I recognize that we have work ahead of us to make this great company even more successful. I am proud of all we have accomplished during 2020, but want you to know we are just getting started.
Reflecting on this past year in my role as President and CEO, I am honored to be leading this amazing company into the next chapter of its journey. Our Company has very dedicated, passionate employees that I am proud to call the Helios family. I will tell you more about their spirit and accomplishments throughout this letter.
Agile Response to the Global Pandemic
As we all know, 2020 has been a year of great challenges, from the global health crisis caused by the COVID-19 pandemic and the economic shock it has had on the world’s economy to the social upheaval we have witnessed that is forcing us all to think and act differently. Every person on the planet has been impacted in some way. Still, throughout it all, we have achieved much and augmented our strategy to set Helios up for a very bright future.
Like every company around the world, we experienced many challenges this year related to the pandemic. Throughout the year, our agile and experienced management team did a fantastic job of navigating through the adversity that COVID-19 presented. We protected our employees and communities, supported our customers, kept all operations running, drove excellent results and superior shareholder return.
While we responded to the needs of our customers and worked to ensure the success of our Company, the safety and health of our employees was, and always will be, our primary focus. We began planning immediately and quickly acted in response to the crisis. By early February, we were already working to ensure the safety of our employees and minimize any impact on our customers and operations. We instituted cost containment measures early on to mitigate the effects of the economic downturn and followed those with additional actions as we implemented the scenario plans we developed in the first quarter.
Solid Financial Results in Challenging Economy
Here are a few financial highlights for 2020:
Full year sales of $523 million
GAAP net income of $14 million
GAAP EPS of $0.44
Non-GAAP cash EPS of $2.24
We also achieved very strong cash flow during the year. Free cash flow1 increased to $94 million in 2020, equating to a free cash flow conversion rate of over 200%. This, in turn, enabled us to pay down nearly $50 million of debt in 2020, and we ended the year with a net leverage ratio of 3.0x2 ahead of our expected level of 3.4x.
Augmenting Our Strategy
A little over five years ago, we set out a 10-year vision to achieve global technology leadership in the industrial goods sector by reaching critical mass of $1 billion in sales through a combination of organic growth and acquisitions while maintaining superior profitability and financial strength. In support of these goals, we created four value streams and completed the acquisitions of BWG Holdings I Corp. (“Balboa”) in the fourth quarter of 2020 and BJN Technologies, Inc. in the first quarter of 2021. These value streams are interlaced with our flywheel acquisition strategy as well as our Helios shared corporate values, and we believe they will deliver growth, diversification and market-leading financial performance as we develop into a more sophisticated, globally oriented, customer-centric and learning organization.
The four value streams we have introduced to the organization are as follows:
Protect the business and ensure the cash flywheel continues to spin. We plan to drive the cash flow engine through new product launches while we leverage existing products. We will cultivate customer-centricity and invest in expanding capacity as well as productivity improvements. Importantly, we will continue to execute on our newly developed global manufacturing and operating strategy that will drive improved margin.
Champion a global operating mindset to better leverage our assets, accelerate innovation and diversify our end markets.
Create great opportunities for growth, while reducing risk and cyclicality by diversifying our markets and sources of revenue, adding technology capacity and creating differentiation.
Develop our talent through a culture of customer-centricity, continuous improvement, embracing diversity, engaging the team, focusing on shared deeply rooted values and promoting a learning organization.
Advancing Technologies
We acquired Balboa in November of 2020. We believe it is a perfect fit for our Electronics segment and positions us well for growth, aligning completely with our augmented strategy. Balboa is an innovative market leader in electronic controls, with proprietary and patented technology and AC (alternating current) power capabilities within the health and wellness industry. Balboa strengthens Helios with leading control solutions and a full suite of integrated products. Their proprietary technology accelerates our ability to innovate and expands and diversifies our addressable end markets. This acquisition is just the first step in a multi-year journey to build out our Electronics segment into a best-in-class industrial electronics provider.
