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HLIO Helios

Filed: 11 May 21, 10:02am

 

 

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 

OR

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.


2


 

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

 

 

3


 

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,

   0 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.

4


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.


5


 

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.

 

6


 

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.

 

 

 

 

 


7


 

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.

8


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 2 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.

9


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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap contract

 

$

861

 

 

$

 

 

$

861

 

 

$

 

Forward foreign exchange contracts

 

 

251

 

 

 

 

 

 

251

 

 

 

 

Total

 

$

1,112

 

 

$

 

 

$

1,112

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap contract

 

$

6,329

 

 

$

 

 

$

6,329

 

 

$

 

Forward foreign exchange contracts

 

 

731

 

 

 

 

 

 

731

 

 

 

 

Contingent consideration

 

 

1,459

 

 

 

 

 

 

 

 

 

1,459

 

Total

 

$

8,519

 

 

$

 

 

$

7,060

 

 

$

1,459

 

 

10


 

 

 

January 2, 2021

 

 

 

 

 

 

 

Quoted  Market

 

 

Significant Other Observable

 

 

Significant Unobservable

 

 

 

Total

 

 

Prices (Level 1)

 

 

Inputs (Level 2)

 

 

Inputs (Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward foreign exchange contracts

 

$

211

 

 

$

 

 

$

211

 

 

$

 

Total

 

$

211

 

 

$

 

 

$

211

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap contract

 

$

7,679

 

 

$

 

 

$

7,679

 

 

$

 

Forward foreign exchange contracts

 

 

1,551

 

 

 

 

 

 

1,551

 

 

 

 

Contingent consideration

 

 

1,919

 

 

 

 

 

 

 

 

 

1,919

 

Total

 

$

11,149

 

 

$

 

 

$

9,230

 

 

$

1,919

 

 

A summary of the changes in the estimated fair value of contingent consideration at April 3, 2021 is as follows:

 

Balance at January 2, 2021

 

$

1,919

 

Change in estimated fair value

 

 

(460

)

Balance at April 3, 2021

 

$

1,459

 

 

4.  INVENTORIES

At April 3, 2021 and January 2, 2021, inventory consisted of the following:

 

 

April 3, 2021

 

 

January 2, 2021

 

Raw materials

 

$

58,133

 

 

$

49,361

 

Work in process

 

 

33,169

 

 

 

30,675

 

Finished goods

 

 

38,014

 

 

 

39,332

 

Provision for obsolete and slow moving inventory

 

 

(9,553

)

 

 

(8,996

)

Total

 

$

119,763

 

 

$

110,372

 

 

5.  OPERATING LEASES

The Company leases machinery, equipment, vehicles, buildings and office space, throughout its locations, that are classified as operating leases. Remaining terms on these leases range from less than one year to ten years. For the three months ended April 3, 2021 and March 28, 2020, operating lease costs totaled $1,395 and $908, respectively.

Supplemental balance sheet information related to operating leases is as follows:

 

 

April 3, 2021

 

 

January 2, 2021

 

Right-of-use assets

 

$

15,512

 

 

$

16,616

 

Lease liabilities:

 

 

 

 

 

 

 

 

Current lease liabilities

 

$

4,341

 

 

$

4,736

 

Non-current lease liabilities

 

 

11,982

 

 

 

12,728

 

Total lease liabilities

 

$

16,323

 

 

$

17,464

 

 

 

 

 

 

 

 

 

 

Weighted average remaining lease term (in years):

 

 

5.0

 

 

 

 

 

Weighted average discount rate:

 

 

5.0

%

 

 

 

 

Supplemental cash flow information related to leases is as follows:

 

 

Three Months Ended

 

 

 

April 3, 2021

 

 

March 28, 2020

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

1,355

 

 

$

915

 

Non-cash impact of new leases and lease modifications

 

$

204

 

 

$

15

 

11


 

Maturities of lease liabilities are as follows:

2021 Remaining

 

 

 

$

4,084

 

2022

 

 

 

 

3,594

 

2023

 

 

 

 

3,261

 

2024

 

 

 

 

2,602

 

2025

 

 

 

 

2,001

 

2026

 

 

 

 

1,606

 

Thereafter

 

 

 

 

1,297

 

Total lease payments

 

 

 

 

18,445

 

Less: Imputed interest

 

 

 

 

(2,122

)

Total lease obligations

 

 

 

 

16,323

 

Less: Current lease liabilities

 

 

 

 

(4,341

)

Non-current lease liabilities

 

 

 

$

11,982

 

 

6.  GOODWILL AND INTANGIBLE ASSETS

Goodwill

A summary of changes in goodwill by segment for the three months ended April 3, 2021, is as follows:

 

 

Hydraulics

 

 

Electronics

 

 

Total

 

Balance at January 2, 2021

 

$

261,129

 

 

$

182,404

 

 

$

443,533

 

Measurement period adjustment, Balboa Water Group acquisition

 

 

0

 

 

 

90

 

 

 

90

 

Currency translation

 

 

(9,564

)

 

 

0

 

 

 

(9,564

)

Balance at April 3, 2021

 

$

251,565

 

 

$

182,494

 

 

$

434,059

 

Intangible Assets

At April 3, 2021, and January 2, 2021, intangible assets consisted of the following:

 

 

 

April 3, 2021

 

 

January 2, 2021

 

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Amount

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Amount

 

Definite-lived intangibles:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names and brands

 

$

79,422

 

 

$

(12,112

)

 

$

67,310

 

 

$

80,402

 

 

$

(11,188

)

 

$

69,214

 

Non-compete agreements

 

 

950

 

 

 

(823

)

 

 

127

 

 

 

950

 

 

 

(776

)

 

 

174

 

Technology

 

 

45,441

 

 

 

(13,460

)

 

 

31,981

 

 

 

45,955

 

 

 

(12,368

)

 

 

33,587

 

Supply agreement

 

 

21,000

 

 

 

(9,100

)

 

 

11,900

 

 

 

21,000

 

 

 

(8,575

)

 

 

12,425

 

Customer relationships

 

 

322,825

 

 

 

(33,977

)

 

 

288,848

 

 

 

330,406

 

 

 

(31,431

)

 

 

298,975

 

Sales order backlog

 

 

8,000

 

 

 

(6,833

)

 

 

1,167

 

 

 

8,000

 

 

 

(3,000

)

 

 

5,000

 

Workforce

 

 

6,077

 

 

 

(101

)

 

 

5,976

 

 

 

 

 

 

 

 

 

 

 

 

$

483,715

 

 

$

(76,406

)

 

$

407,309

 

 

$

486,713

 

 

$

(67,338

)

 

$

419,375

 

 

Amortization expense for the three months ended April 3, 2021, and March 28, 2020, was $10,198 and $4,348, respectively. Future estimated amortization expense is presented below.

