation to deliver double-digit EPS growth for the second consecutive year. The upside reflects the realized sales growth, margin expansion and solid operating performance.
Turning to the segments. Please refer to Slide 9. Growth remained broad-based, driven by both segments in all regions. Hydraulics sales were up 10% and Electronics up 29%. On a pro forma basis and normalizing for the impact of foreign exchange, Hydraulics grew 19%. Regionally, we saw growth across the Americas and EMEA, while APAC declined year-over-year as a result of the divestiture. On a pro forma basis, APAC grew over last year as well. Our business mix has shifted year-over-year to a greater weighting of electronics from not only the CFP divestiture, but also because our Electronics segment has been growing faster on a relative basis. By end market, Hydraulics saw strength in mobile, especially in the construction category, along with continued signs of recovery in agriculture, while we've seen channel inventories normalize.
Our lead times have improved with operational challenges behind us, and we are capitalizing on this to win more business. We have a clear path identified to drive incremental sales across a number of adjacent markets we've not historically participated in. All of this gives us confidence in driving sustainable growth across our Hydraulics segment. Hydraulics gross profit in the quarter grew 18% year-over-year, and gross margin expanded 220 basis points to 31.8%, driven by better fixed cost leverage on higher volume, lower material costs and the impact of the CFP divestiture. Segment SEA expenses in the quarter increased approximately $1 million or 4%, primarily reflecting investments in wages and benefits as well as research and development, but improved as a percentage of sales. Segment operating income increased 34% to $23.4 million and operating margin expanded by 300 basis points.
In Electronics, demand remained robust across recreational markets, including persistent strength with a large OEM customer that has been a key contributor to recent volume outperformance. While there are still pockets of softness in certain consumer-exposed end markets, most notably marine, we are realizing growth with health and wellness, mobile and industrial. Overall, the Electronics segment is performing extremely well on driving profitable sales growth. Electronics gross profit in the quarter was up 36% and gross margin expanded 170 basis points, primarily driven by higher volumes and lower direct labor costs as a percentage of sales. SEA expenses increased $2 million, reflecting ongoing investment in engineering and research and development, but improved as a percentage of sales. Segment operating income increased 78% to $14.2 million and operating margin expanded by 430 basis points.
On Slide 10, we generated $24 million of cash from operations and $17 million of free cash flow, both records for our first quarter. It's well worth noting that we've been able to effectively manage our working capital as we return to growth, achieving a 25-day year-over-year improvement in our cash conversion cycle.
Flipping to Slide 11, you'll see we use this cash to further strengthen the balance sheet as we continue to pay down debt, bringing our net debt to adjusted EBITDA leverage ratio down to 1.6x at quarter end compared with 2.7x in the prior year period. The lower debt level, along with a lower spread on our credit facility borrowings due to reduced leverage, resulted in $2 million interest expense savings in the first quarter compared to the prior year. Total liquidity continues to exceed total debt, giving us ample flexibility to fund organic growth investments and return capital to shareholders while preserving dry powder for strategic M&A consistent with the CORE Strategy we shared during our Investor Day.
As mentioned, we extended our history of paying cash dividends to 117 consecutive quarters, highlighted by a 33% increase to $0.12 per share. We also deployed nearly $5 million on share repurchases during the quarter, leaving approximately $82 million remaining on our share repurchase authorization.
Slide 12 reflects the 2026 financial priorities that we established. We started the year with solid execution against each priority as confirmed by our first quarter results. We remain focused on disciplined operational execution and investing in high-return opportunities, positioning Helios for earnings growth and long-term value creation.
Turning to Slides 13 and 14. Based on our strong first quarter performance and improved visibility into the second quarter, we are raising the full year sales and earnings per share outlook. We now expect sales to be in the range of $840 million to $870 million for the year compared with $839 million as reported in 2025 and $792 million on a pro forma basis. This implies 8% growth over 2025 on a pro forma basis at the midpoint, driven primarily by volume growth in our core platforms and the ramping of recent commercial wins.
At the segment level for the full year, we expect Hydraulics sales in the range of $520 million to $535 million, up approximately 7% at the midpoint on a pro forma basis. For Electronics, we expect sales in the range of $320 million to $335 million, up 10% at the midpoint. We continue to expect 2026 adjusted EBITDA margin to be in the range of 19.5% to 21%, reflecting gross margin expansion, operating expense discipline and the full year benefit of our portfolio and footprint actions. We now expect diluted non-GAAP EPS in the range of $2.70 to $2.95 or 11% growth at the midpoint.
For the second quarter of 2026, we expect sales to be in the range of $227 million to $232 million, up 16% over last year's second quarter at the midpoint when taking the divestiture of CFP into consideration. At the segment level for the second quarter, we expect Hydraulics sales in the range of $141 million to $144 million, up approximately 13% at the midpoint on a pro forma basis. For Electronics, we expect sales in the range of $86 million to $88 million, up 21% at the midpoint. We expect consolidated adjusted EBITDA margin to be in the range of 20% to 21%, up 190 basis points at the midpoint and diluted non-GAAP EPS of $0.78 to $0.83 per share, up 36% at the midpoint.
As we originally guided 2026, we expect first half growth rates to be stronger year-over-year compared to the second half, driven by the timing of end market recoveries and the ramp of certain commercial wins in the second half of 2025. We are also mindful of several second half considerations to our full year outlook, including the uncertain tariff landscape, the inflationary pressures on fuel costs, the impact of rising energy prices, chip cost dynamics, ongoing geopolitical tensions and broader recovery of cyclical markets. We remain focused on executing the core strategy, positioning Helios for earnings growth and long-term value creation.
With that, please turn to Slide 15, and I'll turn the call back to Sean for his closing remarks.
Thanks, Jeremy. As you've heard today, Helios is off to a strong start in 2026. We are delivering double-digit sales growth, expanding margins and realizing strong cash generation. We are making progress on the initiatives that underpin the core strategy and have a balance sheet that enables us to make strategic organic investments and explore incremental acquisition opportunities. Thank you to the global Helios team for such a strong start out of the gate for the year. Our go-to-market engine is performing. We're converting a healthy funnel of opportunities into wins across both segments and across the regions where we compete.
Our Enovation road map is on track with a robust pipeline of new products, including the all-new state-of-the-art QMEH cartridge valve with proprietary position sensor technology launched by Sun Hydraulics at CONEXPO, Faster's launch of a collection of new products designed to support thermal management systems within data centers and our next generation of electronics platforms like the OpenView S70 display to provide advanced control and monitoring systems within data centers and other end markets.
Our operational excellence efforts from footprint optimization in North America and Europe to productivity improvements across our facilities are all designed to support margin expansion toward the long-term targets we laid out at Investor Day. Most importantly, we have a high-performing global team that is executing with discipline and a customer-centric culture that believes in the path we've laid out. The combination of a clear strategy, a stronger operating model and a solid financial foundation has Helios positioned well to navigate a dynamic environment and to deliver sustainable growth, enhanced profitability and compelling long-term value for our shareholders. We will stay focused on running our own race, settling into our accelerated pace and keeping our sights set on the long-term targets we have established for ourselves.
Thank you for your engagement and support. With that, operator, let's open the lines for Q&A, please.
Our first question comes from the line of Chris Moore with CJS Securities.
2. Question Answer
Despite continued success, it still doesn't look like you're necessarily operating in an environment where you're seeing exceptional broad strength across a lot of your markets. Maybe can you drill down a little further on how you would characterize demand kind of overall at this point?
Chris, thanks for the good question. In terms of the demand environment and the market environment, certainly, we've continued to see our order trends pace favorably. A couple of just talking points there in terms of year-over-year order demand, we've seen 12 consecutive months, including April, of double-digit order intake over the prior year. And secondly, when you look at our order backlog, that obviously continues to grow and continues to be up about double digits year-over-year as well. So our order trends are strong. When we look at the market performance, though, we'd characterize it as choppy. We've got our 4 big large businesses. And if you go around the horn on those with Sun Hydraulics, really benefiting from the construction and infrastructure investments that are being made and a lot of the OEM equipment that our products goes into through our distribution channels. We're seeing that very strong.
And in addition, we really look at the channel inventory levels of our distribution partners, and they're at very healthy levels, down again in levels where we would envision more reordering patterns. On the ag side at Faster, where they're predominantly indexed to, it's really a story of geographic impacts where Europe and Asia are stronger and the U.S. continues to be a challenged market here in the Americas. And so we've done a nice job to diversify that business into more construction and also recently announced our entry into the thermal management for data centers. So we see some nice green shoot opportunities there as well.
On the electronics side, the Balboa business for health and wellness market continues to be a low single-digit growth market that has effectively recovered from the gyrations from what COVID happened with the uptick during COVID and then the downturn. We're back consistently growing that business. And we've seen a shift there as well where Asia particularly is growing faster than a little bit lighter here in the Americas, and that's just due to where the OEMs are choosing to make the end equipment. And as us as the lead supplier, we're a bit agnostic to where the spas get built because we're going to fulfill that demand and chase that in whichever geography it is.
And then finally, with Enovation Controls, very diversified. But as we highlighted in our prepared remarks, it was a record quarter for Enovation. So we're really thrilled about the trajectory there. And the marketplace is mixed. So the biggest part of the Enovation business has historically been the recreational, which is also off-road products and marine. Marine still remains very challenged. Recreational has stabilized as the dealer channel inventories have been stable as well there for a period of time and starting to see some growth. And then the off-highway continues to be an increase there. But our business is really indexed to the U.S. there and generally feeling really good about the large growth we're getting out of that business.
That is really helpful. I appreciate that. And maybe just a follow-up. So coming into the quarter, consensus adjusted EPS roughly was really the same level for Q3 and Q4. Based on the strong Q1 and the Q2 guide and overall '26 guide, obviously, 2H is going to have to come down some. I just -- how are you thinking about kind of Q3 versus Q4 at this point in time?
Yes, Chris, this is Jeremy. As you noted, and we said when we did the initial guide for the year that we expect the second half growth to be a little bit less than what we see in the first half. And part of that is due to the timing of some of those customer wins that we had last year as well as some of the markets that we saw starting to return. And we've got really good visibility into the next 12 weeks or so on the order book, especially on the distribution side as you start getting out further than that, right, it's a little bit less clear. But definitely based on the good Q1, how we're guiding Q2, which we'd expect to be similar to Q1, we did raise the outlook. We're expecting to have a little bit stronger year than we did originally.
And when we look at the EPS specifically in the second half, yes, we have it coming down as well, obviously, if we look at the midpoint of our guide at the $2.88. And we would see it a little bit, I think, higher in the third quarter and relatively similar in the fourth quarter as well.
And then, Chris, can I just add on to that a little bit as well because I think it's important to point out from just not necessarily seasonality perspective, but the pace of our business. And Jeremy has made this point on prior calls that if you consider this year and then you go and you do a 5-year period, for those 5 years, our first half has been bigger than the back half, kind of either 53% to 54% in the first half to 46% to 47% in the back half. And last year in '25, Jeremy's point being the back half was really strong. And so that's the only year out of those 5 where the back half was larger. And so we're really looking at this on a 2-year growth basis. And if you do the math on our implied guidance, we actually, particularly at the high end of our guide, see the back half accelerating on a 2-year basis from a growth rate perspective. And so I just want to highlight that, particularly because we have 1/4 of our business that's in the EMEA region roughly. And that July, August time period is generally seasonality just a little bit lower. And so that's one of the things at play.
So we've been mindful. I would say we want to be cautious to see further growth develop in the back half, but we couldn't be more thrilled out of the gate here, getting ahead of our plan and the ability to raise our Q2 expectation. And then Q2 will be -- it's typically a large quarter for orders. So as we pace throughout the quarter, we'll get better visibility into that back half because we are fairly short cycle in terms of our order trends, but we feel really good about the momentum. And as I highlighted, 12 consecutive quarters of double-digit order intake, including the month of April. If that continues, we will continue to chase our numbers up.
Our next question comes from the line of Jeff Hammond with KeyBanc.
This is David Tarantino on for Jeff. I just want to follow up on that last point, Sean, acknowledging the choppy backdrop you were describing and the back half comps are tougher. But could you give us some perspective on what the implied second half outlook embeds relative to the underlying demand trends you're seeing today and what the customers are telling you? Is the second half moderation more around being conservative given it's still relatively limited visibility? Or should we be thinking about something from an end market perspective?
So I would say, first, again, I just want to anchor back to the prior year. When we look at the prior year, and I'm going to take CFP out of those numbers because I think it's important to strip that out, knowing that was roughly a $60 million run rate business, had about $45 million of revenue in the 2025 period. But when you look at that last year in the back half, excluding that, we reported a plus 21% in the back half. And so as we carry that forward into this year, we think at the low end, there could be some contraction over that. However, at the high end, for sure, we could see growth as well. And again, that's just taking the Q1 actuals with our Q2 implied guide in the back half.
But then when you look at it on the 2-year trend, again, it actually would accelerate on the back half. It would be a plus 15% in the first half, plus 20% on the back half at the high end of the $870 million full year guide. I think some of the variability and the factors we're looking at is ag is a big part of that. And what does that recovery look like? We are encouraged by the most recent releases from some of the ag OEMs, the large 3, AGCO, CNH, Deere. Obviously, Deere is not reporting for another 9 days. But given what's expected of their sales, the AGCO growth was nice to see in the quarter, knowing that we're a supplier, and we're going to feel that a little bit earlier, and that's what we've seen in our order book.
When we look at our faster order trends, and our orders are consistently outpacing our sales. And so that could be a mover. The other one is our announced entry into this thermal management business with Faster. We're pretty confident that, that will start ramping in the back half of the year. We have not had any revenue yet. And so when we look at -- whether it's Faster or the rest of our products that have been launched like the QMEH, like some of the displays that we talked about for innovation. These are incremental. These aren't cannibalizing existing sales. And so it really starts with that closeness to the customer, understanding their needs and building our product pipeline around that. So those are some of the things that we see, but our own execution internally is at a high level right now, and we need to continue that with our product launches, which will be robust here in the back half of the year, and we expect to have some successful launches.
Yes. I would just add to the new product piece. We did talk about the new wins that we had in 2025. And some of those started in 2025. We projected that around $60 million in new business win to be phased in over time. And a lot of maybe second half potential is in some of those new products and timing of getting orders for those, some of those Sean mentioned. And we continue to put out press releases on new products. and we're pretty excited about the product road map that we have.
Okay. Great. That's helpful. And maybe turning to margins. You highlighted a number of cost headwinds in the prepared remarks, which don't seem apparent in the margins yet. I guess, can you walk us through the puts and takes on the margin guide, particularly around price cost and if there's any incremental tariff impacts and what you're doing to offset these headwinds you laid out?
Yes, absolutely. This is Jeremy. As we said at our Investor Day, and as you can see in our results, one of the biggest movers on our margin is just the volumes. And as we get the leverage going through our footprint, you can see that ramp as we saw here in Q1 with the year-over-year improvement. In the guide at the midpoint for the second half, right, sales would be a bit lower. However, we're still committed to improving our margins. Our intent is to improve margins roughly 100 basis points per year as we go forward towards our long-term 2030 targets that we communicated.
When we look at some of the inflationary pressures, you mentioned tariffs, we've done a fairly good job of mitigating those tariffs. We talked about moving some of the production into -- following our in the region, for the region strategy. We've looked at sourcing products from alternate suppliers, been fairly successful with that. We've also had some pricing actions in place, too. So from a, I'd say, a dollar perspective, we're recovering really well. It does have an impact on the margin percentage because we're essentially passing through tariff costs, not trying to make incremental profit on those. And I think we've navigated that fairly well.
We communicated last year, tariff impacts in the second half were roughly $8 million. So on a full run rate basis, it'd be a little higher. But in the current tariff situation, it definitely is still fluid, subject to change, right, with the ruling on the IEEPA tariffs, it actually would be less than that if things maintained as they are now. But again, who knows with that situation. Outside of tariffs, the 2 costs that we do see inflationary pressure on, one is just freight cost with fuel. The fuel surcharges with the freight carriers continue to go up. We're starting to see surcharges back to 2022 levels as well as some of the rising energy costs, more specifically there in Europe. And so we look to offset those.
Obviously, pricing is a component. Our pricing strategy over the last 12 months or so has been to recover our cost. And so that is absolutely a lever and things that we're looking at. So definitely some marginal pressure, but believe we're managing that really well, and we're still looking to expand our margins as we grow and as we get the top line growth, targeting that 100 basis points roughly expansion per year.
And I think 2025 demonstrated that we can contend with a very volatile situation and still control our margins. And as is implied in our guidance, we've held our full year adjusted EBITDA range from 19.5% to 21%. Yes, we've taken up our top line by $10 million on the high end. So effectively saying our margin profile is intact and anchoring back to our commitments to drive over 100 basis points of improvement year on and year out over through cycle to 2030, we feel really good about that. Obviously, we've got way ahead here in the first quarter from a year-over-year perspective. And again, from a -- as a guidance setting perspective since Jeremy and I have been partnering on this, we try and protect on the bottom end for some unforeseen things, but we're obviously striving to hit the top end of our guidance. And if we can do that, year-over-year, we're going to drive 180 basis points of adjusted EBITDA margin expansion, which would be a great result.
And so really, the takeaway here is, not a lot has changed since we entered the year where we just had a strong start to the year. And I think a little bit of the second quarter is fairly well in line with what we saw coming into the year. We think the second quarter is going to look a lot like the first quarter. And I think from a Street perspective and consensus, the construct of the year looked a little bit different. But for us, it's progressing slightly better than what we thought. And if this pace continues, we'll feel really good going into the back half of the year.
Our next question comes from the line of Mir Dobre with Baird.
This is Joe Grabowski on for Mir this morning. So just kind of building on the last 2 sets of questions. Your sales in the first quarter, $228 million, expected to be up a little bit sequentially. Those would be the 2 strongest quarters in several years. And that's even taking into account the divestiture, which reduced sales by about $15 or so million a quarter. So when you think about this kind of current level of sales, how do you kind of parse it out between recovering end markets and what you guys are doing internally as far as new product launches, new customers, new end markets, so forth?
Thank you for the question, Joe. Yes, and I'm glad you picked up on the relevant comparable there once you take out CFP that the first quarter was one of our highest quarters ever of sales. And again, our Q2 guide would indicate it's going to look very similar in the second quarter. To answer the question in terms of where we see that growth coming from and you and I, Jeremy, Tania enjoyed some time at CONEXPO together. You saw it. You saw the activity in the booth. You saw the excitement. You saw all the new products we had on display. We think that is clearly the backdrop for our current environment in terms of our growth. And again, my point earlier, we need to cleanly continue to execute on our product launches to support that.
Our refined go-to-market that we really changed significantly over the last 18 months is certainly driving a lot of that as well on how we're interfacing with our customers, how we're driving business discussions, how we're targeting new customers in adjacent spaces. The end markets, none of them are, what I call it, on fire or providing a significant year-over-year improvement. In pockets, there are some really strong markets as we highlight, like construction here in the U.S. is doing well. In Asia, it's doing really well. In Europe, it has been pretty steady and good. But from an ag perspective, we all know where that is, and we already talked about that one. Our Balboa Health and Wellness, very slow growth, and we don't expect that one to grow any faster than historical low single-digit levels. However, we do believe we will continue to take share and outpace that with a lot of win-back strategies and our new product pipeline.
And finally, Enovation has continued to significantly outpace growth of any of our other businesses for multiple quarters, including a record quarter here in the past quarter, and that is 100% aligned to their go-to-market initiatives because those markets they operate in have been challenged. So as those come back, gives us a lot of excitement. And we know that those are very cyclical markets in some of those consumer discretionary and even ag, a long-term cyclical market that has to be bottoming here at a point in time, and there are signs in small compact tractors and other geographic regions where it is starting to recover. So we're pretty confident that if we get some market help, we can certainly be in that mid- to upper point of our new guidance ranges.
Great. That all sounds terrific. And maybe my just follow-up question. I know you guys just touched upon the tariff landscape, but maybe kind of drill down a little bit, maybe what has changed as far as your tariff outlook versus maybe at the end of the -- or when you announced Q4. And I don't know, maybe any strategy you can give as far as the way you're thinking about tariff rebates or just anything around that topic?
Yes. This is Jeremy. I'll take that one. Obviously, the topic of the refunds is at the forefront of our minds, probably like most other companies. We continue to monitor that situation closely. We will pursue refunds, although it's not extremely clear yet how that process will play out and when or if any of that will actually get collected. So that is not included in our guide or our numbers at this point. From a -- how do we manage the tariff standpoint, it will look a lot like it has done in the past. We continue to look at our product portfolio and specific to our Tijuana facility, making sure that those products are USMCA compliant, looking in the region, for the region production as a way to avoid tariffs and then constantly working with our suppliers as well.
And to the extent tariffs change that we need to, we're working with our customers. And as a last resort, we'll take pricing actions, and that has been historical. So we'll continue to manage as we have up to this point. And specific to refunds, we will absolutely monitor the situation. We will pursue refunds. But we're not going to factor that in until it comes a little bit more certain and we have a better feel for what would be paid and when. But to put it in perspective, maybe one thing to add, just to quantify that a little bit. Again, if you anchor back on our $8 million second half impact of last year, a little more than half of that is related to the IEEPA refunds. And that would be if everything were paid. And obviously, there is some uncertainty around that. So it's not a huge number for us either. Just want to highlight that point.
Our next question comes from the line of Tomo Sano with JPMorgan.
You highlighted strong recreational demand in electronics, supported by a large OEM. For 2Q and fiscal year, is the base case holds, normalizes or decelerates? And what's driving that view, please?
Sorry, tell me what's driving the view for the --
For strong recreational demand in electronics, you talked about supported by a large OEM. So could you talk about your view into second quarter and the rest of the year, please?
Yes. So as Sean mentioned, within that Enovation business, they've really been focused on their go-to-market strategy as well as new product, and we're rolling out our next-generation displays. We have an OpenView platform that's built on the CODESYS programming language, which actually empowers our customers to do some of their own engineering design on those displays and applications. And yes, we have seen some wins with the large OEM customer that you referenced. But there are others. We have a very diversified customer base there as well. We've got a funnel of opportunities. And there is absolutely an opportunity to win more business.
Our outlook for the rest of the year includes the impact from expected new wins as well as changes to both our order trends and our OEM forecast. So with all the OEM customers, we engage with them on a regular basis. We get updates from them. And I would say, at least as of now, those forecasts haven't changed that materially from when we set up the annual guide.
The other thing I would just highlight about that Enovation business is they continue to diversify as well into the industrial space, mobile space. They actually have a product as well that has been sold into the data center environment. So it's not just the recreational where we see opportunities there with Enovation.
And if you could talk -- just follow-up on a company-wide level. Outside of the demand environment, what incremental drivers do you expect from your go-to-market initiatives into second quarter and back half, new wins, program ramps and cross-sell, channel expansions. Anything you want to highlight here for the rest of the year, I appreciate it.
Tomo, it's Sean. I would first point to the product side. And a lot of the products have been announced last year in terms of our launch of new products and our new NPI processes that we put in place to similarly drive accountability and timing and investment to prioritize products and really put an effort around incremental products that are not cannibalizing existing. We believe our product offering is extremely competitive. We have leading positions in the markets we choose to participate in, but really looking at where do we want to go from an end market perspective and then how do we become a better partner for our customers and offer incremental opportunities.
So on Electronics, for instance, it's offering additional components and things that would naturally pair with a display or a controller. On our Hydraulics side with Sun Hydraulics, it's really that engagement with our distribution channel, which in our 55-year history, we've chosen to go to market through really strong distributors that now are being measured and we're augmenting our targeted account planning with them to close more sales with our engineering capabilities and teams because it is a very technical sale at times. And then really the cross-selling and the ability for us to share customer list and engage more deeply across all of our brands to drive more wins. And so right now, it starts with the product and the focus there. But we do believe that our end markets provide an opportunity to continue to recover and outpace the growth we're seeing. And we do believe this year could be a record year for Helios Technologies, particularly when you take out the $60 million of CFP revenue that has now been divested. So a lot of trajectory. Jeremy, I know you've got a couple of things to add there.
Yes, some specific to some of the ramp throughout the year, we referenced a GenYus product, which is a casting block, a large coupling connection out of our Faster group. We actually shared that at our CONEXPO, one display had a lot of interest in that. We're pretty excited about that. Within Enovation, we've continued to roll out that new next generation of our displays. We see opportunities there. And same thing with Sun, some of the work we're doing there, launching our 0-Series counterbalance valve, which is a smaller valve. We also just launched the QMEH valve with a flow sensor in it, proprietary design. And so part of this is just the adoption of those new products and getting new orders for that and what is the ramp time, but we are starting to see some early wins for those that could be upside.
And then as Sean said, again, on the market, specifically in ag, specifically in that rec marine where it's still fairly depressed, I would say industrial still isn't a big tailwind for us. There's still some opportunities there as those markets return.
Our next question comes from the line of Nathan Jones with Stifel.