With the recent BJN Technologies acquisition, we were able to bring in the talent and expertise we needed to open our Helios Center of Engineering Excellence (HCEE), which will augment and coordinate Helios’s technology advancements and new product development. As we utilize HCEE to leverage the combined power of Enovation and Balboa, we expect to expand into new end markets with global OEMs that will increase the Electronics segment’s geographic exposure as we win new business. We believe the HCEE will enable us to drive our operational plans to leverage joint product development opportunities across the Electronics segment initially, and ultimately across all of Helios.
Accelerating Growth
Organic growth is a critical element to our achieving—and potentially exceeding—our objectives. By innovating new products, expanding geographic reach, and finding new markets, we expect to continue to grow organically at a pace greater than the markets we serve. We accomplished quite a bit during 2020. Key highlights include:
Hydraulics Segment
Received the John Deere Supplier Innovation Award for 2020 for our multiconnection couplings with integrated valve systems. This is a tremendous honor for Helios to receive around our vision and progress in smart hydraulics. Our subsidiaries, Faster S.r.l. and Sun Hydraulics LLC, worked together to combine the advantages and features of MultiFaster and Sun electrohydraulic cartridge valves into an integrated manifold, reducing complexity and increasing reliability of the hydraulic circuit. This type of engineering collaboration is exactly the vision Helios has for the cross-pollination of R&D between our subsidiaries.
Expanded “in the region for the region” manufacturing capacity with localized sourcing in Asia, and grew Asia Pacific region sales by 5%.
Opened a state-of-the-art global research and development facility, the Robert E. Koski Center of Engineering Innovation, which will serve as the foundation for new, innovative product development.
Electronics Segment
Invested in the development of new products for customer-supported projects that we expect will reap rewards for many years to come.
Combined Balboa’s AC technology with Enovation’s display and controls leadership. This will enable technology integration that will reduce the investment of years, dollars and human capital resources as well as accelerate our ability to expand into new markets.
Added BJN Technologies, restructured leadership and opened the HCEE. We believe we are uniquely positioned as a market leader in niche applications of hydraulics and electronics to lead in the integration of the two industries. We expect that this will be defining for the future of Helios and make us incredibly tough to follow.
Corporate Responsibility
Here at Helios, corporate responsibility and sustainability are not only reflected in our business strategy, but are a part of who we are as people and members of our communities. In addition to the diversity and safety initiatives we implement every day, we are committed to reducing emissions, recycling, and minimizing our environmental footprint. We have implemented several strategies to achieve these goals and they are evolving. We are also disclosing more of our initiatives and their results in our annual proxy statement.
Our Board values the benefits that diversity brings our organization, and we are pleased to report that 60% of our corporate officer positions are held by experienced and talented women. Our commitment to diversity is strongly aligned with our leadership structure and global business goals. As a unified leadership team, we are committed to ensuring we have the most talented, diverse workforce and management team we can globally.
We are investing in and strengthening our ability to innovate and are very excited about the many changes we are implementing to drive growth, profitability, and shareholder value at Helios. I have great confidence in the ability of the Helios team to continue to successfully lead this great company and believe it will show in our results in the years to come.
A Strong, Exciting Future
In closing, I wish to thank all our stakeholders who contribute to our success, including our employees, customers, partners, and suppliers around the globe, as well as our Board of Directors.
I recognize that we have work ahead of us to make this great company even more successful. I am proud of all we have accomplished during 2020, but want you to know we are just getting started.
Finally, I wish to express my sincere appreciation to you, our shareholders. Your confidence and trust in the Helios organization, and our ability to achieve our strategic goals while expanding shareholder value makes it possible for us to work as hard as we do. I hope you are as excited about our future as we are!
