Helios Technologies Q2 2026 Earnings Call - Record Cash Flow and Raised Outlook Signal Turn to Takeoff

Operator: Greetings, and welcome to the Helios Technologies second quarter 2026 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tania Almond, Vice President, Investor Relations and Corporate Communications. Please go ahead.

Tania Almond, Vice President, Investor Relations and Corporate Communications, Helios Technologies: Thank you, operator, and good day, everyone. Welcome to the Helios Technologies second quarter 2026 financial results conference call. We issued a press release announcing our results yesterday afternoon. If you do not have that release, it is available on our website at heliostechnologies.com. You will also find slides there that accompany today’s discussion as well as our prepared remarks. Joining me today are Sean Bagan, President and Chief Executive Officer, and Jeremy Evans, Executive Vice President, Chief Financial Officer. Sean will begin the highlights from the second quarter. Jeremy will then review our financial results in more detail and provide our outlook for the rest of the year. Sean will return with some closing comments, and then we will open the call for questions. Before we get started, please turn to Slide 2, where you will find our safe harbor statement.

As you may be aware, we will make some forward-looking statements during this presentation and the Q&A session. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from those presented today. These risks and uncertainties and other factors can be found in our annual report on Form 10-K for 2025, along with our upcoming 10-Q to be filed with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov. I will also point out that during today’s call, we will discuss some non-GAAP financial measures which we believe are useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.

We have provided reconciliations of comparable GAAP with non-GAAP measures in the tables that accompany today’s slides. Please reference Slides 3 through 5 as I now turn the call over to Sean.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Thanks, Tania, and welcome everyone. We’re pleased you could join us today. It was five months ago at Investor Day that we introduced The CORE Strategy, laid out our 2030 financial targets, and committed to a set of measurable objectives. Two quarters into that plan, our first half performance shows we are off to a strong start. The CORE Strategy is working, and the stabilization plan for the business that our team mapped out over the last two years is now complete. We have entered a new phase of our journey defined by sustained growth that is underpinned by a fortified balance sheet. At Investor Day, we were still in the midst of that comeback, beginning to climb. Today, we’re continuing to grow into the second half, gaining altitude faster than expected, and we’re positioned to keep climbing into 2027.

We delivered another strong set of results in the second quarter. Sales of $232 million were at the high end of our guidance range, and adjusted earnings exceeded the top end of our outlook. This marks our fourth consecutive quarter of double-digit pro forma sales and adjusted earnings growth, which is a solid indicator that the strategic actions we’ve taken continue to translate into consistent operating and financial performance. Based on the solid first half results and improving visibility into the balance of the year, we are raising our full-year outlook. 2026 could represent the highest annual sales in Helios’ history. Importantly, the order and business win dynamics behind these numbers remain robust. Our order intake grew double digits over the year-ago period for the fourth quarter in a row, giving us increasing confidence in near-term demand.

Our order growth is primarily driven by the combination of last year’s business wins ramping and new wins continuing at a healthy pace. These wins span both segments. In hydraulics within MCT, Sun saw its strongest growth in China across mobile and industrial and is on pace to have a record year in its APAC region. Within SCT, Faster continues to benefit from strengthening demand from our customers in construction and agriculture, and we’ve rolled out a new product portfolio, completed the qualifications needed to meet industry standards, and have been building some inventory to position us to start penetrating the data center thermal management market. In electronics, we are realizing growth across recreational, health and wellness, and industrial applications, supported by the investments we made in our ability to solve complex problems for our customers.

All of this gives us growing confidence that the changes we have made are driving sustainable results. The quality of our earnings continues to improve as well. Higher volumes, favorable segment mix, and our operational initiatives drove another quarter of solid year-over-year margin expansion, reflecting the operating leverage inherent in our business model and the progress we’re making in continued footprint optimization and productivity. Impressively, we generated record operating cash flow in a second quarter, with that cash generation allowing us to further strengthen the balance sheet, reduce our leverage ratio, increase organic investments, and return capital to shareholders through our longstanding dividend and additional share repurchases. This balanced approach is fully aligned with the value creation framework we laid out as part of The CORE Strategy. Stepping back and reflecting on our first half results, we are tracking ahead of our organic growth and margin commitments.

Our sales engine is performing. Our innovative products and roadmaps continue to take market share. Our operational excellence initiatives are supporting ongoing margin expansion toward the long-term targets we shared at Investor Day. We will stay focused on disciplined execution and investing in high return opportunities, positioning Helios for continued progress against our targets. With that, I’ll turn the call over to Jeremy, who will review the second quarter financial results in more detail and our raised 2026 outlook. Jeremy, over to you.