This is Andres Loret de Mola on for Nathan Jones. Maybe switching gears a little bit. During Investor Day, we talked about the $500 million, about $500 million in acquisition revenue. Can you update us on the acquisition pipeline a little bit? What opportunities you're seeing in the market for MCT and SCP?
Andres, this is Jeremy. First, let me anchor back to that message we said at Investor Day with the goal to double our sales. We know we're going to need to do that through M&A. Obviously, the more we grow on the organic side, the less M&A would be needed, but we put out an estimate of $500 million, which is in line with what we've done historically. So we just need to, in terms of volume, repeat what we've done in the past. And so we believe the $500 million is achievable. However, going about it in a much more disciplined role as we explained.
In terms of opportunities, we're still fairly early on in that process. When we look at 2026 and our capital allocation priorities, we're investing in ourselves. We've invested in the data center capabilities there with Faster that we just announced. We're going to be investing in some automation and replacement of old equipment. So we've guided our CapEx expense for 2026 a bit higher. And then actually, returning capital to shareholders, just announced the first ever increase of the company dividend.
So I think that is kind of our priority. However, we are developing the M&A framework and absolutely are starting to identify those white spaces and adjacent markets that we want to target and starting to build that pipeline of opportunities. But there's nothing imminent at this point, and I expect to continue to develop that as we go throughout 2026.
That's really helpful. Just a quick one here. Can you also provide a little bit of an update on the supply chain? Are there any supply chain sourcing concerns we should consider or sourcing pressure from electronic chips?
Yes, not at this time. There was a lot of focus on the chips and constrained demand, I think more forward-looking than the current situation. We did see the pricing on some of those chips start to increase, but the teams did a really good job getting ahead of that and securing some supply. So we feel that we're covered and don't see that as a material risk at this point.
We have no further questions at this time. Ms. Almond, I'd like to turn the floor back to you for closing comments.
Great. Thank you, operator, and thank you, everyone, for joining us today. We will be out on the road attending some upcoming investor conferences. So we look forward to seeing many of you in person. Feel free to reach out to me as well if you have any follow-up questions, and we look forward to talking to you soon. Have a great day.
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.
Helios Technologies Inc — Q1 2026 Earnings Call
Helios Technologies Inc — Analyst/Investor Day - Helios Technologies, Inc.
1. Management Discussion
[Presentation]
Good morning, and welcome, everyone. Thank you for joining us for the Helios Technologies 2026 Investor Day. My name is Tanya Almond, Vice President of Investor Relations and Corporate Communications. We are very excited to have you here with us today. Our last event was in 2021. So this has been a long time coming. We've done a lot of planning for this event. We've got teams here with us from our operating companies for everyone who was able to join us in person with equipment on hand and customer applications. They're super excited to engage with you as well.
I want to give you a couple of backgrounds of how the day will unfold. Obviously, we will be covering forward-looking statements, and we've got non-GAAP metrics as well that we've reconciled in the back with our supplemental materials. You can also review our risk statements in our 10-K filing that's on our website as well as the SEC's website.
Just want to say a little bit about this beautiful venue that we're in today. So we put out a press release earlier this week about our new partnership and sponsorship of the Mote Science Education Aquarium. And this is really near and dear to our hearts, and we've got a lot of shared values between the 2 organizations. We're both learning organizations. They have a lab here. We've sponsored their technology hub. So they've got a lot of students that come through on an annual basis, hundreds of thousands of people come through this facility.
And so we think we're really excited with the research they're doing around environmental sustainability. Here, there's so many animals and obviously, the health of the ocean on the golf side of Florida. So we're very excited to partner with them, and we've got a beautiful room here to be in as well.
You're going to hear -- I just want you to let you know that our entire leadership team is here with us today. You'll hear directly from the top row of this slide in terms of prepared presentations. But the whole team is here, so please do engage with them during the networking lunch as well. I know many of you joined us for the reception last night, and you got to meet the team there, too. I'm very proud to announce as well. The majority of our Board is also with us today. We've had Board meetings here locally in Sarasota, the last couple of days, and we worked it out timing-wise, so that our Investor Day would be corresponding with the Board meetings. And so we're very pleased to have the Board here to engage with you.
We've had from a corporate governance standpoint, some really strong refreshment in the board over the last 5 years, over 70% of the Board has been refreshed. And last year, we named a new Chair in Laura Dempsey Brown, and so she's here as well. Ian Walsh is our newest member, and he joined within the last 12 months. So please do connect with our Board while they're here, too.
From an agenda standpoint, I will be handing it over shortly to our President and Chief Executive Officer, Sean Bagan. And he's really going to talk about how we are igniting the momentum and what is our core 2030 strategy. He will then shift to the Electronics segment, and we'll have Billy Aldrich, our President of Electronics come up and talk about how we are powering connected solutions. Then we'll shift over to the Hydraulics segment and Rick Martich, our President of Hydraulics with motion control technologies will come up and talk about precision at the core. And this is really where the founding company, Sun Hydraulics sits as well as some of the sister operating companies that supports that business.
Then Matteo Arduini, our President of Hydraulics on the fluid conveyance technology side will come up and talk about the connection platform. We'll actually have a little break right after Matteo speaks. And then after we come back from break, Jeremy Evans, our Executive Vice President and Chief Financial Officer, will really talk about the financial path to 2030 targets and how everything you heard in the morning rolls up financially. Sean will close it out and talk about where momentum meets opportunity and why we think you should invest in Helios Technologies.
Then the whole team will be on the stage, and we'll have a group panel Q&A session. So please collect your questions as we go through the presentations. We also have the capability to take questions over the webcast. So we'll mix it up between the room and the questions coming in from the webcast. We will end at 12 noon in terms of the webcast portion of the event. And then everyone that's here will have the opportunity for the networking lunch. And those who have signed up for the facility plant tour will meet at 1:30 right out front at the circle drive. I know some of you may be driving yourself. We gave the instructions with the address, but we'll take the shuttle bus over and have the plant tour from 2 to 3. And from there, we'll -- the shuttle will take you on to the airport.
So just to give a little snapshot of who Helios Technologies is today. We reported 2025 results recently at $839 million. And we completed a divestiture last year, which if you pro forma for that, it's really $792 million. And the rest of the pie charts on this slide, we have adjusted for the pro forma view. So you can really see from a go-forward perspective how the mix shakes out. So electronics is almost 40% of the total revenues today.
From a channel perspective, OEM is about 57% with distributors and integrators at the balance. And you see we're very diversified from an end market perspective. And you're also going to hear from the teams about not only the core end markets today, but a lot of new opportunities that we see with new and adjacent markets. And before Sean comes up, I just want to give a little background about how we got here today. So if we rewind the tape back to 2022, we had really benefited because of our diversified mix with a lot of consumer-facing applications in health and wellness and recreation.
When we went through the pandemic and saw a lot of folks weren't traveling and investing in their backyard and buying hot tubs and side-by-sides and boats we really benefited from that cycle. But then as we got into '22, that cycle started to come down, and we were seeing year-over-year organic sales declines, margin compression started to happen. Sean joined the business in August of '23, and that was definitely a spark for the business because Sean really brought with him some deep understanding joining his former firm and was there for 23 years. He had joined them when they were about $1 billion in revenue and they grew to nearly $10 billion.
And so you've seen kind of that trajectory before helping an organization scale and he came in and really started to help us put in more discipline around financial forecasting and looking at metrics in a deeper way, bringing in system upgrades to really have the teams have a stronger discipline around our business system. He was here for about a year, and we had an unexpected CEO transition. The Board responded very quickly, named Sean as the interim CEO as well as CFO. And that's really when we started this, we call it 1.0 deep strategic planning process.
So Sean brought a much deeper kind of rhythm for the businesses to really dig deep. And I think you'll see that if you compare our deck from 2021 at last Investor Day to this, I think you're going to see a lot deeper information that the teams have brought together from this planning process.
Now we also had some interesting challenges locally. We had 3 hurricanes that came through the Sarasota area back to back to back. And it's counterintuitive, but this was actually a spark for our organization because our people not only had to come together to brace for those storms. But after the storm went through, it was amazing. The last one was a Category 3 hurricane Milton. And thankfully, our facilities did not sustain much damage, but our people and their families and their homes in some cases, it was extremely critical with some of the damages that they had.
Our operating companies from around the country instantly started packing up emergency supplies, water, food cleaning supplies, guided on trucks, had it shipped here. So we had power outages for over a week in many areas. And the gas stations were not open and the grocery stores were not open. And it was so amazing to have the company to the in that way and we had these care packages to give to our employees to take home to their families when they came back to work. It was extremely hard felt and it really pulled the organization together unintendedly, but I know as our General Counsel, Mark Greenberg, likes to say, there's no crisis that -- there's always an opportunity in every crisis. And I think we, as an organization, have gotten very good at finding the opportunities.
So Sean was appointed as President and CEO on the beginning of January 2025. And you've really seen some of the results of all of this work the teams have done with a deep strategic planning process. the results we've reported at the end of '25, we returned to growth after 12 quarters of consecutive declines.
And so with that, I'd love to turn it over to our President and Chief Executive Officer, Sean Bagan.
Well, good morning, and welcome. It is delightful to see so many of you that joined us here today in beautiful Sarasota, Florida. And we appreciate so many join the webcast as well. So today is a defining day for Helios Technologies. It's a story of progress of momentum, ignited and discipline restored and ambition clarified. More importantly, today, we're going to talk about the next chapter of growth for Helios Technologies with our core 2030 strategy.
The theme powering progress at the heart of motion and control really captures the essence of Helios, essential technologies, trusted brands and a team that makes the world operate more efficiently, more safely and reliably. And my promise today is that you will leave with clarity about the future of Helios Technologies and the confidence and conviction of our plans. Tania did a nice job to kind of highlight some of the development since I've joined the company, which has been an interesting experience since the -- middle of 2023.
And when I was appointed as the interim CEO, one of the first things we did was institute that strategic 1.0 strategic planning process that Tania alluded to. But for me, we really needed to step back and define who we wanted to be. And this tree illustrates its well with our stable of really strong brands as the roots and harnessing all the unique cultures and the greatness in those to define our purpose and our share values. And what was important to us for our employees to emulate. And you can see the acronym of Helios, and we're going to bring this to life a little bit later today in a video. But at the end of the day, it's our people and our products and our culture that is the foundation of this company.
So the takeaway here is we didn't have a culture to fix. We have a very strong culture. We just needed to instill belief because belief is what fuels great companies. So today, I'd like to say Helios is a differentiated industrial technology company with a unique blend of heritage and a very modern growth mindset built over 5 decades of experience. We celebrated Sun Hydraulics 55th anniversary last year. And we've built a robust set of competitive advantages and carved out market-leading positions in those markets we participate.
With a backdrop that's underpinned by some very strong secular trends that you will hear about today and some constructive existing market conditions that are starting to show signs of recovery after many depressed years in a row. We feel very good about our growth prospects. Tania talked about our refined operating model. And today, we're defining with clarity, our strategy of where we're headed and the commitments we're making with our proven go-to-market structure that was instilled in 2025, supported by a very strong product launch cycle that will be a theme throughout today as well.
We made tremendous progress on our balance sheet in terms of our adjusted net leverage ratio, in addition to paying down a significant amount of debt over the last couple of years, which opens the aperture for many different ways to grow and gives us much more flexibility that you'll hear Jeremy talk about further. But most importantly, we now have a purposeful organization with the structures and values aligned across the organization. So this, as I will tell you today, is not a collaboration and a collection of businesses. It's a deliberate system designed to grow. So let's look at those businesses.
What's depicted here is the corporate headquarters of each of the businesses that make up Helios Technologies. As you can see, it's a very global footprint. When you look at the call outs at the bottom, the representation of our employee base aligns very closely to our geographic sales, meaning we truly are in the region for the region. Our global footprint spans 2,300 employees. And the takeaway here is that our global presence provides us more scale. It provides us proximity to our customers, enables our speed to market and those deep customer connections that are so important.
Many of these portfolio of companies are older than Sun Hydraulics, as you can see, 75 years, 80 years and even 87 years. So harnessing that collective strategy of our existing businesses, along with those cultures was what came together in that shared value tree that again, you will hear more about later. So Helios Technologies goes to market, as you know, through 2 segments: our Hydraulics segment and our Electronics segment, similar to the distribution of our employees to the geographies, you can see the same as emulated within the segments. You'll note it that the employees add up to 99%. The 1% is that Helios Technologies office that is the corporate office, mainly support-type functions as well.
When you look at our flagship brands, Sun Hydraulics being the founding company faster on the Hydraulics side and then moving to the electronics side with innovation controls and Balboa. And in addition, there's 8 other brands that we will talk about throughout the day with many leading products that have driven the longevity of this organization and the success between manifolds and cartridge bells multi-faster, couplings, quick disconnects on the hydraulics side.
On the electronics side, we service many different electronic components led by what you see in the display, but behind that, the power distribution modules, the controllers, the wire harnesses. And it's humbling to see the names of those customers that are very recognizable brands that we serve on a daily basis and are proud to partner with them. From an end market perspective, Tania showed the total company, and this again, highlights one of our competitive advantages of being very diverse. We're never overly reliant on any one end market or any one single customer, and we'll continue to pursue that diversification as we step through towards our 2030 plan.
So Helios Technologies has transformed significantly. As we've established, it was founded in 1970 by Bob Koski and John Allen in the garage of the Koski family. And in 1997, did an initial public offering. Up until 2016, it was Sun Hydraulics, [indiscernible] to that name, the company was renamed Helios Technologies, the Greek out of the sun and inspire growth. And at that time, the business had been pretty stagnant, $200 million roughly in sales for 6 consecutive years, and the decision was made to grow through diversification. Sun had a beautiful financial statements with very strong margins approaching and in some years, above 30% EBITDA margins. No debt, $100 million of cash in the bank. So it made sense to start deploying and diversifying.
And that first acquisition was Enovation Controls in December of 2016. And of those first 4, 3 of them were defined as transformational large acquisitions, including Faster and Balboa. And then up until 2023, other flywheel and smaller tuck-in acquisitions were deployed through $1.5 billion of capital and cash and debt to truly transform the company and then come 2025, that's when a more marked shift occurred in a specific look at the overall portfolio and not just the transformation but a realignment our first divestiture happened of Custom Fluid Power. That was an earlier acquisition and an outstanding business, just not core to what Helios technology does.
As a reminder, Custom Fluid Power is our distribution partner in Australia now. So they will distribute our sun hydraulic valves, and we have maintained that relationship, but they're part of a larger umbrella of the Quests group. And when we own Custom Fluid Power, of their sales were Sun hydraulic bells and manifolds. The other 90% was noncore, things that we don't do. And so effectively, we're going after that Australian market, just like we do with the rest of the world with Sun Hydraulics through independent distribution.
And this now sets the foundation, a very strong foundation for our core 2030. When I was appointed permanent CEO, I made one commitment, and that was our momentum was going to be engineered, and that was going to be engineered through an aggressive go-to-market strategy. And the playbook we followed was very structured and disciplined. We started with the strategy that led to the structure of the company, which then led to the people. We embarked on that 1.0 strategy when I was interim CEO and then last year, in the middle part of the year, we did 2.0.
And the combination of that led to us launching that internally to our organization in the fourth quarter last year. And now we're here with our Investor Day to talk with all of you about the future of the business. But as I step back and talk about strategy. The things we first put into motion was our share repurchase program. The company had never done that. Historically, there were some special dividends paid with all that cash that was built up, but it was a signal that we're thinking about capital allocation and shareholder returns in a more sophisticated manner.
Obviously, we already talked about the 2.0 strategic planning and the CFP divestiture as well and certainly, finalizing to crystallize our core 2030 strategy. When I moved to the structure immediately in January, we moved away from the regional structure of how we were organized back to the brands. And you'll hear from the presidents today and how our plans have come together from the bottom up, and they now have global responsibility. The other structural move was to take our engineering organization and embed them deep into those businesses.
You heard about HCEE, the Helios Center of Engineering Excellence and i3PD that are now embedded into those organizations, driving discipline and accountability and better hit rates with our new product development. And finally, from a leadership perspective, Billy Aldridge was appointed President of our Electronics segment, a long-term leader and a voice at the executive level that was much needed. The executive level was administrative, engineering, financial driven. We needed that voice, that go-to-market voice, and I'm positive you will catch that energy when Billy is up here that has helped ignite our momentum across all of Helios.
And we have very strong long-term leaders of our Hydraulics segment between Matteo Arduini, in Italy at our Faster business; and Rick Martich, here in Sarasota for our Sun Hydraulics business and beyond. So very tenured long-term leaders at Polaris with great experience and refined discipline on how we're going to move those businesses into the great growth that we've started to see and sustain.
And then finally, Tania talked about the Board refresh. We're very proud to have our first woman Chair, Laura Dempsey Brown is with us today, along with other members of our Board of Directors. And an outside independent Director, Ian Walsh, also joined, who is also with us today. And thank you to the entire Board for joining us to support today.
So I want to move because this is important. Our Helios business system is really the engine that is driving our operations. Tania talked about the discipline and the rigor and the data we've brought to it. But I want to point your eye to the dark blue circle. And if you go to 11:00, you see that 5-year planning. That's that strategic planning we've embarked upon twice now. That's the start. What that leads into is goal deployment process. I'm sure many of you are familiar with goal deployment on the right side.
For me, in my experience, it's the single best way to bring strategic execution to life. It's grounded in lean principles [indiscernible] tools. It's about driving breakthrough objectives that are needed to deliver that 5-year plan and ensuring their resource effectively and action plans built down to that point of impact with those goals cascaded. We've deployed that this year on 2 key projects, and you'll hear about it throughout the day. One, we call Project Polar. That's our entry and hydraulics into the data center market. And the other is Project Orion, and that's the turnaround of our Belboa business that I will remind everyone was the highest margin business at the peak. During COVID, that was unsustainable. When everybody was buying outdoor equipment and hot subs, the similar dynamic that happened to our Electronics segment, but we know the power of that business, and we are focused on growing it significantly to get it back to those strong margin profile.
If you keep walking your way through the dark blue circle, that leads to our annual operating plan and our budget. And then we have a very disciplined process throughout the year. Quarterly business reviews that are deep dive into every part of the operation, monthly business reviews that help us inform a quarterly look and also monthly go-to-market that is very important, and I want to highlight that every salesperson that's a hunter that's driving revenue that we've added and indexed more resources to has a report out to the presidents and myself every month to really drive that accountability, and I'm pleased to share some of the progress here later on those initiatives.
Along the outside, really highlights that data-driven mindset to help us make better decisions drives deeper understanding of the business, drives that accountability, higher transparency that ultimately results in improved execution, and you've seen that from us on a quarterly basis in achieving our guidance. but it is truly from the bottoms-up planning and from a tops down and finding where those drivers of the business are. So the takeaway is this. Discipline is being made visible and it's how we take this business and scale it.
So I do want to reflect on 2025 quickly. Just to highlight, as part of that strategic planning process of 1.0, we identified these 6 key initiatives that were going to be the needle movers for 2025, and we talked about these throughout the year, and we've provided progress updates at our earnings calls as well. And it started with our go-to-market structure. As we entered 2025, we had 10 consecutive quarters of declining sales. We had a top line problem and that's why our go-to-market was so important in order to be able to drive organic growth.
But you can't just expect to drive organic growth, doing the same things. And so we truly overhauled our systems that I will talk about next, but also key to that is having the right products to sell and having better hit rates, and that was partially why we moved those engineering resources deeply into the businesses, and we'll show the proof points of that as well.
In order to get our P&L moving in the right direction, the #1 opportunity is volume, driving more volume, but in the same respect, being much more disciplined with our investments having that ROI mindset, having that ROI mindset on every investment we're making, CapEx and having that disciplined cost mindset, really trying to drive our sales faster than our SGA costs. That will afford the opportunity as we step through the year to take our debt down to take our leverage ratio down and start thinking about capital allocation on a more sophisticated basis, like with our shareholder returning capital to shareholders with our share repurchase program. But all of that doesn't matter. I'm a firm believer of Peter [ Drucker ] culture, each strategy for breakfast every day.
And our people are our most important asset, and that's why we put a ton of time and resource into our talent development. And I'll talk about that as well as we have a number of measurable improvements to share. So first, go to market. I'm pleased to say we generated $60 million of new business wins in 2025, some very recognizable customers that we're proud to serve. Some of them existing customers going deeper with them, selling more of our great product portfolio, many new customers on there as well. And this $60 million is the projected annual run rate when that starts, many of these projects have already started. Many will be long-term recurring revenue once you're spec-ed in you continue to enhance that. And this is core to our strategy of go to market.
When we entered the year, we knew we had the top line problem so we redefined our processes, our systems, even our people. We self-funded and significantly increased the amount of front-end folks. And instead of taking the shotgun approach of being everything for everybody, we have a very targeted and disciplined markets and customers we're going after with the opportunity to sell a lot more of what we have, many of those products for you here in the room that you will see afterwards whether that's outside or on the tables.
So the takeaway here momentum is real, and we've carried that. The exciting part is we've carried that into 2026 with some very sizable opportunities. And let's look at our products, another proof point. of our focus on bringing impactful products to market in a more consistent and faster pace throughout all of 2025, we launched 11 very meaningful products. All of these are incremental revenue streams. There are things that are not cannibalizing other products within our portfolio. They're helping us be more valuable and more sticky with those customers and bring more value.
And this is an outcome of 300 very talented engineers, 300 patents and trademarks that we are aggressively protecting and the outcome of $20 million that we invest every year. My background comes from a very cyclical environment. And if there was one lesson I learned from those 23 years at my prior company, it is invest in those downturns. So when those markets recover and come out we're ready to capitalize and we feel very good with our product portfolio to do just that.
Let's talk about our people. [indiscernible] supporting employee statistics. The very telling number here is 30 boomerang employees. What's a boomerang employee. These are people that chose to let -- chose to leave our organization, but in 2025, chose to come back, a clear signal of our improved culture. Our average tenure is 9 years. That compares to an industry benchmark that ranges from 5 to 7. People enjoy working for Helios Technologies. But maybe the most impressive number is our employee Net Promoter Score, up 13 points. That's a massive 1-year increase every measure that we compare from our 2024 to our 2025 employee survey improve.
The ones that were lowest measure of improvement is where we're targeting our focus. Employee recognition is at the top of the list and proud with our human resource leader that has been elevated to the ELT Sean Pawlowski driving that initiative for us across all of our businesses. And again, it ties back to those shared values to ensure we're rewarding and calling out all of those unique qualities that we want our employees to embody and we celebrate that longevity. One of our longest tenured employees will celebrate his 50th anniversary this year that was with Sun Hydraulics from nearly the start, very exciting.
So the photos that you see here are also a sign of putting effort, resource money into developing our talent. So the top was our first cohort of a 6-month immersive Helios Leadership Academy, taking experienced leaders with high potential that will be the next generation of leaders at Helios and putting them through an immersive training program and exposure to the businesses. And these folks are cross-functional across all the businesses, across all of the geographies, and that's the strength of this, building those relationships and that connectivity and showing that we can provide very meaningful opportunities for these folks and now working to continue to reward them with bigger roles as we play out our core 2030 strategy.
And then the bottom was when we brought together our top 80 leaders for the company here in Sarasota to launch the core 2030 strategy. All of them had to say in that strategy. When we talk about truly bottoms up, that's how that plan was built and so we rallied the team around it, and we couldn't be more excited to share this with you today as well. So here's the results of those key initiatives. We talked about the $60 million of wins. Our confidence right now is instilled in our [indiscernible] ratio and our numbers. We exited last year in the third quarter, delivering 13% sales growth. In the fourth quarter, that increased to 17% sales growth. That would have been 29% if you strip out CFP from the prior year compare.
Our guidance is we entered into 2026 at a minimum to be up 20%. So we're continuing to accelerate. And that is so key, as we talked about in order to drive that organic growth engine and capitalize on all that investment from a new product development perspective, which is only going to accelerate in 2026 as well. That allows us to drive our gross margin despite only being up 6% organically, we drove 100 basis points of gross margin in our business. and allowed us to grow our earnings per share, 22%. And that's our recipe, grow earnings faster than our sales.
From a capital allocation perspective, we did pay down a lot of debt. more, $153 million over the 2-year time spend of 2024 and 2025, exiting the year with a leverage ratio below 2x and a significant improvement year-over-year. that positions us in a much different spot. In addition, we started to act upon our share repurchase program, thereby doubling the amount of capital return to shareholders in the forms of dividends and share repurchases. And those shares were bought at, at an average share price of $55. So a very strong return. And we continue to see that as a good mechanism, particularly we are such a strong cash flow generating company. And if there are not outside investments, outside M&A opportunities, we have a very sophisticated way of looking at our intrinsic value in many different models and seeing that as another opportunity to drive shareholder returns.
And then as I said, talent is our #1 asset, and we will continue to develop our team over time. So takeaway here. Helios just isn't recovering. We are performing. And the system works. The culture is aligned and the momentum is real. So now you've heard about the past, let's move to the heart of today, the core 2030 strategy. As Juliet said, in William Shakespeare, Romeo and Juliet, what's in a name? Powering progress at the heart of motion and controls really brings that to life. Motion, obviously, for hydraulics; control, obviously, for electronics. But when we bring this together, that's the power.