Respectfully,
Josef Matosevic
CEO and President
1Free cash flow is defined as cash provided by operating activities minus capital expenditures
2On a pro-forma basis for Balboa
Augmenting STRATEGY
Established Vision 2025 Strategy
Acquired Faster $531M Purchase Price
Changed Ticker to NASDAQ: HLIO
Appointed New CEO Brings deep commercial, operational and M&A experience
Acquired BJN Technologies and Opened the Helios Center for Engineering Excellence
2015
2016
2018
2019
2020
2021
Acquired Enovation Controls $250M Purchase Price
Adopted Helios Technologies as its New Business NameAcquired Custom Fluidpower$26M Purchase Price
Acquired Balboa Water Group $219M Purchase Price
Value Streams
A little over five years ago, we set out a 10-year vision to achieve global technology leadership in the industrial goods sector by reaching critical mass of $1 billion in sales through a combination of organic growth and acquisitions while maintaining superior profitability and financial strength. In support of these goals, we created four value streams and completed the acquisitions of BWG Holdings I Corp. (“Balboa”) in the fourth quarter of 2020 and BJN Technologies, Inc. in the first quarter of 2021. These value streams are interlaced with our flywheel acquisition strategy as well as our Helios shared corporate values, and we believe they will deliver growth, diversification and market-leading financial performance as we develop into a more sophisticated, globally oriented, customer-centric and learning organization.
The four value streams we have introduced to the organization are as follows:
Our Mission
PROTECT THE BUSINESS
Ensure that the cash flywheel continues to spin.
THINK AND ACT GLOBALLY
Drive intra- and intercompany initiatives that open global markets and leverage resources.
DIVERSIFY MARKETS AND REVENUE
Swarm commercial opportunities to diversify global and end-market revenue.
DEVELOP TALENT
Ensure team members are in the right seats and fill key skill gaps for future growth.
Environmental, Social and Governance (ESG) Matters
As we enter 2021, Helios and its Board affirmed its commitment to ESG matters as an integral part of the Company’s business strategy. To underscore its commitment, the Board recently created a new Committee entitled “Environmental, Social and Governance,” whose charter is to assist the Company in its oversight of corporate social responsibilities, significant public policy issues, health and safety, and climate-change related trends and other global ESG matters.
We are also disclosing more of our initiatives and their results in our annual proxy statement. Additionally, the Board adopted several new policies and procedures that underscore its commitment to ESG matters. Highlights include:
Corporate Responsibility Policy (including Human Rights Policy)
Code of Conduct for Suppliers and Third-Party Vendors (including Policy Against Human Trafficking and Slavery)
Conflict Mineral Policy
Insider Anti-Hedging Policy (Update)
Code of Business Conduct and Ethics (“Code”) (Update)
Advancing Technologies
Hydraulics Segment
While maintaining superiority in hydraulic couplings and load-holding technologies, our Hydraulics segment continued to invest aggressively in strategic initiatives. In 2020, we made substantial gains in operational efficiencies while investing in innovation and product development. Highlights of 2020 include:
Received the John Deere Supplier Innovation Award for 2020 for our multiconnection couplings with integrated valve systems. Our subsidiaries, Faster and Sun, worked together to combine the advantages and features of MultiFaster and Sun electrohydraulic cartridge valves into an integrated manifold, reducing complexity and increasing reliability of the hydraulic circuit. This level of engineering collaboration aligns precisely with our vision for cross-pollination of R&D between our subsidiaries.
Expanded manufacturing capacity with localized sourcing in Asia and grew Asia Pacific region sales by 5%.
Launched the Robert E. Koski Center of Engineering Innovation, a state-of-the-art global R&D facility that will serve as the foundation for new, innovative product development. The Center honors the legacy of Sun Hydraulics’ founder and will provide expanded hydraulics and electro-hydraulics testing capabilities intended to serve Helios’s own product innovation and development efforts and to support our global customers, testing the latest technologies and Sun solutions with machines and equipment.
Continued expansion of the FLeX Series of electro-hydraulic valves with additional product releases, responding to the growing digitalization of the cartridge valve market.
Produced hydraulic cartridge valves in the EU to serve the local regional market with plans to further expand our “in the region for the region” manufacturing capabilities.
Accelerated our efforts to diversify product offerings into new markets and leverage diversified applications of our existing portfolio.
Electronics Segment
Our Electronics segment is a global leader in electronic control system solutions. With our vertically integrated manufacturing capabilities, we are able to quickly prototype and build fully-tailored solutions for engines, engine-driven equipment and specialty vehicles using rugged and reliable instruments such as displays, controls and instrumentation products. We have enhanced our capabilities during 2020 and advanced several key initiatives. Highlights of 2020 include:
Completed acquisition of Balboa Water Group, 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. Balboa has differentiated controls technology expected to enhance and accelerate the Electronics segment’s ability to innovate and propel into new end markets while enhancing scale, addressable market and innovation in electronic control systems.
