Good morning. Welcome to CJS Securities' 26th Annual New Ideas for the New Year Conference. I'm Chris Moore, Senior Analyst. Very pleased to have with us management from Helios Technologies . With us today, Jeremy Evans, EVP and CFO, and Tania Almond, Vice President, IR and Corporate Communications. Real quickly, Helios is an industrial technology company. They focus on hydraulics and electronic solutions, highly engineered, mid-volume specialty products. They serve diverse markets, including construction, agriculture, energy, recreation vehicles, health and wellness, and marine. Management will provide a roughly 15-minute overview of the company, current operations, challenges, opportunities, as well as longer-term vision. After that, it'll be more of a fireside chat format. As a reminder, you can submit a question via the web link anytime, and we'll do our best to weave them into the chat. With that, Jeremy and Tania, why don't you get us going?
Great. Thank you so much, Chris. And I'm just going to have a few housekeeping comments here while we sit on the safe harbor statement for a minute. I just wanted to also remind everyone we're actually going to be hosting an Investor Day here in Sarasota, Florida, on Friday, March 20th. And so we've sent invitations out. If it's gotten lost or potentially in your spam box, please reach out to me if you're an institutional investor or analyst and you'd like to attend, and I can provide you information on that. Also, I also wanted to give the background that Jeremy has been with the business now a couple of years, but he was recently promoted to CFO at the end of last year.
Sean Bagan, our CEO, has also been with the business a couple of years and was formally named CEO at the beginning of last year. So really excited to have the team in place now. And I think Jeremy will provide some perspective and some background as we go through the presentation. And him and I will tag team as we go. But we'll get started with Jeremy now for the company overview. Jeremy?
Yeah. Thank you, Tania. Thank you, Chris. Excited to be presenting today. Just starting with an overview of who is Helios Technologies. We are a global leader in highly engineered motion control and electronic controls technology, really across multiple end markets. And I like to describe the company in a way that we are an extension of our customers' internal engineering teams. And the products that we design, they're just a small piece of a larger bill of material. And if our products fail, then those bigger pieces of equipment go down. And so quality and safety are very important to us, especially when a lot of our products are operating in harsh or what we like to call rugged environments.
And so we believe that our focus on highly engineered niche markets, high quality, really gives us a pathway to outsized growth due to that diversification and really what we believe is a superior product innovation. When you look at our balance sheet and what we've done over the last couple of years, we really have improved the financial profile. We have ample liquidity and a robust cash flow engine that allows us to make organic investments to grow, as well as look at other external opportunities, M&A, and so forth. And when you look at the business based on our guide, midpoint of the guide, annual sales are around $825 million. That does include $47 million of a business that we divested at the end of the Q3, our Custom Fluid Power business. So as we look forward to 2026, that's important to remember.
On an annualized basis, that was right around $60 million. And we did have a market cap eclipse of $2 billion. So it's currently $2.1 billion through market close of yesterday. When we look at our segments, we have 65% is hydraulics. That was really the foundation of the company built on Sun Hydraulics. We've since diversified. Now 35% of our sales are coming from our electronic segment. From a geographic standpoint, a little more than half of the business is coming from the Americas. The other half is split relatively even across APAC and EMEA. And we do market our products direct to OEMs. It's a little more than half, about 58%, and about 42% goes through distribution and aggregators. Some of that distribution and integrator business does ultimately go on an OEM product. Some of that is also aftermarket business as well.
We're a diversified small mid-cap company. We got a really strong financial profile and cash flow generation. Sun Hydraulics, which was really the foundation for Helios, we just celebrated our 55th anniversary in 2025. But we'd like to highlight that we have a lot of other brands that have been in business, some even longer than that. We've got our Enovation Controls business, 86 years, Schultes Precision Manufacturing, 79 years, Faster 74 years. And so we have a collection of brands with long-standing histories, deep relationships, and we're really, really excited about the broader Helios portfolio. When we look at the company's history, again, as I stated, we started out at the foundation of Sun Hydraulics. It was about a $200 million business, very steady, high margins. But from about 2011 to 2016, there was very little to no growth.
The company made the decision to diversify through acquisition. At the time Helios was established, it was established as a holding company. Our first acquisition was of Enovation Controls, which was a diversification play into the electronic segment. Since then, we've acquired other companies to further diversify. Faster was a great acquisition that brought us a bigger presence in Europe. The Balboa acquisition got us into the health and wellness field. Since really about 2020, we've made smaller acquisitions, what I would describe as tuck-in acquisitions that have been integrated to some level across the other larger brands. I would point out that we did announce the divestiture of our Custom Fluid Power business. That was a company we'd acquired in 2018.
