hlio-10q_20210403.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 3, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-21835

HELIOS TECHNOLOGIES, INC.

(Exact Name of Registration as Specified in its Charter)

Florida		59-2754337
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1500 WEST UNIVERSITY PARKWAY SARASOTA, Florida		34243
(Address of Principal Executive Offices)		(Zip Code)

(941)362-1200

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock $.001 Par Value

HLIO

The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller Reporting Company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 32,234,227 shares of common stock, par value $.001, outstanding as of April 30, 2021.

Helios Technologies, Inc.

INDEX

For the quarter ended

April 3, 2021

			Page

PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements

	Consolidated Balance Sheets as of April 3, 2021 (unaudited) and January 2, 2021		4

	Consolidated Statements of Operations for the Three Months Ended April 3, 2021 (unaudited) and March 28, 2020 (unaudited)		5

	Consolidated Statements of Comprehensive Income for the Three Months Ended April 3, 2021 (unaudited) and March 28, 2020 (unaudited)		6

	Consolidated Statements of Shareholders’ Equity for the Three Months Ended April 3, 2021 (unaudited) and March 28, 2020 (unaudited)		7

	Consolidated Statements of Cash Flows for the Three Months Ended April 3, 2021 (unaudited) and March 28, 2020 (unaudited)		8

	Condensed Notes to the Consolidated, Unaudited Financial Statements		9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

	Item 4.	Controls and Procedures	27

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	28

	Item 1A.	Risk Factors	28

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

	Item 3.	Defaults Upon Senior Securities	28

	Item 4.	Mine Safety Disclosures	28

	Item 5.	Other Information	28

	Item 6.	Exhibits	29

PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

Helios Technologies, Inc.

Consolidated Balance Sheets

(in thousands, except per share data)

	April 3, 2021			January 2, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	25,924		$	25,216
Restricted cash		41			41
Accounts receivable, net of allowance for credit losses of $1,453 and $1,493		124,391			97,623
Inventories, net		119,763			110,372
Income taxes receivable		579			1,103
Other current assets		21,901			19,664
Total current assets		292,599			254,019
Property, plant and equipment, net		160,695			163,177
Deferred income taxes		6,152			6,645
Goodwill		434,059			443,533
Other intangible assets, net		407,309			419,375
Other assets		10,734			10,230
Total assets	$	1,311,548		$	1,296,979
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	72,608		$	59,477
Accrued compensation and benefits		18,731			22,985
Other accrued expenses and current liabilities		24,315			24,941
Current portion of long-term non-revolving debt, net		15,841			16,229
Dividends payable		2,900			2,891
Income taxes payable		7,749			1,489
Total current liabilities		142,144			128,012
Revolving line of credit		249,797			255,909
Long-term non-revolving debt, net		186,126			189,932
Deferred income taxes		73,578			78,864
Other noncurrent liabilities		34,623			36,472
Total liabilities		686,268			689,189
Commitments and contingencies		—			—
Shareholders' equity:
Preferred stock, par value $0.001, 2,000 shares authorized, no shares issued or outstanding		—			—
Common stock, par value $0.001, 100,000 shares authorized, 32,226 and 32,121 shares issued and outstanding		32			32
Capital in excess of par value		376,994			371,778
Retained earnings		290,007			270,320
Accumulated other comprehensive loss		(41,753	)		(34,340	)
Total shareholders' equity		625,280			607,790
Total liabilities and shareholders' equity	$	1,311,548		$	1,296,979

The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.

Helios Technologies, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)

	Three Months Ended
	April 3, 2021			March 28, 2020
	(unaudited)			(unaudited)
Net sales	$	204,844		$	129,483
Cost of sales		129,477			77,633
Gross profit		75,367			51,850
Selling, engineering and administrative expenses		30,561			25,664
Amortization of intangible assets		10,198			4,348
Goodwill impairment		—			31,871
Operating income (loss)		34,608			(10,033	)
Interest expense, net		4,751			2,951
Foreign currency transaction loss, net		464			125
Other non-operating income, net		(1	)		(94	)
Income (loss) before income taxes		29,394			(13,015	)
Income tax provision		6,807			4,208
Net income (loss)	$	22,587		$	(17,223	)
Basic and diluted net income (loss) per common share	$	0.70		$	(0.54	)
Basic and diluted weighted average shares outstanding		32,193			32,062
Dividends declared per share	$	0.09		$	0.09

The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.

Helios Technologies, Inc.