The core 2030 strategy is our ambition. It's our path, and it's what will be demanded of us. And our goal is bold and very simple. We are going to double the size of our sales in 5 years by 2030. So let's move on to how that's going to happen. You've heard about our shared values. That's the foundation of our culture. It's our people and our products as well. And that's why these guiding principles here are very clear. It goes back to our founder, Bob Koski, his unique approach to organizational structure, horizontal management, everybody has a voice. We will be people-powered but team-driven.
When I talk about safety and ethics always, what do I mean? Safety is our promise. Ethics is our compass, and there will be no compromise. Finally, delighting our customers. We're in business because of our customers. We go beyond meeting their expectations. We anticipate, and we solve their most complex problems. These are our north stars.
Moving to our vision, mission and strategy. I will tell you that Helios is absolutely a trusted technology solution company that keeps our company running. But that is truly what aligns with our vision, mission and strategy. When we set out to do this, if you count the words and the vision and the mission, I purposely with the executive team, contain this to 25 words. It's not as easy as you would think, but every one of those words is very meaningful, and it comes down to inferring premium technologies and trusted performance.
Our strategy reveals how we will look in the future and those competitive advantages that we will capitalize upon and how we will get there and how they get brought to life is through our performance priorities. First, protecting and grow the business, we're going to commit to 5% organic growth over this 5-year time spend. We can do this by outpacing the market, and we're entering this year with that momentum. At the top end of our guidance, we've guided to 9% sales growth. We also know we would have a gap of about $500 million to go pursue to get to that doubling of our sales. To put the $500 million in perspective, we've done that. That is the amount of revenue that was acquired from 2016 to 2023. We know we can do that. We know our balance sheet supports it, and Jeremy is going to show you the financial model that supports that as well.
From a product and quality perspective, we're striving for superiority just as we have today. It's using voice of customer to drive our innovation. In addition, we want to set the benchmark for NPS for all of our products. By driving our operating leverage through our productivity, that's how we get the margin expansion. We'll leverage our centers of excellence, which are very important to be close to our customers and meet and anticipate their needs. We leverage safety, quality, delivery and cost is rate of change mindset, all of them tied to driving productivity and cost improvement across our businesses.
And finally, committing to sustainable, profitable sales growth. We expect to generate 100 basis points plus of EBITDA margins annually while having and maintaining our best-in-class cash flow engine. What that results in from a financial targets perspective is the outcome of doubling our sales to $1.6 billion by 2030 with adjusted EBITDA margins to exceed 25% and an operating income margin on an adjusted basis of 20%. This is our aspiration and is grounded in our guiding principles and progress we've made to date.
So that chart, I'd like to call the what. Now let's talk about the how, introducing the Helios Momentum model. There's 4 key tenets. We have customer-driven innovation. That's all about voice of customer, listening to our customer, ensuring it's informing all of our product development decisions and prioritization and embedding that deeply into our organization with a strong NPI process that's consistent and very ROI mindset ensuring we're putting our investment dollars to those largest opportunities and attacking these new markets.
And that's with our global and market expansion presence will help ensure we're meeting those customer needs from an on-time delivery perspective, and also being closer to ensure our supply chains are localized and truly in the region for the region, as you saw with the split of our employee base, as we've talked about, our operational centers of excellence will help drive our efficiencies on a rate of change mindset, a continuous improvement lean type processes. And many of you that are here with us, will have the opportunity to see that come to life today as we tourist some hydraulics facility.
And finally, those items will help provide the means for those strategic acquisitions that will help us accelerate that growth profile for Helios Technologies. When we bring together all of our companies, that is where the multiplier effect happens. Now you will see on the right side, a series of steps that effectively is our strategic execution of how we will execute against our momentum model, how we will prioritize are and how we will allocate our capital, how we'll innovate, how we'll serve our customers, how we'll develop our team and most importantly, how we will win.
We'll now hear from our presidents. And so before that, we're going to start with our Electronics segment and share a video with you before Billy Aldridge comes up to show you how our 2 years of strategic planning is coming to life in our segments.
[Presentation]
Okay. I have a quick question. How important are electronics in your daily life? If you think about it, we probably touched 10 to 15 electronic before we got on site today from your [indiscernible] to your phone to the button on an elevator to your cars coming over here. The point is electronics are critical in today's world. Electronics bridge the gap between human and the machine. They enable understanding the control and intelligence. This connection is critical. This is why Helios Technologies is in electronics. We bring in rugged hardware, intelligent software and real-world application to our most rugged environments.
So with that, let's get started. So our Electronics segments bring the other powerful portfolio of brands, products and end markets. We connect people to the machine and as you see out front, a lot of rugged environments, we connect that in that world. Innovation controls, Balboa Water Group, i3 product development, deliver intelligence across all the markets that we serve. Our customers demand our reliability, and that's what we bring to the market. What differentiates our Electronics segment is a combination of scale, domain expertise, application expertise and our in-house product development.
We're not just applying components. We are supplying solutions and systems for our customers. Our segment is definitely driven in the North America market, as you can see here. about 80%. We recognize that we are underserved in the EMEA and APAC regions. You're going to see some slides here later on how we're going to go attack and grow in those bases. So our segment evolution, and it's been a journey over the last 5 years. But I want to step back to the core when the when the -- when Sun actually purchased Enovation Controls at the end of 2016 is actually when you start talking about electrohydraulics coming together. That was really critical for that moment in time, and it was great for the Board, the leadership at the time, like, hey, there is this movement that's happening, right?
And so putting hydraulics and electronics together, we've actually developed -- codeveloped some cool products that we've launched over the last several years. You'll see some of those out front. We'll talk a little bit later about those. And then we get into 2020 and the acquisition of Balboa Water Group when we were on our M&A journey at the end of '20, we really critical. I mean, it's actually, I would say, it entered us into a new market. Don't think about it as from a Balboa, but entered into a new market in health and wellness.
Then we all know what happened. We have this crazy explosion with COVID, and we talked -- Tania talked about everybody investing in their backyard, recreational market. So market shot up. Then really at the time when we -- when the market started pulling back, what we did is we didn't just sit and wait for the market side. We did a lot of things after 2021. We started investing in our people and our products. Actually, from innovation control, we built electronics in Tulsa. We actually started taking some of those production lines and moving them down to [indiscernible] in a low-cost area.
We're actually capitalizing on the low-cost region. They have state-of-the-art facility. Also during the downturn and the pullback, Sean and the team here, let us invest. Our customers are demanding connected technology, right? So that's part of bringing i3 in the portfolio, connected technology. They are forefront of bringing it into our product because our customers started demanding some of those things. So instead of us doing ground-up development work. It was good to add the investment in with it and doing some of the things in our core markets that we weren't ready to do.
So it's a really good addition. And then what we call kind of this recovery phase, as you end -- in '25, the market started to come back, onboarded new customers, our go-to-market strategy that Sean mentioned, really starting to come together. In the Electronics group, we're passionate about go-to-market. It's like in our DNA. If you go back and look at the history of innovation controls, we love this interaction with our customers. And so Sean really is doing that in across all the segments was awesome to watch, and we're capitalizing on those today.
So our core markets for electronics. At the end of the day, 70% of our end markets are consumer marketplace, driven by Balboa Water Group. They are the market leader in health and wellness when it comes to a spa and hot tubs, [indiscernible]. Great to be a market leader. And I think most of you guys saw a press release, even though you're the market leader, there's always room to grow. And we just -- we did a press release with [indiscernible], adding more content there. So we're still growing and even though we're the market leader.
Switching over to innovation, the rest of the 4 categories here, the core markets, recreation for innovation controls, when we talk about the boats in the side-by-side, on-road motorcycle, really core to innovation, and that's -- I would say, the [indiscernible] part, and we've had a lot of growth over the years. A lot of people see innovation is like that's all you do. We actually play in other markets. right, in industrial and mobile and some of our other markets that we're in. We know that we're underserved in those markets, and we have a strategy in place to go grow in industrial and mobile and other.
The other markets include the aerospace, food service military. They actually demand some of the same products that we're launching across all the other markets. So it's really cool to watch happening in our core markets. Current products and portfolio, you guys to know as you see the displays and controllers out front. We have a connected technology aftermarket. We have blowers. You will see those in the spa outside upfront. I encourage everyone to spend some time with the team out here.
And so when we talk about looking at an application and we don't just want to go sell on pace. We want to try to solve our customers' problem. When you go out and you look at an application, of course, you can just tell a display, but customers are demanding more than that. And that's where I believe our electronics segment lives. Customers come to us and go, yes, yes, we can do a display, but we want to help us dream, what could be. And I think as you see upfront, you're going to see some of that, like the energy that we have with some of our customer base and it's really cool to watch it. As we start -- I'll get a little bit later in our new product development, which is really building on those foundations.
Once again, we don't just look at selling components. We look at selling solutions to our end customers. So talking about our core markets, very wide range of core markets. Our channel to market is mainly to OEM. We do have a distribution piece that's about 22%, 23% of our market. But mainly, our target is going directly to the OEM. It's a little bit different than the Hydraulics segment on the Sun market. But we go really mainly direct -- what I would say on this slide is, as you can see, there is a lot of runway in our core market. There's places here that we are underserved, and we have plans in place, taking current product, new product development, really honing in on our application expertise to going after and growing in these core markets.
There is a ton of market share for Helios to game in our core markets. We are going to play in these, we're going to grow in these. Actually, I'm a little bit jealous to be honest when I see how much we're 38% of the Helios revenue, and I'm a competitive guy, and I want to go out -- I want to be bigger than the hydraulics side. And that's what my team looks at like, we want to go as be as big as those guys. And if you look at our core markets, guys, we can get there. And that's what has us so optimistic about where we can go with our product and our new product, I'll show you in a minute.
The other exciting part is are in new adjacent markets. If you look about where our products could fit in these adjacent markets, whether it be excavation or in the pool side pull out. Once again, we do really good electronics. We may not want to go pull into all the pulls up but what we do, what we can offer to that market segment is electronic. So that's our core, electronics and controls. Looking over in some of the other, the Aero work platforms, we're actually playing in some of those. I would say more on the fringe of some of those markets. But how do we go out and grow into some of these large, large so markets that we can go and -- we know we can go win in those markets. How are we going to get there? How are we going to win?
So it's interesting at the dinner last night and somebody came up to me and said you guys still swarm customers. And swarming in the past for us we would take a ton of engineers and commercial guys, and we see a big customer out in the market. We just would go into all energy and effort on that one customer developing that one product for that customer. And it's a lot of work when you do this. And so the leadership team over the last, I would say, 24, 36 months, we're going to step back and challenge ourselves. Absolutely, we want to go swarm the customer, but from a product standpoint, it was killing us, we had to step back, but more time upfront so we can develop a platform of products, so I can go attack all of the core markets and adjacent or which is really key for us.
And some of the things that you'll see up front is us actually making that transition. So what we want to do is like Sun and fashion. We want to make it once and sell it lots. That is really key is we want to go out and grow in all of our different markets. So following up on the core 2030 strategy, that Sean laid out. What does it mean to the Electronics segment? We want to protect and grow our core markets. There's a lot of work when we say protect and grow. Customers are always looking different technology, different things that they want to do with their product line. We want to protect that business, we want to go grow in our core markets. As you can see, there's a lot of runway. Gang wallet shares. Sean mentioned the different things we're doing from controllers, the harnessing connected technology, AI.
Some of the things that we're working on with our customers, that's how we start gaining that wallet share. How are we going to go after capture new share with new customers? You saw the adjacent markets, they're large. We want to go out and go capture some of those new opportunities. in adjacent markets, whether we do it internally or whether there could be M&A, we'll talk about a little bit M&A strategy for us here later on. The great thing is with Helios and the trajectory we're on, we're always going to continue to invest in R&D. It's critical, especially in electronics, things are changing so fast with cars, your phones.
Our end markets are chasing those markets, definitely recreation. I would say years ago, we -- the recreation market was probably 7 or behind -- 7 years behind auto. I would say now a recreation business wants to follow more like 2 years behind. So what we got to do is a segment, we got to be able to position ourselves to give those products to our end customers. Interesting though, on the construction ag piece, they were probably tenure behind what automotive is doing. Sorry about that. They're probably 10 years behind on what the markets are doing, who it's going the wrong direction. I'll catch up.
So yes, so now you're watching is we take out of ConExpo. There are -- we saw this transition people coming in and like we recognize innovation or the Helios Electronics segment is delivering really cool technology. And we want to start bringing that up. They're getting closer to automotive. And it's happening real time in front of us for us to capitalize on that, we have to deliver the product now. And so that's some of the things you'll see upfront. Didn't go backwards? Here we go. So yes, and the operational excellence. We'll talk about that in a minute. And then M&A, we'll also talk about M&A.
It's critical because we can't do everything for everybody. So strategically, what do we got to do from a Helios standpoint to go out and fill some of those gaps. Okay. So the footprint for electronics. We have a really big footprint. Actually, let's say when we purchased Balboa because they have a really good facility in Tijuana, Mexico. And we, at the time when we purchased them, the market was going crazy. We didn't do ourselves justice, we didn't capitalize immediately when we did that. We were too late in the curve. But I would say in '22, '23, we really accelerated moving more production lines out Tijuana, leveraging the low-cost area. On top of that, though, it's not just about moving pieces around our operation. Things have got to come together, definitely operations, but then you have supply chain, you've got to push on suppliers.
I will tell you what's exciting to watch right now with Helios Technology, suppliers want to be part of this. I've been at with the CES and a couple of other shows, and you see this energy and our supply base is like we want to be part of this. You guys got something really special going. So what are we going to do to be part, and it's really helping us getting some of our costs down. There's a lot of different customers that are competitors that are coming after our market. So what are we going to do? We can't just sit back and let others take market share. We want to go out and win.
So that -- and then how we design product? It's changed over the years. So we've got to make sure that we get our design right and capitalize on the footprint that we have in front of us. M&A criteria. We look at 4 key pillars here with product gaps and and wallet share expansion, geographic regions and the new adjacent markets. But what are we going to focus on from the Electronics segment? Product and technology things are coming at us really fast. Where are the gaps that we have in our portfolio. So that, as we look at M&A, those are the things that we will go look at.
Wallet share. As a customer comes to us like Helios Electronics segment, what can you bring to us? We -- is it audio? Is it the things that they're asking us. And would it make sense for us to invest and different things to gain wallet share. Geographic expansion. Once again, [indiscernible] my hydraulic friends because they are way more global than the Electronics segment. And it does it make sense to look at M&A and to grow our global expansion.
I would say this, as Sean talked about, our culture is really key, going out and finding somebody that doesn't get culture would be detrimental. So we want to make sure that it fits our culture -- do they generate cash flow that we do? Is there synergy there? Can we work together and really grow our electronics segment through M&A. So really cool slide, and it's kind of the pixel when we talk about not just selling a component, going to a system sale. I remember starting this relationship back with [indiscernible] Orlando 15 years ago, went to them. And basically, it was like, hey, I want to go sell you a display.
And over the years, as we started working with a key customer like this, and so I talked about what you can dream, what can you dream of? How can we do things different? And over the years, we've -- I mean our SKUs have grown with them, the relationships around we started with a 7-inch display on the boat, you'll see upfront. It's a 15-inch display. You may see some of the displays out here in the lobby, where they the direction that they're going. The point is as we continue to expand wallet share in our customers and continue to push the envelope. I believe doing what we did in this [indiscernible] space, Helios technology in Electronics segment really set that market, definitely driving the cost, but it's -- but their end customers were demanding some of that technology from a bigger display, connected technology audio in the display. And that's what we're really good at.
So switching over to the Balboa solution. Once again, they don't look at just selling an end product. They look at a whole solution, and they're really good at being a market leader, market is really demanding what they can offer -- they -- if you'll see out front and the spurts off of the spa, you'll see some of the things that they're offering. Being the market leader, sometimes you get to step back on your heels and like, oh, what am I doing? I just going to go this rest? We're actually launching more product in this year than we have in the last 10 years with Balboa Water Group to go out there and really capitalize our position in the market and also pushing technology further forward.
We've talked about Pure Zone, and Sean talked about it. It's a really key market because if you watch and being new to the space here with Balboa, their customers are like, it is about time that you guys entered in the Water Care business. It's so good to watch the market leader in Water Care and give a solution that really matters and that works. So building on the Water Care, what does it mean? So yes, it's a sensing device, but it's taking some of the shifting water care from a manual maintenance over to more intelligence. It's all built on a flexible platform. It makes us really, really sticky. But when you start sensing, that's only part of it.
And you can imagine what we have planned next if you have all the data how can you start potentially treating water and things like that because the customers are demanding that technology. So switching over to the data center market opportunity and we have one of these devices out in the lobby. And I'll let the team talk to that. But what I want to highlight is how we got to that market. So when we talk about building platforms to go support all of our end markets, this product display that's on this -- on the product is actually -- you can actually see the product on spas. We have it on [indiscernible]. We have it in skidsteer application. We didn't just go build it one-off or this. This is take an off-the-shelf product and putting it in different markets, which is really when we start getting these multiples for our product, and we talked about building at once, selling a lot. That is where our passion, our growth is going to come from and going across all these different markets that we want to play in.
So with that, I am going to turn it over to our hydraulic group with Rick Martich.
[Presentation]
[indiscernible] I'm going to weave through my presentation for Sun Hydraulics and motion controls. And it was a characteristic that was fundamental to the founder of Sun Hydraulics, Bob Koski. You've heard that name a few times today. Bob was a great character in the hydraulics industry. And it's a name today, when you go around the world, you'll still hear and that's because of that fundamental of trust that he instilled, and that fundamental of trust is we've, through all of our presentations today. It's not just trust in our products, it's trust in our people.
And when you go around the world, you hear that. You hear that across the businesses, whether it's Ennovation, Faster, Sun, Balboa, they trust our products, but they trust our people. And you heard it too in Sean's presentation, it's reflected in our shared value of honesty. I mean, really, that reflects the trust because people know that we're going to be genuine in who we are, that authentic leadership. And you're going to hear that too as I introduce the Hydraulics segment on behalf of Matteo Arduini and myself, a segment that at its core is comprised of 2 brands, Sun Hydraulics and cartridge valve technology and Faster and quick-release coupling technology and the affiliated brands that we've acquired over the last few years, and I'll talk about a little bit more on the next slide.
Those 2 brands, you go around the world, you work with our customers. They are trusted in the applications. They bring deep technology, reliability, whether it's encoupling technology, whether it's in motion controls technology around cartridge valves and manifold integrated solutions. When you need to rely on a product that's critical for the application, you can rely on the brands of Sun, Faster and those other brands that are part of the Hydraulics segment.
In 2018, Sun acquired Faster. That created the foundation for Hydraulics and the hydraulic segment within Helios. In 2021, we started acquiring businesses, and we went through a few years of acquisition. We acquired NEM Hydraulics, Damon Products, Schultes Precision Manufacturing as well as Taimi. Through those acquisitions, we were growing. There were some learning curves. And over the period of time from '23 to '24, then we took some time to integrate those businesses needed to drive some operational improvements as we brought those businesses together and really sharpen our focus with this broader portfolio, while still maintaining a focus on the core of Sun Hydraulics and Faster.
In 2025, Sean alluded to the fact that we made a strategic decision in the hydraulics portfolio to divest custom fluid power, a fantastic business a long-term distributor for us in the Australian market that we acquired. And then we realized really didn't fit our portfolio, so we divested it. That allowed us to invest into the core into the businesses that will really drive our long-term growth in the Hydraulics segment. When you look at that focus on our core strategy in terms of commercial go-to-market, in terms of our brands and leveraging the trust and the strength of those brands globally, you could see the benefit that brought in 2025, where we returned to growth in the Hydraulics segment.
And that's in what is still a down hydraulics market. If you talk to competitors across the landscape, if you study the market in the indices, the hydraulics market has been down for a few years since the post-COVID peak in around 2022 or early '23. And even in that down market, we were able to drive growth with that disciplined focus in 2025. And we have a tremendous amount of runway in front of us that we'll highlight in our slides. The hydraulics market and segment for us, there are 3 principal end markets that we play in mobile, really heavy with Sun Hydraulics and also Faster has a strong presence in construction and mobile, agriculture heavily for Faster, a little bit for Sun and then industrial as well.
There are adjacent markets that we're going to talk to more in our slides that present an opportunity for growth across our businesses within the Hydraulics segment. Last year, the total segment was $541 million. If you take out custom fluid power on a pro forma basis, it was $494 million. I want to talk about motion controls. And motion controls at the heart is Sun Hydraulics. And then we also have the affiliated brands of NEM hydraulics, Damon products and Schultes Precision Manufacturing. Our products fundamentally are driven by our cartridge valve technology that you see in the upper left of this slide, both hydromechanical -- traditional hydromechanical cartridge valves, but also electrohydraulic valves.
We've continued to innovate and push the envelope on the electrohydraulic side into sensing technology, and I'm going to talk to that more on my very last slide for the portion of motion controls that I talked to. We're able to take those components and configure them into complete sub solutions through our manifold integrated package solutions that we develop. We manufacture our own manifolds. We can bring those cartridge valves and manifolds together into complete circuits. And the applications that you see shown on the slide are a great example of how our brand is trusted and critical load holding applications.
If you have a load in the air, if safety and reliability or Paramount, you want Sun Hydraulics. That's the reputation we established in the market over 50 years ago. We have defined that space. We're renowned for that globally, and we continue to advance that. And whether that load is a static load, could be cargo in a maritime application on a loading dock or whether it's a dynamic load, whether it's a person in the air, you're going to see out on the displays out front, a scissor lift that takes people in the air. If you have people in the air, safety and the wellness of those people is paramount, you want Sun Hydraulics. That's where we excel.
For Sun and motion controls, mobile and industrial are our 2 largest markets. We also play strong in marine and offshore. And while we're strong and have great brand recognition globally across those markets, we still have tremendous runway in front of us to grow in those markets. And all those markets are still projected to grow at low to mid-single digits as we look out. So we really are -- have a tremendous amount of opportunity to take share in markets that are still growing. We also see the defense and aerospace, while we have a little bit of a market that we actually serve in that segment. There's a tremendous amount of opportunity to grow for us and really grow in an outsized way to the traditional markets we serve.
So across all those markets, it's over $2.5 billion of obtainable market, and we believe that there's a lot more with our focused commercial strategy, we can go win within those specific markets. In the Defense and Aerospace segment, we have wins through our distribution channel, but it's still an underserved market for us. We've have been allocating resources to go focus more heavily on those markets, dedicated sales resources, specific engineering projects driving around those resources supporting opportunities that can arise and also to pursuing the certifications that help us penetrate further that market like ITAR certification and CMMC for cybersecurity.
And that's going to help us drive growth in those markets. which both we can serve better, but then two, those markets are growing faster than our core. So we really see these as complementary growth opportunities to our core business where we continue to focus to drive organic growth. You heard through the threads of the presentation so far today about people and talent reflected heavily in Sean's presentation, but also in Billy's. And that's core to our strategy. Bob Koski, when he founded on, it was all about people. It was about the relationships, with the employees and the respect for the employees but also the same relationships with our customers and suppliers.
This deep trust and that is something we continue to focus on, and it's fundamental and also focused on the brand the strength of that brand and the trust people have in that brand of Sun Hydraulics, we can leverage that to actually open doors for the other affiliated brands that we've acquired over the last few years. We're focused on gaining more wallet share in our core markets, also focused on expanding into markets that are underserved geographic white spaces, places where we sell today like Latin America and South America, India are several examples, but we still have limited penetration into those geographic markets that are largely underserved. And so we see tremendous growth opportunities we have allocated specific resources focused on those markets to build up the teams to reach deeper into them.
And then also adjacent markets, I touched on defense and aerospace. We are continuously investing in R&D and engineering. We have always been an engineering-driven company, and that will continue to be core to our growth going forward. And really, it's about expanding the technology that we can use to actually reach deeper into the obtainable markets, and I'll touch on that in the slide that follows.
Operational excellence for us is about more than just the traditional focus on quality and lead time and on-time delivery. That is definitely part of the equation. But operational excellence for us is just as much about the people that support the customer, whether it's on the front end, application engineering, engineering that designs the solution, or whether it's on the back end after the sale. And then sometimes that's the most critical because that's when an issue occurs, or there's a deeper understanding of application that's needed after the products in the field. If you pick up the phone, we will be there, and I'll highlight how we have resources around the world to support our customers after the sale.
And M&A, I'm going to touch on that specifically in a slide that follows. So our focus is on our [indiscernible] our brand and our strong position to grow in our core markets that we already serve, but it's also on driving accretive growth through technology and in time, M&A. There are 3 distinct work streams in our new product development or engineering processes. The first is what you consider a traditional new product development work stream. It starts with product proceeding technology, innovative ideas that then work their way into NPD or new product development projects. And those are brand-new platforms like cartridge valves that we release.