 

12


 

 

Year:

 

 

 

 

2021 Remaining

 

$

20,444

 

2022

 

 

25,519

 

2023

 

 

25,459

 

2024

 

 

24,805

 

2025

 

 

24,737

 

2026

 

 

23,349

 

Thereafter

 

 

262,996

 

Total

 

$

407,309

 

 

7.  DERIVATIVE INSTRUMENTS & HEDGING ACTIVITIES

The Company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments and hedging activities. 

The fair value of the Company’s derivative financial instruments included in the Consolidated Balance Sheets is presented as follows:

 

Asset Derivatives

 

 

Liability Derivatives

 

 

Balance Sheet

 

Fair Value (1)

 

Fair Value (1)

 

 

Balance Sheet

 

Fair Value (1)

 

Fair Value (1)

 

 

Location

 

April 3, 2021

 

January 2, 2021

 

 

Location

 

April 3, 2021

 

January 2, 2021

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

Other assets

 

$

861

 

$

 

 

Other non-current liabilities

 

$

6,329

 

$

7,679

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

Forward foreign exchange contracts

Other current assets

 

 

30

 

 

169

 

 

Other current liabilities

 

 

731

 

 

1,413

 

Forward foreign exchange contracts

Other assets

 

 

221

 

 

42

 

 

Other non-current liabilities

 

 

 

 

138

 

Total derivatives

 

 

$

1,112

 

$

211

 

 

 

 

$

7,060

 

$

9,230

 

(1) See Note 3 for information regarding the inputs used in determining the fair value of derivative assets and liabilities.

 

The amount of gains and losses related to the Company’s derivative financial instruments for the three months ended April 3, 2021 and March 28, 2020, are presented as follows:

 

 

Amount of Gain or (Loss) Recognized in

Other Comprehensive Income on Derivatives (Effective Portion)

 

 

Location of Gain or (Loss) Reclassified

from Accumulated Other Comprehensive Income

Amount of Gain or (Loss) Reclassified from Accumulated

Other Comprehensive Income into Earnings (Effective Portion)

 

 

 

April 3, 2021

 

March 28, 2020

 

 

into Earnings (Effective Portion)

 

April 3, 2021

 

March 28, 2020

 

Derivatives in cash flow hedging relationships:

 

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

2,210

 

$

(4,029

)

 

Interest expense, net

 

$

(1,079

)

$

(525

)

Interest expense presented in the Consolidated Statements of Operations, in which the effects of cash flow hedges are recorded, totaled $4,751 and $2,951 for the three months ended April 3, 2021 and March 28, 2020, respectively.

 

 

 

Amount of Gain or (Loss) Recognized

in Earnings on Derivatives

 

 

Location of Gain or (Loss) Recognized

 

 

April 3, 2021

 

March 28, 2020

 

 

in Earnings on Derivatives

Derivatives not designated as hedging instruments:

 

 

 

Forward foreign exchange contracts

 

$

2,402

 

$

440

 

 

Foreign currency transaction gain loss, net

 

13


 

Interest Rate Swap Contracts

The Company has entered into interest rate swap transactions to hedge the variable interest rate payments on its credit facilities. In connection with these transactions, the Company pays interest based upon a fixed rate as agreed upon with the respective counterparties and receives variable rate interest payments based on the one-month LIBOR. The interest rate swaps have an aggregate notional amount of $195,000, with periodic decreases, have been designated as hedging instruments and are accounted for as cash flow hedges. The interest rate swaps are scheduled to expire in April 2023 and October 2025. The contracts are settled with the respective counterparties on a net basis at each settlement date.

Forward Foreign Exchange Contracts

The Company has entered into forward contracts to economically hedge translational and transactional exposure associated with various business units whose local currency differs from the Company’s reporting currency. The Company’s forward contracts are not designated as hedging instruments for accounting purposes.

At April 3, 2021, the Company had 10 forward foreign exchange contracts with an aggregate notional value of €51,902, maturing at various dates through September 2022.

Net Investment Hedge

The Company utilizes foreign currency denominated debt to hedge currency exposure in foreign operations. The Company has designated €90,000 of borrowings on the revolving credit facility as a net investment hedge of a portion of the Company’s European operations. The carrying value of the euro denominated debt totaled $105,797 as of April 3, 2021 and is included in the Revolving line of credit line item in the Consolidated Balance Sheets. The gain on the net investment hedge recorded in accumulated other comprehensive income (“AOCI”) as part of the currency translation adjustment was $3,172, net of tax, for the three months ended April 3, 2021.  

8.  CREDIT FACILITIES

Total long-term non-revolving debt consists of the following:

 

Maturity Date

 

April 3, 2021

 

 

January 2, 2021

 

Long-term non-revolving debt:

 

 

 

 

 

 

 

 

 

Term loan with PNC Bank

10/28/2025

 

$

197,500

 

 

$

200,000

 

Term loan with Intesa Sanpaolo S.p.A

12/23/2021

 

 

4,415

 

 

 

6,106

 

Term loan with Citibank

5/23/2023

 

 

398

 

 

 

400

 

Other long-term debt

Various

 

 

232

 

 

 

264

 

Total long-term non-revolving debt

 

 

 

202,545

 

 

 

206,770

 

Less: current portion of long-term non-revolving debt

 

 

 

15,841

 

 

 

16,229

 

Less: unamortized debt issuance costs

 

 

 

578

 

 

 

609

 

Total long-term non-revolving debt, net

 

 

$

186,126

 

 

$

189,932

 

Information on the Company’s revolving credit facilities is as follows:

 

 

 

Balance

 

 

Available Credit

 

 

Maturity Date

 

April 3, 2021

 

 

January 2, 2021

 

 

April 3, 2021

 

 

January 2, 2021

 

Revolving line of credit with PNC Bank

10/28/2025

 

$

249,797

 

 

$

255,909

 

 

$

148,213

 

 

$

144,045

 

Revolving line of credit with Citibank

11/18/2021

 

 

415

 

 

 

315

 

 

 

1,869

 

 

 

1,982

 

 

 

 

$

250,212

 

 

$

256,224

 

 

$

150,082

 

 

$

146,027

 

 

Future maturities of total debt are as follows:

Year:

 

 

 

2021 Remaining

$

12,446

 

2022

 

15,374

 

2023

 

15,141

 

2024

 

20,000

 

2025

 

389,796

 

Total

$

452,757

 

14


 

 

Term Loan and Line of Credit with PNC Bank

The Company has a credit agreement that includes a revolving line of credit and term loan credit facility with PNC Bank, National Association, as administrative agent, and the lenders party thereto. The revolving line of credit allows for borrowings up to an aggregate maximum principal amount of $400,000.