Under really our new CEO, Sean Bagan's leadership, when he took the helm last year, my appointment as CFO, really taking a look at the portfolio, understanding how are we operating, do all of our assets really fit the portfolio. It became obvious that Custom Fluid Power was better served as a distributor that we could leverage for the Australian, primarily the Australian market, versus sitting inside our portfolio. We made that divestiture. We have an ongoing relationship with them. They still are a preferred distributor in that region. See that as a win-win. Some of the other announcements that we've made recently, as far as our i3, we did take a write-off at the end of our Q3 related to that acquisition of our goodwill.
However, that was due to really refocusing those resources to drive our internal product development as opposed to chasing third-party opportunities where there's less value to the broader portfolio, and in many cases, we didn't own the IP. So really company story, Sun Hydraulics, really strong foundation, but since then, we've really diversified the portfolio both from a product perspective, but also a geographic perspective as well, and when you look at our sales growth, you can see the impact of those acquisitions over time. As I mentioned, mid-2000s, 2015, 2016, right around $200 million. Margins historically had been in the upper 20%, and then you see the step growth from 2017 to 2018, and then you see another step growth really from 2020 to 2021, and that is driven by the acquisition. You do see the EBITDA margins, though, starting to decline.
It's important to identify that the acquisitions were all profitable. They're strong companies. They're all profitable. They all have strong cash generation. However, they did not have the same margin profile as that historical Sun Hydraulics business, what you see here is a little bit of the dilution effect of those acquisitions. When we get into 2021, really had a big, big impact of COVID on our end market, when we think of that health and wellness, spa, hot tubs, really, really demand. We acquired Balboa 2020, saw the revenue really, really spike in 2021. We also saw the recreational market, ATVs, personal watercraft boats, really, really strong growth in 2021, and some of that carried over into 2022. What happened in 2023, you had the post-COVID drawback, if you will, just as quickly as the markets went up, those markets started to decline.
We also saw some other markets go into down cycle. We have a lot of ag business, and the ag market was down double digits in 2023, double digits in 2024. So what's happening is you're seeing the impact of the acquisitions. But then when you get into that 2023, 2024, we're also seeing the impact of lost leverage on the revenue declines. As we look at 2025, we did return to growth. We did see 13% growth in our Q3, and we're projecting growth based on our guide for the full year. Going down a level, really want to provide an overview of within the Helios portfolio, how do we operate? And we have two segments. We have a hydraulic segment. We have an electronic segment. And within those segments, we have four primary brands. So we have the Sun Hydraulics brand and Faster brand in hydraulics.
Sun Hydraulics makes cartridge valves, manifolds, integrated packaging for motion control, fluid control within a hydraulic system. Faster makes couplings, quick-release couplings, multi-connection couplings, and castings for fluid conveyance. And so this is you have a hose that's got to attach to a bucket lift or another hydraulic system. Our Faster connections enable safe, quick connectivity of that equipment. And we push that product through distribution as well as OEMs. And you can see some of the company names referenced here, really across the mobile, agricultural, industrial segments. We've got our end market segments listed here at the bottom of the slide. When we look at our electronics, the primary brands are Enovation and Balboa. And our products there are really around displays, control modules, wiring harnesses, really about a user interface to control the different pieces of equipment, different components of equipment.
And there as well, we go through distribution. We also go to OEMs, and you can see some of the names there. And from an end market perspective, health and wellness, mobile, industrial, the primary end markets there. And when we talk about balance sheet now, turning to the balance sheet, when I showed the slide that had all the acquisitions, we deployed about $1.3 billion in acquisitions between 2016 and 2023. Coming out of that, our priority has been to pay down the debt. We paid down debt successfully for nine consecutive quarters. We ended Q3 with a leverage ratio of right around 2.4 net debt to EBITDA. That was compared to 2.8 in the prior year period, approaching two times here as we look at the full year for 2025.
From a liquidity perspective, we've got plenty of room on our revolver that we haven't drawn, over $400 million in liquidity, and again that helps us to fund our organic investments, and we've got that listed as number two priority because we want to bet on ourselves. We've got great products, great companies, great people. We want to invest in our new product and development, so R&D has been a steady investment. We've not cut back on R&D as we've seen the sales decline. We've got a really strong product roadmap. We also want to return money to our shareholders. We paid a dividend for 115 consecutive quarters. We're very proud of that. In 2025, we also came out with a share repurchase program, first time in the company's history. We bought back 50,000 shares in Q3. Year to date, we've repurchased over 300,000 shares.