Those projects take typically 3 years from inception to market release to revenue generation. The next work stream is new product ideas. Those are existing product platforms, cartridge valves that already exist, where a customer has an idea that, can you change the flow rate a little bit, a different spring rate that allows it to adapt as I needed the customer for a specific application. And we do that regularly. We will customize that product for that specific application to help that customer win that business. And those projects typically take less than 6 months, sometimes less than even 3 months. But it's a pretty quick turn cycle in revenue for our business.
And then the last work stream is what we call manifold integrated package solutions. That's taking a hydraulic circuit on an existing platform and optimizing it, reconfiguring it through circuit design with application engineering to help a customer optimize that application and also win new applications, and we're able to do that in very short cycles. We have special tools that help us accelerate that cycle. We have the deep application knowledge. And we can take a circuit design, sometimes initially from a customer and convert it into an actual manifold, integrated package solution in less than a couple of months, sometimes less than a couple of weeks, helping our customers win with speed.
When you look at our product set, they have a long life cycle. Some products are regularly in the market for 20-plus years. That graph highlights that. It shows that from 2000 to 2016 for all the products we launched, after 15 years, those products are still growing in the market on average. And when we look at 2016 to 2026, which isn't mature data yet, because our products have a market adoption cycle that is slower, but that it continues as those graphs represent. And we look at the data from 2016 to 2026, it follows the same slope of curve that you see on that graph, which highlights that our products are the closest thing you could find a recurring revenue in an industrial setting. And it highlights, too, how much trust people place in our products and Sun and our people because once they design it in, they don't want to take it out. And so we have this long life cycle, both the product life that we can then continue to mine value from after the initial engineering investment. But we also have this long life cycle of customer relationship.
And it shows how our engineering investment yields the steady and long return and curve. We have a global footprint and manufacturing in every region of the world and a strong manufacturing presence that puts us close to our customers. We have application engineers and sales personnel around the world. And so we can engage culturally in the language, in the time zone to provide high levels of service, both before and after the sale. We've driven key initiatives for operational excellence over the last few years in the region manufacturing, leveraging that global footprint.
We've moved a lot more of our assembly into APAC over the last year, managing and mitigating the effect of tariffs. We've been driving operations integration to take out overhead cost in the Americas with our acquisitions. We've also been leveraging low-cost capabilities in India, both for manifold production, but also for engineering and data analytics talent. We have skilled a team there that's part of our Sun Hydraulics organization of engineers that supports our engineering team globally here in Sarasota, but also in Europe as well as in the broader Asia region, really leveraging a low-cost pool of incredible talent in India.
And then we touched on the selling of custom fluid power and how that helped us optimize our portfolio. It raised our overall profitability for the Motion Controls business and allowed us to invest in the core to accelerate future growth. For M&A, we're looking at the dimensions that you see here, but our real focus is on product and technology gaps while we're always keeping an eye on the balance. And sensors and monitoring technology are really where we're focused, how we augment our technology portfolio in those particular technologies, but also then how that allows us to bring greater precision controls into the market.
With that, we are continuing to win business. These are 3 examples of how we've won business in the market over the last year. Wind turbines, $2.5 million of OEM business we've won through and in Europe and a trusted application for pitch control and also break in hydraulic turbines, $1.2 million win back of business on excavators here in the U.S. in a manifold integrated package, which really highlights to how we've rebuilt trust in the market, some of which was a little bit unsteady after some of our acquisitions caused some operational performance delivery issues.
We've built back that confidence, won back business. And then lastly, mining equipment in Asia, in China with a big OEM, we won $200,000 of business, which doesn't sound like a lot, but we do that regularly through our distribution channel over and over again and have this broad-based sticky portfolio of revenue. So a great example of how we continue to win. And excited to highlight how we're driving that innovation and our strategy that focused commercial go-to-market approach with our next launch and product, which is a flow control cartridge valve, the [indiscernible], which brings sensing technology, digital control into a cartridge valve. It still operates in the high-pressure applications that Sun is known for up to 5,000 psi, where demand, reliability and safety are paramount, and it really allows us to bring the next generation of digital and configurable control and sensing into hydraulics, which really is what's going to drive our growth for the next 15 to 20 years, like you saw in that previous curve, it will continue to ensure that we maintain our market-leading position in the industry.
And so with that, I would like to now introduce Matteo Arduini, he's got to come up and talk about fluid conveyance.
So first of all, I'm Italian, so hopefully, my English is clear enough for you. Today, I'm going to take you into the Faster world. So what do we do it Faster? At Faster, we connect any implements or attachment to a main machine, which could be a tractor, a harvesting machine or an excavator, for example. How do we do that? We do that through multiple solutions that you can see here in this slide where I have summarized the main product family and the main application. We have, for example, the casting solution, which are both for agriculture and for construction and our hydraulic integrated interface that improved the operator experience by reducing the downtime and maximizing the utilization rate of the machine.
This is a trend that we have seen growing significantly in the last few years in the market. Then we have our faster flagship, the multi-faster, which is a multi-connection that combines multiple fluid and electrical lines into one action. The multi-faster is mainly used in the agriculture, but thanks to the fact that we had we have recently added some new products in our catalog, such as the new multi-faster, the multi-side, the [indiscernible] that I will share more about later on in the presentation. This is also growing in construction.
I want to share with you the fact that the name MultiFaster, became over the years and standard in the market. Our competitors, when they offer their multi-connection solution they refer to their multi faster. This is obviously great for us. How do you say in U.S., imitation is a sincere form of flattery, right? There you go. So then we have base couplings such as flat face couplings, thanks to their reliability and quality can be used in any condition and in any environment.
From a business perspective, we are mainly exposed in the agriculture, which represents for us indicatively 60% of our business, and we have a dominant position historically. Mobile and construction equipment market is our second market, which is higher in terms of addressable value, but that's mainly because of the higher number of the application that we have in this market. If we pick specific applications, such as the compact track loader, in this case, we have an even more dominant position than in the agriculture market. Then we have the industrial market, which is a small market for us, but thanks to some specific initiatives that we are launching and that I will share more later in a couple of slides.
We think we can grow significantly also here in the next few years. From a market channel perspective, 80% of our business go through with the OEMs and 20% to the distribution. Besides the traditional market, we think that we can play a role also in the Adjacent and new market. Take, for example, the oil and gas market. Oil and gas is a close market limited market with different rules of engagement. It's less volume agreement, more project based. And we have the product. But on top of that, we are developing specific product that can be used in the offshore oil and gas platform that can be disruptive for us. And that's the way through which we think we can enter into the oil and gas market.
Then we have the mobile automatic connection, which is a small market, with a clear leader. We have the product. Also here, we can grow. But then there's an interesting one, hydrogen. Hydrogen is not quantifiable in terms of addressable value. There are no market standards. But if we consider the 2 main challenges of these technologies, which are the very little temperature when it's about liquid hydrogen and a very high pressure when it's about gas hydrogen, we think that with our product, we can play a role.
In fact, we are collaborating with some European startups that are working on developing specific solutions for hydrogen application. So we are monitoring very closely this market. But then the real news, the thermal management market. So we don't know how quickly the data center market is growing. So we decided with our Board and with support of Shawn to develop our own product for the liquid cut system of the data center. So the product has been developed. The product has been successfully tested. We have capacity in place. We have developed a dedicated supply chain. We are under NDA with some important OEMs and hyperscalers. So we are there, and I'm very happy to share this important milestone of faster history with you today. If we think about the data center addressable market for us today is already bigger than the traditional addressable market for us.
And if we think how quickly this market is growing, that gives you the idea of the opportunity that we have here. So based on what I just shared, you understand why, in the previous slide, I said that we think that we can grow significantly also in the industrial market.
From a strategy standpoint, we think that we can hit our goals by doing 2 things: one, doing what we've always done, meaning leading the market, mainly through technology and making sure that the next important platform from our main customer are secured. And this is actually happening because if we look at the next 5 to 10 years new platform, we are there. On the other side, we need to diversify and diversify means to enter into new markets, and that's where the data center opportunity stays or enter into a new application. And that's where the new product that we're adding to our catalog stay. So clear strategy, really a matter of execution.
That's also why from a new product development process standpoint, we have 2 different approach. The first one is the traditional one, which means co-designing, codeveloping with our customer the hydraulic solution. In these cases, our engineering team really become an extension of the customer engineering team to work together in developing this solution. On the other hand, we need to diversify adding new product to our catalog with the idea of entering into new application in the existing market. always with the overall idea to make the end user life simpler to quality and performance.
Let me share you a secret. If you think about the many components that are part of an hydraulic system or a tractor, for example, the only one component that is physically touched by the end user is the coupling. So that gives you the idea why for the machine manufacturer, this component is so important because the feedback that they receive from the end user, it also goes through the efficiency through which the end user connect the attachment, very important.
From a global footprint standpoint, we think we can cover all regions. Our main production site is in Italy, close to Milan. And by the way, let me take the opportunity to invite you in case you plan trip to Italy to visit us. I'll be glad to host you in our offices. Our second production site is in India in Pune. We are leveraging a lot on this location, especially in order to get opportunity from a product cost perspective. Then we have sales offices and service center in Shanghai, China; Sao Paulo, Brazil; Toledo, Ohio. This footprint is currently under optimization since we are consolidating the faster business in U.S. into one location.
We are shutting down our Canadian location, and we are also considering to move some light production in some countries like Brazil or China for the benefit of the local market. When it's about M&A. Obviously, for us, it means to be consistent with our strategy, which means to find a potential player that would allow us to enter into new markets or enter into new application in the existing market by keeping in mind the 3 key drivers of a potential M&A operation, which are niche technology, niche market, top technology, premium profitability.
So getting close to the end of my presentation, I want to share with you some business wins. And it could have been easier for me to share with you important business wins with our traditional historical customers such as [indiscernible] et cetera. But instead, I decided to pick some business wins that really represents the fact that our strategy is working. For example, in Europe, we won a couple of million dollar business with SDF Group, which is a German, Italian OEM in the agriculture. They decided to adopt our casting solution that we call Genius. But thanks to its versatility and flexibility can be adopted without having the customer making big investment in tooling and equipment. This is very important for them.
On the other side, on the construction equipment market, the MultiQTC, we just launched this product a couple of weeks ago at the [indiscernible] show, and we are already receiving important feedback. We have already agreed in equipping 2 to 4 important European fleet and also a Caterpillar 340 in Chicago that will become our trend setter for the market. And that's really where I want to end my presentation with the MultiQTC, which is the product through which we are entering into the heavy equipment application, in the cross-central equipment market. And we are doing that not only offering this product to the new machine, but also thanks to its versatility and flexibility with the existing fleet around the globe, becoming a huge opportunity for the aftermarket and the distribution sector.
So as you can see, exciting time for us. There's never been a better time to be at Faster. There's never been a better time to believe on what you're doing in Helios. And it's also time for a break.
Great. Thank you. And just we're going to come back -- we're going to take about a 20 or so minute break, so please come back by 10:35 Eastern time. We'll see you shortly.
[Break]
[Presentation]
So we've introduced our shared values and the core 2030 strategy. You've heard from our business unit leaders about our operating segments, and you've had an opportunity to see some of our products in their applications out front. I'm now going to dig deeper into the 2030 financial targets that we intend to achieve. But to achieve those targets, it's going to be founded in our shared value of excellence. And to have excellence, you got to be disciplined and you got to be structured. And the discipline and structure that led us to consolidate our central engineering teams and put those resources back in the business; two, divest our CFT operation to reinvigorate our go-to-market strategy, return to growth in 2025 and to deliver on our forward quarter guidance for 9 consecutive quarters.
That's the discipline and structure that we're going to leverage as we journey down the path to 2030. And we're focused on 4 things that are going to deliver financial results. One, outpacing market growth by strengthening our sales engine and expanding in these large end markets that our business unit leaders talked about; two, restoring margins. We're going to optimize our global footprint. We have the capacity, and we're going to manage our portfolio performance. You heard Sean mentioned about Project Orion. We've got specific targets in our Electronics business, we've got initiatives that are going to improve that profitability. Third, it's about enhancing shareholder returns. It's all about disciplined capital allocation. And four, phasing back into M&A through a very structured framework to pursue accretive acquisitions. And there's no home run for any one of these things. It's just about doing the next right thing for the company and our people and about compounding sound financial decisions into long-term value.
If we go back to 2016, when the company was just Sun Hydraulics, it was a very stable $200 million business, very profitable. gross margins high 30%, even in the 40%, adjusted EBITDA, high 20s in the 30%, but they weren't growing. In 2016, the company went down a path to grow and diversify through acquisitions, company acquired about $500 million in sales, acquired good companies. They were all profitable. They all generated cash, but everyone was dilutive to the legacy Sun profile. And that's why you see those margins drop those adjusted EBITDA margins down into the mid-20s.
Sales peaked at $885 million in 2022, part of that was through the acquisitions, but part of it was through demand generated through the COVID paddemic. The COVID pandemic was actually very beneficial to the Helios portfolio of companies. challenge was just as fast as that demand kind of skyrocketed, it shut off just as fast. You start to see those declines in 2023. What you don't see, though, are the operational issues that were created as we started to integrate some of those acquisitions and stand up our centers of excellence.
So our lead times got extended, our on-time delivery to and we've lost market share. We've put a lot of effort in addressing some of those operational challenges in the last 1.5 years. Our lead times are back down. Our on-time deliveries are up. We know we're winning back share. We returned to growth in 2025 and what we believe was a flat to down market. As we look forward, we see an opportunity to grow in the end markets that we serve today. as well as expand out into adjacent markets, as you heard from our presidents.
The slide is on the screen. Now each one of those photos depicts a different end market. In the middle, you'll see some pictures, got a dotted line around them, kind of some blue shading in the back. Those are end markets that cross both segments. We have customers that buy both electronics and hydraulics. That's why you hear us say we want to be a preferred supplier. We want to offer everything that is needed by our customers on that piece of equipment. Through that whole electronic hydraulic system, and you'll see some of those applications out there. Great examples [indiscernible].
We have a lot of hydraulic and electronic on the Vermeer equipment. We've got a dichwitch outside that's got both products. I encourage you guys talk to our engineers figure out how these components are working together. Those end markets that I showed are benefiting from some very large secular trends. The first is the electrification and digitization. Their advanced electronic controls coming out, haptic controls, right? We all live in a digital space. People that are driving the work, leaving their connected homes and their connected vehicles, touchscreens. They want that same experience, whether that's through mobile equipment or construction equipment, industrialized environments recreation.
We've got a lot of that on display outside as well. There's a trend around productivity, energy savings, energy demands are only going to keep going up. companies are dealing with labor shortages, trying to find qualified people. It's all about driving productivity. And then lastly, automation, AI robotics. I think we're all aware, really big hyperscalers playing in the data center space, announcing hundreds of billions of dollars in CapEx spend. And that directly and indirectly benefits a lot of our end markets.
And we have products already they can serve those end markets and capitalize on the opportunities that those secular trends create. We believe we have the engineering expertise and capabilities that uniquely positions Helios to capitalize on the opportunities that those secular trends are going to drive. And our products currently along with our future road map, address some lease here some examples I want to put out. We're launching our next-generation displays and controllers, comes with inherent connectivity and expanded functionality.
We continue to expand our line of multi-connect couplings that make it safer and faster to exchange out equipment or attachments and really large equipment at a job site. We launched an Energen valve, which is actually out front, it's super cool. So valves got a little turbine inside as the hydraulic fluid goes through the valve, it spins the [indiscernible]. We're able to capture that otherwise wasted energy, take it back to a control source, take of a warehouse pool of electronic forklifts, maybe that forklift has a 4-hour battery life, after which you got to go plug it in.
These products can potentially extend the life that battery charge and keep those forklifts running for longer. We have our Cygnus platform that enables over-the-air software updates remote monitoring, remote support, enables our customers to troubleshoot end-user problems without having to send out a field technician. So you take our products in these large and growing end markets that are getting a boost from these large secular trends, is what gives us the confidence that we can grow our organic revenue at 5% or more.
So our goal is to double our sales by 2030. And the drivers come down to our core growth, which we define as general market growth, both through the cycle as well as additional market share wins that we can gain with our existing products and existing end markets. We have pricing. We don't look at pricing as a strategic way to drive revenue, rather, it's just a way to offset cost inflation. We have revenue from our new products. We launched several new products in '25. We've got a really good strong product road map. And then revenue going into adjacent markets that our business units talked about.
On top of that, we have revenue from acquisitions. The starting point is $792 million. We reported $839 million in sales in 2025, but that included roughly $47 million in sales from our divested CFP business. Take that out, we're starting at $792 million. The midpoint of our guide for 2026 is $840 million. And how we're going to get there. You can see most of that is coming through our core growth. There's a little bit of pricing, a little bit of revenue coming through the new products that we launched last year.
So we look ahead to 2030, there's still the core growth, but now you see much bigger portion of that growth is tied to our new product innovations and entering those adjacent markets. Based on the strategic planning that we've done, the financial models that we have, we expect that organic business to grow to around $1.1 billion, which leaves a gap of roughly $500 million to cover an M&A. Now if we overdrive organic business, obviously, we can adjust accordingly, but the management team is committed to doubling the business by 2030.
With M&A, that is about a 15% compounded annual growth rate. We reported 19.2% adjusted EBITDA for 2025. Our goal is to get to 25% plus. Biggest driver for us in terms of profitability is volume. As our sales grow, we're going to get that leverage. We have the capacity to grow in most cases, but we're not relying on that. We also have productivity initiatives, value engineering initiatives. We're going to be investing in automation. We have engineering teams looking at how we take cost out of our bill of material.
We have what we're calling footprint optimization. You heard Matteo say that we are consolidating our Faster Canada business into the U.S. and Italy. So we have a location up in Canada that we're going to be closing midyear this year. You heard him say that we're going to consolidate our faster U.S. business in Toledo, Ohio, which is a location we already have. It's going to generate productivity, allow us to eliminate some of the redundant management positions that we have. Matteo, Billy, Rick talk about our low-cost manufacturing. We've got a low-cost plan in Tijuana, Mexico, India, China. We already moved a lot of production to those locations as part of the in the region, for the region strategy.
But in 2025, we put a lot of that on hold just with the whole tariff situation, the uncertainty. We're getting back, we're going to move additional production to those low-cost locations. And finally, through the divestiture of CFP, we are going to see a bump, we're going to see that this year. CFP was a great business, great team over there, but it was a distribution business. The margin profile was much less than the rest. It wasn't core, and we're going to see an uplift of that. So the midpoint of our guide for 2026 is 20.5% coming through primarily the volume, some of the productivity in the CFP. When we bridge from '26 to 2030, you see that footprint optimization come in. bigger piece around net productivity and value engineering.
So we believe our gross margins are going to expand. We're going to target SCA at 16% or less. It's going to lead to a 20% plus adjusted operating margin and a 25% plus adjusted EBITDA margin. Our businesses generate strong cash flow. We can fund our organic growth through our cash from operations. We just announced our second consecutive year of record free cash flow. One of the things that contribute to that record was our strong, strong focus on working capital.
In 2024, we took out over $25 million in inventory, we were able to maintain those inventory levels even as we return to growth in 2025. This past year, we were really focused on working with our suppliers on extending those payment terms. As a result, we saw our cash conversion cycle reduced from 2024 to 2025 by 18 days. Going forward, we expect our free cash conversion rate to be right around 100%. We expect our CapEx spend to be between 3% and 6%. It's a bit higher than we've had in the last few years, but it reflects the investments that we're making in ourselves.
We have some aging equipment that we need to replace. We're also investing in equipment to make some of the new products that you see. And I want to highlight that, again, we have capacity. We expect that we'll need minimal investments in footprint. Now depending on where we grow and how we grow, we'll have to adjust. I'm sure there'll be some additions, but they will be isolated. But overall, we expect that to be minimal.
If we go back during that time of heavy acquisition between 2016, 2023, we spent $1.3 billion on acquisitions. It was about 67% of our total capital allocation. Last 2 years, we pivoted. It was all about paying down debt. Our debt levels had jumped up over $500 million. Our leverage ratio was above 3%. We were very intentional that we paid down over $150 million in debt in the last 2 years. Going forward, as we phase back into M&A, we expect that to tick back up. We're projecting about 50% to 60% of our capital allocation will be M&A focused.
The one thing that's been consistent throughout has been our dividend. Now we're very, very proud of our dividend. It's in every press release. It's in all of our communications. We paid dividends for over 28 years. This year, 2026 will be the 29th year. However, that dividend has been the same amount since the beginning until now. So we just announced this morning that the Board has approved for Q1, an increase in our dividend by more than 30%. It's the first time in the company's history. This is after announcing last year for the first time in the company's history, a new share repurchase authorization.
The Board had approved $100 million in share repurchases. Last year, we purchased about 1% on of the company's stock were just under $14 million. It was a great return. Sean mentioned the average price in the mid-50s, great return of value to our shareholders. We're going to continue to leverage that as we have excess capital, and we see that our shares are undervalued. Because of paying down that debt, our net leverage ratio 1.8 is where we ended 2025. It's well within our target operating range of 1.5 to 2.5.
Our liquidity at the end of 2025 surpassed our debt for the first time in many years. We have flexibility. We have liquidity that will allow us to invest in ourselves as well as pursue M&A. And you heard our presidents talk about the white spaces that they have in their business units and how M&A might address that. I want to talk about our approach and some of the things that we're doing differently, including putting in financial guardrails for the organization to follow. And any M&A target is going to have to meet the strategic criteria.
The first one is all about culture. You guys have heard us talk about it. Hopefully, you've experienced, if you're in the room talking to our teams, we've spent a lot of time in the last 1.5 years building up our culture, and we need to make sure that we are acquiring companies that can fit with that. Number two, it's got to fit with who we are. We have heavily designed engineered products that go into critical solutions for our customers. It creates a lot of customer stickiness. Products have to be complementary to what we already have within Hydraulics and Electronics.
And third, it's got to be an opportunity in a growing or a market that has potential to grow from a region and an end market perspective. We're not looking for a turnaround situation. In terms of the financial guardrails, it's making sure that the growth potential and the margins contribute to our 2030 goals. We're looking for earnings and cash flow that will be accretive in year 1. There's going to be targeted synergies. Going forward, we're going to have dedicated teams upfront that work on the M&A evaluation. But we're going to have dedicated teams on the back end that will be responsible for the integration, making sure that we can capture the targeted synergies.
Every valuation we do is going to be anchored on analysis. We're going to have market-based multiples. And ultimately, what it comes down to is what is the return opportunity. And for us, we're going to measure that through our return on invested capital or ROIC. We know our ROIC is not where it needs to be. We've seen a decline. Our debt went up, our sales operating margins went down. If you look at 2025, if you adjust for the goodwill impairment charge we took in the third quarter, our ROIC was 5.7%. It's below our weighted average cost of capital.
Going forward, we're targeting low to mid-teens. How do we get there? As we grow, again, we got to ensure that with those incremental sales, we're seeing that margin drop to the bottom line. We're going to drop -- we're going to increase our operating income. The working capital focus that we've instilled we need to maintain. Our working capital is going to float with sales as we start growing our working capital levels will naturally go up. But that improvement we saw in our cash conversion cycle, we need to make sure that we hold that.
Managing CapEx spend, making sure that we're investing in those initiatives that have the right return profile and ultimately, because it's a big piece of the growth, we've got to make sure that we successfully execute on our acquisition strategy. We got a hold firm to the financial guardrails that we put in place.
Great. And so let me summarize in terms of what are our financial priorities as we march to 2030. We'll execute on our growth plan. We're winning our share of that sales funnel as Sean described at the beginning, we're seeing wins, we're pursuing wins. We're launching new products that generate revenue for today and in the future. And we have to prove that we can successfully execute on our M&A. We're going to expand gross margins, all about driving productivity, the value engineering and leveraging our global footprint and the capacity that we have. We need to maintain our earnings momentum, and this is just all about growing our earnings faster than sales about balancing our SCA investments with our sales growth.
And we cut off some of those investments as we were declining, presidents will tell you there are a lot of things they wanted that we didn't approve. And now that we're back into growth, we got to make sure that we're balancing those investments with that growth. And ultimately, it's about driving the improved returns, making sure that we're allocating that capital to initiatives that deliver sustainable shareholder returns. And for us, we're going to measure that through our return on invested capital.
And so when I look ahead, I'm super, super excited like we have a fantastic leader in Sean Bagan. We've got an incredible leadership team. The broader Helios family, we got engineers outside that are passionate about their products. And really, we have the team that can take the opportunities that we have in front of us and turn those opportunities into financial results.
And with that, I'd like to invite our leadership back up on stage. And I'll turn it over to Sean for some closing comments.
Thanks, Jeremy. Thanks to our presidents. My goal here in these last few minutes is simple: leave you confident that Helios not only has the plan, but we have the people. We have the performance engine to deliver our 2030 goals and beyond. But before I close, I want to acknowledge one thing. Helios always hasn't been the easiest company to understand. We've grown quickly. We've transformed very significantly. And in the process, we've taken on many new challenges. But today, the picture is very clear. We have the right people, we have the right systems, we have the right strategy, and most importantly, we have the momentum to deliver it.
