HLIO - Earnings call transcript Q1 2018 | Helios Technologies, Inc.

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Operator

Greetings, and welcome to the Sun Hydraulics Corporation First Quarter 2018 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Karen Howard, Investor Relations for Sun Hydraulics. Please proceed.

Karen Howard

Thank you, Madel, and good morning, everyone. time call. our your financial quarter appreciate conference results certainly today first for XXXX We

line me our the the release Executive Wolfgang On distributed with Tricia results Officer; and our and market in and Chief that President after were Tricia the be yesterday's Fulton, will Chief published Officer. are Financial reviewing Wolfgang press Dangel, close.

that our website If on you at available do release, it's not have www.sunhydraulics.com.

there that will our also will find slides You discussion accompany today.

X, you'll the to you Slide harbor deck If our slide statement. find on look safe

may be documents with call, our are results during also which well to as the to you point differ to These useful provided discuss and These Exchange during aware, As subject some in filed documents we where that want uncertainties actual uncertainties and risks apply forward-looking the by this performance. our These the as be factors materially financial from non-GAAP will other believe earnings some statements in and other will future we statements today. also are other and make events factors that presentation we are that release the and today's are risks cause Q&A. www.sec.gov. during I Securities as out or at well can found company we to as measures, Commission. evaluating website at could

GAAP. in with this in or isolation accordance substitute information results presentation additional should not consider prepared of the You as a for

with some as before the his our and back that, tables Wolfgang turn results, it's it pleasure as the Tricia slides. We introduce highlights And my accompany questions have in provided reconciliations release with to Wolfgang. we'll the outlook Wolfgang up go perspective and for to through details quarter. open get for in answers. line of now comparable of and our financial on we then well for started will will that measures GAAP today's earnings non-GAAP the the

Wolfgang Dangel

Slide to Please Good Thank you, everyone. X. Karen. turn morning,

We very in start first in XXXX. due was although solid by were are generally with operationally off line internal segment Driven chain our expectations, demand, challenged results supply Hydraulics to strong our to constraints. a quarter our

Given second are we margin in some quarter. taken, already improvements thus the far actions we've seeing

reporting progress solid to our I'll importantly, get Vision addition more into we a to continue results, make financial moment. even on In more that in significant XXXX.

the all Let growth. me is then Tricia for start details. provide $XX This results increased highlighting some over will quarter, with by organic XX% financial the Sales to more and million.

experienced Hydraulics segment and Hydraulics further hadn't growth Our constraints, chain XX%. higher. touch I'll we XX% moment. would our grew have in If supply been that Electronics grew a on

excluding For income of items the million. After you, XX% quarter, will non-GAAP increase. net an reported net review income Tricia was adjusted $XX.X with million, $XX.X we that our

a were million, for and our XX% over representing EBITDA by to chain Our due constraints $XX impacted products Again, services. to results these adjusted supply grew margin. strong demand

As early we you know, net. equity raised markets $XXX the million in successfully late and and capital February, about accessed January

definitive quarter. our and agreement April. mid-February, in we acquisition closed also to we see that those additional a shares you the proceeds That announced first signed into So Group. acquire Faster flow In early

our So the fund all of cash equity proceeds offering, do quarter used We to not funds the and acquisition. of yet that include our Faster. first from existing credit results amended facility

These solutions, in outside is XXXX. and Italy, known coupling us, markets along very high-quality, excellent strategic very Headquartered a brand The macroeconomic This are ahead to is and cartridge two Europe Group to Faster a customer Group our driving growth Faster growing is entering number market high-performance to share, products globally. of well. As Similar Sun, one is global gain service. important acquisition, of trends. moving valves is which market, complementing Faster factors hydraulic our reminder, brings manifolds agriculture global its some Milan, very existing differentiating Faster Vision leader Faster us and end a and quick-release hydraulic for transformational particularly further number the a cycle.