Consolidated Statements of Comprehensive Income

(in thousands)

	Three Months Ended
	April 3, 2021			March 28, 2020
	(unaudited)			(unaudited)
Net income (loss)	$	22,587		$	(17,223	)
Other comprehensive income (loss)
Foreign currency translation adjustments, net of tax		(9,118	)		(4,901	)
Unrealized gain (loss) on interest rate swap, net of tax		1,705			(2,201	)
Total other comprehensive loss		(7,413	)		(7,102	)
Comprehensive income (loss)	$	15,174		$	(24,325	)

The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.

Helios Technologies, Inc.

Consolidated Statements of Shareholders’ Equity (unaudited)

Three Months Ended

(in thousands)

																Accumulated
										Capital in						other
	Preferred		Preferred		Common			Common		excess of			Retained			comprehensive
	shares		stock		shares			stock		par value			earnings			loss			Total

Balance at January 2, 2021		—	$	—		32,120		$	32	$	371,778		$	270,320		$	(34,340	)	$	607,790
Shares issued, restricted stock						30														—
Shares issued, other compensation						7														—
Shares issued, ESPP						10					333									333
Shares issued, acquisition						63					3,624									3,624
Stock-based compensation											2,107									2,107
Cancellation of shares for payment of employee tax withholding						(4	)				(848	)								(848	)
Dividends declared														(2,900	)					(2,900	)
Net income														22,587						22,587
Other comprehensive loss																	(7,413	)		(7,413	)
Balance at April 3, 2021		—	$	—		32,226		$	32	$	376,994		$	290,007		$	(41,753	)	$	625,280

Balance at December 28, 2019		—	$	—		32,047		$	32	$	365,310		$	267,658		$	(55,364	)	$	577,636
Shares issued, restricted stock						21														—
Shares issued, other compensation						5														—
Shares issued, ESPP						12					355									355
Stock-based compensation											1,533									1,533
Cancellation of shares for payment of employee tax withholding						(10	)				(677	)								(677	)
Dividends declared														(2,887	)					(2,887	)
Net loss														(17,223	)					(17,223	)
Other comprehensive loss																	(7,102	)		(7,102	)
Balance at March 28, 2020		—	$	—		32,075		$	32	$	366,521		$	247,548		$	(62,466	)	$	551,635

The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.

Helios Technologies, Inc.

Consolidated Statements of Cash Flows

(in thousands)

	Three Months Ended
	April 3, 2021			March 28, 2020
	(unaudited)			(unaudited)
Cash flows from operating activities:
Net income (loss)	$	22,587		$	(17,223	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		15,237			8,376
Goodwill impairment		—			31,871
Stock-based compensation expense		2,107			1,533
Amortization of debt issuance costs		125			179
Benefit for deferred income taxes		(906	)		(1,186	)
Forward contract gains, net		(2,402	)		(440	)
Other, net		32			160
(Increase) decrease in:
Accounts receivable		(28,051	)		(6,838	)
Inventories		(10,809	)		(2,818	)
Income taxes receivable		565			1,415
Other current assets		(2,614	)		(2,740	)
Other assets		2,139			1,213
Increase (decrease) in:
Accounts payable		13,912			3,867
Accrued expenses and other liabilities		(2,147	)		(4,652	)
Income taxes payable		6,126			3,051
Other noncurrent liabilities		(819	)		(701	)
Net cash provided by operating activities		15,082			15,067
Cash flows from investing activities:
Acquisition of a business, net of cash acquired		(1,000	)		—
Amounts paid for net assets acquired		(2,400	)		—
Capital expenditures		(5,036	)		(2,937	)
Proceeds from dispositions of equipment		35			3
Cash settlement of forward contracts		1,544			1,634
Software development costs		(623	)		—
Net cash used in investing activities		(7,480	)		(1,300	)
Cash flows from financing activities:
Borrowings on revolving credit facilities		6,602			2,000
Repayment of borrowings on revolving credit facilities		(8,500	)		(5,500	)
Repayment of borrowings on long-term non-revolving debt		(4,029	)		(2,100	)
Proceeds from stock issued		333			355
Dividends to shareholders		(2,891	)		(2,885	)
Other financing activities		(974	)		(815	)
Net cash used in financing activities		(9,459	)		(8,945	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		2,565			310
Net increase in cash, cash equivalents and restricted cash		708			5,132
Cash, cash equivalents and restricted cash, beginning of period		25,257			22,162
Cash, cash equivalents and restricted cash, end of period	$	25,965		$	27,294

The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.

HELIOS TECHNOLOGIES, INC.