The Company has exchanged a portion of the USD denominated borrowings on the line of credit for €90,000 in order to hedge currency exposure in foreign operations. The borrowings have been designated as a net investment hedge, see additional information in Note 7.

The effective interest rate on the credit agreement at April 3, 2021 was 2.92%. Interest expense recognized on the credit agreement during the three months ended April 3, 2021 and March 28, 2020, totaled $3,633 and $2,408, respectively. As of the date of this filing, the Company was in compliance with all debt covenants related to the credit agreement.

Term Loan with Intesa Sanpaolo S.p.A.

The Company has an agreement with Intesa Sanpaolo S.p.A. that provides an unsecured term loan of €5,000. The facility bears interest at 1.25%. Repayment of the facility began in January 2021 and is due in 12 monthly installments. The loan bears a guarantee from SACE S.p.A. – the Italian export public credit agency operating in the insurance and financial services sectors – pursuant to the Law Decree No. 23 of April 8, 2020, converted (with amendments) into Law No. 40 of June 5, 2020.

Term Loan and Line of Credit with Citibank

The Company has an uncommitted fixed asset facility agreement (the “Fixed Asset Facility”) and short-term revolving facility agreement (the “Working Capital Facility”) with Citibank (China) Co., Ltd. Shanghai Branch, as lender.

Under the Fixed Asset Facility, the Company may, from time-to-time, borrow amounts on a secured basis up to a total of RMB 50,000. The proceeds of such loans may be used for purchases of certain equipment. Outstanding borrowings under the Fixed Asset Facility accrue interest at a rate equal to the National Interbank Funding Center 1-year loan prime rate plus 1.50%, to be repaid on a specified schedule. Currently drawn funds have a final payment due date of May 2023.

Under the Working Capital Facility, the Company may from time to time borrow amounts on an unsecured revolving facility of up to a total of RMB 15,000. Proceeds may only be used for expenditures related to production at the Company’s facility located in Kunshan City, China. Outstanding borrowings under the Working Capital Facility accrue interest at a rate equal to the National Interbank Funding Center 1-year loan prime rate plus 0.50%. All outstanding balances will be due in November 2021.

As of the date of this filing, the Company was in compliance with all debt covenants related to the Fixed Asset Facility and Working Capital Facility.

9. INCOME TAXES

The provision for income taxes for the three months ended April 3, 2021 and March 28, 2020 was 23.2% and 22.3% of pretax income, respectively, after adjusting the prior year for the impact of the goodwill impairment charge.

At April 3, 2021, the Company had an unrecognized tax benefit of $12,344 including accrued interest. If recognized, $1,878 of unrecognized tax benefit would reduce the effective tax rate in future periods. The Company recognizes interest and penalties related to income tax matters in income tax expense. Interest accrued as of April 3, 2021 is not considered material to the Company’s consolidated financial statements.

The Company remains subject to income tax examinations in the U.S. and various state and foreign jurisdictions for tax years 2009-2020. Although the Company is not currently under examination in most jurisdictions, limited transfer pricing disputes exist for years dating back to 2008. The Company anticipates the resolution of a transfer pricing dispute and along with the expiration of statutes of limitation that may result in a net benefit ranging from $0 to $2,388 that could be recognized within the next 12 months.

15


10.  STOCK-BASED COMPENSATION

Equity Incentive Plan

The Company’s 2019 Equity Incentive Plan and its predecessor equity plan provide for the grant of shares of restricted stock, restricted share units, stock options, stock appreciation rights, dividend or dividend equivalent rights, stock awards and other awards valued in whole or in part by reference to or otherwise based on the Company’s common stock, to officers, employees and directors of the Company.

Restricted Stock and Restricted Stock Units

The Company grants restricted shares of common stock and restricted stock units (“RSUs”) in connection with a long-term incentive plan. Awards with time-based vesting requirements primarily vest ratably over a three-year period. Awards with performance-based vesting requirements cliff vest after a three-year performance cycle and only after the achievement of certain performance criteria over that cycle. The number of shares ultimately issued for the performance-based units may vary from 0% to 200% of their target amount based on the achievement of defined performance targets.

Compensation expense recognized for restricted stock and RSUs totaled $1,360 and $1,253, respectively, for the three months ended April 3, 2021 and March 28, 2020.

The following table summarizes restricted stock and RSU activity for the three months ended April 3, 2021: 

 

 

Number of

 

 

Weighted Average

 

 

 

Shares / Units

 

 

Grant-Date

 

 

 

(in thousands)

 

 

Fair Value per Share

 

Nonvested balance at January 2, 2021

 

 

239

 

 

$

38.95

 

Granted

 

 

99

 

 

 

54.24

 

Vested

 

 

(57

)

 

 

42.98

 

Forfeited

 

 

(7

)

 

 

44.82

 

Nonvested balance at April 3, 2021 (1)

 

 

274

 

 

$

43.50

 

(1) Includes 113,751 unvested performance-based RSUs.   

The Company had $10,396 of total unrecognized compensation cost related to the restricted stock and RSU awards as of April 3, 2021. That cost is expected to be recognized over a weighted average period of 2.1 years.

Stock Options

 

The following table summarizes stock options the Company has granted to its officers (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

April 3, 2021

 

 

 

Options

 

 

Option Exercise

 

 

Options

 

 

Options

 

 

Options

 

Date of Grant

 

Granted

 

 

(Strike) Price

 

 

Forfeited

 

 

Outstanding

 

 

Exercisable

 

February 28, 2020

 

 

18

 

 

$

39.75

 

 

 

10

 

 

 

6

 

 

 

2

 

July 1, 2020

 

 

5

 

 

 

35.04

 

 

 

 

 

 

5

 

 

 

 

January 28, 2021

 

 

18

 

 

 

55.30

 

 

 

 

 

 

18

 

 

 

 

Total

 

 

41

 

 

 

 

 

 

 

10

 

 

 

29

 

 

 

2

 

16


 

The exercise prices per share are equal to the market price of Helios stock on the respective grant dates. The options vest ratably over a three-year period and have a 10-year expiration. The grant date fair value of the options was estimated using a Black Scholes valuation model. At April 3, 2021, the Company had $476 of unrecognized compensation cost related to the options which is expected to be recognized over a weighted average period of 2.6 years.