And we see that as a great avenue to return money capital back to our shareholders. So we're going to continue to prioritize debt in the short term while investing in our organic opportunities. And so how are we able to really pay down debt, generate those funds? It's because of our cash flow. We have a really, really strong cash flow generation. As I mentioned, all of our operating companies are profitable. They are all generating cash. And you can see here on the chart to the right, our adjusted free cash flow. That's adjusted free cash flow value divided by our net income. And for 2024 and last 12 months through 3Q 2025, well above 200%. And that speaks to our cash flow generating capabilities, but also our focus on our working capital.
We've had a big, big focus in 2024 and into 2025 on reducing our cash conversion cycle. We've made great improvements on our inventory management, also in our accounts payable management. And so going forward, probably not going to be as high as you see here, but we definitely have a strong cash flow engine. From a CapEx perspective, CapEx runs really between 3%-4%. If you look historically at what we reported, that may go higher, lower at different times as we make those organic investments, but that's pretty much where we're trending. So we're going to continue to stay focused on our cash cycles and continue to see this cash generation as we go forward. So as we're wrapping up 2025, we're really looking back at our priorities that we set out at the beginning of the year.
Our first priority was around returning to growth. If you've listened to any of our earnings calls, there's been a lot of focus on our go-to-market strategy. We've also been very, very focused on our operations, making sure that our lead times are at the top of the industry, that we're meeting our customer delivery commitment. We've made significant progress there. We can see based on the industry data that we're tracking that we've been winning back share. We grew 13% in the third quarter, expecting based on our guide to see growth again in the fourth quarter. Really excited about that. As we see that sales growth, we see the operating leverage that we can get in the business. That's flowing through to our gross margin. We can see our sequential gross margin expansion over the last three quarters.
We were also, for the third quarter year over year, up 200 basis points in our gross margin. So we're seeing that as we grow. That said, the comparables for 2024 are really low. So we're happy that we returned to growth, that we're starting to see leverage. But we believe there's more opportunities there as our end markets start to get a little bit, turn a little bit, get a little more tailwinds. And we continue to execute. We're excited about what could come. I've talked about the cash conversion cycle improvements made there in inventory and accounts payable. Our debt is coming down. And so we really believe we've established a strong foundation from which to build from as we move into 2026 and beyond. And so as you're looking at Helios and other companies and asking, okay, why should someone invest in Helios?
It really starts with our premium portfolio products across both our segments, the hydraulics and electronics. We really are an extension of our customers' engineering teams. We are building high-quality products as part of a much bigger bill of material. And once we get spec'd into those products, it's a very sticky relationship. And there's a lot of potential there. When we look at our operations, we have an in-the-region for-the-region strategy. We've stood up centers of excellence really around the globe. And we have capacity to grow in all regions. And as that sales growth comes through both some of our internal initiatives as well as just getting some of the markets to rebound, we expect to drive even further leverage. We have a platform where we are engaged with our customers, and we have deep insights into those customers.
That's really what drives some of our product development. We have some product development that we call a pull strategy where we have customers that we're working on solutions, and they're identifying a need. Hey, if you could just modify your existing products in this way, if you could add this feature, we believe there's a new opportunity in the market. That drives part of it, but we're also pushing products as well. Products that we think are going to lead the industry as we move forward. We do have a very flexible operating model. Again, we have the in-the-region for-the-region strategy. We've got manufacturing capabilities in many places, the ability to shift things around and ramp. For us, it's all about driving efficiencies and the operational excellence, and where can we get synergies through shared services, through best practice sharing.
And then finally, we have a really strong financial profile. Our balance sheet is very strong. We have a great leadership team. We are driven to win. I describe our executive team as we're driven to win, but we're going to do it in the right way. We're going to adhere to our shared values. We're going to make sure that everything we do is done with integrity. But we are really out there engaged with our customers, engaged with our partners to win where we're entitled to win.
So with that, I think, Chris, we'll turn it over to you for some questions.
Terrific. Jeremy, thank you very much. That was really helpful. So maybe the total addressable market for hydraulics is probably tens of billions of dollars. For electronics, it's trillions.
The last estimate we saw for Helios's addressable niche market from your 2021 investor day was, I think, roughly $6 billion on a consolidated basis. You've obviously done some acquisitions and divestitures since then. So your focus has evolved a little bit. Is it fair to say the niche addressable market is still roughly in that same ballpark? Perhaps you'll provide a little more detail at your investor day in terms of kind of that breakout there.