Jeremy Evans, Executive Vice President, Chief Financial Officer, Helios Technologies: Thank you, Sean, and good day everyone. As I review our second quarter results, please refer to slides 6 through 8. Second quarter sales were $232 million, up 9% compared with $212 million in the prior year period, and at the high end of the expectations we laid out on our first quarter call. When adjusting for the CFP divestiture and foreign exchange impacts, sales were up 16% year over year. Gross profit increased 19% in the quarter to $80 million, and gross margin expanded 280 basis points year over year to 34.6%. This is the fourth straight quarter of year over year gross margin expansion. In addition to volume and mix, the margin improvement reflects ongoing operational initiatives and benefits from our portfolio and footprint actions, along with the positive contribution from approximately $1 million of net IEEPA tariff refunds.

From an operational perspective, we continue to execute on footprint optimization initiatives to support margin expansion, increase productivity, and drive operating leverage. During the quarter, we closed the Faster facility in Canada and further consolidated our Faster North American operations. We expect these actions to drive efficiency and cost benefits starting in the second half of 2026. Second quarter operating income rose 48% year over year to $33 million, and operating margin expanded 370 basis points to 14%, with non-GAAP adjusted operating margin up 280 basis points to 17.8%. Adjusted EBITDA increased 25% to $49 million, and adjusted EBITDA margin expanded 260 basis points to 21.2%, marking the fourth consecutive quarter with adjusted EBITDA margin above 20%. Our operating expenses increased by $2.2 million year over year, primarily driven by employee benefit costs and an isolated bad debt expense.

Excluding these two items, we managed expenses in a disciplined way, keeping them essentially flat year over year on a consolidated basis while increasing investment in research and development and delivering solid sales growth. This is an important contributor to the operating leverage you see in our expanding operating and EBITDA margins. Diluted EPS in the quarter was $0.66, up 94% compared with the prior year period, and adjusted diluted EPS of $0.88 rose 49%, exceeding the high end of our outlook by $0.05 per share. The upside reflects strong sales growth, margin expansion, disciplined operating performance, and the net impact of IEEPA tariff refunds. Turning to the segments, please refer to slide 9. Growth remained wide ranging, driven by both segments in all regions.

Hydraulic sales in the second quarter were $146 million, up 14% year-over-year on a pro forma basis, normalizing for the impact of foreign exchange and the divestiture. We saw growth across the Americas and EMEA, with APAC up significant double digits on a pro forma basis. By end market, mobile saw the most strength, with the construction category continuing its growth. Agriculture also contributed to the year-over-year growth, while sales to the industrial end markets were relatively flat year-over-year. Hydraulics gross profit increased 9% year-over-year, and gross margin expanded by 160 basis points to 34.6%, driven by higher volumes, mix, and the benefit of the IEEPA tariff refund. Operating expenses were roughly flat year-over-year in absolute dollars and lower as a percent of sales, with segment operating income growing 16% to $29 million and operating margin up 200 basis points to 19.7%.

In electronics, second quarter sales were $86 million, up 19% year-over-year, with growth in all regions and particularly robust performance in APAC. Enovation Controls delivered a record for a second quarter, with demand remaining healthy across recreational markets, including continued strength with a large OEM customer that has been a key contributor to recent volume outperformance. We are realizing growth in health and wellness, mobile, and industrial, while core markets and marine remain soft. Electronics gross profit in the quarter increased 41%, and gross margin expanded 530 basis points to 34.6%, reflecting fixed cost leverage on higher volume and direct labor cost efficiencies as we optimize our footprint and processes, as well as the benefit of the IEEPA tariff refund.

Segment SG&A expenses increased as we continue to invest in R&D, resulting in the segment operating margin expanding 490 basis points to 13.1% and operating income nearly doubling to $11 million. On slide 10, we generated a second quarter record of $42 million of cash from operations and $31 million of free cash flow. CapEx in the quarter was $11 million, or 4.9% of sales, an increase from prior quarters and reflecting our increase in strategic organic investments. Our trailing 12 months adjusted free cash flow conversion remained healthy, and our cash conversion cycle improved by 11 days compared to the same period last year.

Flipping to slide 11, we have updated our capital allocation priorities as our trailing 12 months net debt to adjusted EBITDA leverage ratio has improved to 1.4 times, down from 2.6 times in the prior year period and below our target operating range of 1.5 to 2.5 times. In addition, our net debt declined to $264 million, the lowest since the third quarter of 2020. We have shifted our priority to investing in organic growth opportunities, maintaining our increased level of returning capital to shareholders, and pursuing strategic acquisitions. We extended our history of paying cash dividends to 118 consecutive quarters, or over 29 years, with a quarterly dividend of $0.12 per share. We also repurchased approximately 79,000 shares for a total of $6 million in the quarter, leaving $76 million remaining on our share repurchase authorization.