Employee Stock Purchase Plans

The Company maintains an Employee Stock Purchase Plan (“ESPP”) in which U.S. employees are eligible to participate. Employees who choose to participate are granted an opportunity to purchase common stock at 85 percent of market value on the first or last day of the quarterly purchase period, whichever is lower. Employees in the United Kingdom (“UK”), under a separate plan, are granted an opportunity to purchase the Company’s common stock at market value, on the first or last day of the quarterly purchase period, whichever is lower, with the Company issuing one additional free share of common stock for each 6 shares purchased by the employee under the plan. Employees purchased 7,408 shares at a weighted average price of $44.90, and 10,927 shares at a weighted average price of $32.46, under the ESPP and UK plans during the three months ended April 3, 2021 and March 28, 2020, respectively. The Company recognized $195 and $60 of compensation expense during the three months ended April 3, 2021 and March 28, 2020, respectively.

Nonemployee Director Fees Plan

The Company’s 2012 Nonemployee Director Fees Plan compensates nonemployee directors for their board service with shares of common stock. Directors were granted 7,375 and 5,500 shares for the three months ended April 3, 2021 and March 28, 2020, respectively. The Company recognized director stock compensation expense of $538 and $235 for the three months ended April 3, 2021 and March 28, 2020, respectively.

11.  ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present changes in accumulated other comprehensive loss by component:

 

 

 

Unrealized

Gains and

(Losses) on

Derivative Instruments

 

 

Foreign

Currency

Items

 

 

Total

 

Balance at January 2, 2021

 

$

(5,922

)

 

$

(28,418

)

 

$

(34,340

)

Other comprehensive income (loss) before reclassifications

 

 

3,019

 

 

 

(11,562

)

 

 

(8,543

)

Amounts reclassified from accumulated other comprehensive loss, net of tax

 

 

(809

)

 

 

 

 

 

(809

)

Tax effect

 

 

(505

)

 

 

2,444

 

 

 

1,939

 

Net current period other comprehensive income (loss)

 

 

1,705

 

 

 

(9,118

)

 

 

(7,413

)

Balance at April 3, 2021

 

$

(4,217

)

 

$

(37,536

)

 

$

(41,753

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized

Gains and

(Losses) on

Derivative Instruments

 

 

Foreign

Currency

Items

 

 

Total

 

Balance at December 28, 2019

 

$

(5,372

)

 

$

(49,992

)

 

$

(55,364

)

Other comprehensive loss before reclassifications

 

 

(4,423

)

 

 

(5,950

)

 

 

(10,373

)

Amounts reclassified from accumulated other comprehensive loss, net of tax

 

 

394

 

 

 

 

 

 

394

 

Tax effect

 

 

1,828

 

 

 

1,049

 

 

 

2,877

 

Net current period other comprehensive loss

 

 

(2,201

)

 

 

(4,901

)

 

 

(7,102

)

Balance at March 28, 2020

 

$

(7,573

)

 

$

(54,893

)

 

$

(62,466

)

 

17


 

12.  SEGMENT REPORTING

The Company has 2 reportable segments: Hydraulics and Electronics. These segments are organized primarily based on the similar nature of products offered for sale, the types of customers served and the methods of distribution and are consistent with how the segments are managed, how resources are allocated and how information is used by the chief operating decision makers.

The Company evaluates performance and allocates resources based primarily on segment operating income. Certain costs were not allocated to the business segments as they are not used in evaluating the results of, or in allocating resources to the Company’s segments. These costs are presented in the Corporate and other line item. For the three months ended April 3, 2021, the unallocated costs totaled $11,745 and included acquisition and integration related expenses of $1,547 and amortization of acquisition-related intangible assets of $10,198. The accounting policies of the Company’s operating segments are the same as those used to prepare the accompanying Consolidated, Unaudited Financial Statements.

The following table presents financial information by reportable segment:

 

 

Three Months Ended

 

 

 

 

April 3, 2021

 

 

March 28, 2020

 

 

Net sales

 

 

 

 

 

 

 

 

 

Hydraulics

 

$

119,106

 

 

$

103,818

 

 

Electronics

 

 

85,738

 

 

 

25,665

 

 

Total

 

$

204,844

 

 

$

129,483

 

 

Operating income

 

 

 

 

 

 

 

 

 

Hydraulics

 

$

28,073

 

 

$

21,482

 

 

Electronics

 

 

18,280

 

 

 

4,778

 

 

Corporate and other

 

 

(11,745

)

 

 

(36,293

)

 

Total

 

$

34,608

 

 

$

(10,033

)

 

Capital expenditures

 

 

 

 

 

 

 

 

 

Hydraulics

 

$

2,635

 

 

$

2,394

 

 

Electronics

 

 

2,401

 

 

 

543

 

 

Total

 

$

5,036

 

 

$

2,937

 

 

 

 

 

April 3, 2021

 

 

January 2, 2021

 

Total assets

 

 

 

 

 

 

 

 

Hydraulics

 

$

762,063

 

 

$

765,155

 

Electronics

 

 

541,834

 

 

 

523,502

 

Corporate

 

 

7,651

 

 

 

8,322

 

Total

 

$

1,311,548

 

 

$

1,296,979

 

Geographic Region Information

Net sales are measured based on the geographic destination of sales. Tangible long-lived assets are shown based on the physical location of the assets and primarily include net property, plant and equipment and exclude right-of-use assets.

 

 

 

Three Months Ended

 

 

 

 

April 3, 2021

 

 

March 28, 2020

 

 

Net sales

 

 

 

 

 

 

 

 

 

Americas

 

$

99,341

 

 

$

58,950

 

 

EMEA

 

 

52,602

 

 

 

35,971

 

 

APAC

 

 

52,901

 

 

 

34,562

 

 

Total

 

$

204,844

 

 

$

129,483

 

 

 

18


 

 

 

April 3, 2021

 

 

January 2, 2021

 

Tangible long-lived assets

 

 

 

 

 

 

 

 

Americas

 

$

96,888

 

 

$

96,752

 

EMEA

 

 

30,183

 

 

 

31,091

 

APAC

 

 

18,112

 

 

 

18,718

 

Total

 

$

145,183

 

 

$

146,561

 

 

13.  RELATED PARTY TRANSACTIONS

The Company purchases from, and sells inventory to, entities partially owned or managed by directors of Helios. For the three months ended April 3, 2021 and March 28, 2020, inventory sales to the entities totaled $749 and $414, respectively, and inventory purchases from the entities totaled $2,107 and $999, respectively.  

