Helios Technologies Reports Fourth Quarter and Full Year 2018 Results

• Record-setting full year sales of $508 million, up 48%; includes organic growth of 11%
• 2018 EPS of $1.49 per share; Non-GAAP EPS of $1.74, up 9%
• 2018 adjusted operating margin of 21.4%, adjusted EBITDA margin of 24.5%
• Net debt lowered by $20 million during fourth quarter
• Ended 2018 with net debt-to-EBITDA of 2.4x
• Introducing 2019 revenue guidance of $590 million to $600 million, GAAP EPS of $2.10 to $2.20, non-GAAP cash EPS of $2.55 to $2.65, adjusted EBITDA margin of 24.5% to 25.5%

SARASOTA, Fla.--(BUSINESS WIRE)-- Helios Technologies (formerly known as Sun Hydraulics) (Nasdaq: SNHY) (“Helios” or the “Company”), a global industrial technology leader that develops and manufactures solutions for both the hydraulics and electronics markets, today reported financial results for the fourth quarter and full year ended December 29, 2018. The results include Faster Group since its acquisition on April 5, 2018 and Custom Fluidpower (CFP) since its acquisition on August 1, 2018.

Wolfgang Dangel, Helios Technologies’ President and Chief Executive Officer, commented, “As I reflect on the past two years, I note that they represented periods of tremendous growth and diversification for Helios, as we have been successfully executing our Vision 2025 strategic plan. We finished 2018 with $508 million of revenue compared with $197 million in 2016, more than a 2.5 times increase. Similarly, we generated $124.3 million of adjusted EBITDA in 2018, or 24.5% of sales, compared with $48 million in 2016, or 24.4% of sales.

“Specifically, in the past year, revenue grew 48% and adjusted EBITDA grew 43%. Our strong fourth quarter performance, with adjusted EBITDA margin expanding 290 basis points over the prior year, contributed to the solid full year results. Additionally, we reduced our net debt by nearly $20 million in the fourth quarter, finishing the year at 2.4x net debt-to-EBITDA and marking significant progress toward our leverage goal. Highlights of 2018 include:

• During the first quarter, we completed a successful follow-on equity offering where we issued 4.4 million shares and raised approximately $240 million of capital, which was used to partially fund the subsequent Faster acquisition.
• During the second quarter, we amended our bank credit facility and closed on the acquisition of Faster. This addition strategically contributes to the diversification of our end markets, hydraulic product offerings, geographies, manufacturing footprint, and customer base.
• Also during the second quarter, we began our Sarasota Cartridge Valve Technology (CVT) manufacturing consolidation project, to increase our capacity and further improve our production efficiency in accordance with our lean enterprise initiative. The project is progressing as planned and we expect to complete it within the next month or so.
• During the third quarter, we adopted Helios Technologies as our new business name, reflecting that we now have several operating companies under our umbrella, in alignment with our Vision 2025 strategy.
• Also during the third quarter, we completed the acquisition of CFP, a relatively small, bolt-on hydraulic integrator that geographically provides us with a pivotal stepping stone from which we are further building our presence in the growing Southeast Asia region.
• Additionally during the third quarter, we began production at our new state-of-the-art facility in South Korea, in accordance with our ‘in the region, for the region’ philosophy.
• Throughout the year, we continued to make steady progress with synergy realization among Enovation Controls, Faster and CFP, together with our legacy Sun Hydraulics business.
• We also realized productivity improvement in all of our businesses, which is ongoing.
• Finally, we continued to realize the results of our organic growth initiatives, with particular focus on new products and new markets penetration.”

Looking forward to 2019, Mr. Dangel added, “We are pleased with the results from our investments to gain market share and achieve our acquisition revenue synergies. We believe we can continue to grow at a rate that exceeds growth expected in the currently changing macroeconomic climate. Also, we are aggressively investing in innovative manufacturing technologies and market-leading new products, which will keep our capital expenditures and research and development spending at strong levels. We believe that these investments are critical to the execution of our Vision 2025 strategy, which is driving shareholder value.”

Fourth Quarter 2018 Consolidated Results

See the attached tables for additional important disclosures regarding Helios’s use of non-GAAP adjusted operating income, non-GAAP adjusted operating margin, non-GAAP adjusted net income, non-GAAP adjusted EPS, adjusted EBITDA (earnings before net interest expense, income taxes, depreciation and amortization, and certain non-recurring charges) and adjusted EBITDA margin (adjusted EBITDA as a percentage of sales) as well as reconciliations of GAAP operating income to non-GAAP adjusted operating income and GAAP net income to non-GAAP adjusted net income and adjusted EBITDA.