Year to date, we have returned $18 million to shareholders through dividends and share repurchases, up 40% versus the first six months of 2025. We view this balanced approach of continued disciplined investments and capital returns while meeting our debt service obligations as a key element of our value creation framework. Slide 12 reflects the 2026 financial priorities that we established at the start of the year. This quarter, we made progress against them all. We remain focused on operational execution and investing in high return opportunities as we carry this momentum into the second half. Turning to slides 13 and 14, with that strength behind us and improved visibility into the third quarter, we are raising the full year outlook.

We now expect sales to be in the range of $880 million to $900 million for the year, compared with $839 million as reported in 2025 and $792 million on a pro forma basis excluding CFP sales. This implies 12% growth over 2025 at the midpoint, driven primarily by volume growth in our core platforms and the ramping of recent commercial wins. At the midpoint of this range, we would achieve the highest annual sales in the company’s history, topping our 2022 level, which is even more impressive when you consider the fact that we divested $60 million in run rate CFP sales last year. At the segment level for the full year, we expect hydraulics sales in the range of $555 million to $565 million, up approximately 13% at the midpoint on a pro forma basis.

For electronics, we expect sales in the range of $325 million to $335 million, up 11% at the midpoint. We expect 2026 adjusted EBITDA margin to be in the range of 20.2%-21%, raising the bottom of the previous range, reflecting gross margin expansion, operating expense discipline, and the full year benefit of our portfolio and footprint actions. We expect adjusted diluted EPS in the range of $3.05-$3.25, reflecting 23% growth at the midpoint. For the third quarter of 2026, we expect sales to be in the range of $215 million to $222 million, up 8% over last year’s third quarter at the midpoint when taking the divestiture into consideration. At the segment level for the third quarter, we expect hydraulics sales in the range of $133 million to $138 million, up approximately 9% at the midpoint on a pro forma basis.

For electronics, we expect sales in the range of $82 million to $84 million, up 5% at the midpoint. We expect consolidated adjusted EBITDA margin for the third quarter to be in the range of 19.8%-20.6%, down 30 basis points at the midpoint compared to the previous year, and adjusted diluted EPS of $0.70-$0.77 per share, up 2% at the midpoint compared to the previous year. As we constructed our raised outlook, we continue to remain cognizant of tougher comparisons in the second half, driven by the timing of end market recoveries and the ramp of certain commercial wins. We also are considering ongoing external factors, including rising energy and fuel prices, tariff dynamics, broader inflationary pressures, and geopolitical tensions.

Despite these factors, our raised full year outlook reflects the strength we see in our order trends, new business wins, and operational execution balanced against these considerations. With that, please turn to slide 15, and I’ll turn the call back to Sean for his closing remarks.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Thanks, Jeremy. As I conclude our prepared remarks, let me reflect on the course we charted five months ago and the progress we’ve made. At the halfway point of this fiscal year, we’ve crossed an important inflection point. This is no longer a story of business stabilization. It’s a story of profitable, broad-based growth. The progress we have made isn’t the result of one great quarter or one favorable market. It’s the outcome of thousands of people across Helios executing our strategic priorities every day and staying focused on serving our customers. I want to thank every Helios colleague for their commitment, collaboration, and relentless focus on execution. The momentum we’ve built is a direct reflection of their efforts, and I’m proud of what we’ve accomplished together, and even more excited about what’s ahead. Heading into the second half, I’m encouraged by what I see across our businesses.

What gives me the most confidence isn’t just the favorable trends in our results or the financial performance we’ve delivered in the first half. It’s the quality of that performance. We’re growing through new business wins, bringing innovative products to market, improving our operations, and generating strong cash flow to keep investing in our future while returning capital to shareholders. We’ve moved from turnaround to takeoff, and we’re entering the second half with increasing altitude, momentum, and confidence while navigating through a turbulent macro environment. To our customers, distributors, suppliers, and shareholders, thank you for your continued trust and partnership. We remain focused on executing with discipline, creating long-term value, and building an even stronger Helios for the years ahead. With that, operator, let’s open the lines for Q&A, please.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we pull for questions. Our first question, we’ll hear from Mig Dobre with Baird. Please proceed with your question.