The addition of Balboa alternating current technology with Enovation’s display and controls leadership enables technology integration that will reduce the investment of years, dollars and personnel resources for technology advancement to accelerate our ability to expand into new markets.
Continued investments in the development of new products for customer supported projects that, while impacting margins in the near term, we expect will reap rewards for many years to come. These investments are driving opportunities to reach into targeted growth markets and are sustaining our proven track record of additional share in existing target markets.
In January 2021, acquired BJN and established our Center of Engineering Excellence, greatly enhancing our ability to integrate complementary technology across the Company and strategically expanding our product portfolio in existing and new end markets, first in the electronics segment and then throughout all of Helios.
Enovation Controls is a certified Great Place to Work® in 2020 for the second consecutive year. The certification is based on the results of an anonymous employee survey that focused on company culture, challenges, communication and leadership. Using validated employee feedback gathered with Great Place to Work’s rigorous, data-driven methodology, the certification confirms nine out of 10 employees have a consistently positive experience at Enovation Controls.
Basic and diluted non-GAAP cash net income per common share
2.24
2.43
2.30
1.81
0.97
Dividends per common share
0.36
0.36
0.36
0.38
0.40
Year Ended
(in thousands except per share data)
Jan 2, 2021
Dec 28, 2019
Dec 29, 2018
Dec 30, 2017
Dec 31, 2016
Other Financial Data
Depreciation and amortization
$39,695
$35,215
$39,714
$19,190
$11,318
Capital expenditures
14,580
25,025
28,380
22,205
6,187
Year Ended
(in thousands except per share data)
Jan 2, 2021
Dec 28, 2019
Dec 29, 2018
Dec 30, 2017
Dec 31, 2016
Balance Sheet Data
Cash and cash equivalents
$25,216
$22,123
$23,477
$63,882
$74,221
Working capital
126,007
116,136
103,866
100,913
110,192
Total assets
1,296,979
1,021,751
1,042,165
459,766
444,777
Total debt
462,385
300,393
352,685
116,000
140,000
Shareholders’ equity
607,790
577,636
530,768
272,673
236,397
Year Ended
(in thousands except per share data)
Jan 2, 2021
Dec 28, 2019
Dec 29, 2018
Dec 30, 2017
Dec 31, 2016
Margins and Metrics
Gross margin
37.5%
38.3%
37.9%
39.8%
36.2%
Adjusted operating margin*
19.5%
20.3%
21.4%
22.5%
19.6%
Adjusted EBITDA margin*
23.2%
23.6%
24.5%
25.4%
24.4%
Adjusted net income margin*
13.7%
14.0%
14.2%
14.2%
13.2%
Adjusted cash from operations as a percent of sales*
20.8%
18.2%
15.2%
14.4%
19.6%
Year Ended
(in thousands except per share data)
Jan 2, 2021
Dec 28, 2019
Dec 29, 2018
Dec 30, 2017
Dec 31, 2016
Non-GAAP Adjusted Operating Income Reconciliation
GAAP operating income
$35,412
$90,115
$75,554
$61,491
$34,459
Acquisition-related amortization of inventory step-up
—
—
4,441
1,774
1,021
Acquisition and financing-related expenses
7,264
11
5,685
1,019
1,537
Restructuring charges
361
1,724
170
1,462
—
CEO and officer transition costs
2,592
—
—
—
—
One-time operational
—
—
—
2,907
—
Loss on disposal of intangible asset
—
2,713
—
—
—
Acquisition-related amortization of intangible assets
22,114
17,924
23,021
8,423
1,545
Goodwill impairment
31,871
—
—
—
—
Other
—
127
—
—
—
Inventory step-up amortization
1,874
—
—
—
—
M&A integration costs
257
—
—
—
—
Non-GAAP adjusted operating income*
$101,745
$112,614
$108,871
$77,076
$38,562
Adjusted operating margin*
19.5%
20.3%
21.4%
22.5%
19.6%
Year Ended
(in thousands except per share data)
Jan 2, 2021
Dec 28, 2019
Dec 29, 2018
Dec 30, 2017
Dec 31, 2016
Adjusted EBITDA Reconciliation
Net income
$14,218
$60,268
$46,730
$31,558
$23,304
Interest expense (income), net
13,286
15,387
13,876
3,781
(790)
Income tax provision
9,829
15,039
9,665
15,986
11,597
Depreciation and amortization
39,695