* The comparison is impacted by a 4.9 million increase in weighted average shares outstanding in the 2018 fourth quarter compared with the prior-year fourth quarter.

Sales

• Acquisition growth – Faster contributed $36.0 million; CFP contributed $11.9 million
• Organic growth – 8%
• Foreign currency translation on organic sales – $0.4 million unfavorable
• Foreign currency translation on acquired businesses’ sales – $2.6 million unfavorable (compared with exchange rates in effect at the respective acquisition dates)

Profits and margins

• Gross profit and margin drivers – Organic sales growth, acquisitions, price increases and improved efficiency
• Selling, engineering and administrative (SEA) expenses – Increased primarily due to Faster and CFP acquisitions, partially offset by cost reductions in the organic businesses; lower as a percent of sales
• Acquisition-related amortization of intangible assets – $6.0 million ($2.0 million in prior year)
• Other operating profit and margin factors – Last year included $1 million for acquisition and financing-related expenses and $1.5 million of restructuring charges

Non-operating items

• Net interest expense – Higher primarily for debt to fund the Faster and CFP acquisitions
• Effective tax rate – 3.6%, low due to the U.S. Tax Cuts and Jobs Act as well as some discrete items
  (49.9% in the fourth quarter of 2017)

EPS and adjusted EBITDA

• Driven by growth and productivity improvements noted above

Helios believes that, when used in conjunction with measures prepared in accordance with GAAP, adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP measures, help in the understanding of its operating performance.

Full Year 2018 Consolidated Results

See the attached tables for additional important disclosures regarding Helios’s use of non-GAAP adjusted operating income, non-GAAP adjusted operating margin, non-GAAP adjusted net income, non-GAAP adjusted EPS, adjusted EBITDA and adjusted EBITDA margin as well as reconciliations of GAAP operating income to non-GAAP adjusted operating income and GAAP net income to non-GAAP adjusted net income and adjusted EBITDA.

* The comparison is impacted by a 4.3 million increase in weighted average shares outstanding in 2018.

Sales

• Acquisition growth – Faster contributed $106.5 million; CFP contributed $20.3 million
• Organic growth – 11%
• Foreign currency translation on organic sales – $3.1 million favorable
• Foreign currency translation on acquired businesses’ sales – $5.2 million unfavorable (compared with exchange rates in effect at the respective acquisition dates)

Profits and margins

• Gross profit and margin drivers – Organic sales growth, acquisitions, and price increases, partially offset by $4.4 million for amortization of inventory valuation step-up ($1.8 million in 2017)
• SEA expenses – Increased primarily due to Faster and CFP acquisitions, partially offset by cost reductions in the organic businesses; lower as a percent of sales
• Acquisition-related amortization of intangible assets – $23.0 million ($8.4 million in prior year)
• Other operating profit and margin factors – $5.7 million for acquisition and financing-related expenses ($1.0 million in 2017). Last year also included $1.5 million of restructuring charges.

Non-operating items

• Net interest expense – Higher primarily for debt to fund the Faster and CFP acquisitions
• Foreign currency transaction loss and change in fair value of contingent consideration – $3.6 million and $1.5 million, respectively, varied significantly compared with 2017, as previously disclosed
• Effective tax rate – variation impacted by the factors described above for the fourth quarter

EPS and adjusted EBITDA

• Driven by revenue growth, partially offset by freight, seasonality and the impact of CFP’s integrator business model

Helios believes that, when used in conjunction with measures prepared in accordance with GAAP, adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP measures, help in the understanding of its operating performance.

Hydraulics Segment Review

(Refer to sales by geographic region and segment data in accompanying tables)

Segment sales of $111.5 million nearly doubled over the prior-year fourth quarter. The $52.4 million increase included $36.0 million from the Faster business, $11.9 million from CFP and 8% of organic growth. Growth was driven by demand in most geographies and end markets, price increases, and was also positively impacted by global sales and marketing initiatives. Orders continued to outpace revenue. Foreign currency translation for the Sun Hydraulics business had a $0.3 million unfavorable impact compared with the 2017 fourth quarter.