Mig Dobre, Analyst, Baird: Thank you, operator. Good morning, everyone. Sean, if I heard correctly in your prepared remarks, you talked a little bit about some footprint or restructuring action that you were taking at Faster. I would like to hear more about that as to what is going on there. Maybe more broadly, how you are sort of thinking about capacity and your footprint in the hydraulics business. Related to this, your CapEx guidance, 4.5% of sales, that is a pretty healthy number. You guys are obviously continuing to invest. Maybe you can kind of clarify as to what the areas of investment and what you see as the most compelling opportunities.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Morning, Mig. Thanks for the insightful questions. I will start, then I will pass it to Jeremy to talk through some of the CapEx dynamics. With respect to the hydraulics footprint, specifically Faster, what we are referencing there is first a consolidation of our American operations, which resulted in a facility in Toledo, Ohio. It is called Maumee, where we have established a presence. Now we are building that out. We have added a North American general manager that we have hired from the outside and moving some of the operations from Mishawaka, Indiana, where we are continuing to see tremendous growth out of Daman and our manifold assemblies. We have worked through all of those operational challenges, so it creates more capacity there. In fact, they had their record data point. They had a record order week 2 weeks ago at Daman.

We continue to see a lot of growth there, so that frees up availability to add some more automation and equipment in that Indiana facility. As such, we also close a Canadian facility for Faster as it related to a tiny acquisition and move that production effectively over to Italy. Just some moving pieces. As we are gearing up and ramping up for our entry into the thermal data center coupling market, having the capacity, distribution, inventory available here as the U.S. represents the largest market opportunity for that. Jeremy, maybe you can speak to some of the CapEx dynamics and tightening of the range.

Jeremy Evans, Executive Vice President, Chief Financial Officer, Helios Technologies: Sure. The updated guidance reflects a CapEx range of 4%-4.5%, and part of that guidance change is due to increasing our sales expectations. We have actually taken the top end of that range down a little bit, but it reflects a few things. First is the investment that we have been making in the thermal management, just in creating capacity to make the data center couplings, establish a clean room for that. So that is a piece of it. Second, we continue to invest in our low-cost centers for engineering, specifically Tijuana, Mexico. We have got low-cost manufacturing as well in India, in China. We had a plan to leverage those centers more. When the tariff situation really began to flare up in early 2025, we put some of those efforts on hold.

Now that the tariff situation seems to have stabilized, we’re putting some of those activities back in motion. It’s just setting up those facilities to receive some incoming manufacturing activities. Those are, I would say, two primary focus of the incremental spend, with a third component being continue to invest in our automation and productivity capabilities. We’ve had some aged machines throughout the facilities that we’re starting to upgrade, as well as some targeted productivity enhancements as well.

Mig Dobre, Analyst, Baird: Okay. That’s very helpful. Thank you for that. I guess my follow-up on the electronics business. You’ve had a lot of growth in the first half here organically, and when I’m kind of looking at the full year guidance for revenue, that implies solid double-digit growth. It seems to me that the end markets that you’re exposed to here are not growing anywhere near double digit organically. So maybe I’m misunderstanding something here, correct me if I’m wrong, but if what I’m saying is correct, how should we think about this outgrowth? What’s driving the outgrowth? Is it specific customer wins? I think you hinted at that. Maybe give us more context there. How sustainable do you think this could be as we think about 2027? Thank you.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Yeah, I’ll take that one, Mig. So on the electronic side, Billy Aldridge and his team have been very aggressive from a go-to-market perspective and had numerous wins. We talked a lot about those ones at Investor Day. We showed a chart, and that trend has continued. When we get here to the back half, and as we tried to telegraph as we set out our operating plan this year, the back half obviously gets much tougher. So very impressive growth in the first half, easier comps. Our challenge now is to continue to grow here in the back half. You can see in the third quarter, we’re still projecting mid-single digit growth from the electronic segment. But I think part of your question and your observation there in terms of the markets are more challenged certainly than on the hydraulic side.

One of the big reasons there continues to be interest rates. A lot of the products that we supply into those OEMs are financed product. As the interest rates haven’t come down, that hasn’t stimulated growth. You see that whether it’s with the marine market that we see as the most challenged still or even just the recreational market. What is encouraging is what Billy’s done from an organizational perspective is really combining the businesses to drive synergy, drive one head of engineering that drives the same kind of engineering processes, product plans, and how we can leverage our manufacturing plants better. So we’re moving some production to a lower cost manufacturing facility in Tijuana that will help with our margin profile.

But we really are encouraged because that health and wellness market, which is a significant portion of our electronic segment, has rebounded off of those COVID highs and post-COVID lows. It’s now stabilized and we get decent market data in terms of how that market’s performing, and it’s really shifted. There’s quite a lot of growth coming out of Asia, and we have our footprint there with Joyonway. The North American market is more challenged, but we continue to see opportunities to go deeper there and diversify. Our WaterGuru relationship is providing some nice growth. As we’ve talked about our Purezone product that we have come to market with, and we’re developing a whole range of new Balboa product that will be coming out here over the next 6 to 9 months that will help grow that as well. So yes, the markets remain challenged.