So let's revisit that momentum model one more time. You've seen it throughout the day, but it's worth highlighting what makes this different and why it will work. Our customer-driven innovation gives us that line of sight confidence into our CORE 2030 ambitions and ensures that every new product we're bringing to market solves a critical problem. Our global market expansion turns these regional wins into global revenue streams. When you look at our operational centers of excellence, they are already driving those efficiencies and those margins improvements. And as we put more volume through our existing channels, you heard Jeremy talk about, we have the capacity. We're doing operational improvements from a capital expenditure perspective to get more efficient, but we will continue to see those margins accelerate.
And finally, with the strategic acquisitions, those other things allow us to do that and our focus on our capital deployment and our position from a leverage ratio and our continued strong cash generation will open that up to really drive further. And our commitment is to double the size of our sales by 2030. That represents a 15% compounded annual growth rate and will be achieved with our M&A supplement in addition to attacking the new markets and generating above-market organic growth. We're also committed to driving our profitability at a faster pace than our sales. So you'll see there a target of at least 25% from an adjusted EBITDA perspective. That's how we build an enduring company, not through heroic efforts, consistent, scalable execution.
Now let's talk about the accelerants that make these targets more than just projections. So first, we have catalysts, but these catalysts are nothing without a company that's capable of capturing each and every one of them. And that's where I believe our investment thesis becomes undeniable. You've seen the team. We have a high-performing team that's very accountable and focused on delivering results. We've rebuilt that culture of belief. Secondly, our leadership in engineering products that are very meaningful in critical applications, we will continue to do that, and we will be on the gas even further in 2026. And that leads to that multipronged strategy of how we grow, whether that's with just our compelling investments we're making, our organic expansion, -- we have pricing power and stickiness when we bring these products to market with our customers. And that's as a result of this disciplined NPI of ensuring we're bringing these meaningful products to market.
And then you add strategic M&A on top of that, and this becomes a multiplier effect to our growth that allows us to have that strong balance sheet and continue to generate further growth that enables optionality over time from a capital allocation perspective. So we do feel very uniquely positioned to capitalize on the secular trends that Jeremy identified. And we believe Helios is a company that is no longer reacting to that market. We're out there shaping the future for ourselves, for our customers with intentionality, clarity and execution.
So I'll close with this. I want to leave you saying Helios has the strategy. We have the leadership. We have the operational engine. But most importantly, as I've said, we have the momentum. The CORE 2030 strategy isn't a distant vision. We're already executing on that destination, and we're moving forward very deliberately, very confidently, as you can see, and with discipline that you heard today. So thank you. Thank you all for being here and for joining on the webcast. Thank you for your time. Thank you for your engagement and for considering Helios as part of your investment future. Momentum is here. Opportunity is here. And the exciting part is we're just getting started. Thank you.
We will now transition to the Q&A portion of our program. So for in the room, we'll have microphones on the outside and the center, and we also can take questions from the webcast, and we've already gotten them coming in. So as they're getting set up, let me just start with one real quick from the webcast. And the question is really about from a long-term perspective, how do we think about the synergies of electronics and hydraulics together?
So I'll start. I mean, very simply, you go back to 2016 when the pivot was made to diversify and grow the company through M&A. And that first acquisition with Enovation Controls was at the onset of seeing this electrification of hydraulics. And today, I think our President brought to life how that looks in the future and how Billy and the innovation business can complement the Sun and the fastener business and how we can then identify those new markets by attacking with those products that we talk about from a growth catalyst perspective. We're very intentional with our data center entry. You heard about Billy's win with BorgWarner on the electronics side. Matteo talked about the opportunity with quick disconnects that we're really good at in couplings. We lead the agricultural industry. And then you carry that forward through our Balboa business. You talk about our Purezone and our water quality management. That's very intentional on bringing very innovative future solutions. And then finally, with the QMEH valve that Rick talked about, that's a very interesting product that gets into sensing and opens up a new aperture for us. And that's just not one where you just get in. You win, you get designed in, and that leads to a system, and that system leads to ongoing recurring revenue. So we're looking at it from the perspective of how can we continue to synergize that over time.
I think I saw some hands up...
Jeff Hammond, KeyBanc Capital Markets.
2. Question Answer
Maybe just starting with the targets. It seems like the organic number is maybe on the low end and the M&A number is a little bit higher, particularly given maybe what's been a mixed track record. Just how do you think about the upside drivers to organic growth? And then on the M&A side, just how are you thinking the same or differently on the approach and learning -- what you've learned from kind of prior deal experience to kind of have a better path?
Yes. So I'll start. First, I think Jeremy did a nice job to show how that stacks and builds in. And so we're committing to a 5% plus organic growth rate, $500 million would be needed from acquisitions or new markets. We can flex that. The main talking point is we're committed to doubling the company in 5 years. you're certainly getting a head start as we enter this year. Even at the upper end of our guidance is a plus 9% midpoint, we think we can achieve what we've laid out as we get into this year. And again, I would highlight, we are exiting with a lot of momentum at a plus 13% in the third quarter last year, plus 17%, plus 29% when you pull out CFP and then the low point of our Q1 guide plus 20%. So really, we will pace that, and I will want to highlight, we're not doing any due diligence right now. There's nothing imminent. We're not going to rush into this. But I'll also remind that Jeremy and I were not here when any of these acquisitions occurred. And so Jeremy laid out the framework, and you heard it throughout the presidents as to how we will -- our approach will be and what we will be targeting. And I think what you'll find is a much more disciplined approach upfront to ensure that we have the right fit. And over time, is in line with our core business' financial profile to help us achieve those 2030 targets.
Yes. I would add, when we think about a post deal, that process will look different. I mentioned dedicated teams. I think our presidents would say that with prior acquisitions, we didn't carve out, let's say, the enough resources to really drive that integration and go drive those synergies. And in some cases, there was a top-down approach where the acquisition was done and kind of handed over to the business, okay, now go operate and drive and move this forward. And so as you can tell, it started with our deep planning process, engaging the broader team to what are those areas that we need to focus on. They're going to be involved throughout the process and also have accountability to deliver results. The second thing I would say is it's got to be the right fit using the custom fluid power as a business. Rick mentioned, it wasn't a core. It was actually a distributor that we had used before. And if it had been in any other market, probably in Australia would have been seen as channel conflict and our rest of our customers wouldn't like it. So that wasn't a fit. Some of the others are engineering, great resources that came, but we essentially paid a premium to bring in an engineering staffing team. And so it'll just be taking a different perspective on what are those opportunities, what is the right fit and then making sure that we've got the right structure to go drive the implementation and synergy capture.
I've got one more from the webcast from John Braatz with Kansas City Capital. There are some large adjacent market opportunities. Are they mostly served on an OEM basis? Or are there distribution opportunities? And on an OEM basis, how long can the sales cycle be?
I'll take this. Is that okay? I can tag on. Yes. I mean, definitely for electronics, definitely a major play in the OEM space. And it depends on the customer on how long it takes to launch. Some of these industrial construction time, they're planning 2 years in advance and a program that may launch in another 3 years, right? So all the work and due diligence and testing and everything you got to bring forward to actually successfully launch a product, there's some time out there. But there are also some quick wins. I mean, for our Electronics segment through distribution. Sometimes you can turn those wins on quicker. OEMs are a little bit longer depending on the customer and how much testing they want to do.
I would add to that, just reflecting what Billy shared, it depends on the OEMs because there are large OEMs that play in those adjacent markets, and those will typically be direct accounts because they won't buy through distribution. But then there are smaller OEMs where there are opportunities through distribution. And so we have the ability through the businesses, Matteo and Billy's that do traditionally go direct more, but then also have the reach with Sun's global distribution network to play into those adjacent markets as well. So it actually kind of top to bottom, it gives us good coverage.
And if you get our product platforms right upfront, sometimes those sales cycles will go quicker. You have the right platform in place, those will go a lot quicker. And we've seen that throughout the Electronics segment.
I think I saw some questions upfront, if you want to bring the mic over.
Tomo from JPMorgan. Two questions. The one is 5% plus organic growth. Could you talk about how much of that relies on cyclical tailwinds versus structural improvements such as share gains or go-to-market strategies?
Yes. So one, I would say it's a through-cycle target. We're not planning massive market recoveries or significant depressions. So we think it's a fairly balanced target that we're setting for ourselves. We think we've shown recently that we can outgrow the market and believe that would be important to continue to demonstrate. But it will be dependent on continuing with our go-to-market wins. We got to continue to do what we did last year. That $60 million we won last year isn't going to be all $60 million this year. Some of that, for Billy's comment, will hit future years, but we know we are designed in, and that's designed in for a lot of years into the future. We will continue to try and achieve more than $60 million of wins this year to help support that. But given where we're seeing our order book, which for the last 10 months, has been up double digits over the prior year month that hasn't happened since 2022, gives us tremendous confidence that we can continue. Now as we step through this year, our second quarter will be really key for us. We're watching those order trends. And if they maintain, that will give us a lot of confidence in the back half as well. But right now, from a guidance perspective, we tried to protect on a low case. And certainly, we'll try and continue to drive towards the top end, if not go over as we've done with our quarterly guidance throughout the past 9 quarters.
Yes. And I would say over the time, the longer term, we're looking at it kind of 1/3, 1/3, 1/3, where 1/3 of that is just the general market. 1/3 of that is coming through the new product introductions that we have and 1/3 of that would come from adjacent. Now that may vary from year-to-year. But I think holistically, over the 5-year horizon, that's a relative split.
I think I saw a hand over here. Was there somebody who had a question? -- back there, I see back in the corner.
Brian can get that one.
Peter Salas from Rockefeller. I think in the past, you guys have said that you think maybe around $1 billion of revenue, you'd do somewhere in the high 30s gross margins, $900 million, mid-30s, just seeing it at 36% at $1.7 billion in 2030. Is that -- is there any change to that framework? Does that account for dilutive M&A? Just help us think through maybe the imaginations of how that evolves over time.
Yes. It's an internal conversation that we've had throughout our planning process, how high do we want to drive the margins. And there's a point you drive the margin and you're walking away from revenue and you're walking away from growth. That's a consideration as well as on the M&A. We're not sure what that trajectory looks like. We know there's opportunities in both segments. But we have to have the balance. And our commitment is to grow double the business. We want the growth along with the margin improvement. And then again, focused on that operating margin and the adjusted EBITDA margin. So is there an opportunity to go higher and drive to the high 30s? Yes. What we want to be careful is that we don't throttle the growth as well. And so we're going to take a balanced approach as we go forward.
Any more? I think that's right here. I walk...
Chris Moore from CGS. Just when you think about the revenue target for 2030, the split between electronics and hydraulics, any thoughts there? Is there any kind of big picture thinking in terms of where that might shake out?
Yes. The hydraulics, almost $500 million in revenue, they're going to be the biggest volume contributor or value contributor in terms of absolute dollars. From a growth rate in our plans, we see a little bit higher growth rate within the electronics as well as a bigger margin improvement opportunity in the electronics space. So we would expect growth in both margin expansion in both in terms of absolute dollars, more of that would come from Hydraulics. In terms of growth, we would expect electronics to grow slightly faster. It's not a significant difference, but we do project them to grow a little faster. And from a margin improvement, leveraging our low-cost manufacturing centers, doing a lot of work around taking out cost of our bill of material, we see a little bit more improvement there in electronics.
On the -- in terms of the types of acquisitions, mostly tuck-ins we're talking about? Or I mean, can you envision something in the $100 million to $200 million level? Just any thoughts there?
So I'd anchor back to what we've done, right? So what we've done is bought $500 million of revenue. So effectively, that contains 3 what we call transformational between faster innovation in Balboa and a series of tuck-in smaller ones. We're not going to commit to one or the other. It depends on the cultural -- all the factors that our presidents talked about and where are our gaps. Over time, it has to fit the criteria that Jeremy laid out as well. But as I said, we're not in a rush to do this. We will be patient. We will ensure we're doing it with discipline, and we're doing it the right way. It will financially make sense. We won't be paying multiples significantly above what our trading multiples are. And then when we do them, we will have synergy capture -- we will have dedicated teams delivering those. And over time, we're going to commit to about $500 million. Now that number could go down if, for instance, we have significant opportunity in that data thermal opportunity with Project Polar that Matteo referenced, but we're going to anchor on doubling the size of our business and go from there.
I'll add to that. I think the strategic fit is what's so core and critical. And as we've dialed in the strategy across the businesses, it's really about technology and how it fits, products, how they fit and complement what we have today. And a tuck-in, as you look at those types of opportunities, if they bring like an accretive technology, there's a lot of leverage potentially in that for growth versus, let's say, a tuck-in that just sweeps up market share. And so what it all still comes back around to, whether it's transformational or whether it's a tuck-in is does it align with the strategy. It needs to make sense as we look out on the horizon in terms of where we're driving our product portfolio and our business portfolio.
I see one over here. Yes, go ahead.
JPMorgan. Second question. Looking ahead to 2030 growth targets, what do you see as the most critical cultural or organizational bottlenecks, especially in terms of M&A and PMI executions, where do you see your capabilities still need to be strengthened?
I think critical for the Electronics segment as we move forward is our product roadmap and launching on time on our customers' request. Super critical as we go forward, as you saw the core markets where we're underserved and then the adjacent markets, as we talked about getting multiples on the product platform, make it once, sell lots and grow for the Electronics segment is super critical for us, and that's what we're doubling down on with resources, time, things like that. So that's critical for the Electronics segment.
I'll layer on what Billy shared in terms of the product roadmap and technology road map. And we've kind of alluded to it, but between hydraulics and electronics, we're working more and more together, like the QMEH valve that I highlighted really would not be possible without the engineering capabilities of the Electronics segment. And so there's this convergence -- and as we look at sensing technology and hydraulics, and this is just as true for Matteo's space as my space, partnering with Billy and his team and understanding the roadmap of what we have and then looking out how that looks against potentially what takes place in terms of targets in the market for M&A. Those 2 converge.
The other piece I would add is really about people that we've emphasized so much today, what we've done in terms of the Helios Leadership Academy, cultivating the next generation of leadership. One thing we've learned is to do M&A well, and this was highlighted a few times by Sean and Jeremy, you got to dedicate resources, mind share to do the integration planning, to the execution planning well, and we've learned from that. To do that properly, you've got to take people from the businesses and dedicate them, which means you have to have people within the businesses that could step up and maintain the momentum at the core. And so we've got great teams, great people, and we're cultivating that, but continuing to drive that cultivation to accelerate it to bring up more talent in the organization is got to be critical as we look at M&A going out.
And maybe to layer on top specific to the culture piece is that culture of innovation of design engineering. If you look at some of the products we have out there, I mentioned the Energen, we've got the WaterCare Purezone system, all the products that we're launching, I think that's a cultural element just of, again, our shared values, right, the excellence, the ownership, the honesty. It's one of the first things Sean put in place is when we got everybody together, who do we want to be and it starts with our shared values. And we go back. I love the tree image that was super cool. You can see all the different companies. They're the roots of the tree, right? And we got to find whatever we bring in has got to fit as another route in that tree for us to be successful.
We had another question from online, John Braatz with Kansas City Capital. Any early thoughts on how global businesses might react or change strategies to the events in the Middle East?
I'll share perspective. I think the last 5 years have been a good learning curve for all of us in business. You go back to COVID and how we have to adapt to an event that was really unprecedented generationally for all of us and adapting on a daily basis. And the interesting thing during that time frame, a lot of businesses, let's say, closed, people work from home. Our businesses were all critical and deemed as critical. We all stayed open. We never shut. And so we had to adapt on the fly. That was a great learning experience for all of us as leaders and as a business. Last year was also a good learning experience because we had to adapt on the fly to tariffs. And we all were able to manage that well financially across the businesses. We moved quickly at times. For my business, I highlighted we moved more assembly into our factories in Asia to mitigate the effect of that. And so as we look at the events unfolding in the Middle East, we watch it closely. You don't overreact, but at the same time, you're always doing contingency planning and looking at how do you leverage, how do you adapt? And we're regularly having those conversations across the business.
Anybody right up here?
This question is for Billy. I won't throw anything at you, but I ask you a question. So innovation and Balboa have been part of the organization for some time and a lot of the push and the idea was to push the electronics into kind of the traditional Sun Hydraulics markets and industrial markets. And you kind of laid out kind of industrial and other markets. What do you think are the biggest obstacles to kind of crossing that chasm and getting some of that leisure, health and wellness product into the more industrial setting?
Timing, I think we've got to get our product cost right, I got to get the product right and cost. We are actively working through those programs. Talking about, I mentioned, leveraging the low-cost areas and also leveraging supply chain, getting the right suppliers to support us as we grow. we got a seat at the table from some large suppliers to help us go and foster some of these opportunities that are in front of us. Working with Rick's team, it's really interesting to watch. It's happening naturally now. Teams working closer together on product crossover products and watching things get launched out, some demo products and programs that are getting put out in front of some major customers. It's really awesome to watch how the synergies are starting to come together just naturally. And now you see this multiplier also happening when it comes to hydraulics and electronics and the things that our customers are seeing what we can bring together collectively, and it's a really powerful moment that we're watching unfold right in front of us. I can give a little more example. I can't give it all away, but there's some cool things that are happening between in the segments. And you see a little bit of it out today. And what people don't realize is where innovation and Sun are faster on same vehicles. right? And we go to market a little bit different with OEMs and distribution, but we are on a lot of the same go. We're all hit away and people just don't recognize that. And when you go to like a ConEx, you go to Vermiere and all of us got product on it, and it's pretty amazing to watch how it happens from a -- when you go talk to some of these large OEMs, sometimes the wet end or hydraulic end, the teams don't talk to the electronics teams in those big organizations. So it's a little difficult to try to get talking together. But when we go show the value and what we can create for them together, that is where the powerful moment is taking place, and we're watching that unfold here as we move forward.
Yes. I'll elaborate on that in terms of our -- like Billy's team, my team and how we've been actively working together. and give some specific examples related to that. And I'll share that Billy and I go back a long way because I started in Enovation Controls in 2006, about the same time Billy did. And so from a leadership perspective, we understand each other. I understand that business. And with the strategic focus that Sean has helped to bring to the organization, we've been dialing in that kind of strategy and how the Electronics and Hydraulics segments work together. And we talked about QMEH. There's a few other examples of how it's behind the scenes. It's the active engagement of the Electronics segment, helping to advance a lot of the electronic sensing capabilities that we're driving in the Hydraulics segment. And so that's active leverage that we're getting. There's also channel leverage. One of Billy's biggest distributors now is a legacy Sun distributor. And that was a deliberate move actually aligning distribution, and we're looking at how we do that more because what's happening is that distributor is actually integrating the innovation electronics and the Sun content as well into a solution. And we believe there's much more pull-through we can get across global distribution with Sun's reach. We're actively working that. And then as Billy shared, we have been collaborating more on some solution applications that there's just a seamlessness that our teams now are collaborating with as we look at those opportunities.
If I can just sneak in one more. Yes. So the 25% margin target, I kind of get that on the core growth because you've been there before, same with 36% gross margins. But as you built the M&A in, how should we think about offsets or dilution to that margin? -- understanding you don't want to fix or upper, but oftentimes M&A comes in at lower margins and kind of makes that track a little bit harder.
Yes. I think it first starts with the financial discipline and what we're looking at and being honest with ourselves, is it going to contribute towards our 2030 goals? Do we see a path? A lot of that will come down to the synergy target. We don't want to build in this idea of we're going to buy in an x amount, and we're going to leverage it to grow sales across all the other businesses, right? We look at that as that just is on top, right? That's an on top benefit. So it starts with being very strategic and holding firm to our financial modeling. But we've talked about the capacity, and we're intentionally using the word optimization because M&A is going to play a hand in that. We can acquire something, absorb that into our existing low-cost operations. We believe we can take cost out. Obviously, there's just some overhead corporate costs that we don't need to duplicate. But that's got to be known going in. And then knowing it going in, we got to execute it on the back end. And looking back, I wasn't with the company, so it's easy to look backwards. And again, the companies that were bought, they were profitable, they generated cash, but there was limited integration. In fact, at the very beginning, there was no plans to ever integrate, right? Helios was going to be a holding company, and it was planned. If you go back to the original targets that were set out in the last 5-year plan, it was known that those margins were going to dilute because the targets were much less than what Sun was at the time. So it was planned. And I think as we go forward, it's about making sure that we've got the right fit. How do we leverage what we already have to take cost out. But then also, we got to grow or acquire companies in markets where there's growth potential, right? Because if the markets are declining, it's just continual pressure to take cost out. How do we get in some of these spaces backed by these secular trends where there's some tailwinds behind it. And that's really what we're looking for. Now maybe we got to pay a little higher premium for that. Understood. But as Sean said, we're trading at 14, 15x EBITDA, we can't go out and pay 25, right? We're just -- it's going to destroy value in day 1. So we got to find the right opportunities, making sure that we've got it at the right price points, but then how do we drive that synergy and value capture on the back end.
And then the only thing I'd add, Jeremy, is we know M&A is hard. We acknowledge that. However, what the company has done again from 2016 to 2023, was to get $500 million of revenue and at the time was 22% EBITDA. So if we can replicate something similar, we're confident we can bring the 22% up to the 25% to not be dilutive in addition to getting our core businesses with the volume getting up to $1.1 billion, back to Peter's question on kind of revenue increments and EBITDA that supports that 25-plus percent profile. So it can be done. We know it's going to be hard, but the way we go about it is going to be much different than it was done in the past.
Any other questions right here in the room? So then another one from online. What end markets or company-specific catalysts could drive upside?
I mean, hopefully, the data center opportunity is the upside, not completely reflected in our long-term plan. We have been conservative somehow. But now that we have seen what we were able to do in the last 6 months, if we think 6 months ago, we wouldn't think that we would have done that. So that's probably the key opportunity that we have as an upside for the long-term plan.
Anybody else right here? So I've got one more online. As the business has really diversified over the years, how do you think about cyclicality or seasonality at this point? Is there any trends to point to? Or how would you think about that right now?
Well, at a very macro level, today, as we stand, -- it's very encouraging to see PMI put up back-to-back months of expansionary plus 50 here in the U.S., coupled with continuous growth in industrial production. When those 2 things are going in parallel to the upper right, it's very good for our hydraulics business and to a certain extent, electronics. On the electronics side, given that large consumer discretionary exposure we have, whether that's from the recreational side, marine, spas, hot tubs, there's some sensitivity to interest rates. And I know interest rates haven't come down as quickly as been expected. But certainly, that can be a significant catalyst as my prior experience with that powersports market, 2/3 of that product is financed. And so I know that when rates go down, it stimulates end market retail. The other piece, and I tried to talk to this earlier in my prepared slides was that the inventory channels -- Jeremy talked about our inventory. Our inventory is clean and continues to come down. We continue to grow with the same amount of inventory. But what's in the channels is what we really look at. We really pay a lot of close attention to our customers. John Deere historically being our largest customer and looking at kind of channel inventories on that ag and machinery side and also on the recreational side, they are in a much different spot. So as retail demand increases and these long cycles of ags being down has to lap at some point. It's a great long-term market that we will always be committed to, but we know it has to turn. So as soon as there's a sign of the retail, that's when we're going to get the lift. We are an early indicator. We're very short cycle. You saw it on the way down, and now we're feeling on the way back up with our double-digit growth.
Anybody in the room right there?
Peter Kalemkerian from Baird. You mentioned lead times as a competitive advantage, understanding that these vary across product categories, is there a way you could frame your lead time versus competitors in each business? And then on that $1.1 billion of organic sales growth, could you remind us what the excess capacity is that you currently have? I believe it's mostly in the hydraulics business.
I'll start with the lead time portion of the question. Lead time is critical in terms of winning, particularly with the midsize and the smaller OEMs where oftentimes design cycles can be shorter or opportunities for optimization arise. And we've been able to drive lead times down. I highlighted that like on the manifold integrated packages, some of the growing pains that came with the acquisition, for example, of Daman Products that created some operational challenges we have behind us. And we've been able to drive our lead times down to often in sort of like a 6- to 8-week range. And sometimes less, we're actually able to do quick turns in less than a couple of weeks. And it's not just the manifold, but it's the integrated package that comes with the cartridge valves. And we've won quite a new business. We actually won a lot of business back last year. We did it by SKU, by the way. We knew what we were selling because of those operational challenges, lost some content. We had a targeted plan. We actually won back twice what we targeted to win back. So we had great success. And we also know there are a lot of opportunities we won in quick turns compared to our competitors, -- it's known. It's public information through distribution. A lot of times, you hear chatter and/or just there's information that's publicly available. And we track that closely, and we are better than most of our competitors. And that's something that we are very focused on, especially on the upside of the market because as we've been winning in the core because we still really are in the low part of the market cycle, we're raising the floor. And as the market comes back, we want to make sure we protect that. So we're trying to stay ahead of that in our capacity management so that we can continue to maintain that competitiveness, but also improve position relative to our competition.