35,215
39,714
19,190
11,318
Acquisition-related amortization of inventory step-up
—
—
4,441
1,774
1,021
Acquisition and financing-related expenses
7,264
11
5,685
1,019
1,537
Restructuring charges
361
1,724
170
1,462
—
CEO and officer transition costs
2,592
—
—
—
—
One-time operational items
—
—
—
2,907
—
Loss on disposal of intangible asset
—
2,713
—
—
—
Goodwill impairment
31,871
—
—
—
—
Inventory step-up amortization
1,874
—
—
—
—
M&A integration costs
257
—
—
—
—
Foreign currency forward contract loss
—
—
2,535
—
—
Change in fair value of contingent consideration
(47)
652
1,482
9,476
—
Other
—
127
—
—
—
Adjusted EBITDA*
$121,200
$131,136
$124,298
$87,153
$47,987
Adjusted EBITDA margin*
23.2%
23.6%
24.5%
25.4%
24.4%
Year Ended
(in thousands except per share data)
Jan 2, 2021
Dec 28, 2019
Dec 29, 2018
Dec 30, 2017
Dec 31, 2016
Non-GAAP Cash Net Income Reconciliation
Net income
$14,218
$60,268
$46,730
$31,558
$23,304
Acquisition-related amortization of inventory step-up
—
—
4,441
1,774
1,021
Acquisition and financing-related expenses
7,264
11
5,685
1,019
1,537
Restructuring charges
361
1,724
170
1,462
—
CEO and officer transition costs
2,592
—
—
—
—
One-time operational items
—
—
—
2,907
—
Loss on disposal of intangible asset
—
2,713
—
—
—
Goodwill impairment
31,871
—
—
—
—
Inventory step-up amortization
1,874
—
—
—
—
M&A integration costs
257
—
—
—
—
Foreign currency forward contract loss
—
—
2,535
—
—
Change in fair value of contingent consideration
(47)
652
1,482
9,476
—
Amortization of intangible assets
22,114
18,065
23,262
8,423
1,545
Other
—
127
—
—
—
Impact of tax reform
—
—
(1,400)
463
—
Other one-time tax related items
—
—
(1,920)
—
—
Tax effect of above
(8,604)
(5,823)
(8,850)
(8,271)
(1,339)
Non-GAAP cash net income*
$71,900
$77,737
$72,135
$48,811
$26,068
Non-GAAP cash net income per diluted share*
$2.24
$2.43
$2.30
$1.81
$0.97
Non-GAAP cash net income margin*
13.7%
14.0%
14.2%
14.2%
13.2%
Year Ended
(in thousands except per share data)
Jan 2, 2021
Dec 28, 2019
Dec 29, 2018
Dec 30, 2017
Dec 31, 2016
Non-GAAP Adjusted Cash from Operations
Net cash provided by operating activities
$108,556
$90,480
$77,450
$49,382
$38,506
Contingent consideration payment in excess of acquisition date fair value
—
10,731
—
—
—
Adjusted net cash provided by operating activities*
$108,556
$101,211
$77,450
$49,382
$38,506
Non-GAAP adjusted cash from operations as a percent of sales*
20.8%
18.2%
15.2%
14.4%
19.6%
*Adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, cash net income, cash net income per diluted share, cash net income margin, adjusted net cash provided by operating activities and adjusted cash from operations as a percent of sales are not measures determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP. Nevertheless, Helios believes that providing non-GAAP information such as adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, cash net income, cash net income per diluted share, cash net income margin, adjusted net cash provided by operating activities and adjusted cash from operations as a percent of sales are important for investors and other readers of Helios’s financial statements, as they are used as analytical indicators by Helios’s management to better understand operating performance. Because adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, cash net income, cash net income per diluted share, cash net income margin, adjusted net cash provided by operating activities and adjusted cash from operations as a percent of sales are non-GAAP measures and are thus susceptible to varying calculations, adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, cash net income, cash net income per diluted share, cash net income margin, adjusted net cash provided by operating activities and adjusted cash from operations as a percent of sales, as presented, may not be directly comparable to other similarly titled measures used by other companies.