Part of that’s macroeconomic, but we’re also outpacing that with wins. As we talk about internally all the time across all of our business, we operate in smaller niche markets, and we’re not going to pay as much attention to what markets are doing. Our focus is on outgrowing the markets and continuing to expand our breadth of products and going deeper with those existing customers. That’s exactly what Billy and his sales team have done.

Mig Dobre, Analyst, Baird: Thank you for taking my question.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Thanks.

Operator: Next we’ll move to Jeff Hammond with KeyBanc Capital Markets. Please go ahead.

Jeff Hammond, Analyst, KeyBanc Capital Markets: Hey, good morning, everyone.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Morning, Jeff.

Jeff Hammond, Analyst, KeyBanc Capital Markets: Sean, I think the concern originally in your guide was, "Hey, we can only see so far out, and we’ve got some tough comps." Maybe you can remind us some of the moving pieces in the fourth quarter. But it does seem like the program wins that you got last year are ramping, and it seems like you’re stacking more wins. It feels like on the margins, maybe the markets are getting better, at least in hydraulics. Just maybe talk through the cadence and why we stepped down if we’ve got all this momentum both from a market and win perspective.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Yeah. The way we constructed the plan is we laid out heavier first half, lighter second half. I think we still see that playing out. If you look at four of the last five years, it’s kind of 52%-54% of revenue in the first half, and then back half, obviously the remainder. Last year was the anomaly. I would point to what you mentioned in terms of the starting of the ramp of the wins because that took time to get our go-to-market engine going. Generally, seasonality-wise, if you call it, that’s just how it plays out. What our hesitation and why we didn’t come out of the gate with more confidence in the back half is obviously there was a lot of uncertainty as we began the year. But our order visibility is really about a quarter out.

Anytime you look at our order backlog, it is just over one quarter’s worth of sales for us, given that some of the shorter cycles in terms of order for distribution or orders for our Balboa business. The OEMs provide longer-term forecasts, but they do not lock them until it gets closer to the near quarter. Again, some of those data points that we are looking at, we wanted to be cautious going in. Now that we have seen the momentum, we have seen the ramp of the wins, our pace of new wins this year has also continued to support the higher pace. That gave us the confidence to raise. As we got to July, we had our best July ever from a revenue perspective and our best July order intake ever as a company.

That says something too, because we are stripping out roughly $60 million of annualized revenue with our CFP business. We believe we have the momentum, and it is going to continue to carry. The other part there is that new product portfolio of products we launched last year that has continued this year, will continue to accelerate in the back half. It gives us a lot of confidence.

Jeff Hammond, Analyst, KeyBanc Capital Markets: Okay, great. Then two more. One, data center, I think you said you are positioning some inventory. Just what is your line of sight on wins or customer announcement there? Obviously, you must have some visibility if you are starting to create space and starting to build inventory. Then separately, industrial end market, which maybe is a little bit of a catchall, but seemed kind of flat in 2Q, but I think in the guide commentary, you moved it up. Maybe just talk about that end market and what you are seeing there.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Yeah, sure. From a data center perspective, obviously we are trying to penetrate and enter a new large market that is with a product we know very well out of Faster in our couplings. Before you obviously become a supplier, you need your product validated, and the technical validation is more stringent certainly than we have experienced from an ag or construction perspective. Certainly product quality, reliability are paramount. You cannot be leaking fluid in a data center. But then obviously ramping up our own manufacturing capabilities, demonstrating that we can deliver timely product and have availability within all the regions. It is a big undertaking. Now, we have started to build some inventory. We have not built in any revenue into our back half guidance. That is just being cautious, but again, I think we said that last quarter.

We’d be disappointed if we didn’t generate some revenue, but we now have samples out with about a dozen prospective customers that are sampling our products. We believe an order would be imminent here in the back half. It’s taken some investment and upfront realignment back to Mig’s question on some of the changes we’ve been making from a plant perspective to get ready for this. This represents our single largest opportunity across Helios today, and so we’re treating it that way and are very excited about the opportunity it presents to help support our CORE Strategy growth. Jeremy, maybe you can take the second part.

Jeremy Evans, Executive Vice President, Chief Financial Officer, Helios Technologies: Yeah, I’ll touch a little bit on the end markets and comment about industrial first. We track the orders and the sales down to our end market level. If you look at industrial and on as-reported basis, for us, it’s down, but that includes the sales that were through our CFP entity that were divested. When we take that out, we see that in the first half, industrial is fairly stable, just up a little bit. We’ve got it characterized as stable in our presentation that we put out yesterday. I think where we’re seeing the strength from an end market perspective continues to be mobile. That is where we roll up construction, and construction for us has been up, as well as the health and wellness. That market, as Sean described, has recovered, and we’re seeing some decent growth there year-over-year.

