Helios Technologies’ Earnings Call: Growth Drivers and Margin Timelines Don’t Match

Date of Call: Mar 3, 2026

Financials Results

• Revenue: Q4: $211M, up 17% YOY; Full year: $839M, up 4% YOY (6% on a pro forma basis excluding CFP divestiture)
• EPS: Q4 diluted EPS: $0.58, up over 4x YOY; Q4 non-GAAP EPS: $0.81, up 145% YOY. Full year diluted EPS: $1.45, up 24% YOY; Full year non-GAAP EPS: $2.56, up 22% YOY.
• Gross Margin: Q4: 33.6%, expanded 350 basis points YOY. Full year: 32.3%, increased 100 basis points YOY.
• Operating Margin: Q4: 12.2%, expanded 480 basis points YOY. Non-GAAP Q4: 16.4%, up 310 basis points YOY. Full year non-GAAP: 15.4%, up 20 basis points YOY.

Guidance:

• Q1 2026 sales expected in range of $218M to $223M, up 22% YOY on a pro forma basis.
• Q1 adjusted EBITDA margin expected in range of 19.5% to 20.5%, up over 250 basis points YOY at midpoint.
• Q1 diluted non-GAAP EPS expected in range of $0.65 to $0.70, up 53% YOY at midpoint.
• Full year 2026 net sales expected in range of $820M to $860M, implying 6% growth YOY on a pro forma basis.
• Full year adjusted EBITDA margin expected in range of 19.5% to 21.0%.
• Full year diluted non-GAAP EPS expected in range of $2.60 to $2.90, up 7% YOY at midpoint.

Business Commentary:

Revenue and Sales Growth:

• Helios Technologies reported fourth-quarter sales of $211 million, up 17% compared to $180 million in the prior year period. On a pro forma basis, excluding the divestiture of Custom Fluid Power (CFP), sales were up 29%.
• The growth was driven by broad-based increases in both the Hydraulics and Electronics segments, with Hydraulics sales up 10% and Electronics up 31%. The company's return to growth was attributed to customer-centric go-to-market initiatives and product innovation.

Profitability and Margin Expansion:

• The company's gross margin expanded by 350 basis points to 33.6% in the fourth quarter, and adjusted EBITDA margin was 20.1%, reflecting improvement from prior periods.
• Profitability was enhanced by higher sales volumes, improved mix, ongoing productivity initiatives, and the positive impact of the CFP divestiture.

Cash Flow and Capital Allocation:

• Helios Technologies achieved record cash generation from operations of $46 million in the fourth quarter, contributing to a record $127 million for the year.
• The company used this cash to pay down $82 million in debt, resulting in a net debt to adjusted EBITDA leverage ratio of 1.8x, and initiated a share repurchase program, buying back 330,000 shares at a cost of $13.6 million year-to-date.

Outlook and Strategic Focus:

• For the first quarter of 2026, the company expects sales in the range of $218 million to $223 million, up 22% on a pro forma basis. Full-year 2026 sales are projected to be between $820 million to $860 million, implying 6% growth on a pro forma basis.
• The company's strategic focus is on executing its growth plan through product innovation, expanding gross margins via productivity improvements, maintaining earnings momentum, and optimizing capital allocation to drive shareholder returns.

Sentiment Analysis:

Overall Tone: Positive

• Strong quarterly results with 17% sales growth and record cash flow. Management expresses confidence in momentum and strategy, stating 'We are building a stronger, more resilient and more scalable Helios' and 'The future for Helios is bright, and we are deeply committed to long-term value creation.'

Q&A:

• Question from Tomohiko Sano (JPMorgan Chase & Co): 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. 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?
  Response: Guidance balances strong order trends and existing backlog for Q1 with uncertainty in H2 due to tough comps and external risks like geopolitical issues and supply chain constraints; upside potential exists if order trends sustain.

• Question from Tomohiko Sano (JPMorgan Chase & Co): Could you give us more color on your key capital allocations, priorities going forward, please?
  Response: Priorities include continued debt reduction, higher CapEx for productivity/automation investments, and opportunities to invest in internal capabilities for new product launches.

• Question from Nathan Jones (Stifel, Nicolaus & Company): Can you 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 recent commercial wins?
  Response: Wins are primarily with existing customers (share of wallet) and are driven by new product extensions; key growth areas include aerospace and new markets to be discussed at Investor Day.

• Question from Nathan Jones (Stifel, Nicolaus & Company): When you're talking about that, are you really talking about more stabilization of production levels rather than end customer actual demand levels... Or do you think you're actually seeing end customer sell-through in some of those markets improve?
  Response: Attributed growth to healthier channel inventories and share gains via go-to-market focus, not strong end-market recovery; retail environments remain choppy and down.

• Question from Mircea Dobre (Robert W. Baird & Co.): 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?
  Response: Guidance reflects limited visibility into distribution channels, stabilization in ag, and balances against global trade volatility, tariff uncertainties, and potential chip supply constraints.

• Question from Mircea Dobre (Robert W. Baird & Co.): 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...
  Response: Tariff costs are being recovered through pricing actions; year-over-year tariff expense will be higher in Q1 2026, but impact is mitigated. Similar approach will be taken for chip cost inflation.