Yeah, exactly, Chris. We certainly intend to refresh that detail at the upcoming investor day in March, and since our last investor day, and specifically over the last two years, we've really gone through a deep internal strategic planning process where our businesses have done a lot of work analyzing both kind of our current markets as well as our end markets and adjacent markets that are attractive to us.
And so that is absolutely on the docket for investor day. So stay tuned for kind of the updated refresh there.
Perfect. So rather than talking about the overall markets, maybe we could just get your quick thoughts or go a little bit deeper on some of the verticals, industrial, mobile, agriculture, etc. Just kind of talk about which ones are doing well currently, which are a little bit soft at this point in time, and kind of where some of the bigger opportunities lie.
Yeah, Chris, first, let me say that the broader macro data and some of the data we track internally is very choppy. So definitely, it's a mixed environment. We're seeing some growth in areas that is due to taking share as a result of our execution and our go-to-market focus versus maybe the end market being really strong. So that's the dynamic.
But that said, we did see within our mobile, recreational, and agriculture markets that they turned green in the third quarter relative to year-over-year comparables. Sequentially, sales in the third quarter were up 4% or $8 million as we saw demand. Our demand continued to improve across the end markets. Hydraulics was up 9% in the third quarter, really supported by the improving demand from customers in the mobile end market and some early signs of improvement in agriculture that it has been down really double digits plus the last couple of years. Within the electronics, sales in the third quarter were up 21% compared to the prior year, really driven by the recreational end market. In fact, our Enovation business had a record quarter. However, I do want to highlight that these numbers are based on a really low comparable in 2024.
So again, we're happy that we're growing, but it's really a mixed demand environment, and things just definitely aren't off and running yet.
Got it. That's helpful. Tariffs, did they have a significant impact on Helios in 2025 to this point in time, either from a cost pricing or market demand perspective?
Yeah. We published as part of our Q2 results a slide on direct tariff impacts, and we had estimated the impact to be $8 million for the second half of 2025. And that number would have been higher. However, we were able to successfully mitigate some of the impact by leveraging that in-the-region for-the-region footprint, as well as we did go out and find some alternative suppliers for some of the product inputs. Based on how we've navigated and how we've estimated those impacts internally, we believe we've landed in that ballpark.
The tariff situation has stabilized from early in 2025, but we continue to monitor things closely on that front.
Got it. Yeah. I'm just thinking from a 2026 perspective. I mean, are there any markets that have held up reasonably well, but that ability to continue to do so could get a little more difficult in 2026? I'm thinking input costs could increase meaningfully or just kind of from a big picture perspective, how you're thinking about 2026 from a tariff perspective.
Yeah. As we've referenced a couple of times, our in-the-region for-the-region strategy is really going to ebb and flow as our customers grow in those various regions and end markets, and as we continue to grow and mature as an organization, we continue to evaluate how to capture the most operating leverage and where the production is best served.
And into that, we watch things like our labor availability in any changing market dynamics. Right now, we don't see any specific items we think we should call out that we expect to materially increase. We actually didn't include the same level of information in our Q3 earnings release as we felt like the tariff story had kind of normalized a bit. But entering 2025, I don't think many people were expecting the frenetic behavior that we saw on the tariff side. So we'll remain nimble as an organization to respond quickly if we have any curveballs thrown at us this year.
Got it. Very helpful. Just you guys have done a great job in streamlining the organization, improving cost structure while, as you talked about, some of the end markets remain relatively soft. Are there certain markets, particularly within hydraulics, where it's especially important to ramp production quickly?
And just trying to get a sense as to how you're positioned from that perspective.
Yeah. For us, increasing volume is by far, in a way, the biggest needle mover for us when it comes to the operating margin leverage. You can see this in our last few quarter results where as the volume is growing, the incrementals really start to show through. And as you know, we've made a lot of acquisitions compared to when the business was only Sun Hydraulics. So those acquisitions had lower average margins to varying degrees than Sun did back then. But as we continue to execute on capturing more market and wallet share, we do expect margin expansion. And within that hydraulic, we have our flagship brands. We have Sun and Faster. And that business will go through both distribution and OEMs.
From a distributor perspective, we track inventory levels, and we see that inventory levels have been trending down the last several quarters, which is a good sign. We believe we're approaching the absolute dollar level where historically we'd start to see some natural organic growth there. From an OEM side, we get a pretty good forward-looking forecast, some six, nine, 12 months. But those OEMs, right, that forecast changes. They can pull orders ahead. They can push some of those out as the ship date gets closer. But on both sides, distribution and OEM, we do have visibility into that demand. And as demand increases, as you point out, we obviously need to ramp our labor and resources to make sure that we're prepared for that.