Yes. I would say on the electronics side, whether you're in the Balboa business or innovation, a little bit different. You have around a 4-week lead time on the Balboa business. Innovation is 10 to 12 weeks. But what's really critical, what we work really well with our customers on is getting our forecast right. We try to get a 12-month forecast from our customers so we can plan because some of our electronic components, you guys know that it's -- some of those lead times are -- could be up to a year. So it's important that we're driving a forecast so we can respond to the orders upticks as we've been seeing over the last several -- the last 8 months from the innovation business, right? And the Balboa business continues to be pretty solid, too.
Anybody else have one?
Jason Williams, Pos Capital. I was just hoping you could elaborate a little bit more on the data center opportunity. It seems like that came out of nowhere and looks like a potential large market for you guys. It was a little unclear to me. Are you already -- do you already have sales into that segment? And do you already have the solution developed? Or is that something that you think you can build a solution for? If you could just elaborate on the data center opportunity, that would be helpful.
So I don't think it came from nowhere. The trigger for us was that last year, the consortium was built and a standard was created for the product. So thanks to that decision, we were able to enter in a market that was completely different before last year. And the product is there, the solution is there. We don't have saves now already in our book, but they will be soon. And the key part that we are trying to play here is that given our historical heritage on leading the business for 50, 60 years, we think we can differentiate our offer compared to the current players. And that's what based on the meeting that we had with our potential customer really was interesting for them. Our solution, having the engineer already talking to them, given our experience is what was really capturing the potential on the long range.
So I've got one from online. You divested CFP and wrote down i3PD's goodwill. Is there anything else currently in the portfolio that doesn't 100% fit the profile going forward? How are you thinking about that?
So short answer, no. We're committed to the businesses we have. But as part of our standard work and that operating rhythm and that Helios business system, we'll always evaluate the trajectories of our businesses and the strategic fit that Rick mentioned. And certainly, that will play more as we embark on any M&A as well. But right now, there's, one, no considered divestitures; and two, no active due diligence ongoing. It's laser focused on driving go-to-market wins and pulling wins through the funnel that we continue to see grow aggressively.
I have another one regarding the secular trends. So as you look at the secular trends that you've outlined around digitization and automation and robotics, is there any one that's really leading the way right now in the near term?
In the industrial mobile spaces that we play in, digitization for sure, is critical sensing capabilities as electrohydraulics have become more intelligent, not just even what I would say are sort of passive electrohydraulics in the sense of you actuate a valve via solenoid, for example, coil, but actually getting the sensing close feedback loop. And that's an area that, for sure, in those markets, the core markets that we currently play in, is going to be a trend that will continue, and that is also driving a lot of our product innovation. If you look at our engineering and our road map, not just the product that highlighted today, QMEH, but a lot of what we have in development, it fits squarely and supports that secular trend.
Another key piece on the electronics, as I've mentioned in my section is connectivity is a critical part. Our customers are demanding the over-the-air updates, things like that, troubleshooting, which is critical as we move forward. AI built into our product, things like that, that we're really pushing for that's critical as we move forward. Customers are -- we want AI, we don't what to do with it. I think that's our job to try to help define what that means on machine learning, things like that, that we can bring to the table. But yes, connectivity, AI is critical as we move forward from the Electronics segment.
I think the one piece, too, I would add to that, that's in that digitization trend or secular trend and intelligence is the fact that as you look at the current generation of machine operators, and this applies across all of our end customers in the industrial space, there's a lot of talent that's retiring from the market. And there's years that it takes to develop skills oftentimes in machine operation. And those skills actually, when they're nascent, you're inefficient. And there are things that we're actively working on, not just on the sensing side, but how you bring that control to the application where that it makes it more efficient for an inexperienced operator. The most simple example that I would offer is like if you're driving a skid steer loader and you're raising the boom after you've picked up a bucket of dirt, you actually have to dynamically make sure you pivot the bucket while you're also raising the boom. Otherwise, as you raise the boom, the bucket just dumps out the dirt. So you could scoop 10 times, you get 5 equivalent scoops of dirt. And auto loving, for example, automatically leveling the bucket as you raise the boom, it's simple, but it's huge in terms of efficiency. So as you have less experienced operators, but this is just as true in ag and other applications. And so that's a portion of digitization in that secular trend and just one example of how we're trying to look for opportunities to bring solutions forward.
Any final comments, last call, last call for questions?
Just one more. As you scale to 2030, how should we think about your supply chain footprint and related CapEx, which is roughly 3% to 6% of the total revenue across the maintenance capacity and IT investments?
Yes. I'll touch on the CapEx and let these guys touch on the supply chain. When we did our bottoms-up CapEx planning, some things came to light. The first was we do have some aging equipment that needs to be replaced, and that's just standard maintenance, right? It's not incremental. But then as we looked at new opportunities around data center specifically, also the water care that we've got going in electronics, these are new technologies that require incremental investments, incremental machining capacity. If you look at data center specifically and some of the volume projections that are there, it's easy to get a PO for hundreds of thousands of components. And so if we're going to enter that space and Matteo and his team are trying to enter that space, we got to be able to fulfill and have a level of capacity. That's going to require additional machining equipment. Same thing with water care. It's a completely new technology, completely new manufacturing process. So we're investing in those capabilities as well. So that's a big piece of the CapEx. From -- as I mentioned on the footprint, we have capacity in the footprint. I think that was an earlier question maybe we didn't address around the organic sales at what point do we have to address the footprint. I would say that's going to be very isolated. So depending on where the growth comes from, what region, what types of products, there might be something isolated that we need to do. But holistically, we have enough capacity to absorb a $300 million, $400 million revenue increase. And so very limited on the footprint capacity, a significant piece on building up our new product capabilities, investing in aging equipment. And then the last piece is automation. challenge these guys don't come to Sean or I with a single CapEx request. It's got to fit within the context of a broader strategy. And one place that comes into play is the automation. And I think the teams can talk about what some of that automation looks like. So turn it over to you guys for the supply chain.
Well, I mean, from our side, the traditional business is really based on really long-time relationship with suppliers that have always worked with us. So -- and we will keep investing on them for the next years, obviously. When it's about data center, it's a new supply chain that we are building, knowing that the 2 main markets are in U.S. and China, following the principle of in the region for the region, obviously. And so...
Yes. I think from the electronics side is what we're seeing. I mentioned earlier, I feel like we're getting a seat at the big boy table in the past when we buy electronic components, sometimes we have to go through distribution. We're getting a voice direct at the supply base, and it's really helping -- it's putting us in a lot better position as we move forward. as exciting it is on the customer side and opportunities we have, our supply base is really excited about delivering product for innovation or the electronics segment. It is really fun to watch. CS, we had good visit with our supply base there. They see our vision. They know where we're going, and they want to be part of it. And with that, we have a little bit of leverage like you want to be part, you got to deliver at this price point. And that's really exciting for us and putting us in a position for the Electronics segment to go out there and compete. If you think about our competitors in the Electronics segment, I mean, you're talking about the Bosches of the world, people like the alarmins. How are we going to be competitive, right? We got to lean on our suppliers. We've got to have the best supply chain we get to go push forward and win those opportunities.
Like Matteo, we have deep relationships -- like Matteo, I'll repeat that. Like Matteo, we have deep relationships with our supply base through Sun Hydraulics. And we continue to cultivate that where we really see the relationships with the supply chain going are more regionalization to be resilient to things that occur geopolitically in the world. And with our global footprint, there's more that we're looking at in terms of localization of supply. So that way, we are resilient. And sometimes it is in the lower cost environments, but really, that's not the driving factor. It's about lead time and resiliency to try to mitigate the effects of global trade disruptions.
All right. With that, I want to thank everyone on the webcast for joining us remotely and everyone in the room. We get to transition now to our networking lunch and ultimately plant tour. So thank you again for joining us, and have a great day.
Helios Technologies Inc — Analyst/Investor Day - Helios Technologies, Inc.
Helios Technologies Inc — Q4 2025 Earnings Call
1. Management Discussion
Greetings, and welcome to the Helios Technologies Fourth Quarter Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tania Almond, Vice President, Investor Relations and Corporate Communications. Thank you. You may begin.
Thank you, operator, and good day, everyone. Welcome to the Helios Technologies Fourth 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 slides there that will accompany our conversation today as well as our prepared remarks. Joining me today are Sean Bagan, President and Chief Executive Officer; and Jeremy Evans, our Executive Vice President, Chief Financial Officer.
Sean will start the call with highlights from the fourth quarter and the full year, then Jeremy will review our financial results in detail and establish our 2026 outlook. Sean will come back with some closing remarks, and then we will open the call to your questions.
As an additional reminder, we have our upcoming Investor Day taking place in Sunny Sarasota, Florida on Friday, March 20, for institutional investors and analysts. We are excited to be sharing our longer-term outlook, and we'll have colleagues from our flagship businesses on hand, demonstrating some of our products. We are also offering an optional manufacturing facility tour of the original Sun Hydraulics production location. It's just 3 weeks away, and our leadership team is excited to see everyone in person. Please reach out to me if you'd like to RSVP.
Now turning 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. These risks and uncertainties and other factors can be found in our annual report on Form 10-K for 2024, along with the upcoming 10-K 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. Please reference Slides 3 through 5 now.
With that, it's my pleasure to turn the call over to Sean.
Thanks, Tania, and welcome, everyone. We truly appreciate you joining us today and are pleased to have this opportunity to share the sustained progress our Helios Technologies team made in the fourth quarter, capping off what became a true turnaround year in 2025. Results finished ahead of recent expectations with all businesses reporting quarterly sales and earnings growth, leading to full year sales growth for the first time in 3 years while also delivering record free cash flow.
This is my favorite time of year. The NCAA March Madness basketball tournament is right around the corner. Teams are competing for higher seeds that reflect their full body of work, and I see a clear parallel to our fiscal 2025 performance. As the year progressed, we strengthened our position, finishing off with back-to-back quarters of year-over-year profitable sales growth. That's the equivalent of winning the first 2 rounds of the NCAA tournament. It builds confidence and momentum, but championships require sustained excellence.
Sales and orders accelerated in the second half of the year, reflecting the increasing impact of our go-to-market initiatives and our industry-leading innovative products. In conjunction with the CONEXPO trade show this week, we are excited to begin the rollout of our next wave of products and our plans for 2026 will be to continue that at an elevated pace.
Throughout 2025, we overcame numerous challenges at a macroeconomic level. The 2 most meaningful indicators for our Hydraulics segment are PMI and industrial production both showing extended contraction for much of the year, meaning weaker factory outlook conditions overall here in the U.S., while globally regional differences existed with pockets of expansion. We are encouraged by some of the initial 2026 readings with both sentiment and actual production improving together. However, 2025 can best be characterized as slow and uneven and certainly not sustained growth.
Additionally, we managed through other macro challenges presented by global tariffs, geopolitical uncertainty and a weak consumer market. Despite all that, the results were the same. We control the things we could control, and we executed it. I could not be prouder of our team and I extend my sincere gratitude to each one of my colleagues.
Fourth quarter sales exceeded our expectations, up 17% to $211 million, resulting in 4% growth for the full year to $839 million. On a pro forma basis, excluding the Custom Fluid Power or CFP divestiture, sales for the fourth quarter were up 29% and for the full year, up 6%. Our margins are strengthening and benefiting from the higher volume along with our operational excellence efforts and cost control measures. We have had 4 consecutive quarters of gross margin expansion. Adjusted EBITDA in the quarter was 20.1%, our second quarter in a row back in the '20s.
Operationally, we had numerous accomplishments in 2025. First, we returned to growth by executing on our customer-centric go-to-market strategic initiative. We redirected internal resources to more fully engage with our customers as well as accelerated the cadence of new product launches. This was reflected in the number of meaningful product launches in 2025 for both segments. We expanded our offerings with higher value solutions that complement existing products and represent a natural extension of our customers' existing purchases. We believe our strategy to develop high-value mission-critical ruggedized solutions for our customers in niche applications gives us a competitive edge.
Second, we took decisive action to optimize our portfolio. With the CFP divestiture, we removed Sun Hydraulics from owning the distribution business in Australia, reverting to our core and what we're best at: designing, developing and manufacturing manifolds, cartridge wells and integrated packages. Further, we are aligning our go-to-market approach in the Australian market with the rest of the business by leveraging an exclusive agreement with the buyer, Questas Group, to provide distribution and fulfillment services for Sun Hydraulics products in Australia. This fosters a partnership where each party's success contributes to the other's advancement.
We also acted on our centralized engineering team, the Helios Center of Engineering Excellence operation and reallocated engineering resources back into our core businesses. Continuous portfolio evaluation will be standard work for us moving forward. We introduced a new share repurchase program in 2025 and repurchased 1% of the company's outstanding shares throughout the year. This share buyback model as a form of shareholder return marks the first for the company. Importantly, we continued our long-standing practice of paying cash dividends which we have done for 116 consecutive quarters or over 28 years.
Finally, we fortified our leadership team in 2025. I was formally named President and CEO; Billy Aldridge was promoted to President of the Electronics segment; and Jeremy Evans was promoted to Chief Financial Officer. With Rick Martich and Matteo Arduini leading the 2 large businesses in the Hydraulics segment, supported by a fortified executive leadership team at the Helios level, we now have our full leadership team in place to harness our collective energy and create the momentum to drive this forward. This makes us even more confident regarding our expectations for 2026 and beyond.
Before I turn the call over to Jeremy to provide the details regarding our financial results, I want to share how pleased I am that he is now officially in the CFO seat. When Jeremy and I joined forces with the Helios leadership team, we committed to building a predictable, performance-driven culture. Achieving or exceeding our forward quarterly guidance for 9 consecutive quarters demonstrates the operational rigor and accountability that now define our team. Jeremy, over to you.
Thank you, Sean, and good day, everyone. It's an honor to report to you today in my new role as Chief Financial Officer. As many of you know, I've been with Helios for the past 2 years in a finance leadership role. I'm excited to continue partnering with Sean, Tania, our leadership team, our Board and the broader global Helios family as we execute our strategy, build on our culture of accountability and stay focused on delivering consistent and predictable performance. As I review our fourth quarter and full year results, please refer to Slide 6 through 9.
Fourth quarter sales were $211 million, up 17% compared with $180 million in the prior year period and above the expectations we laid out on our third quarter call. We divested CFP at the end of September, so the fourth quarter is more comparable on a pro forma basis. Excluding the $16 million in CFP sales in last year's fourth quarter, sales for the quarter were up 29% year-over-year. Growth was broad-based, driven by both segments with Hydraulics sales up 10% and Electronics up 31%. On a pro forma basis, Hydraulics grew 27%. There was strength in all regions when normalizing APAC sales for the impact of the CFP divestiture.
2025 full year sales were $839 million, an increase of just over 4%. Sales were up 6% on a pro forma basis. As Sean mentioned, this marks our return to top line growth after a multiyear period of declines and reflects the progress we've made on our go-to-market initiatives and the stabilization we have seen in some of our end markets. Higher sales and improved absorption drove gross profit up 31% in the quarter to $71 million and gross margin expanded 350 basis points to 33.6%. In addition to higher volumes, we had the contributions of improved mix and ongoing productivity and cost actions which were partially offset by residual tariff impacts.
For the full year, gross profit also increased at a faster pace than sales and was up 7.5% to $271 million. Gross margin was 32.3%, an increase of 100 basis points from 2024. Our margin profile also benefited from the CFP divestiture. While its profitability has been measurably improved over the years under Helios ownership, it was nevertheless a drag on consolidated margins.
Fourth quarter operating income nearly doubled over the prior year period and operating margin expanded 480 basis points to 12.2%, demonstrating the operating leverage inherent in the business. For the year, operating income was down 19%, primarily as a result of the goodwill impairment charge taken in the third quarter related to i3 product development.
On a non-GAAP basis, adjusted operating margin in the quarter was 16.4%, up 310 basis points year-over-year. For the full year, non-GAAP operating margin was 15.4%, up 20 basis points over 2024. Our effective tax rate for the quarter and year were 22.7% and 22.5%, respectively, reflecting the income mix in our various tax jurisdictions.
Diluted EPS in the quarter was $0.58, up over 4x the prior year period. I should point out that we had a $5.4 million onetime benefit in net interest expense related to an interest rate swap that was originally due for maturity this quarter dating back to our refinancing actions in June of 2024. Diluted non-GAAP EPS was $0.81, an increase of 145%, reflecting our strong operating performance.
For the full year, diluted EPS increased 24% to $1.45 and diluted non-GAAP EPS of $2.56 increased 22%. Adjusted EBITDA margin was 20.1% in the fourth quarter, up 270 basis points over the prior year. Improved profitability reflects the impact of the volume increase as well as the many actions taken during the year to streamline the business and focus on driving profitable sales. For the full year, adjusted EBITDA totaled $161 million, up 4% over the year ago period and EBITDA margin of 19.2% was flat with last year, net of the tariff impacts.
Turning to the segments. Please refer to Slide 10. As I noted earlier, Hydraulics reported robust 27% sales growth for the quarter on a pro forma basis. By end market, we saw demand in mobile applications being driven by construction markets across all regions. Early signs of recovery in agriculture continue as sales to the ag market were up from the prior year for the second quarter in a row. More robust activity in Europe and China is driving demand for faster ag-focused applications.
Hydraulics gross profit in the quarter grew 27% year-over-year and gross margin expanded 440 basis points to 34.1%, driven by better fixed cost leverage on higher volume, lower direct cost as a percentage of sales due to ongoing productivity initiatives and the impact of the CFP divestiture. Segment SEA expenses in the quarter increased $1.3 million or 7%, primarily reflecting higher wages and benefits as well as investments in R&D, but improved more than 50 basis points as a percentage of sales.
Turning to Electronics on Slide 11. Electronics sales in the quarter were up 31% year-over-year. We saw continued strength in the recreational space with a particular customer that is realizing meaningful growth in its market. Industrial and mobile end markets have also been solid with persistent demand for construction equipment to address the large amounts of infrastructure spend, primarily in the U.S., but also in Europe. Health and Wellness grew year-over-year as well. There are still pockets of volatility in consumer-exposed demand, particularly in the recreational marine markets. Electronics gross profit in the quarter was up 40% and gross margin expanded 220 basis points, primarily driven by higher volumes and a more favorable segment mix.
SEA expenses increased $3.3 million, mainly due to higher wages and benefits, but improved over 100 basis points as a percentage of sales. Operating income increased 76% to $9.5 million and operating margin expanded 330 basis points on strong operating leverage.
On Slide 12, you will see that we had record cash generation from operations of $46 million for the quarter, delivering a record $127 million of cash from operations for the year. We had our second consecutive year of record free cash flow as well. It's worth noting that our working capital reduction efforts have paid off and contributed to the record cash flow. Our more structured approach to inventory management, receivables collection and payables optimization have resulted in another year improving our cash conversion cycle.
Flipping to Slide 13. You'll see we use the cash generated, along with the proceeds received from the divestiture of our CFP business at the end of the third quarter to pay down $82 million in debt this year. As a result, we ended 2025 with a net debt to adjusted EBITDA leverage ratio of 1.8x, a level that has not been achieved since the second quarter of '22 on a reported pro forma basis.
We hit another key milestone in the quarter. Our available liquidity has surpassed our total debt. We have sufficient liquidity to execute on our growth plans and to return cash to our shareholders. We also continued our long history of returning capital to shareholders, paying our 116th consecutive quarterly dividend in January and initiated repurchasing shares under our authorized buyback program that we established in 2025. We repurchased 80,000 shares during the quarter, increasing our year-to-date total to 330,000 shares at an aggregate cost of $13.6 million.
Slide 14 summarizes my previous comments reflecting how we did on the financial priorities that we established for 2025. Across the board, our team successfully delivered results in each category. Slide 15 reflects our new financial priorities as we enter 2026 that align with how we plan to turn the opportunities we see in front of us into financial results: first, execute on our growth plan by winning share from our growing sales funnels through continued product innovation; second, expand gross margins by driving productivity and leveraging our global footprint and capacity; third, maintain earnings momentum by building on our strong foundation and aligning SVA investments with our sales growth; fourth, optimize capital allocation by investing in organic growth and driving sustainable shareholder returns. With these priorities guiding us, we are committed to focused execution to deliver expanded earnings and long-term value creation in 2026 and beyond.
Turning to our outlook on Slide 16 and 17. For the first quarter of 2026, we expect sales to be in the range of $218 million to $223 million, up 22% over last year's first quarter at the midpoint on a pro forma basis, excluding the CFP divestiture. We expect consolidated adjusted EBITDA margin to be in the range of 19.5% to 20.5%, up over 250 basis points at the midpoint and diluted non-GAAP EPS of $0.65 to $0.70 per share, up 53% at the midpoint.
For the full year, we expect net sales will be in the range of $820 million to $860 million compared with $839 million as reported in 2025 and $792 million on a pro forma basis, excluding the CFP divestiture. This implies 6% growth over 2025 on a pro forma basis at the midpoint, driven primarily by volume growth in our core platforms and the continued ramp of recent commercial wins.
At the segment level for the full year, we expect Hydraulics net sales in the range of $510 million to $530 million, up approximately 5% at the midpoint on a pro forma basis. For Electronics, we project net sales in the range of $310 million to $330 million, up 7% at the midpoint. As you will notice, based on how we expect the year to start relative to our full year guide, we expect the first half of 2026 to have much stronger year-over-year growth rates based on the timing of the end market recoveries and our current visibility on customer order flow.
We expect 2026 adjusted EBITDA margin will be in the range of 19.5% to 21.0%, reflecting continued gross margin expansion, operating expense discipline and the full year benefit of our portfolio and footprint actions. We expect diluted non-GAAP EPS in the range of $2.60 to $2.90 or 7% growth at the midpoint. As a reminder, fiscal year 2025 diluted non-GAAP EPS included a benefit from a $5.4 million interest rate swap.
We believe we have a sound strategy built to drive sustainable growth expand profitability and unlock greater value for our shareholders. The resilience and execution of our global teams have positioned us well for what comes next.
With that, I'll turn the call back to Sean for his closing remarks with Slides 18 and 19.
Thanks, Jeremy. As I step back and reflect on where we've been and where we're headed, I'm incredibly energized by the opportunities in front of us. We entered 2025 with a clear plan and a commitment to enhance discipline. Today, we are operating with greater precision, accountability and focus, and it shows.
Across our key focus areas, the Helios team executed. We strengthened our go-to-market structure and institutionalize the process that drives funnel development, cross-selling and pipeline management. We protected and grew our base business, capturing greater wallet share and driving organic growth. We improved profitability through prudent cost management and operational efficiencies. We continued investing in innovation and accelerated new product launches to support our long-term market leadership. We developed our talent, ensuring the right people are in the right seats to power our next chapter. And we sharpened our capital allocation strategy by divesting the noncore asset, reducing our debt, driving working capital improvement, and enacting a new share repurchase program. Simply put, we are building a stronger, more resilient and more scalable Helios.
The progress this year has been remarkable, but what excites me more is that we are just getting started. The investments we're making today are fueling the next chapter of performance. We are defining a new standard and we intend to keep raising that bar. As we enter 2026, our key focus areas reflect a natural evolution of the foundation we built in 2025. We are advancing our strategic framework through focused execution of our plan while sharpening our go-to-market engine to convert funnel growth into consistent new business wins. We are institutionalizing innovation with more rigorous NPI processes driving earlier and more impactful product launches.
At the same time, we are deepening our commitment to operational excellence, strengthening organizational development and embedding a return on invested capital mindset more rigorously into every capital allocation decision. Together, these priorities position Helios to execute with discipline, scale with confidence and elevate performance to that level.
In the NCAA March Madness tournament, you don't win championships in the first weekend, but you proved you belong. Two consecutive quarters of strong performance is our version of advancing to the sweet sixteen. It reflects tenacity, resilience and a team that knows how to perform under pressure. We like our momentum, and we're focused on sustaining it.
I am more confident than ever in our strategy, our team and our ability to deliver sustainable growth and increasing earnings power. The leadership team and I look forward to unveiling the core 2030 strategy on March 20. This strategy will define the next chapter of growth and outline our vision for Helios Technologies' future. We hope you can join us to hear more. The future for Helios is bright, and we are deeply committed to long-term value creation for our shareholders. Thank you for your continued engagement and support.
With that, let's open the lines for Q&A, please.
[Operator Instructions]
Our first question comes from the line of Tomo Sano with JPMorgan.
2. Question Answer
My first question is while 4Q results were pretty strong and first quarter guidance is also strong, but the full year outlook appears more cautious for the second half. We understand there may be a high comparables or conservativeness, but are the benefits from go-to-market initiatives or new product launch is fully reflected in your guidance in the second half? And could you elaborated on the key assumptions for the second half and the potential for upside?
Yes. Thank you, Tomo. And first, I want to thank you for learning more about our company and initiating coverage here in the fourth quarter of last year. We really appreciate it and very excited to partner with you moving forward and telling our company's story.
