Helios Technologies, Inc. 2026 Q2 Earnings Call

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

We have provided reconciliations of comparable GAAP with non-GAAP measures in the tables that accompany today's slides. Please reference Slides 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 five 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 two 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 SCT, 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 roadmaps 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 continue to execute on footprint optimization initiatives to 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%, 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 two 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 in all regions.