Fourth quarter 2018 gross margin of 35.6% was relatively in line with the prior year’s 35.9%. The Faster business reported lower-than-average gross margin primarily due to unabsorbed costs during its holiday shutdown in December. Additionally, due to the nature of a value-add distributor business, CFP carries a lower gross margin than the rest of the segment. The 2017 fourth quarter gross margin was unfavorably impacted by one-time operational items and other cost pressures related to strong customer demand.

Higher SEA expenses in the 2018 quarter included $7.1 million for the Faster and CFP businesses.

As a result of the above, fourth quarter operating income nearly doubled to $22.3 million, representing 20.0% of sales, up from 19.2% last year.

For 2018, segment sales grew $151.2 million, or 66%, to $381.8 million. The growth included $106.5 million contributed by Faster and $20.3 million by CFP, and 11% growth was realized organically. Operating income for the year was $83.9 million, or 22.0% of sales.

Electronics Segment Review

(Refer to sales by geographic region and segment data in accompanying tables)

Segment sales were $27.2 million for the 2018 fourth quarter, an 8% increase compared with the fourth quarter of last year. The growth was driven by project timing and increased content with current customers. Foreign currency translation minimally impacted segment sales in the quarter.

Fourth quarter 2018 gross margin improved substantially to 45.7%, up from 30.5% last year. Favorable productivity, project mix and improved cost position drove the growth.

SEA costs decreased by $1.0 million in the quarter compared with last year, primarily due to restructuring costs included last year.

Fourth quarter operating income significantly improved to $5.1 million, or 18.7%, compared with a $0.7 million loss in last year’s fourth quarter.

In 2018, segment sales grew 13% to $126.2 million. Operating income for 2018 was $25.0 million, or 19.8% of sales, up from 16.0% in 2017. The increase was driven by revenue growth as well as efficiencies realized from productivity improvements and project mix.

Balance Sheet and Cash Flow Review

Total debt was $352.7 million at December 29, 2018, down from $364.8 million at the end of the sequential third quarter. Cash and cash equivalents at December 29, 2018 were $23.5 million, up from $15.9 million at September 29, 2018. Accordingly, net debt was down $19.7 million in the fourth quarter of 2018. The reduction reflected the strong operating cash flows in the fourth quarter.

Cash provided by operations was $77.5 million and $49.4 million in 2018 and 2017, respectively. The increase was primarily due to higher cash from earnings, partially offset by increases in working capital.

Capital expenditures were $28.4 million and $22.2 million for 2018 and 2017, respectively. The increase was primarily for machinery and equipment, costs for the completion of the Company’s new production facility in South Korea which opened in August of 2018, the addition of the Faster business, and costs associated with the Company’s CVT facility consolidation project in Sarasota. Capital expenditures in 2019 are estimated to be $30 million to $35 million, in support of the Company’s ongoing investments to drive its innovative leadership.

2019 Outlook and Guidance

The following summarizes the Company’s expectations for 2019, compared with actual 2018 results:

Mr. Dangel stated, “Given our acquisitions and organic growth initiatives, we are benefiting from much more diversified end markets and a broader customer revenue base than we had a few years ago. While it is not practical to expect the organic growth rates that we realized during the past two years to continue, and we are cautious about macroeconomic expectations, we are encouraged with our incoming order rates and realization of acquisition synergies that are driving our expectations for growth in 2019. For 2019, we are currently expecting organic revenue growth of 2% to 4%. In addition to organic growth, our first quarter of 2019 will include the acquisition growth resulting from the timing of last year’s Faster and CFP acquisitions.”

He concluded, “Additionally, we continue to focus on profitability improvements and cash flows from all of our businesses, including further realization of the benefits from investments that we’ve made over the past few years. At the midpoint of our 2019 guidance, we are targeting a 50 basis point improvement in our adjusted EBITDA margin. We believe that the results of these actions are moving us toward our Vision 2025 goals, including $1 billion in revenue with superior profitability and financial strength.”

Webcast

The Company will host a conference call and webcast tomorrow morning at 9:00 a.m. Eastern Time to review its financial and operating results, and discuss its corporate strategies and outlook. A question-and-answer session will follow.

The conference call can be accessed by calling (201) 689-8573. The audio webcast can be monitored at www.heliostechnologies.com. Participants will have the ability to ask questions on either the teleconference call or the webcast.

A telephonic replay will be available from 12:00 p.m. ET on the day of the call through Tuesday, March 5, 2019. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13686203. The webcast replay will be available in the investor relations section of the Company’s website at www.heliostechnologies.com, where a transcript will also be posted once available.