CONDENSED NOTES TO THE CONSOLIDATED, UNAUDITED FINANCIAL STATEMENTS

(Currencies in thousands, except per share data)

1. COMPANY BACKGROUND

Helios Technologies, Inc. (“Helios,” or the “Company”) together with its wholly owned subsidiaries, is a global leader in highly engineered motion control and electronic controls technology for diverse end markets, including construction, material handling, agriculture, energy, recreational vehicles, marine, health, and wellness. Helios sells its products to customers in over 85 countries around the world. The Company’s strategy for growth is to be the leading provider in niche markets, with premier products and solutions through innovative product development and acquisitions.

The Company operates in two business segments: Hydraulics and Electronics. There are three key technologies within the Hydraulics segment: cartridge valve technology (“CVT”), quick-release hydraulic coupling solutions (“QRC”) and hydraulic system design (“Systems”). CVT products provide functions important to a hydraulic system: to control rates and direction of fluid flow and to regulate and control pressures. QRC products allow users to connect and disconnect quickly from any hydraulic circuit without leakage and ensure high-performance under high temperature and pressure using one or multiple couplers. Systems provide engineered solutions for machine users, manufacturers or designers to fulfill complete system design requirements including electro-hydraulic, remote control, electronic control and programmable logic controller systems, as well as automation of existing equipment. The Electronics segment provides complete, fully-tailored display and control solutions for engines, engine-driven equipment, specialty vehicles and therapy baths and spas. This broad range of products is complemented by extensive application expertise and unparalleled depth of software, embedded programming, hardware and sustaining engineering teams. This technology is referred to as Electronic Controls (“EC”).

On November 6, 2020, the Company completed the acquisition of BWG Holdings I Corp. (hereinafter referred to as “Balboa Water Group” or “Balboa”), an innovative market leader of electronic controls for the health and wellness industry. The results of Balboas operations are reported in the Company’s Electronics segment and have been included in the Consolidated Financial Statements since the acquisition date.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements are not included herein. The financial statements are prepared on a consistent basis (including normal recurring adjustments) and should be read in conjunction with the consolidated financial statements and related notes contained in the Annual Report on Form 10-K for the fiscal year ended January 2, 2021 (“Form 10-K”), filed by Helios with the Securities and Exchange Commission on March 2, 2021. In management’s opinion, all adjustments necessary for a fair presentation of the Company’s financial statements are reflected in the interim periods presented.

The Company faces various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19. The current COVID-19 pandemic has had an impact on markets the Company serves and its operations. The Company cannot at this time predict the future impact of the COVID-19 pandemic on its business or economic conditions as a whole, but it could have a material adverse effect on the business, financial position, results of operations and/or cash flows. Operating results for the three months ended April 3, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ended January 1, 2022.

Contract Assets and Liabilities

Contract assets are recognized when the Company has a conditional right to consideration for performance completed on contracts. Contract asset balances totaled $2,239 and $2,776 at April 3, 2021 and January 2, 2021, respectively, and are presented in Other current assets in the Consolidated Balance Sheets. Accounts receivable balances represent unconditional rights to consideration from customers and are presented separate from contract assets in the Consolidated Balance Sheets.

Contract liabilities are recognized when payment is received from customers prior to satisfying the underlying performance obligation. Contract liabilities totaled $3,865 and $4,208 at April 3, 2021 and January 2, 2021, respectively, and are presented in Other accrued expenses and current liabilities in the Consolidated Balance Sheets.

Research and Development

The Company conducts research and development (“R&D”) to create new products and to make improvements to products currently in use. R&D costs are charged to expense as incurred and totaled $4,298, and $4,107 for the three months ended April 3, 2021 and March 28, 2020, respectively.

Earnings Per Share

The following table presents the computation of basic and diluted earnings per common share (in thousands, except per share data):

	Three Months Ended
	April 3, 2021		March 28, 2020
Net income (loss)	$	22,587	$	(17,223	)
Basic and diluted weighted average shares outstanding		32,193		32,062
Basic and diluted net income (loss) per common share	$	0.70	$	(0.54	)

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies accounting for income taxes by eliminating some exceptions to the general approach in ASC 740, Income Taxes, related to intraperiod tax allocation, the methodology for calculating income tax in an interim period and the recognition of deferred tax liabilities for outside basis differences. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The amendments in this update should be applied on either a retrospective basis, a modified retrospective basis or prospectively, depending on the provision within the amendment. The Company adopted the standard for the fiscal year beginning January 3, 2021. Adoption of the standard did not have a material impact on the Consolidated, Unaudited Financial Statements.

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables provide information regarding the Company’s assets and liabilities measured at fair value on a recurring basis at April 3, 2021 and January 2, 2021.

April 3, 2021

Quoted Market

Significant Other Observable

Significant Unobservable

Total

Prices (Level 1)

Inputs (Level 2)

Inputs (Level 3)

Assets