The other area that’s kind of up is aerospace. We have that within our hydraulics segment. It’s on a smaller base, but we’re seeing nice growth there as well. So it’s really the mobile aerospace and health and wellness that we see as the positive catalyst for the growth in our outlook. Industrial for us is more stable. The one market that is fairly large for us in electronics is that recreation marine. We still haven’t seen that turn. That market is still depressed when we track what we see coming in from an order perspective.

Jeff Hammond, Analyst, KeyBanc Capital Markets: Okay. Appreciate the color.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Thanks, Jeff.

Operator: Next, we’ll hear from Tom Sano with J.P. Morgan.

Tom Sano, Analyst, J.P. Morgan: Hi, good morning, everyone.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Morning, Tomo.

Tom Sano, Analyst, J.P. Morgan: Thank you for taking my questions. I would like to ask about the gross margin has expanded for four consecutive quarters. How should we think about sustainabilities? If you decompose mix productivity and footprint actions in back half and then some color for the components into 2027, please. Thank you.

Jeremy Evans, Executive Vice President, Chief Financial Officer, Helios Technologies: Hi, Tomo, this is Jeremy. Specific to the gross margin expansion, as we have been communicating, the biggest lever that we have when it comes to gross margin is our volume and just filling up the capacity that we have. As we return to growth, we are seeing that come through. Our incremental margins in Q2 were a little higher, but they are being impacted by the IEEPA tariff refund. So there is roughly a $1 million benefit flowing through our gross profit. If you strip out the IEEPA tariff refund impact, it was still good flow-through, more consistent with what we would expect as our volume ramps.

We continue to drive the productivity and leveraging the low-cost centers of manufacturing. The more recent activities, the Faster consolidation, the closing of the Faster Canada office, and some of the things we have in motion are going to play out more in the second half of the year and when we get into 2027. For the quarter in the first half, I would say that was minimal compared to how we exited 2025. What we are really seeing is the volume ramp. There are some cost pressures that we see there as well, specifically on the product components that we have to mitigate, specifically around printed circuit boards and memory chips and some of the aluminum that we are managing through.

Definitely pleased with how we have been able to expand the gross margins, and it is a clear focus, one of the priorities that we set out as we entered the year.

Tom Sano, Analyst, J.P. Morgan: Thank you, Jeremy. Following up on The CORE Strategy versus the measurable objectives under The CORE Strategy, after two quarters, what is tracking best and what is proving more challenging than expected? Thank you.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: I would say, Tomohiko, the best certainly is our organic growth. We are committing to kind of a 5% organic outgrowth of the market GDP, if you will, model, and we are pacing well ahead of that, and I think implied with our full year guidance, that holds. Certainly, as Jeremy just highlighted, that is the number one lever for us in terms of driving profitability and return metrics. So, I think when you look at roughly just over 100 basis points of expansion from operating income and EBITDA on an adjusted basis, we are pacing ahead of that as well, implied with our midpoints of our full-year guidance. So we feel great about our progress out of the gate, and now the challenge will be the sustainment of it. We really characterize this past second quarter as us completing that stabilization phase, and now it is growing on tougher comps.

That said, when we look at the second half, whether you measure it on a two-year or a three-year basis, we are actually accelerating our growth. We think the trajectory is there. Certainly, from an M&A perspective, that is a core part of our growth plan, and that is really going to be driven by our ability to delever and have our balance sheet in much better shape. Certainly, that also was a turning point in the second quarter with our adjusted net leverage getting down below 1.5x, which we said we want to operate kind of in that 1.5x-2.5x. So that gives us more optionality in our capital allocation moving forward, and we highlighted that on that prepared slide in our earnings material.

That debt paydown is now going to be deprioritized as we continue to look for opportunities to invest, whether it is with our share repurchase program and ourselves or outside M&A opportunities as well. But generally feeling really good about our early innings, two quarters out of 20 of our 2030 plan, ahead of plan.

Tom Sano, Analyst, J.P. Morgan: Thank you, Sean. Congrats on the quarter.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Thanks, Tomo.

Operator: Our next question, we will hear from Chris Moore with CJS Securities.

Chris Moore, Analyst, CJS Securities: Hey, good morning, guys. Thanks for taking a couple. China was one of the hardest hit geographies during COVID. It looks like currently seeing strength there, both in electronics and hydraulics, kind of finally getting back to where you were. The question really is, do you see China potentially as a nice growth driver from here?