So when we set out our guidance for the full year, we put a range of $820 million to $860 million. That $860 million at the top end would be a plus 9%. We do believe carrying that momentum from the back half of '25 into the start of 26 is real. We look at stronger order trends that we're seeing and our existing order backlog that help us inform Q1, particularly given that we released earnings so late year with the -- in the fiscal year last year. And so we feel very good about the trajectory here to start the year.
As we get to the back half, certainly, as you referenced, we're going to lap tougher comps. We feel the back half of '25 was very strong. And so if we see sustained order volumes that we've seen for the last 10 months of increasing orders year-over-year, we do believe we can get to that top end of the range. But there is certainly a lot of uncertainty as well in the world and challenges that we're seeing brewing, whether it's with what's going on in the Middle East right now, some of the supply challenges, particularly on our Electronics side of the business with chips.
So we're trying to really balance all of that, but clearly committing to continuing to drive growth and believe that our go-to-market strategies and outcomes are going to give us that confidence to sustain that momentum.
And follow-up on the capital allocations. So under the new leadership, we have been seeing notable improvement in cash flow with a higher CapEx as a percentage of the sales and introduction of share repurchase. I think Jeremy already touched on a little bit, but could you give us more color on your key capital allocations, priorities going forward, please?
Yes. Thanks, Tomo. This is Jeremy. We've been very systematic about our capital allocation, and we've been very focused on paying down debt over the last 2 years and ended the year with a net debt to adjusted EBITDA leverage ratio of 1.8, which was below our target of 2.
And on the short term, we're going to continue to pay down debt. That's just going to naturally happen as we make our minimum debt payments. And as our business grows, we get the higher EBITDA. We're going to see that leverage ratio come down a little bit. You did mention CapEx. We are projecting a bit higher CapEx in 2026 than we had in 2025. 2025 was a little bit low sub-3% and some of that's going to carry over to this year just due to the timing of how some equipment purchases and projects rolled in. But we do see opportunities to invest in ourselves and our internal capabilities, whether that be new equipment that gives us a little bit more productivity and automation or investing in internal capabilities to meet some of the new product launches that we have in our road map.
Our next question comes from Nathan Jones with Stifel.
I guess I'll start with a couple of comments that you guys made in your prepared remarks. You talked about recent commercial wins ramping up. Can you maybe provide a little bit more color around kind of products, markets, expected run rates, those kinds of things -- that we're looking at from those kinds of wins?
Yes. So we will definitely dive a lot deeper into this at the Investor Day. But just at a very high level, as you know, our #1 focus in '25 was really reinvigorating our top line, and that required us to change sales leadership and put a lot more resources, put a lot more hunters into the business, and then just the process discipline around tracking the sales funnel. And really, as we get into this year in '26, we've seen a tremendous amount of growth at the top side of the funnel, and so it's going to be about converting those into new business wins.
But equally, we are very excited, and we'll show the progress we made in 2025 in generating new business wins, well over $50 million that we will talk about, again, further at the Investor Day. But it's not as much on new markets in terms of areas that we haven't been servicing already. It's with existing customers, more share of wallet. When you look at the product launches we've had throughout 2025, it's an extension of our product line of products and features that our existing customers would naturally be buying. And so we're trying to create those stickier solutions and catch some of that products.
Now as we get into this year, as we announced today, we're going to continue to focus on launching new products in the incremental revenue trends in those niche applications. So the one that we would call out that saw probably a lot of growth more so than others is aerospace. That's an area where we've been putting a lot of our energy and focus and we think there's a tremendous opportunity there as well. And then as I said at Investor Day, we'll be talking about some new markets and new adjacencies that we're pursuing and going to be launching products that we think can capitalize and even accelerate our growth further.
I guess my follow-up is around some commentary you made on the ag market and probably to the extent that this is relevant to other markets. You talked about significant improvement there, significant demand improvement. When you're talking about that, are you really talking about more stabilization of production levels rather than end customer actual demand levels. So it's kind of a bit more of an end of destocking that leads to higher demand for Helios. Or do you think you're actually seeing end customer sell-through in some of those markets improve?
Yes. Thanks, Nathan. The former, for sure. Definitely not seeing signs of any real strong market recoveries at the end market. But absolutely, the channel inventory levels are way healthier. And so as the retail environment improves, certainly, we will benefit from that. But if I kind of look at our Sun Hydraulics business, that's through distribution and our key indicator there is their distributor inventory levels of all those distributors that we go to market through, and we continue to see that come down year-over-year, slightly down, sequentially down. The market is still being down yet, our Sun Hydraulics business grew. So it's a good sign that we're taking share. And again, we attribute that back to our go-to-market, targeted account planning, closer to the customer, the products we're launching there.
When you look at the faster business, indexed highly to the agriculture segment, totally spot on with your commentary that retail still is very choppy and down in most places globally. However, our Faster team has done a nice job to diversify and build a little bit steadier distribution business, but those channel inventory levels are definitely healthier and we're starting to see signs of that in some of the guidance of the OEMs as well, and we're going to feel that earlier as a supplier into those channels.
When you go to the Electronics segment, that consumer market is still challenged. Interest rates haven't come down as quickly as expected. A lot of the equipment that our product goes into is financed. And so that would be very helpful if we saw that. And certainly, the dealer channel levels, whether it's marine or power sports are healthier, but the end markets aren't growing yet either. So overall, we feel as though we are taking share, clearly, and a lot of that, again, is tied back to this targeted go-to-market focus. Jeremy, anything to add there?
Yes. I think we've also seen some growth in Health and Wellness in the quarter. So that was another end market that came back. And mobile, the construction piece is still pretty strong. If you look at the different infrastructure investments both in the U.S. and EMEA. So that's another pocket when we look at our end markets that grew year-over-year.
Our next question comes from the line of Mig Dobre with Baird.
Yes. So for me, sticking with Hydraulics, too. And I mean, look, I appreciate that your approach has been to be fairly conservative with the outlook that you're providing, but I just want to make sure that we will kind of parse out what's going on with the end market relative to the way you're kind of choosing to guide. If I look at the Q1 guide, and I think of our normal seasonality, right, in this business, typically, Q1 versus Q4, we see something like 5 to 6 percentage point sequential increase. You're guiding for a lot less than that.
And when we're looking for -- when we're looking at the full year, 500 basis points of growth, that's frankly, pretty modest in the context of being in an early cycle portion of an industrial recovery. You cited the PMI earlier. And of course, we know that a lot of your OEM customers are outright increasing production in 2026, whether that's construction equipment, earthmoving, aerials, even agriculture, as you just kind of discussed with Nathan a moment ago. So I guess my point here is, it would be helpful to sort of delineate how you think about the end markets themselves relative to kind of how you're choosing to fish that issue your outlook at this point?
Thanks, Mig. So I agree with everything you said there in terms of kind of the seasonality Q4 ramp -- or Q1 ramp from Q4 typically. I think the first thing to highlight and point out is the impact that CFP is having. So roughly -- like from a year-over-year perspective, the run rate is roughly $15 million of revenue per quarter, but as you imply in terms of our fourth quarter to first quarter, kind of flattish and the CFP dynamic isn't there. But I just want to remind that that's a year-over-year dynamic. When you get to the full year numbers that you're citing, roughly $45 million. That won't repeat in 2026 that we had in 2025, all within the Hydraulics segment.
So specific to the first quarter guide, we see the Hydraulics business still being up at a healthy clip year-over-year, 3% to 7% on a full year basis and 19% to 21% on a pro forma basis, taking out CFP year-over-year for the first quarter. We feel real good about that first quarter number in terms of, like I said earlier, we're already 2 months into the quarter, we know what the order book is. So it just comes down to the execution. So we won't expect anything large to come in that we don't see in the first quarter. So that's tied back to, again, the current order book and the sales trajectory quarter-to-date. So Jeremy, do you want to add some additional color on that?
Yes. Maybe just to add in the Hydraulics, over half of the business goes through distribution. And so our visibility into the outward order book is a little bit more limited there than what we see through the OEMs. And when we look at the ag market, I would say, what we've seen is more of a stabilization. It has slipped to growth for us, some moderate growth back in Q3 and Q4. And early indications would imply that we would expect that to carry over and that's been built into the guide.
I would also say holistically that we're really trying to balance the visibility that we have in our order book over the first half over the volatility really around the current global trade situation and tariffs. That's still an unknown of how that's going to play out. There's also a rising demand for memory chips. And if you read a lot of the news, a lot of these chip manufacturers are moving to the high-end chips and we're potentially going to face some constrained supply.
Now we've done a good job already trying to lock in our supply for 2026 and taking somewhat of an inventory position on that to buffer against that, but I think that's an unknown, as well as just what just recently happened here in the Middle East. And so we see a lot of volatility which at this point, we're trying to balance with what we see in that short-term order book through the distribution partners.
Okay. My follow-up since you brought up the topic of tariffs. Is there a way to size the tariff impact on your business, what's incremental in 2026 versus 2025. And how should we think about pricing in both of your segments as it relates to not just the tariffs themselves, but overall cost inflation. We've obviously seen material costs go up over the past few months. Are you able to be price cost neutral or better in 2026?
Yes, this is Jeremy. Great question. So the tariff situation, a lot of unknowns right now just around what will be enforced, potential for refunds. I think we track that. We have good visibility. We're monitoring that situation very closely. As you mentioned, we were able to mitigate most of that through tariff avoidance by our -- in the region, for the region strategy, but we did take pricing actions to offset that.
And we had communicated back in 2025 that we expected our second half direct tariff cost to be about $8 million. We came in a little bit less than that. But as you point out, those tariff surcharges kind of ramp throughout the year, where Q1 was a bit light. So on a year-over-year compare, there will be higher tariff expense in the first quarter. But most of that, again, is being recovered through pricing actions.
And we would take a similar approach as it relates to cost inflation, definitely the situation around the memory chips, some of the pricing that we're seeing on those chips going up 4 or 5 times, and we'll manage that in a similar situation and recoup as much as we can of that through pricing and obviously, keeping the lines of communication open with our customers.
Our next question comes from the line of Jeff Hammond with KeyBanc.
This is David Tarantino, on for Jeff. So you touched on the tariff pressures, but could you give us some greater detail on the margin expansion levers in 2026, particularly how you're thinking about margin growth between better volume absorption and the more internal initiative driven productivity benefits?
Yes. So David, I'd answer that by saying we're going to continue to do what we did in 2025. And what you'd observe is starting the year at roughly 31% gross margin and adding a point every quarter now. We think in the '26 time frame, we can get back to that mid-30s. And again, we're exiting at 33.5%, 34% margin rate.
So number one is volume. We've demonstrated that in '25. We have a cost structure that will provide leverage to the bottom line as we continue to drive volume. We're not adding any capacity. We continue to optimize our facilities. But then within our focus within the plants and managing of our cost of goods sold, we take an SQDC approach to that: safety, quality, delivery, cost where we focus sub because we think all of those are, one, tied to customer satisfaction and ensuring we're delivering timely product. Obviously, high quality is the number one focus there, but those drive measurable improvements in our margin rates as well, keeping our employees safe limiting from a quality perspective, whether you talk about rework or warranty or such.
So that's the approach we're taking. And it's really on a rate of change perspective of driving that continuous improvement. So we've got initiatives in all of our centers of excellence driven within our businesses.
Yes. And we'll talk more about the different operational initiatives we have within our businesses at our Investor Day highlighting some of the things that we've done, one within our Sun Hydraulics business, looking a lot at synchronous flow, and how do we get the movement product through our manufacturing system quicker. And that's actually driven some productivity as well as helping us take down some of the inventory.
We also are looking at how we configure the operations in the building and how do we make those more efficient. And we've undertaken some just changes that align and again, reconfiguring that manufacturing process, which makes us more productive. But as Sean mentioned, the biggest driver remains just the volume. As the volume comes through, we get that leverage on our overhead costs, really see the incrementals flow through.
Okay. Great. That's helpful. And then maybe on the end markets within Electronics. Could you talk about what you're seeing in mobile and recreational end markets that informs the return to growth, particularly around recreational and how this is driven just between channel inventories being too low versus the recent tailwinds you noted from one specific customer?
Yes. On the end markets, if you take our 2 business -- our 2 largest businesses, Balboa Water Group and Enovation Controls. Balboa Water Group is all health and wellness predominantly target at the spa industry. And what we've seen there is the U.S. market still soft. Production continues to increase in China for export, particularly to the European region. But we did grow that business again last year on top of growth from the prior year in '24.
So we're not seeing a significant rebound. But typically, that's a market that grows very sleepy low single digits. And effectively, it's back to that pre pandemic levels where we saw the spike. And for us, it was double the size it was pre-pandemic for our Health and Wellness business. And then it contracted more than half. And now it's kind of back to where it was at. And so we expect to see continued growth there, but we're going to outpace the market, and we have a whole line of new products coming in that are much overdue.
We've really been operating with the same product offering and portfolio of products since Helios acquired Balboa. And given the R&D investments we've been making, we're very excited about what's coming to market, and we get early visibility to that because we're partnering with those OEMs to design in product into their new models. And so we're seeing a little bit of innovation there, and we're really excited about some of the things we're bringing to market as well.
When you go to the Innovation business, as you highlighted, it's indexed more to that recreational market, but it is very diversified as well. So when you look at recreation and you look at marine versus more traditional recreational products, side-by-sides, ATVs, snowmobiles, motorcycles. First, starting with marine, there's been a little bit of consolidation. We've seen some M&A activity with some of our customers. And we see that as positive because that's going to bring in more opportunity for us to, again, sell more to our existing customer base. But we're also on the gas innovation wise.
And if you look at all the products we launched last year, what we have coming, we'll be showing some of this at CONEXPO this week it really opens the aperture to the amount of markets we could serve. So we're going to be aggressively going after that, and we have a very strong sales force that's out hunting and frankly, where we won over -- when we highlighted over $50 million of new business wins. A lot of those new wins came in our Electronics business because we see that addressable market being very large.
So overall, that marine market, not rightsized from a channel inventory level, retail is still down, early boat season sentiments, mixed. So we're not expecting significant growth out of that. When you do look at the more traditional recreational, the one customer that we highlighted is really taking a lot of share, and we're benefiting from that. In addition, we're trying to work with them in terms of selling them more of our existing products as well.
So those would be the 2 big movers, but we certainly serve the construction and ag market as well on our Electronics side.
[Operator Instructions]
Our next question comes from the line of Chris Moore with CJS Securities.
This is Will, on for Chris. Fiscal year '21 was an unusual year driven by Balboa and adjusted EBITDA margin was 24.6%. What would it take over the next 3 to 5 years to get back to that level?
Yes. Will, good call out. As Sean mentioned, 2022 really started in 2021 with the pandemic. We saw extreme growth, definitely in Balboa in that health and wellness, but also in the other end markets as well, [indiscernible] the recreational off-road. And you're right, when we got the volumes, you saw the EBITDA and you saw the leverage there. Actually Balboa in that period was one of the highest EBITDA margin businesses that we had. And so for us, it really comes back to our growth and leveraging the infrastructure that we have to drive that operating leverage.
Now that said, we have had acquisitions since that point in time. We had 3 in 2022 and 2023 that didn't have the same margin profile as the remaining business. So getting back to that same level, we're targeting definitely mid-20s EBITDA we think we can get to over time, and we'll go into a little bit more of that long-range plan at our Investor Day.
And you've done a great job streamlining the organization cost structure given some softer end markets. Is there any area where it would be difficult to ramp quickly?
Yes. Great question. We actually have already started planning to -- for that and say what happens if we see a market recovery. How do we make sure that we've got the right resources in place, both people and I mentioned supply using chips as an example, making sure that we have the components and the supply we need to deliver on that.
So obviously, we'll take a wait and see approach with some of the volume we're managing leaning more towards over time than just ramping up head count. In fact, our head count on a year-over-year basis if you kind of adjust for the CFP divestiture is actually down. So we're going to manage that tightly and push the productivity initiatives. But absolutely, we are having those conversations as we see the growth, how do we make sure that we're prepared and we can deliver to our customers.
We have no further questions at this time. Ms. Almond, I'd like to turn the floor back over to you for closing comments.
Great. Thank you, operator, and thank you, everyone, for joining us today. We look forward to seeing all of you in person at our upcoming Investor Day here on March 20. As we mentioned, we're also heading out the CONEXPO this week as well. So perhaps we'll see some of you there as well, too. Feel free to reach out to me with any follow-up questions, and have a great day. Thank you. .
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Helios Technologies Inc — Q4 2025 Earnings Call
Helios Technologies Inc — Q3 2025 Earnings Call
1. Management Discussion
Greetings, and welcome to the Helios Technologies Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] 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. Thank you. You may begin.
Thank you, operator, and good day, everyone. Welcome to the Helios Technologies Third 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 today are Sean Bagan, President and Chief Executive Officer; Michael Connaway, our Chief Financial Officer; and Jeremy Evans, our Chief Accounting Officer. Please join us in welcoming Michael for his first earnings call with Helios. He joined the Helios' team just 3 weeks ago. Sean will start the call with highlights from the third quarter, then hand it over to Michael for a brief introduction. Jeremy will then review our third quarter financial results in detail. Sean will conclude our prepared remarks with expectations for the remainder of 2025. 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. These risks and uncertainties and other factors can be found in our annual report on Form 10-K for 2024, along with upcoming 10-Q 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. Please reference Slides 3 and 4 now.
With that, it's my pleasure to turn the call over to Sean.
Thanks, Tania, and welcome, everyone. We appreciate you joining us today. Our third quarter delivered positive measurable results, analogous to the current changing autumn season. Since I joined Helios 9 quarters ago, our business has persevered through various market down cycles. I am pleased to finally report that the third quarter was a harvest season for Helios as we returned to growth and delivered above 20% adjusted EBITDA margin.
After planting strategic initiatives and weathering challenges, we're now seeing results in the same way that farmers do after spending months planting, nurturing and waiting, often through unpredictable weather before finally harvesting in the fall.
Helios Technologies is evolving through restructuring, innovating and expanding and the core remains incredibly strong. Growth often requires visible change, and now the progress is coming through in our financial results. We believe the third quarter marks a turning point for Helios. We delivered a 13% sales increase with growth across all 3 of our regions and both business segments.
This growth was driven by a strong performance from our Electronics business. In fact, it was a record quarter for Enovation Controls with strong demand returning in the recreational industry. That's not to discount the growth in hydraulics, which was achieved in what continues to be a soft marketplace. Our focus on our go-to-market strategy and accelerated pace of innovation is winning back customers and taking market share.
Of note, over the last 5 months, our weekly average order volume has outperformed the same period in the last 3 years. Our customer centricity and high level of customer engagement is capturing new business wins and growing our sales funnel. Our new products across both segments have had great reception, where we have been showcasing them at major trade shows such as IBEX, Utility Expo, the Battery Show, iVT Expo, bauma ConExpo India, and the International Pool Spa Patio Expo. In addition to our customer-focused initiatives, our teams also dedicated time to strengthening our culture and giving back to the communities in which we work.
We are doing this work with purpose as we strive to be the employer of choice in the communities we live. It is getting noticed with numerous external awards and accolades. Among other examples, we continued our annual sponsorship of the Clyde Nixon Business Leadership Award, named after a former Sun Hydraulics Chairman and CEO. This award is presented at the Sarasota County's Economic Development Corporation's Annual Meeting and honors the Sarasota County's business leader who exemplifies the personal integrity, business excellence and community commitment of the late Clyde Nixon.
Additionally, during our recent Helios Leadership Summit, our team prepared books filled with inspirational messages for the children served by Easterseals Southwest Florida chapter. These servant leadership qualities go back to our founders, specifically Bob Koski's unique approach to his [ infamous ] horizontal management style and his philanthropic mindset.
Moving to our results. As expected, our higher sales in the third quarter contributed to margin expansion. This shows through in our operating model when you look at the sequential sales step-up from 2Q'25 to 3Q'25 of $8 million and the associated incremental margins at the gross profit line all the way through to the adjusted EBITDA and earnings per share.
We are continuing to invest in engineering resources to drive our future product pipeline and are upgrading production capabilities, which will have a productivity payoff in the future. We also continue to generate positive cash flow and reduce debt. After our ninth consecutive quarter of paying down debt, our net debt-to-adjusted EBITDA leverage ratio has improved to 2.4x.
During the quarter, we closed the sale of Custom Fluidpower and recorded a gain of $21 million. We are excited to have CFP remain in the Sun family as a continued hydraulics distributor in Australia, under an exclusive distribution agreement for the region. This followed the action to close our HCEE operation and put engineering resources back into our core businesses, another example of our evaluation of the footprint realignment. This is a continuous focus as we evaluate how best we optimize our operations to serve our customers where we can command strong market positions.
Also, as part of our ongoing portfolio evaluation, this quarter we wrote down $25.9 million of goodwill related to i3 product development, a company we acquired in May 2023. We have refocused i3PD engineers on projects aligned with Helios's core business and strategic goals, including the No Roads and Cygnus Reach software platforms, supported by a leadership change that has added more software sales expertise. We have reforecast sales for i3PD and adjusted our expectations for the rate of adoption of new software capabilities.
Overall, for Helios, we remain focused on profitably growing the business, driving EBITDA margins back into the 20s and improving our return on invested capital. Our capital priorities remain to invest in organic growth, reduce debt, maintain our long dividend history and opportunistically repurchase shares. With continued margin expansion, we expect to lower our leverage ratio to around 2x by year-end with the fourth quarter cash flow generated from operations combined with utilizing the cash received on October 1st from the sale of CFP. As we continue to strengthen our balance sheet, we will have more optionality to make strategic investments as we advance into 2026.
Finally, I would like to take this opportunity to welcome Michael Connaway as our new CFO. Our employees, partners and shareholders will find his insightfulness, strong grasp of finance and breadth of experience a nice addition for Helios. We now have our full leadership team in place to harness our collective energy and create the momentum to drive us forward.
Let me turn the call over to Michael now to introduce himself.
Thanks, Sean. These are certainly exciting times at Helios, and I'm very excited and honored to be here. I joined Helios because I see great potential for this business. I know that we have businesses that have strong cores with well-respected histories, great market positions with global brand recognition, deep customer relationships and quality products that serve critical needs within the applications they are used.
With the progress under Sean's leadership, it is evident there is tremendous value that we can create going forward. I believe that my experience can be well applied here and look forward to contributing to company growth, driving cash and earnings improvements and helping the team create increasing shareholder value over time.
With that, let me pass it over to Jeremy to cover the details of the solid third quarter results.
Thanks, Michael. It's great to have you join us, and good morning, everyone. As I review our third quarter results, please reference Slides 5 through 8.
Sales in the quarter were $220 million, up 13% year-over-year and exceeding the top end of our guidance range, which was $215 million. This reflects strong performance in the Electronics segment, which grew 21%, while Hydraulics increased 9%. Encouragingly, we saw the mobile, recreational and agriculture markets turn green this quarter relative to year-over-year comparables. There were some orders from the fourth quarter that customers pulled forward, a contribution to the outperformance.
Sequentially, sales were up 4% or $8 million as demand continued to improve across multiple end markets. Regionally, year-over-year sales increased double-digits across all 3 geographies. Sequentially, we had 10% growth in APAC and 6% growth in the Americas, offsetting the typical seasonal decline in EMEA, which was down 6%. Note, foreign exchange favorably impacted sales by $1.8 million compared with the year ago period.
Gross profit increased 21% year-over-year to $73 million, with gross margin expanding 200 basis points to 33.1%, driven primarily by better capacity utilization from higher volumes, favorable mix and operational efficiency improvements, which more than offset tariff headwinds. Sequentially, gross margin improved 130 basis points, reflecting incremental leverage from higher volume, primarily in the Electronics segment. We continue to look for ways to improve gross margin through efficiency and capacity utilization while focusing on our core business. Our initiatives to restructure HCEE, leverage our low-cost Tijuana facility, divest CFP and refocus i3PD resources, are examples of decisions taken in the past year.
Operating income was down in the quarter compared to the prior year, primarily due to goodwill impairment related to i3PD. The CFP divestiture gained mostly offset the goodwill charge. On an adjusted basis, operating margin came in at 16.6%, the third quarter in a row of expansion, while adjusted EBITDA margin declined 40 basis points year-over-year. Last year's operating profit had a $5.5 million benefit due to stock compensation reversal from the CEO termination.
Our effective tax rate in the third quarter was 19.8% compared with 14.2% in the year ago period, reflecting the mix of business and applicable statutory tax rates and the impact of both the goodwill impairment charge and the gain on the sale of CFP. The 2024 period included an overall increase in discrete tax benefits driven by the CEO termination in July of 2024.
Diluted EPS was $0.31 in the quarter, down 9% over last year. Diluted non-GAAP EPS was $0.72 in the quarter, up 22% over last year, primarily from the sales growth and business improvements we have discussed. The sequential increase demonstrates the strong operating leverage of the business.
Turning to Slide 9. Hydraulics delivered 9% higher sales year-over-year, supported by improving demand from our customers in the mobile end market and early signs of improvement in agriculture. Foreign exchange had a favorable $1.8 million impact on the segment compared with the prior year period.