At April 3, 2021 and January 2, 2021, amounts due from the entities totaled $389 and $528, respectively, and amounts due to the entities totaled $736 and $421, respectively.  

14. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company is not a party to any legal proceedings other than routine litigation incidental to its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the results of operations, financial position or cash flows of the Company.

15. SUBSEQUENT EVENTS

On April 30, 2021, the Company’s President of Electronic Controls and Section 16 Officer, Jinger McPeak, informed the Company of her intention to resign. Ms. McPeak has agreed to continue her employment through June 1, 2021. In connection with her resignation, the Company and Ms. McPeak entered into a separation agreement. For additional detail, please refer to the Form 8-K filed by the Company on April 30, 2021.

19


Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words "expects," "anticipates," "believes," "intends," "plans" and similar expressions identify forward-looking statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Form 10-Q with the Securities and Exchange Commission. These forward-looking statements are subject to risks and uncertainties, including, without limitation, those discussed in this report and those identified in Item 1A, "Risk Factors" included in our Form 10-K. In addition, new risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. Accordingly, our future results may differ materially from historical results or from those discussed or implied by these forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.

OVERVIEW

We are a global industrial technology leader that develops and manufactures solutions for both the hydraulics and electronics markets. We were originally founded in 1970 as Sun Hydraulics Corporation, which designed and manufactured cartridge valves for hydraulics systems. We changed the Company’s legal name on June 13, 2019, from Sun Hydraulics Corporation to Helios Technologies, Inc.  

Today we operate under two business segments: Hydraulics and Electronics. These businesses design and manufacture hydraulic cartridge valves, hydraulic quick release couplings and customized electronic controls systems and displays for a variety of end markets, as well as design complete hydraulic systems.  

Strategic Vision

Our strategic goals are to achieve $1 billion in sales through a combination of organic growth and acquisitions, while remaining a technology leader and delivering superior profitability, with operating margins in excess of 20%. We are augmenting our strategy with value streams that we expect to help us to execute our goals and potentially accelerate the achievement of our strategic vision.

We believe the value streams will deliver growth, diversification and market leading financial performance as we develop into a more sophisticated, globally oriented, customer centric and learning organization. These are:

 

1.

Protect the business through customer centricity and drive cash generation through the launch of new products and leveraging existing products;

 

2.

Think and act globally to better leverage our assets, accelerate innovation and diversify end markets by driving intra- and inter-company initiatives and by building in the region for the region;

 

3.

Diversify our markets and sources of revenue by swarming commercial opportunities that leverage our products and technologies’ value in new markets such as defense and commercial food service, thereby creating greater opportunities for growth while reducing risk and cyclicality; and

 

4.

Develop our talent, our most critical resource, through a culture of customer-centricity through the embracement of diversity, engagement of the team, focus on shared, deeply rooted values and promotion of a learning organization.  

Our strategy is underpinned by the execution of acquisitions, which we expect to include bolt-on, flywheel type acquisitions (up to $100 million in enterprise value) and the evaluation of more transformative type acquisitions ($100 million to $1 billion in enterprise value). The objective of our acquisition strategy is to enhance Helios by:

 

Growing our current product portfolio or adding new technologies and capabilities that complement our current offerings;

 

Expanding geographic presence; and

 

Bringing new customers or markets.

20


 

To support the execution of our strategy, our financial strategy is oriented on delivering industry leading margins, a strong balance sheet and sufficient financial flexibility to support organic and acquisitive growth.

We align our internal key performance indicators with our strategy to ensure our short-term actions will deliver long-term expectations.

Recent Acquisitions

In November 2020, we acquired Balboa Water Group, further diversifying the markets we serve and expanding our technological capabilities in electronics. Balboa is an innovative market leader of electronic controls for the health and wellness industry with proprietary and patented technology that enables end-to-end electronic control systems for therapy baths and spas. Headquartered in Costa Mesa, California, manufacturing operations supporting the business are located in Mexico, with sales and warehouse operations in Denmark. This acquisition expanded our electronic control technology with complementary AC (alternating current) capabilities and enabled further diversification of end markets. The results of Balboa’s operations are reported in our Electronics segment and have been included in the Consolidated Financial Statements since the acquisition date.

In January 2021, we acquired the assets of BJN Technologies, LLC, an innovative engineering solutions provider that was founded in 2014. With the acquisition, we formed the Helios Center of Engineering Excellence to centralize our technology advancements and new product development and better leverage existing talents across the electronics segment initially, and then throughout all of Helios.

Global Economic Conditions

COVID-19 Update

During the first quarter of 2021, we experienced limited disruption to our operations from the pandemic. We continue to experience pandemic-related softening of sales and orders in certain industries and markets; however, many of our customers and end markets are recovering from the substantial impacts experienced during 2020. First quarter demand for our products exceeded our expectations as end market recovery occurred sooner and was stronger than we projected. Demand in the health and wellness and recreational marine markets has been favorably impacted by the pandemic as consumers are investing in leisure products and activities. We are experiencing constraints on our ability to source certain electronic components which originated from the high demand for these products caused by the pandemic; however, we have been able to mitigate the majority of the impact with our procurement efforts and production schedule adjustments.

We are monitoring the effects of the pandemic that are occurring in India for potential supply chain impacts related to goods coming from our Hydraulics segment facilities in the country that are supplied to other parts of the world. We do not expect there will be a material impact to our operations. Our outlook for the remainder of the 2021 fiscal year assumes the global economy continues to recover; however, we cannot at this time predict any future impacts. Refer to Item 1A Risk Factors of our Annual Report on Form 10-K for additional COVID-19 related discussion.

Brexit Update

In January 2020, the UK exited the EU. During the transition period, which ended on December 31, 2020, existing arrangements between the UK and the EU remained in place while the UK and the EU negotiated a free trade agreement. This was entered into on December 24, 2020 and went into effect on January 1, 2021. The Company continues to monitor the situation and plan for potential impact. The ultimate impact of Brexit on the Company’s financial results is uncertain. However, we do not expect the effects of Brexit to have a material impact on our results of operations or financial position. For additional information, refer to Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Form 10-K.

21


Industry Conditions

Market demand for our products is dependent on demand for the industrial goods in which the products are incorporated. The capital goods industries in general, and the Hydraulics and Electronics segments specifically, are subject to economic cycles. We utilize industry trend reports from various sources, as well as feedback from customers and distributors, to evaluate economic trends. We also rely on global government statistics such as Gross Domestic Product and Purchasing Managers Index to understand macro-economic conditions.