Jeremy Evans, Executive Vice President, Chief Financial Officer, Helios Technologies: Hey, Chris, this is Jeremy. China, as well as the APAC market, but really driven by China, has been a bright spot for us, both in hydraulics and electronics. In electronics, we have the Joyonway business down there. That came through an acquisition, and we’ve really seen it over the last several quarters. The business increased the capabilities that we have. We have a great team down there, and the electronics management team is really executing well. When we look at hydraulics, there was some business shift middle of last year driven by the tariff escalation. Even beyond that, we’ve seen the business there grow. The business that we exited with Custom Fluidpower was primarily in APAC. When you strip that out, we’re seeing a really strong growth within hydraulics as well.

One of the dynamics that we see is that a lot of manufacturers and OEMs are moving manufacturing into China and exporting out of China into Europe. We’re seeing a little bit of that dynamic. We think that’s driving it, but also just having a strong presence there, a strong management team with solid execution. We think we’re growing with our customers there as well. It’s definitely a good market.

Chris Moore, Analyst, CJS Securities: Got it. Very helpful. Maybe just a couple more on data centers. As Sean said, it might be the biggest opportunity that sits in front of you right now. Hopeful for perhaps some orders in Q4. Just from a kind of cadence perspective, when you look at it would be, 2027 start to ramp revenue a little bit, 2028 probably where it gets more meaningful. Is that a fair way to look at it, or could there be big orders at some point in 2027? I’m just trying to understand how you’re thinking about it at this stage.

Jeremy Evans, Executive Vice President, Chief Financial Officer, Helios Technologies: Yeah. That’s how we’re looking at it internally. As we said, we don’t have anything in the 2026 outlook, but we would, again, be disappointed if we didn’t see orders come through. We’ve got a little bit of sales in our 2027 expectation with a gradual ramp from there. Obviously, one of the criteria is just getting qualified, if you will, by the large hyperscalers and some of the other customers in the market. We have been building prototypes and building some inventory. We’ve got product samples out with various customers now that are evaluating the products. It’s just the process that you have to go through. It’s very lengthy, but we would expect some sales in 2027, then in a gradual ramp outward.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: The other piece I’d add to that, Chris, is later this month, we’ve got some key internal meetings that will help us chart that plan out even further. In September, we’re going to have our grand opening of the aforementioned Toledo Faster facility. We’ve got some key customers coming and some key prospective customers, upcoming meetings that we’ll be able to put some good color around that later this year, and obviously as we guide into next year. Again, I’ll reiterate, it’s by far our largest opportunity in front of us, and it’s a little bit of our ability to scale with it because there’s such a shortage of couplings and quick disconnects within that market space. We’re pretty excited, obviously.

Chris Moore, Analyst, CJS Securities: Just a final one there. I know you have some out to hyperscalers. Ultimately, who are you selling to? Are you selling directly to hyperscalers? Are you selling through distributors? Are you selling through both channels?

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Mainly to integrators that are building the equipment, building the cooling racks. But to Jeremy’s point, the product needs to get validated by the hyperscaler. So we’ve got NDAs with multiple hyperscalers, and going through all of that process. But our sale will be to an integrator, typically.

Chris Moore, Analyst, CJS Securities: Yeah. Got it.

Jeremy Evans, Executive Vice President, Chief Financial Officer, Helios Technologies: Just to clarify, the comment about having product samples out, that’s not primarily focused on the hyperscalers. It’s other potential customers that we’re talking to.

Chris Moore, Analyst, CJS Securities: That makes sense. I’ll leave it there. Thanks, guys.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Thanks, Chris.

Operator: As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Next, we’ll hear from Nathan Jones with Stifel. Please go ahead.

Nathan Jones, Analyst, Stifel: Morning, everyone.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Hey, Nathan.

Nathan Jones, Analyst, Stifel: I’ll do one on data centers as well. Sean, you’ve been talking about this being the largest growth opportunity in front of Helios. Can you talk about what you think the addressable market is? You also mentioned that there’s a shortage of supply in here. Is there product differentiation where you think your product performs better than other products, or is that not necessary? It’s just you have to be qualified, you have to show you have a product that does the job here, and there’s so much demand that you’ll be able to gain share, I guess, that way.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Yeah. So we had, in terms of addressable market to start with, we did have a little bit in our investor day materials. But effectively, we see that opportunity for that data center space almost, or larger than our existing addressable markets when you look at ag and construction. So massive opportunity for us. But again, we’re entering later and having to displace either existing strong competitors, albeit competitors that we run up against and compete with and win against in other markets, or, as I mentioned, just the shortage in the market of having a quality product. Now, the differentiated product, what we’re best at and we feel really great about is our leakage rates. That’s super important in the data center application.