Hydraulics gross profit and gross margin grew year-over-year 12% and 90 basis points, respectively, supported by operational efficiencies from improving lead times and continued volume strength at Faster. SEA expenses were up $5 million or 30% over the prior year period, mainly due to the $3.7 million reversal of unvested stock compensation in connection with the CEO termination in July 2024, in addition to higher wages and benefits reflecting investments made in our core operations.
Moving to Slide 10. Electronics sales grew 21% year-over-year, driven by record performance in innovation. We saw growth from our customers in the recreational, mobile and industrial end markets, while our demand in the health and wellness market was relatively flat. Gross profit and gross margin expanded 38% and 420 basis points, respectively, from the prior year, primarily due to higher volumes and more favorable mix.
Operating income of negative $13.7 million reflects the i3PD goodwill impairment. Prior to the goodwill impairment charge, operating income as a percentage of sales increased to 15.3%, up 490 basis points compared to the prior year period due to the higher gross margin and lower SEA expenses as a percentage of sales. The prior year period included a $1.8 million reversal of unvested stock compensation in connection with the CEO termination.
Slide 11 shows the trailing 12-month free cash flow conversion rate of 223%. We generated $18.5 million in free cash flow during the quarter, down from $28.8 million in the prior year. This quarter's cash from operations was impacted by an increased accounts receivable balance as a result of the higher sales. CapEx of $6.7 million or 3% of sales was consistent with our focus on maintenance and productivity enhancements that deliver clear and measurable returns on investment.
Turning to Slide 12. At the end of the third quarter, cash and equivalents were $55 million, which did not include all of the proceeds from the sale of CFP, and we had $360 million available on our revolving lines of credit. Our balance sheet is strong and provides us with great flexibility.
With that, I will now turn the call back over to Sean.
Thanks, Jeremy. Turning to Slides 13 and 14. We have met our commitments over the last 8 consecutive quarters as we have instilled a stronger financial discipline and processes for accountability and predictability. We have also outperformed our expectations for the first 9 months of this fiscal year while navigating the tariff landscape and expect to end 2025 well-positioned for further growth carrying into 2026.
As we mentioned last quarter, we expected an acceleration from recreational customers based on our order book and other market factors such as improved channel inventories. With mobile also starting to show positive indicators, the broader macro and customer sentiment is turning upward. Key industrial indicators are stabilizing and early cycle demand patterns are improving, signals that support the beginning of an up cycle across some of our end markets.
At the same time, Helios's own self-help initiatives are taking hold. We've strengthened our operating discipline, streamlined our portfolio and invested in capabilities that expand our addressable markets. Building on 2 years of disciplined strategic planning and execution, we are well-positioned to capture the next phase of growth with greater agility and profitability with our streamlined operations.
We expect fourth quarter sales to be in the range of $192 million to $202 million, up 10% over the prior year period at the midpoint of the range. This would be a 20% growth rate at the midpoint, adjusting for $15.6 million in CFP sales in the prior year comparable period. For the full year, sales at the midpoint of the guidance, adjusting for CFP, would be 4% growth over fiscal 2024.
We expect fourth quarter adjusted EBITDA margin to be in the range of 20% to 21%, keeping us at the 20% plus level. For the full year, we expect adjusted EBITDA margin to be in the range of 19.1% to 19.4%, with the midpoint about 25 basis points above the midpoint of our original guidance range from February this year. We expect fourth quarter diluted non-GAAP earnings per share to be in the range of $0.67 to $0.74, which more than doubles over last year at the midpoint. For the full year, we expect diluted non-GAAP EPS of $2.43 to $2.50, with the midpoint 12% above the high end of our original guidance from February.
We entered the year with a clear plan and stronger discipline. And today we're operating with greater precision, accountability and focus, defining a new standard for Helios, one we intend to keep refining and elevating with every step forward. I am incredibly proud of the progress made this year by the Helios team, and we are committed to capitalizing on our momentum as we continue to stack up wins.
Turning to Slide 15 to 17. We remain focused on organic growth driven by innovation. The team has done a great job launching new products this year that provide incremental sales streams and allow us to attack adjacent markets. Our focus on investing in R&D and innovation through the down cycle has positioned us well for when the cycle starts to turn.
As you look at both our financial priorities as well as our key focus areas we established for the year, I am pleased with how we are performing. We returned to growth this quarter and expect to end the year with sales above 2024 levels with improved margins, a lower cash conversion cycle and reduced debt, laying a strong foundation for 2026. We are targeting to host our next Investor Day on the morning of March 20, 2026, in Sarasota, Florida. There will be more information provided as we get closer to the event.
As I conclude our prepared remarks, I want to revisit what I shared on last quarter's call, our renewed energy and determination to deliver a strong comeback in the second half of the year. Today, I'm proud to say we are doing just that. Our execution and progress reflect the unwavering dedication of every Helios employee around the world. We are fortunate to have an extraordinary group of companies within the Helios family, many celebrating their own remarkable milestones alongside our founding company, Sun Hydraulics, as it marks its 55th anniversary in 2025.
As we honor that legacy, our focus remains squarely on the future, driving innovation, serving our customers with excellence and creating lasting value for our shareholders. The actions we're taking today are designed to strengthen our foundation and amplify our momentum. I'm more confident than ever in my belief that the future is very bright for Helios. 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 the line for Q&A, please.
[Operator Instructions] Our first question comes from the line of Chris Moore with CJS Securities.
2. Question Answer
Congrats on a nice quarter and the momentum. Maybe just talk about -- provide a little color on some of your recent commercial wins, how much visibility that gives you into '26?
Chris, thanks. I appreciate the kind words. And, yes, as you know, when we entered this year, we prioritized our go-to-market as our top initiative. We were coming off -- well, we are now coming off 12 quarters of sales decline. So it feels really good to put up a green number of positive growth and certainly would attribute that to our refocus on go-to-market.
We really started with standing up new sales processes, reporting and most importantly, with the team across all of our businesses. And I certainly can give a few recent examples as we're seeing that. But ultimately, the success is going to be judged by our sales and order levels, which we have some really solid metrics that we'll share throughout the Q&A session here.
So, across kind of all 4 businesses, we like to talk about them. A perfect example, recent win is with our Faster team. As you know, we're proud to celebrate our 55th anniversary here at Sun Hydraulics, but Faster actually will be celebrating their 75th anniversary next year and speaks to the deep, long customer relationships they have. And deep into the AG industry, AGCO is a long-term customer of ours. And a recent nice win for the Faster team that will start to stack in 2026, where our customer across kind of their 3 European brands, Fendt, Valtra and Massey Ferguson, decided to really commonize the back end of the hydraulic attachments. And so they chose us for our performance quality and price, frankly, of our coupling. So that's just an example, but there's many of that within the Faster team.
The Sun team is really all about distribution and partnering with our long-term distributors and just stacking up wins, as I like to say, within the organization, whether recent wins in the wind power, alternative energy, AWP earthmoving, a leading OEM there through one of our distributors, the light compact construction equipment leader, specialized AG harvesting equipment. These are all small wins that are stacking and adding up.
And then you go over to the Electronics segment and just at the International Pool Patio Spa Show in Vegas last week and a great win-back example, one of the higher premium hot tub spa brands, Bullfrog is a customer win back, and they had one of our displays on display at the show that we're very excited to win some of that business back. And then as I highlighted in our prepared remarks, Enovation had a record quarter. They are on the gas and driving innovation and growth for us across all of Helios.
I would like to speak to one win that we've had recently that we haven't been able to announce yet, but it's in a new space, and it shows our ability to really target through our go-to-market approach, these adjacent opportunities. So this is in the neighborhood electric vehicle space. That will take some time to ramp and grow as we displace [ their ] competitor, but it shows, again, our focus on go-to-market, very targeted on where we're searching. And I couldn't be more prouder of what the Enovation team has done. I would put off our engineers against any of our competitors, whether that's software, mechanical application, that's allowing us to go get these win backs and is key to supporting our product strategy.
Wow, good stuff. I appreciate that. Maybe just my follow-up. Obviously, margin progression is happening here. Fiscal '21 was an unusual year driven by Balboa. Adjusted EBITDA was 24.6%. What would it take over the next 2 or 3 years to get back to that level?
Yes. I'm glad you highlighted Balboa because I've highlighted that before that, that was about double what it currently is in terms of its revenue size during that year. And given that low-cost manufacturing, that was very accretive from an overall Helios mix perspective. But in addition, we were coming off also highs with innovation in the recreational products when everyone was buying outdoor equipment at that time.
So I think what we're showing now is the demonstration of the operating leverage we have embedded within our business. And whether you look at kind of sequential step-ups or year-over-year, we showed a 200 basis points improvement in our gross profit margins here in the third quarter. But even sequentially, you look every quarter this year up.
So it's going to come down to volume, and we highlight that, and I will tie that back to why it's so important that we go create growth in this go-to-market. It's no secret the markets we're operating in are not healthy. They're still recovering. Now we're seeing signs of growth, but really in order to get that EBITDA margin back into those mid-20s, we need more volume.
The other piece that I would highlight there is we've been very focused on the rest of the value drivers within the company. And certainly, the operating expense of the company has been very well managed. We did want to continue to call out that last year and the compare has about a $5.5 million pickup that was due to the prior CEO's termination. But absent that, we've managed our costs below 2024 levels, and we're growing our sales. So on a year-to-date basis, we're up. So you can see the operating expense leverage we're also getting out of the business.
Very helpful, Sean. I'll jump back in line.
Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets.
Maybe just start on recreational vehicle. That seems like a market, maybe you touched on it, [ truck ] markets are still choppy. But is that -- what you're seeing, destocking ending? Is there a program win share gains? Or is there a real kind of demand recovery there? And maybe same for mobile, which again, seems pretty choppy, but you're kind of pointing the green arrow?
Yes. So starting with the recreational. We have -- what we've seen is the market has -- from a retail perspective has not rebounded. But what has changed is that the dealer channel inventory levels are in a much healthier spot. Our largest customer has been on the gas from an innovation perspective and has taken a lot of share, and we've benefited from that. And honestly, the other piece here is with interest rates, and I've talked about this on prior calls, that this is an industry where a lot of that product is financed. And with the lowering of interest rate environment, that certainly could help.
When we look at it just in North America, I mean, even Canada is outperforming the U.S. from that perspective because their benchmark rates about 2.25% that they just reduced [ too ] in October. While our U.S. Fed is still in that 3.75% to 4% targeted range, but came down. And so I expect that to likely help.
But when you look at those channel inventory levels, they're absolutely in a much healthier space. The non-currents are finally clearing through with the OEMs running their factory authorized clearance and types of things to pull that through. And dealer sentiment then gets a little bit better there. I don't expect dealers are going to go restock back up to prior levels, and that's not a bad thing. Leaner inventories and healthier turns are good for that industry.
And finally, I would say, our largest customer is -- has very steady optimism that I frankly see it grounded in realism and the worst of the channel cleanups are behind us. And so, that gives us confidence.
And then secondly, yes, we are on the gas from a go-to-market perspective. Looking for new wins. I highlighted the NEB, one. And I would tell you, we're looking at others within that space, whether that's both with just the off-road type vehicles or marine, which is really excited about our No Roads application that we have now launched the No Roads Marine, and we expect that to help us get some new wins there in that segment as well.
Okay. Great. So appreciate -- the CFP looks like a good divestiture and done i3 moves, I think we understand. Any more portfolio reshaping you think needs to happen from here? Or is this kind of where we're set? And then you mentioned as you get leverage down, you want to -- it should allow you to lean in on strategic investments. And I'm just wondering maybe how you're thinking the same or differently than the prior management team about M&A?
Yes, Jeff. So I would say from a portfolio perspective, nothing else imminent. I would say, for me, this is just standard work that we're always evaluating the portfolio and the performances of the different businesses. But at this point, we're strongly committed to all of our businesses. It's no secret that our Balboa business has deteriorated from those COVID highs that certainly weren't sustainable. But we feel really good about the trajectory of that business and have a multipronged approach plan to improve their profitability as that volume returns. Coming off of that recent show that I referenced in Vegas, we demonstrated in a kind of a side room. So we had our typical booth, but we had a side room where we brought in all our key OEM customers to really show them our vision for our product pipeline.
And I will tell you that we have more product coming in the next 18 months than we have launched in the last 10 years, and we've started some of that. Purezone is one example. So, we're excited and believe that the existing portfolio is strong, but we're always going to evaluate that.
Yes. And this is Jeremy. I'll touch on the M&A question. As we've said in prior calls, our focus has been on paying down debt. Our leverage ratio is down to 2.4x at the end of Q3. We think we could get that around 2 by the end of the year. And when you look at our cash flow -- free cash flow last 12 months, very high, near record high cash flow. So we do expect as we get into 2026 that we will have maybe a different priority around capital allocation.
But as we said on prior call, M&A is not going to be driven at the corporate level. It needs to make sense with what we have down in our operating segments, and it needs to get the right return. So we will obviously be aware, be looking. If there's an opportunistic opportunity, for sure, we'll look at it. But it's got to make sense. It's got to fit the portfolio, and it's got to have the right return.
Our next question comes from the line of Mircea Dobre with Baird.
This is Joe Grabowski on for Mircea this morning. Welcome aboard, Michael.
Thankyou.
Okay. So I guess I'd start in Electronics, and I know we've talked about it already, but the sales there were the strongest in the last 3 years, as you mentioned, Enovation Controls had a record quarter. Maybe just talk about any unusual items in the quarter, any perhaps pull forwards into the quarter? And then I know there's seasonality, but how do you kind of think about the sequential sales progression in Electronics from Q3 into Q4?
Yes. So Joe, on the Electronics performance in the third quarter, we had in our prepared remarks, there was a little bit of pull-through from the fourth quarter, and that really was concentrated to that -- to the Electronics segment, and it was more in that recreational marine space. I think absent that $3 million, we were just above the top end of our guide by about a point once you take that $3 million out.
And when you look at the Hydraulics segment, although I understand your question is electronics related, it was a very similar trend. We're about a point above our top end of our guide with some things hitting a little bit more favorably across both segments.
Just the numerics quick on that one, on the sequential. So you kind of alluded to some of the sales pull-ins. But off of that $79 million number in Q3, call it, $3 million or $4 million on sales pull-ins driven by customer ordering patterns. And then if you look at Q4 at the mid on Electronics, which is [ $73 million ], you would kind of add that back and you get a flat sequential on electronics. But embedded within that flat sequential is 2 quarters in a row of 20% plus year-over-year view. So the Electronics segment, in particular, Enovation is continuing to show really good sales progression.
Great. Okay. Great. That's very helpful. And then maybe my follow-up, switching to Hydraulics. I thought it was interesting that you highlighted that AG was up for the first time in 6 quarters. Maybe kind of talk about where the growth is coming from there and maybe any geographical strength in AG for Hydraulics?
Yes. The AG strength comes from our Faster business, which is predominantly direct to OEM and AG is their -- largest market they serve. I'll acknowledge that the OEMs are not putting up really strong numbers for our large customers, whether that's Deere and AGCO or CNH, but even as you get into some of the European and Chinese OEMs or some of the kind of in between construction and AG and you think Kubota's and getting into hardcore construction with Caterpillar. Now they had a more upbeat recent earnings release.
But the rest of the AG is challenged, but that dynamic I shared on recreational products is exactly what is we've seen playing out in AG as well, where retail demand actually in the U.S. finally put up a positive number here last month in terms of registrations. But that's coming off 4 years of declines in registrations. And so the comps are easier. But what has changed is the dealer inventory and channel levels are at much healthier spots. And so we look at where kind of indications are signaling for 2026, all of the OEMs are suggesting things may begin to recover.
But what we clearly see is in our incoming orders and indicative orders from them year-over-year, that's a positive increase as we're going to feel that earlier as a supplier into them. So we're optimistic that's 2 quarters in a row for our Faster team that has grown year-over-year and continue to expect that to trend favorably in the fourth quarter and as we enter 2026.
[Operator Instructions] Our next question comes from the line of Nathan Jones with Stifel.
I'll follow up on some of these destocking questions because I think it's -- I mean, it's probably an important distinction to make because we get questions about this from investors on Helios. You guys don't actually need to see the John Deeres and the Caterpillars of the world selling more wheel loaders and tractors in order to see revenue growth for Helios in 2026. What you need is the first signal of the bottom of the cycle, which is then stopping destocking inventory and actually producing more machines even if they're not actually selling more machines, correct?
That's fair. Yes.
And so -- and that's what you're seeing in the market. You've talked about -- I think I just want to make it clear for people in recreation and mobile and in AG, that's the kind of market dynamics that you're seeing, which is indicative of a bottoming cycle for you guys to begin with, yes?
Yes, I would agree. The only caveat I'm going to put, because we talked deeply already about recreational and AG, when you go over to more of the end markets that Sun is exposed to area work platforms, type of -- there's big macro signs, obviously, with PMI that's been mixed. But geographically, it had been stronger in China and Asia, and we've seen that in our sales as well.
But beyond that, it's the piece of us and our partnering from a go-to-market with our distributors to do that targeted account planning. And you look at industrial production and the Big, Beautiful Bill and what that will create in terms of infrastructure, we feel well-positioned despite that our NFPA data telling us these markets have been down. And so with us now growing, we think we're taking share, but you're absolutely right on the AG and rec.
So I think then -- I mean, you talked about being well-positioned for growth in 2026 and without needing to forecast what Caterpillar sales are going to be or what Deere sales are going to be, you should have some decent visibility to growth just against the destocking comps that you had in '25. So I'm wondering if you're prepared to offer any color on what you're thinking about 2026 at this point?
Yes. So not in terms of full guidance and such, but I feel with conviction that we will enter the year in 2026 with growth. Now I will also highlight that we will have easier comps in the first half of the year than the second half as we enter 2026. But why I have conviction is what we're seeing in our demand trends. We haven't seen the level of order increases for multiple years. And even October came in, in double-digits just as the prior 5 months had done from a year-over-year perspective.
The other thing I want to make sure is clear is that CFP revenues coming out, that was a roughly $60 million a year business. Last year in the fourth quarter, it was $15.6 million. So we just got to keep that in mind that we're not anchoring on 2025 guidance at the midpoint of $825 million and growth off of that. Our really jumping off point is closer to $780 million.
Yes, I think we're organic. You should get a little bit of a tailwind from -- to gross margins from the CFP divestiture, yes?
Correct. Yes. particularly -- well, obviously, that's in our Hydraulics segment. So it will be more visible there. But certainly, at the Helios level, it helps as well.
Our next question comes from the line of John Braatz with Kansas City Capital.
Sean, you took the charge-off on i3 this quarter. What are you doing specifically to turn that operation around and get it to make a contribution to the bottom line? What kind of changes are you making there?
John, this is Jeremy. I'll field that one. I want to first highlight that with that acquisition, we gained access to a team of highly talented engineers. And as we've been integrating them into the rest of the Helios portfolio, we've actually been consulting with them and having them help with some of the new product innovations that we've been coming out with, and others that we have in the pipeline. And as we evaluated that, we believe it makes a lot more sense to have those resources focus on projects that can benefit the broader Helios portfolio.
And so, just to remind everyone, they were a third-party engineering design service firm that basically work project by project. We didn't retain any of the IEP for those projects. And then we also had some software, that's where that Cygnus Reach platform came. And we just think it's not a turnaround play, but it makes much more sense to refocus those resources on customers and projects that will benefit the broader Helios portfolio. So that's the main reason.
The other piece I would say is rather than try to sell the software platforms on a stand-alone basis, which requires a lot of customization kind of a long runway, we want to embed that software onto the products that we are launching. And we are doing that with some of the next-generation displays, both in our electronics and then also having them help out on the hydraulics side as well. So it's really less of a turnaround situation and more of leveraging those resources as to best add value to the broader Helios portfolio.
But as a result of that, some of that third-party revenue projections, we've dialed that back as well as we've adjusted the, call it, the adoption rate on the software where it's going to be tied now into some of those product releases. And so, a result of that math came out and we said we can't support the goodwill that we had on the balance sheet for that under the new strategy. And that's really what led to the write-off this quarter.
And John, if I can just accentuate because Jeremy explained that really well. But at the end of the day, this is just an example of overpaying for an acquisition that was pre-revenue and didn't scale. And at the end of the day, then it's a mathematical equation based upon current business circumstances.
But that said, I want to reiterate how important that the i3 team is to our overall strategy. We acquired, as Jeremy said, some very talented engineers that have been cornerstones in some of the new products we've announced already and released recently, but also further stuff in the pipeline. And at the end of the day, I couldn't be more proud of those engineers and the way they are pumping out products and our sales teams now with our go-to-market approach are kicking down doors. Our customer excitement is very high. And in this fierce competitive world, our Helios team doesn't back down and we take on these challenges, and we love being the underdog.
Okay. Sean, I'm looking forward at the new product pipeline. Obviously, in the past, there was some emphasis placed on big OEM wins that would be quite sizable. When you look at the lineup, are there any singular new products that really move the needle? Or are they sort of one-off in isolation?
Well, that's the plan is to always launch products that catch the attention of OEMs and they want to buy them. But we, at the end of the day, are truly an extension of many of those OEM customers of ours. So we are designing and developing products years in advance with them. But even the most recent one we announced, the new multi-Faster from Faster. And just a reminder, I mean, that is a piece of equipment that goes on mini-AG and construction vehicles to allow the operator to quickly attach and detach hydraulic applications.
And at the end of the day, I'd like to highlight that multi-Faster is kind of a term in the industry that others have copied and tried to compete with us. But with our new multi-Faster, we bring out features like higher flow rates and more applications that it can go on or different deviations of that product, like earlier in the year, the multi-slide that went downstream in the market to the compact excavation equipment and such. And so, we're always trying to innovate. But at the end of the day, the multi-Faster is the multi-connection that others have copied. I would say it's like the Kleenex. It's created its own brand that others have copied.
We have no further questions at this time. I'd like to turn the floor back over to management for closing comments.
Great. Thank you very much, everyone, for joining us today. We will be attending some different conferences between now and the end of the year, both in person and virtually. So we look forward to catching up with you in person. If you have any follow-up questions, feel free to reach out to me directly. Thank you, and have a great day.
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.
Helios Technologies Inc — Q3 2025 Earnings Call
Financial data from Helios Technologies Inc
Revenue
Revenue is the sum of all sales generated by a company, e.g. for its products or services.
Revenue (TTM) metric explainedDirect Costs
Direct costs are the costs incurred directly in connection with the manufacture of the product or service.
Gross Profit
Gross Profit indicates how much of the revenue remains in the company after deducting direct production costs. If the percentage share of sales is calculated, this is referred to as the gross margin.
Gross Profit metric explainedSelling and Administrative Expenses
Selling, general and administrative expenses (SG&A) include all expenses for marketing and sales as well as the general administration of the company.
Research and Development Expense
Research and development costs (R&D) provide information on how much the company invests in the research and development of its products. The costs are particularly interesting as a percentage of revenue and in comparison to direct competitors.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the company's earnings before interest, taxes, depreciation and amortization. The EBITDA margin is calculated as a percentage of sales.
Depreciation and Amortization
Depreciation represents reductions in the value of the company's assets (e.g. due to wear and tear on machinery).
EBIT (Operating Income)
EBIT (Earnings Before Interest and Taxes) is the company's profit before interest and taxes, also known as the operating income. The EBIT Margin is calculated as a percentage of sales at
.
Net Profit
Net Profit represents the profit or loss after deduction of all costs.
Net Profit metric explainedStocksGuide Premium
| Jul '26 |
+/-
%
|
||
| Revenue | 891 891 |
14%
14%
100%
|
|
| - Direct Costs | 598 598 |
11%
11%
67%
|
|
| Gross Profit | 293 293 |
21%
21%
33%
|
|
| - Selling and Administrative Expenses | 153 153 |
14%
14%
17%
|
|
| - Research and Development Expense | - - |
-
-
|
|
| EBITDA | 140 140 |
31%
31%
16%
|
|
| - Depreciation and Amortization | 30 30 |
6%
6%
3%
|
|
| EBIT (Operating Income) EBIT | 110 110 |
48%
48%
12%
|
|
| Net Profit | 71 71 |
105%
105%
8%
|
|
In millions USD.
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Helios Technologies Inc Stock News
Company Profile
Helios Technologies, Inc. engages in the development and manufacture of soolutions for both the hydraulics and electronics markets. It operates through the Hydraulics and Electronics segments. The Hydraulics segment provides screw-in hydraulic cartridge valves, manifolds, and integrated fluid power packages and subsystems used in hydraulic systems. The Electronics segment provides electronic control, display, and instrumentation solutions for recreational and off-highway vehicles and stationary and power generation equipment. The company was founded by Robert E. Koski and John Allen in 1970 and is headquartered in Sarasota, FL.
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| Head office | United States |
| CEO | Mr. Bagan |
| Employees | 2,300 |
| Founded | 1970 |
| Website | www.heliostechnologies.com |