Hydraulics

According to the National Fluid Power Association (the fluid power industry’s trade association in the U.S.), the U.S. index of shipments of hydraulic products decreased an additional 3% during the first three months of 2021, after decreasing 17% in 2020. In Europe, the CEMA Business Barometer reports that in April 2021, the general business climate index for the European agricultural machinery industry has risen to its highest level since 2011. The favorable index is based on a record volume of accumulated incoming orders and high levels of turnover already secured for the upcoming months. The CECE (Committee for European Construction Equipment) business climate index reports that during the first quarter the European construction equipment industry continued its remarkable recovery from the disruptions caused by the COVID-19 crisis. In March, CECE’s business climate index reached new heights after 10 consecutive months of expansion.

Electronics

The Federal Reserve’s Industrial Production Index, which measures the real output of all relevant establishments located in the U.S., reports sales of semiconductors and other electronics components declined slightly during the first quarter of 2021; however, the index continues to exceed fourth quarter 2019 levels. The Institute of Printed Circuits Association (“ICP”) reported that total North American printed circuit board shipments increased 4.7% in March 2021 compared with the same month last year; compared with February 2021, March shipments grew 30.9%. ICP also reported that North American electronics manufacturing services shipments were down 3.6% in March compared to March 2020; however, up 10.9% compared to February 2021.

2021 First Quarter Results and Comparison of the Three Months Ended April 3, 2021 and March 28, 2020

(in millions except per share data) 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

April 3, 2021

 

 

March 28, 2020

 

 

$ Change

 

 

% Change

 

Net sales

 

$

204.8

 

 

$

129.5

 

 

$

75.3

 

 

 

58.1

%

Gross profit

 

$

75.4

 

 

$

51.9

 

 

$

23.5

 

 

 

45.3

%

Gross profit %

 

 

36.8

%

 

 

40.1

%

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

34.6

 

 

$

(10.0

)

 

$

44.6

 

 

 

(446.0

)%

Operating income %

 

 

16.9

%

 

 

-7.7

%

 

 

 

 

 

 

 

 

Net income (loss)

 

$

22.6

 

 

$

(17.2

)

 

$

39.8

 

 

 

(231.4

)%

Basic and diluted net income (loss) per common share

 

$

0.70

 

 

$

(0.54

)

 

$

1.24

 

 

 

(229.6

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First quarter consolidated net sales increased $75.3 million, 58.1%, compared with the prior-year period. Changes in foreign currency exchange rates favorably impacted sales for the quarter by $5.8 million, 2.8%, and earnings per share by $0.02. A large portion of the first quarter sales growth was attributed to our acquisition of Balboa in November 2020. We also experienced strong organic growth compared with the prior-year period which resulted from improved demand in the European agriculture and construction equipment markets and the U.S. recreational marine market.  

From a geographic perspective, demand increased in all regions as companies began to relax COVID-19 restrictions. Excluding the Balboa acquisition and foreign currency effects, we experienced moderate growth in the Americas, and robust growth in the EMEA and APAC regions.

Gross profit trended upward in the first quarter compared with the first quarter of 2020, due to increased sales volume and a favorable impact from changes in foreign currency rates of $1.9 million. Gross margin decreased by 3.3 percentage points compared with the prior-year period, as improved leverage of our fixed cost base on higher sales was offset by the addition of Balboa’s sales which have a different margin profile compared to our historical business resulting in higher material and production costs and lower selling, engineering and administrative (“SEA”) costs.

22


Operating income as a percentage of sales increased 24.6 percentage points to 16.9% in the first quarter of 2021 compared with an operating loss of 7.7%, as a percentage of sales, in the prior-year period. During the first quarter of 2020, current and expected economic impacts from the COVID-19 pandemic led to an impairment charge of $31.9 million of goodwill. Excluding the impairment charge, operating income as a percentage of sales remained flat with the prior year period at 16.9%, as improved leverage of our fixed cost base on higher sales volume was offset by an increase in intangible amortization of $5.8 million from the Balboa acquisition and $1.5 million of costs incurred for acquisition and integration related activities.

SEGMENT RESULTS

Hydraulics

The following table sets forth the results of operations for the Hydraulics segment (in millions):

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

April 3, 2021

 

 

March 28, 2020

 

 

$ Change

 

 

% Change

 

Net sales

 

$

119.1

 

 

$

103.8

 

 

$

15.3

 

 

 

14.7

%

Gross profit

 

$

45.4

 

 

$

39.7

 

 

$

5.7

 

 

 

14.4

%

Gross profit %

 

 

38.1

%

 

 

38.2

%

 

 

 

 

 

 

 

 

Operating income

 

$

28.1

 

 

$

21.5

 

 

$

6.6

 

 

 

30.7

%

Operating income %

 

 

23.6

%

 

 

20.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First quarter net sales for the Hydraulics segment totaled $119.1 million, an increase of $15.3 million, 14.7%, compared with the prior-year period. The first quarter of 2020 was impacted by facility closures and regulatory restrictions imposed on shipments resulting from the COVID-19 pandemic. The 2021 first quarter benefited from strong demand in the European agriculture and construction equipment markets. Changes in foreign currency exchange rates favorably impacted sales for the quarter by $5.7 million.

The following table presents net sales based on the geographic region of the sale for the Hydraulics segment (in millions):

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

April 3, 2021

 

 

March 28, 2020

 

 

$ Change

 

 

% Change

 

Americas

 

$

34.3

 

 

$

37.3

 

 

$

(3.0

)

 

 

(8.0

)%

EMEA

 

 

43.3

 

 

 

33.5

 

 

 

9.8

 

 

 

29.3

%

APAC

 

 

41.5

 

 

 

33.0

 

 

 

8.5

 

 

 

25.8

%

Total

 

$

119.1

 

 

$

103.8

 

 

 

 

 

 

 

 

 

Demand in the Americas region improved during the first quarter of 2021 compared to the prior-year first quarter; however, sales to the region declined 8.0% as the 2020 first quarter benefited from sales that were shipped from our backlog due to extended lead times. Demand in the agriculture and construction equipment end markets generated an increase in sales to the EMEA region of 18.8% compared with the 2020 first quarter, excluding positive impacts from foreign currency fluctuations totaling $3.5 million. Sales to the APAC region grew 19.1% compared with the first quarter of 2020, excluding positive impacts from foreign currency fluctuations totaling $2.2 million. The growth primarily resulted from increased demand in China and Korea, as well as the increase in operations in our China facility.