And so we’ve tested competitive product and feel very good about where ours stack up from a performance perspective, but also bringing some of the MultiFaster type technology to the market as well. So we’re going to continue to launch a series of products. We’ve announced some, but we will continue to do that, and believe we are positioned very well to capitalize on that. Otherwise, we wouldn’t be making the amount of investments we’ve made as well on that.

Nathan Jones, Analyst, Stifel: Thanks for that. I guess my follow-up question is going to be around capital allocation. Obviously, the balance sheet’s in really good shape now. So I guess one following up to Mig’s question on CapEx, forward 4.5% this year. What do you think the sustainable rate of CapEx is? Then I assume given some of the Investor Day targets, that we’re moving into a period where we’re going to see more M&A. Can you talk about what the strategic priorities for M&A are? What kind of size of deals you’re looking at? Any help you can give us there. Thanks.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Sure. So I’m going to just take the first part on the CapEx, and Jeremy will talk M&A as well. But first, yes, this year is a little bit higher from a percentage of sales or dollar perspective. We’re typically running anywhere from 3%-4%. The last couple years since I joined the company, there was no need to add capacity, and the opportunities for the growth at that point wasn’t about that. Now it’s a bit of, we’ve spent some capital on optimization, we’ve spent some capital on equipment, and we’re going to continue to do that to become more efficient in our plants that have the paybacks. But as we now see the growth returning, we’ll continue to optimize that footprint.

But we’re nowhere near needing significant capacity expansion as we can continue to grow likely about 50% of what our current sales are with our existing footprint. The other piece, though, that from a capital allocation and a CapEx perspective of how we are prioritizing and evaluating capital with the highest returns, you look at our hydraulics business and the significant uptick we’ve started to see and why we’ve raised our guidance, gives us a lot of confidence to continue to invest. We look at between Rick March’s MCT business, the legacy Sun Hydraulics business, and Matteo Arduini’s Faster business over in Italy. We really look at that NFPA data. We parse that with PMI industrial production all increasing, and so we need to be ready.

We can’t get back to the point where we’ve been in the past where we get behind on delivery dates, and we’re not hitting commitments and deadlines. We look at inventory levels, for instance, with the Sun distributors. We’ve seen that come down for four quarters in a row in a period when the market’s increasing. We know they’re at restocking levels. That’s a really good sign, and that’s coming through in the orders. What I’m weaving this back to, as we think about capital allocation priority, we’re going to invest in ourselves first here in the near term because we’re getting that growth. Back to Tomo’s question, we’re double the pace of what we committed to in our CORE Strategy, and if we can continue to do that, we see that as lower risk, higher probability of success than M&A.

That said, M&A is going to play a key part of our future growth because our strong cash flow generation continues to push our debt down and push our leverage ratio down, and we’re going to allocate capital adequately to drive shareholder returns. As we think about M&A and we gear up for more of it, Jeremy and I have not done one of those since we’ve been at Helios, and we’re thinking about it a lot different than it was done in the past, and we’ve had the opportunity to really assess. What we look at, though, is we really like the portfolio of what we have. Particularly the large companies that we bought are starting to really generate nice returns. As we go forward, I’ll pass it to Jeremy to talk more about our philosophy.

Jeremy Evans, Executive Vice President, Chief Financial Officer, Helios Technologies: Yeah. It’s really important is that we identify acquisition opportunities that really complement our existing portfolio. As Sean said, we’re really excited about what we have. The teams have been executing really well. You’ve heard us talk about our long-range planning process that we kicked off for the first time in 2024. In 2025, we used that time to really develop the CORE Strategy and come up with those financial targets that we set out for 2030. We’re heading into that same planning process this year, and M&A is going to be a big piece of that, talking through what are those white spaces that we want to address, what are those strategic areas that we believe we need to get into and accelerate growth. Some of it comes down to a build verse buy. What can we do internally? What can we accelerate if we go inorganically?

But also, what are some of those emerging trends that we’re seeing, and who are the companies and capabilities that can help us get there faster, but also in an accretive way? We’re going to take a very disciplined approach. It starts as we have done for the last two years, getting the management team together, really working through and aligning on the focus areas. From that will be a springboard into an execution.

Nathan Jones, Analyst, Stifel: Thanks for taking the questions.

Sean Bagan, President and Chief Executive Officer, Helios Technologies: Thanks, Nathan.

Operator: There are no further questions at this time. I would like to turn the floor back to Tania Almond for closing remarks.

Tania Almond, Vice President, Investor Relations and Corporate Communications, Helios Technologies: Great. Thank you, operator, and thanks everyone for joining us today. We hope you can enjoy the last few weeks of summer. We’ll be on the road and look forward to seeing many of you at the fall conference circuit. Please reach out to me if you have any follow-up questions, and have a great day.

Operator: Thank you. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time.