About Helios Technologies

Helios Technologies is the business name for Sun Hydraulics Corporation, a publicly-listed company on the Nasdaq Global Stock Market (SNHY). Helios Technologies is a global industrial technology leader that develops and manufactures hydraulic and electronic control solutions for diverse markets. The Company does business through its operating subsidiaries around the world, including Sun Hydraulics, LLC, Enovation Controls, LLC and Faster S.r.l. The Hydraulics segment serves diverse markets including material handling, construction equipment, agriculture, specialized vehicles, energy and others through its Sun Hydraulics and Faster Group companies, providing high-performance screw-in hydraulic cartridge valves and manifolds as well as quick-release hydraulic coupling solutions. The Electronics segment provides electronic control solutions through Enovation Controls for recreational and off-highway vehicles, as well as industrial stationary and mobile power equipment. Helios Technologies and information about its associated companies is available online at www.heliostechnologies.com.

FORWARD-LOOKING INFORMATION

This news release contains “forward‐looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward‐looking statements involve risks and uncertainties, and actual results may differ materially from those expressed or implied by such statements. They include statements regarding the intent, belief or current expectations, estimates, vision or projections of Sun Hydraulics Corporation (“Helios” or the “Company”), its directors or its officers about the Company and the industry in which it operates, and assumptions made by management, and include among other items, (i) the Company’s strategies regarding growth, including its intention to develop new products and make acquisitions; (ii) the Company’s financing plans; (iii) the Company’s expectations regarding our sales, expenses, gross margins and other results of operations; (iv) trends affecting the Company’s financial condition or results of operations; (v) the Company’s ability to continue to control costs and to meet its liquidity and other financing needs; (vi) the declaration and payment of dividends; (vii) the Company’s ability to respond to changes in customer demand domestically and internationally, including as a result of standardization; and (viii) potential challenges relating to changes in and compliance with governmental laws and regulations affecting our U.S. and international business. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that the anticipated results will occur. Important factors that could cause the actual results to differ materially from those in the forward‐looking statements include, among other items, (i) the economic cyclicality of the capital goods industry in general and the hydraulics industry in particular, which directly affect customer orders, lead times and sales volume; (ii) fluctuations in global business conditions, including the impact of economic recessions in the U.S. and other parts of the world, (iii) conditions in the capital markets, including the interest rate environment and the availability of capital; (iv) changes in the competitive marketplace that could affect the Company’s revenue and/or costs, such as increased competition, lack of qualified engineering, marketing, management or other personnel, and increased labor and raw materials costs; (v) risks related to the integration of the businesses of the Company, Enovation Controls and Faster Group; (vi) changes in technology or customer requirements, such as standardization of the cavity into which screw‐in cartridge valves must fit, which could render the Company’s products or technologies noncompetitive or obsolete; (vii) new product introductions, product sales mix and the geographic mix of sales nationally and internationally; and (viii) changes relating to the Company’s international sales, including changes in regulatory requirements or tariffs, compliance with anti-corruption laws and trade laws, including export and import compliance, trade or currency restrictions, fluctuations in exchange rates, and tax and collection issues. Further information relating to factors that could cause actual results to differ from those anticipated is included but not limited to information under the heading Item 1. “Business” and Item 1A. “Risk Factors” in the Company’s Form 10-K for the year ended December 29, 2018. The Company disclaims any intention or obligation to update or revise forward‐looking statements, whether as a result of new information, future events or otherwise.

This news release will discuss some non-GAAP financial measures, which the Company believes are useful in evaluating our performance. You should not consider the inclusion of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.

Financial Tables Follow.

Non-GAAP Financial Measures:

Adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted share, cash net income and cash net income per diluted share are not measures determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP. Nevertheless, Helios believes that providing non-GAAP information such as adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted share, cash net income and cash net income per diluted share are important for investors and other readers of Helios’ financial statements, as they are used as analytical indicators by Helios’ management to better understand operating performance. Because adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted share, cash net income and cash net income per diluted share are non-GAAP measures and are thus susceptible to varying calculations, adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted share, cash net income and cash net income per diluted share, as presented, may not be directly comparable to other similarly titled measures used by other companies.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190225005821/en/

For more information:
Karen L. Howard / Deborah K. Pawlowski
Kei Advisors LLC
(716) 843-3942 / (716) 843-3908
khoward@keiadvisors.com / dpawlowski@keiadvisors.com

Source: Helios Technologies

Released February 25, 2019