Corporate Information
Directors
Philippe Lemaitre
Chairman of the Board
Helios Technologies
Chairman, President, CEO retired
Woodhead Industries, Inc.
Marc Bertoneche, PhD
Emeritus Professor,
Business Administration
University of Bordeaux
Douglas M. Britt
President, Chief Executive Officer
Boyd Corporation
Laura Dempsey Brown
Senior VP, Communications
and Investor Relations retired
W.W. Grainger, Inc.
Cariappa (Cary) Chenanda
Vice President
Cummins, Inc.
Kennon H. Guglielmo, PhD
Chief Executive Officer
Genisys Controls, LLC
Josef Matosevic
President, Chief Executive Officer
Helios Technologies
Alexander Schuetz, PhD
Chief Executive Officer
Knauf Engineering GmbH
Gregory C. Yadley
Partner
Shumaker, Loop & Kendrick, LLP
Corporate Officers
Josef Matosevic
President, Chief Executive Officer
Tricia L. Fulton
Chief Financial Officer
Matteo Arduini
President of QRC
(Quick-Release Couplings)
Jinger J. McPeak
President of EC (Electronic Controls)
Melanie M. Nealis, Esq.
Chief Legal and Compliance Officer and Secretary
Corporate Headquarters
Helios Technologies
1500 West University Parkway
Sarasota, FL 34243
941.362.1200 www.heliostechnologies.com
Common Stock Information
NASDAQ Global Select Market
Symbol: HLIO
Registered shareholders
of record at April 6, 2021: 144
Beneficial owners of record
at April 6, 2021: 12,905
Closing stock price at
April 6, 2021: $71.81
Annual Meeting
Thursday, June 3, 2021
10:00 AM EDT
Helios Technologies
7456 16th Street East
Sarasota, FL 34243
This annual report contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements involve risks and uncertainties, and actual results may differ materially from those expressed or implied by such statements. They include statements regarding current expectations, estimates, forecasts, projections, our benefits, and assumptions made by Helios Technologies, Inc. (“Helios” or the “Company”), its director or its officers about the Company and the industry in which it operates, and assumptions made by management, and include among other items, (i) the Company’s strategies regarding growth, including its intention to develop new products and make acquisitions; (ii) the Company’s financing plans; (iii) trends affecting the Company’s financial condition or results of operations; (iv) the Company’s ability to continue to control costs and to meet its liquidity and other financing needs; (v) the declaration and payment of dividends; and (vi) the Company’s ability to respond to changes in customer demand domestically and internationally, including as a result of standardization. In addition, we may make other written or oral statements, which constitute forward-looking statements, from time to time. Words such as “may,” “expects,” “projects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. Similarly, statements that describe our future plans, objectives or goals also are forward-looking statements. These statements are not guaranteeing future performance and are subject to a number of risks and uncertainties. Our actual results may differ materially from what is expressed or forecasted in such forward-looking statements, and undue reliance should not be placed on such statements. All forward-looking statements are made as of the date hereof, and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause actual results to differ materially from what is expressed or forecasted in such forward-looking statements include, but are not limited to: (i) conditions in the capital markets, including the interest rate environment and the availability of capital; (ii) changes in the competitive marketplace that could affect our revenue and/or cost bases, such as increased competition, lack of qualified engineering, marketing, management or other personnel, and increased labor and raw materials costs; (iii) risks related to heath epidemics, pandemics and similar outbreaks, including, without limitation, the current COVID-19 pandemic, which may have material adverse effects on our business, financial position, results of operations and cash flows; (iv) new product introductions, product sales mix and the geographic mix of sales nationally and internationally.