• Question from David Tarantino (KeyBanc Capital Markets): 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?
  Response: Margin expansion driven by volume leverage and continuous operational improvements (SQDC approach); target is to return to mid-30s gross margin, with initiatives like synchronous flow and facility reconfiguration.

• Question from David Tarantino (KeyBanc Capital Markets): Could you talk about what you're seeing in mobile and recreational end markets that informs the return to growth, particularly around recreational...
  Response: Growth in Health & Wellness is returning to pre-pandemic levels; Electronics growth driven by a specific customer in recreation and diversification into construction/ag, though retail demand remains mixed.

• Question from Will Gildea (CJS Securities): What would it take over the next 3 to 5 years to get back to [the 2021 adjusted EBITDA margin level of 24.6%]?
  Response: Targeting mid-20s EBITDA margins over time through growth and operating leverage, though acquisitions since 2021 have impacted profile; detailed long-range plan to be discussed at Investor Day.

• Question from Will Gildea (CJS Securities): Is there any area where it would be difficult to ramp quickly?
  Response: Planning for potential recovery includes ensuring supply chain readiness (e.g., chips) and managing headcount productivity; lean towards over-time scaling rather than rapid headcount increases.

Contradiction Point 1

Growth Drivers and Market Outlook

Contradiction on whether growth is driven by market recovery or channel destocking.

Nathan Jones (Stifel, Nicolaus & Company, Incorporated) - Nathan Jones (Stifel, Nicolaus & Company, Incorporated)

2025Q4: For Sun Hydraulics... distributor inventory levels are down year-over-year and sequentially, yet the business grew, indicating share gains.... For Faster... channel inventory is healthier, and signs of improvement are visible in some OEM guidance... - Sean Bagan(CEO)

Is the stabilization in agricultural market production or improvement in end-customer demand driven by channel destocking leading to higher demand for Helios? - Nathan Jones (Stifel, Nicolaus & Company, Incorporated)

2025Q3: Growth visibility is based on stopping destocking and improving channel health, not necessarily broader OEM sales recovery. - Sean Bagan(CEO)

Contradiction Point 2

Electronics Segment Performance & Outlook

Contradiction on the primary driver of Electronics growth and the health of the recreational marine market.

David Tarantino (KeyBanc Capital Markets Inc.) - David Tarantino (KeyBanc Capital Markets Inc.)

2025Q4: Growth in Health & Wellness and construction equipment (mobile) also contributed positively." "...A specific large customer in the recreational segment is driving significant growth." "...channel inventory correction is a factor in some areas. - Sean Bagan(CEO)

What factors—channel inventory correction or specific customer tailwinds—are driving growth in mobile and recreational end markets within Electronics? - Jeffrey Hammond (KeyBanc Capital Markets Inc.)

2025Q3: In recreational marine, dealer channel inventory levels are healthier, channel cleanups are likely over..." "...Helios is gaining share and looking for new wins in NEVs and marine (with new No Roads Marine product). - Sean Bagan(CEO)

Contradiction Point 3

Timeline to Return to Target EBITDA Margins

Contradiction on the specific drivers and timeframe for achieving >20% EBITDA margins.

Will Gildea (CJS Securities, Inc.) participate in the earnings call? - Will Gildea (CJS Securities, Inc.)

2025Q4: Returning to ~24.6% EBITDA margins requires driving growth and leveraging the company’s infrastructure. The company targets mid-20s EBITDA margins over time. - Jeremy Evans(CFO)

What steps are needed over the next 3–5 years to return to the 24.6% adjusted EBITDA margin from Fiscal 2021? - Peter Kalemkerian (R.W. Baird, on for Mig Dobre)

2025Q2: The timeline to reach >20% EBITDA margins depends on continued volume growth in H2, the CFP divestiture (expected to contribute ~50bps), and ongoing operational initiatives... - Sean Bagan(CEO) & Jeremy Evans(CFO)

Contradiction Point 4

Characterization of Competitive Advantage from U.S. Manufacturing

Contradiction on whether U.S. manufacturing is primarily a pricing tool or a source of innovation and differentiation.

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2025Q4: The advantage is being used strategically, such as winning back a coupler business. It also benefits distribution sales. For Enovation Controls, the advantage is more about innovation and differentiation, not price competition. - Sean Bagan(CEO) & Jeremy Evans(CFO)

With conservative outlook and early-cycle indicators (PMI, OEM production rises), how do you reconcile the modest full-year growth guide (500 bps) with seasonality and strong end-market signals? - Nathan Jones (Stifel)

2025Q4: The advantage is being used strategically, such as winning back a coupler business. It also benefits distribution sales. - Sean Bagan(CEO) [Implied focus on price competition]

Contradiction Point 5

Go-to-Market Strategy and Growth Drivers

Shift in stated primary growth driver from market share gains to existing customer cross-sell.

Nathan Jones (Stifel, Nicolaus & Company, Incorporated) - Nathan Jones (Stifel, Nicolaus & Company, Incorporated)

2025Q4: Growth is primarily with existing customers and increasing share of wallet, driven by product extensions. - Sean Bagan(CEO)

Can you provide details on the products, markets, and expected run rates of recent commercial wins? - Nathan Jones (Stifel)

2025Q1: Opportunities: Tariffs present a market share gain opportunity, particularly in Hydraulics and Faster. - Sean Bagan(CEO) and Jeremy Evans(CFO)