In the first quarter of 2021, gross profit increased $5.7 million compared with the first quarter of the prior year due to higher sales volume, and a favorable impact from changes in foreign currency rates of $1.8 million. Gross profit margin remained fairly consistent with the first quarter of 2020, decreasing 0.1 percentage point to 38.1%, due to an unfavorable product mix in sales and higher shipping costs.

SEA expenses decreased $0.9 million, 4.9%, in the first quarter of 2021 compared with the same period of the prior year, a result of continued cost management efforts including our restructuring activities and reductions in costs related to travel and marketing, professional fees and other discretionary spend. Increased leverage of our fixed cost base on higher sales and our cost management efforts led to SEA as a percent of sales decreasing 3.0 percentage points during the quarter, to 14.5%, compared to the 2020 first quarter.

As a result of the impacts to gross profit and SEA noted above, first quarter operating income increased $6.6 million, 30.7%, compared with the first quarter of the prior year, and operating margin strengthened 2.9 percentage points to 23.6%.

23


Electronics

The following table sets forth the results of operations for the Electronics segment (in millions):

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

April 3, 2021

 

 

March 28, 2020

 

 

$ Change

 

 

% Change

 

Net sales

 

$

85.7

 

 

$

25.7

 

 

$

60.0

 

 

 

233.5

%

Gross profit

 

$

30.0

 

 

$

12.2

 

 

$

17.8

 

 

 

145.9

%

Gross profit %

 

 

35.0

%

 

 

47.5

%

 

 

 

 

 

 

 

 

Operating income

 

$

18.3

 

 

$

4.8

 

 

$

13.5

 

 

 

281.3

%

Operating income %

 

 

21.4

%

 

 

18.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First quarter net sales for the Electronics segment totaled $85.7 million, an increase of $60.0 million compared with the prior-year period. A significant portion of the sales were directly related to the recent acquisition while the segment also realized solid organic growth compared with the prior year first quarter. Demand in the health and wellness industries has been strengthened by the pandemic as consumers invest in health and home improvements. The same trend is occurring in the U.S. recreational marine market in which demand continues to be strong. We have taken swift and successful actions to expand production capacity in an effort to fulfill the high incoming order levels for spa and bath products. The segments supply chain is experiencing constraints on its ability to source certain electronic components; however, the effect on sales has been minimal to date due to increased procurement efforts and production schedule adjustments. Changes in exchange rates had a minimal impact on first quarter sales.

The following table presents net sales based on the geographic region of the sale for the Electronics segment (in millions):

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

April 3, 2021

 

 

March 28, 2020

 

 

$ Change

 

 

% Change

 

Americas

 

$

65.0

 

 

$

21.6

 

 

$

43.4

 

 

 

200.9

%

EMEA

 

 

9.3

 

 

 

2.5

 

 

 

6.8

 

 

 

272.0

%

APAC

 

 

11.4

 

 

 

1.6

 

 

 

9.8

 

 

 

612.5

%

Total

 

$

85.7

 

 

$

25.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the first quarter of 2021, we experienced robust growth in all regions. Sales to the Americas accounted for 75.8% of total segment sales, a decrease from 84.0% in the prior comparable period, which is primarily from a variation in the regional footprint of the acquisition. Similarly, sales to EMEA and APAC increased to 10.9% and 13.3% of total segment sales.

First quarter gross profit increased $17.8 million compared with the first quarter of the prior year due to the increased sales volume. Gross profit margin for the same period decreased by 12.5 percentage points driven by the addition of Balboa’s sales which have a different margin profile compared to our historical business resulting in higher material and production costs and lower SEA costs. The segment experienced an increase in raw material and freight and logistics costs during the quarter due to the high demand in the market for electronic components used in our products. Additionally, during the prior-year first quarter the segment realized a $0.9 million non-recurring benefit from the release of contractual obligations to customers.

SEA expenses increased by $4.3 million in the first quarter of 2021 compared with the first quarter of 2020 and were primarily impacted by the addition of Balboa and an increase in corporate operating costs allocated to the segment offset by continued cost saving measures which focused on managing fixed personnel costs and reducing discretionary spend. SEA costs as a percentage of sales decreased to 13.7% in the first quarter of 2021 compared to 28.8% in the prior-year first quarter; favorably impacted by the margin profile of Balboa’s product sales, partially offset by continued investments in engineering and R&D necessary to support new product development that will drive future revenue growth.

As a result of the impacts to gross profit and SEA costs noted above, operating income increased $13.5 million during the first quarter.

24


Corporate and Other

Certain costs are excluded from business segment results as they are not used in evaluating the results of, or in allocating resources to, our operating segments. For the first quarter of 2021, these costs totaled $11.7 million, of which $10.2 million was amortization of acquisition-related intangible assets and $1.5 million was for other acquisition and integration related costs.

Interest Expense, net

Net interest expense increased to $4.8 million for the first quarter of 2021 compared with $3.0 million for the prior-year quarter. The change is attributable to increased borrowings used to fund the acquisition of Balboa in November 2020. Average net debt increased to $431.7 million compared with $272.7 million during the first quarter of 2020.

Income Taxes

The provision for income taxes for the first quarter of 2021 was 23.2% of pretax income compared to 22.3% before the non-deductible impairment charge for the prior-year first quarter. These effective rates fluctuate relative to the levels of income and different tax rates in effect among the countries in which we sell our products.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted into law in response to the COVID-19 pandemic. The Company has evaluated the various income and payroll tax provisions and expects little or no impact to income tax expense. However, the Company is taking advantage of the various payment deferments allowed and employee retention credits afforded by the CARES Act and other similar state and/or foreign liquidity measures. The CARES Act allows employers to defer the deposit and payment of the employer's share of Social Security taxes. We deferred the payment of $1.5 million of payroll taxes normally due between March 27, 2020 and December 31, 2020. These payroll taxes will be paid during the third quarter of 2021 and are included as accrued compensation and benefits in the accompanying consolidated balance sheets.

LIQUIDITY AND CAPITAL RESOURCES

Historically, our primary source of capital has been cash generated from operations. In recent years, we have used borrowings on our credit facilities to fund acquisitions. During the first three months of 2021, cash provided by operating activities totaled $15.1 million. At the end of the first quarter, we had $26.0 million of cash and cash equivalents on hand and $150.1 million of available credit on our revolving credit facilities. We also have a $300.0 million accordion feature available on our credit facility, subject to certain pro forma compliance requirements, intended to support potential future acquisitions.

Our principal uses of cash have been paying operating expenses, paying dividends to shareholders, making capital expenditures, servicing debt and making acquisition-related payments.