Got it. I appreciate that.
I'm not sure if this is fair or not, but it feels like there was more discussion regarding selling solutions versus discrete components with potentially really big dollar contracts before Sean became CEO. Maybe a few questions there. One, is that a fair statement, and two, is selling solutions versus discrete components still a central part of the growth strategy?
Yeah. I'll take this one, and Jeremy can jump in if I leave anything out, but Sean and our leadership team remain committed to selling what we call system solutions. But as Sean likes to say, we're more focused on stacking up wins, even if they're smaller in size, versus chasing elephants. And this has really been a core tenet in the way we've structured our new go-to-market strategy. We certainly want to capture as much wallet share possible, whether that's through selling multiple products intra or inter-segment.
And Sean restructured our businesses back to more of a streamlined approach, what used to be a regional structure. It's also important to acknowledge there's multiple decision-makers on the procurement side within an OEM. So we want to be the preferred supplier for all their needs and engage with them accordingly. There has also been more education internally on how our engineers across our businesses can work together to solve customers' problems leveraging our entire portfolio. And this will grow over time. There are examples out there in the wild today, like a Ditch Witch where you can see products from Sun and Faster and Enovation Controls all on that one platform. And we're building our plans based on bottoms-up strategic planning that includes a variety of contributions coming out of our go-to-market strategy. So relatively speaking, it's a much more pragmatic approach.
Got it. You just started talking here.
Can you maybe talk a little bit about some of the more exciting products that you guys are developing at this point?
Yeah. So we've had a pretty strong product launch in 2025 that we've shared in some of our presentations. And when I think about our product approach and approach to new product initiatives, we have what I would call our pull product where we're collaborating with customers to either modify existing products in some way to expand the capability or perhaps on new solutions. And a good example is that we announced the release of a Zero-series valve within our Sun Hydraulics business that was really a smaller form factor, which allowed us to go on smaller pieces of equipment.
But then we also have what we call our push product, which is where we are designing products and solutions that we're pushing out into the marketplace where we believe there is new opportunity for that. And we've got that across both of our product segments. And so we're really excited about that. We believe our pace of innovation on the product side has shown an improvement, and we want that to continue. And we'll share a lot more about that as we go into our investor day as well. And I just forwarded the slides. In some of the supplemental slides, we've got a product innovation example, and there are just all the things that we wrote out through the course of 2025 to give you an idea of across the segments how we've really ramped up the pace.
And I would just add it's important as we think about a lot of these products; they're really not cannibalizing the existing sales. We're really looking where we can go upstream or downstream, potential adjacent markets. And so a lot of these are new revenue opportunities for the Helios portfolio. Got it. Jeremy did a good job talking about cash flow. And we've done a lot of M&A. Is there much of an appetite on the M&A side these days? Is there much in the pipeline? What types of things might you be looking for? Yeah. As we showed on the one slide, the company did a significant amount of M&A between 2016 and 2023. And our priority for the last couple of years that will continue into 2026 is to pay down the debt, get that leverage ratio back down.
And then as a second priority, we really want to invest organically. We want to bet on ourselves. We have some really good products. We've got great teams. We see opportunity to grow the organic business. We continue to look at M&A. We've incorporated the M&A evaluation within our strategic planning process and within the business units and brands, really asking that leadership team to determine where we have strategic gaps that we look to fill. And as opportunities arise, if we had what we thought was a really good strategic opportunity, for sure we would look at it. But at least right now, that's not the priority. When we get to the point where the M&A is a bit more active, we're going to be a bit more disciplined in the approach.
We want to make sure that there's a strategic fit, there's a clear integration plan, and that the returns on that opportunity are in line with our expectations. And the good news here, both Sean and I have had a variety of experience in our past with M&A. And I would say that there'll be more rigor in the approach as we go forward, not only in what we're looking for, but also in what we're willing to pay and how we integrate and capture those synergies.
Perfect. I think we've got about 30 seconds left. I'll give you a last chance for some maybe just parting comments.
Yeah. No, thank you very much, Chris, for having us. And of course, if anyone has any follow-up questions, please reach out to me directly. And again, March 20th is the investor day date.
So we'd love to have you join us in person, break free from the cold, and come down to sunny Florida. And again, it's a Friday morning, so maybe you could have a long weekend. And we look forward to welcoming you there.
Sounds good. Guys, thank you so much for participating. Enjoy the rest of the day.
Great. Thank you so much.
All right. Take care.