We believe that cash generated from operations and our borrowing availability under our credit facilities will be sufficient to satisfy our operating expenses. In the event that economic conditions were to severely worsen for a protracted period of time, we would have several options available to ensure liquidity in addition to increased borrowings. Capital expenditures could be postponed since they primarily pertain to long-term improvements in operations. Additional operating expense reductions also could be made. Finally, the dividend to shareholders could be reduced or suspended.

Cash Flows

The following table summarizes our cash flows for the periods (in millions):

 

 

Three Months Ended

 

 

 

 

 

 

 

April 3, 2021

 

 

March 28, 2020

 

 

$ Change

 

Net cash provided by operating activities

 

$

15.1

 

 

$

15.1

 

 

$

 

Net cash used in investing activities

 

 

(7.5

)

 

 

(1.3

)

 

 

(6.2

)

Net cash used in financing activities

 

 

(9.5

)

 

 

(9.0

)

 

 

(0.5

)

Effect of exchange rate changes on cash

 

 

2.6

 

 

 

0.3

 

 

 

2.3

 

Net increase in cash

 

$

0.7

 

 

$

5.1

 

 

$

(4.4

)

25


 

Cash on hand increased $0.7 million from $25.3 million at the end of 2020 to $26.0 million at April 3, 2021. Changes in exchange rates during the three months ended April 3, 2021 favorably impacted cash and cash equivalents by $2.6 million. Cash balances on hand are a result of our cash management strategy which focuses on maintaining sufficient cash to fund operations while reinvesting cash in the Company and also paying down borrowings on our credit facilities.

Operating activities

Cash from operations totaled $15.1 million during the first quarter, which is consistent with the prior-year period. Current quarter cash earnings increased over the prior-year period; however, operating assets and liabilities grew at a similar pace in order to support the increased operations. Changes in inventory reduced cash by $10.8 million and $2.8 million in the first three months of 2021 and 2020, respectively. Days of inventory on hand decreased to 81 as of April 3, 2021, compared with 101 as of March 28, 2020, positively impacted by the higher sales levels, the addition of Balboa’s operations and improved demand planning and supply chain management during the quarter and the latter half of 2020. Changes in accounts receivable reduced cash by $28.1 million and $6.8 million in the first three months of 2021 and 2020, respectively. First quarter days sales outstanding increased slightly from the prior-year comparable period, up to 55 days from 51 days, primarily a result of the timing of Balboa’s collections compared to the legacy business.

Investing activities

Capital expenditures totaled $5.0 million for the first three months of 2021, an increase of $2.1 million over the prior-year comparable period. Capital expenditures for 2021 are forecasted to be approximately $30.0 to $35.0 million, primarily for investments in machinery and equipment for capacity expansion projects, improvements to manufacturing technology and maintaining/replacing existing machine capabilities.

Cash used for acquisition related activities in the first quarter of 2021 totaled $3.4 million. The cash outflows consisted of the acquired assets of BJN Technologies, LLC and a contractual purchase price adjustment related to the Balboa acquisition.

Financing activities

Cash used in financing activities totaled $9.5 million during the first three months of 2021, compared with cash used of $9.0 million in the prior-year period. The additional cash used this quarter was due to higher debt repayments, net of additional borrowings which totaled $5.9 million for the quarter.

During the first quarter of 2021, we declared a quarterly cash dividend of $0.09 per share payable on April 20, 2021, to shareholders of record as of April 5, 2021. The declaration and payment of future dividends is subject to the sole discretion of the Board of Directors, and any determination as to the payment of future dividends will depend upon our profitability, financial condition, capital needs, future prospects and other factors deemed pertinent by the Board of Directors.

Off Balance Sheet Arrangements

We do not engage in any off-balance sheet financing arrangements. In particular, we do not have any material interest in variable interest entities, which include special purpose entities and structured finance entities.

Inflation

The impact of inflation on our operating results has been moderate in recent years, reflecting generally lower rates of inflation in the economies in which we operate. While inflation has not had, and we do not expect that it will have, a material impact upon operating results, there is no assurance that our business will not be affected by inflation in the future.

Critical Accounting Policies and Estimates

We currently apply judgment and estimates which may have a material effect on the eventual outcome of assets, liabilities, revenues and expenses for impairment of long-lived assets, inventory, goodwill, accruals, income taxes and fair value measurements. Our critical accounting policies and estimates are included in our Form 10-K, and any changes made during the first three months of 2021, are disclosed in Note 2 to the Consolidated, Unaudited Financial Statements.

26


Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Item 7A – Quantitative and Qualitative Disclosures about Market Risk” in our Form 10-K. There were no material changes during the three months ended April 3, 2021.

Item 4. CONTROLS AND PROCEDURES.

The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, have concluded that our disclosure controls and procedures are effective and are designed to ensure that the information we are required to disclose is recorded, processed, summarized and reported within the necessary time periods. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit pursuant to the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Securities Exchange Act of 1934, as amended, during the period covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

27


PART II: OTHER INFORMATION

None.

Item 1A. RISK FACTORS.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors that affect our business and financial results that are discussed in Part I, Item 1A, “Risk Factors” of our Form 10-K. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. There have been no material changes to such risk factors.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

In January 2021, we issued 62,599 shares of Helios common stock in a private placement under Section 4(2) of the Securities Act of 1933. The shares of Helios common stock were issued to the sellers as partial funding of our acquisition of the assets of BJN Technologies, LLC, an innovative engineering solutions provider.

Item 3. DEFAULTS UPON SENIOR SECURITIES.

None.

Item 4. MINE SAFETY DISCLOSURES.

Not applicable.

Item 5. OTHER INFORMATION.

None.

 

28


 

Item 6. EXHIBITS.

Exhibits:

 

Exhibit

Number

 

Exhibit Description

 

 

 

31.1

 

CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

CEO Certification pursuant to 18 U.S.C. § 1350.

 

 

 

32.2

 

CFO Certification pursuant to 18 U.S.C. § 1350.

 

 

 

101.INS

 

XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

 

 

 

101.SCH

 

XBRL Schema Document

 

 

 

101.CAL

 

XBRL Calculation Linkbase Document

 

 

 

101.DEF

 

XBRL Definition Linkbase Document

 

 

 

101.LAB

 

XBRL Label Linkbase Document

 

 

 

101.PRE

 

XBRL Presentation Linkbase Document

 

 

 

104

 

 

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2021, has been formatted in Inline XBRL.

 

29


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date:  May 11, 2021

HELIOS TECHNOLOGIES, INC.

 

 

 

 

 

By:

 

/s/ Tricia L. Fulton

 

 

 

Tricia L. Fulton

 

 

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

30