maintaining already activities. Faster our first a have we businesses, of begun Last week, Faster the sales teams colleagues. with the and financing amongst opportunities. session the CVT our and costs held To and in synergy margin further at existing the our updated I around remainder excitement operating We the along include integration you from of quarter. lot will for year, on Electronics will There's of working the I the Group XXXX first range. which address turn end we our to revenue includes our Slide the of our have increasing XXXX our and guidance, X, presentation. update some Please range this adjusted activities the strategic

to our application investments sales penetrate are been we our organic to interaction These ongoing. include have drive the in field support First, white where historically specialists expanding and space underrepresented. customer

of For sales and adding channel America. and and partners are process example, Asia engineering Southeast in application we India adding are specialists in Latin talent and in

for and electrohydraulic sector The up comparable market. is offering, within augment opening X our our cartridge that hydraulic Recall we program valves over in Within outperform next product Additionally, are products in several aggressively us. our to product of next Technologies FLeX quarters. this our to the applications is Controls new Phases decade working segment, through XXXX, Power offering. Vehicle then and market largest We valves new new launch teams in of which Phase we both launch product FLeX the represents X markets X products for distribution helping create with introduced development our phases now organic new our QX a fastest-growing Sun product new Hydraulics driving this our and customers our customers. the with important nearly in growth development standardize X growth. opportunities, to Within are designed joint drive product these development These we business. includes segment, our solving business Electronics and are and product problems of the

CVT initiative processes, which working consolidate operation on into our LEAN have manufacturing the will the side; housed in enterprise the Sarasota improve drive begun our turn in currently we Accordingly, capacity. been and On two. increase we facilities process our profitability to very diligently three to have

expect third will free of consolidation improve This R&D complete in to with and flow additionally facility the and CVT alignment in up be the manufacturing to facilities early become the principles We engineering LEAN hub. global XXXX. our

with upgrading the We will new expected of throughout The our project currently be our the end flexibility development completion ongoing lab that be to testing to activities. support enhancing year. lab, XXXX, by upgrade product will

a To pressured moment CVT ago, with mentioned well capacity, delivery our on-time issue, chain negotiated were constraints first results supply quarter long-term agreements agreements this and largest I suppliers. by As These we customer as since Hydraulics our component our was strong. as pricing. alleviate segment address quality demand

delivery, Enovation that in improvements on production is million Controls which efficient floor leads recall to seeing in With our $X already respect more well synergies; EBITDA as as to times. flow lead are We our best-in-industry our XXXX. support on-time of our beginning target annually

are completed be cost Enovation already and schedule. Oklahoma. cost annual XXXX, underway our Controls ahead realizing The synergies of on included have will as realized synergies California begun formerly XXXX track the we of The guidance. in And in our which savings our well savings in are into have We sales with the original merging activities, HCT from remaining projections. activities from

warehousing 'in expect in Korea of this commencement new location at and third new the facility continues quarter of the we Next, plan, engineering, and of South on sales our manufacturing, the activities in our with construction year. and region our We the in up to the in initiative. we Pacific alignment forward significant look it growth support the having region' for the Asia to running realizing are region,

for map which post-merger Group, completed will business. Finally, integration road we of a have stand-alone remain the Faster

have successful same integration we areas and Electronics. of CVT with the of We with identified activities Enovation focused Controls. designated is took This the approach joint

pursuit profitability results detail. All Vision include of in goals, call establishing $X I while critical financial will and for in turn that maintaining With overview, XXXX more in to of the at financial quarter the these a strength. which activities now superior over to bit are the billion revenue Tricia review mass our

Tricia Fulton

Thank and you, good everyone. morning, Wolfgang,

first quarter consolidated results. on begin with review Slide of a Let's X our

XX% so million, had This immaterial all not impact last $XX do were comparability. year's the to on sales quarter growth. organic compared pricing our First products an have increases, up price Most of is quarter. any

had quarter. million $X.X a favorable the translation impact currency for Foreign

I the sales in excluding the of table growth, currency, impact the on here press as the summarizing a information. charts. of in is the touch now this sales designated XX.X%. There will well release is a So bar slides which are region, back supplemental as the by

and total. all APAC noted, the of sales markets year-over-year of million, the XX% In sales were Americas growth previously geographic growth. EMEA up to million. As first quarter XX% $XX.X XX% over the to to XX% resulting $XX.X to million, in consolidated the $XX.X considerable up realized realized region of XXXX was market we Americas,

sales products, which market in and application share we've new marketing, in of additional we are excess driving in the know, you market that As are believe economic sales including made expansion. introduced field gains investments and specialists

slides. began margin costs quarter material costs, XXXX. a including consolidated or our get as sales. by million certain our I'll in level, first by and was of fourth those gross the was more XX% our high supply upcoming review of the comparison we profitability, up $XX.X results. was gross adjusted But at that higher over Regarding to slightly last segment quarter chain some results constraints, on operational of EBITDA into impacted year's The margin this pressured

XX.X XX, bottom EBITDA of to million. remind that items was want of increased attention results here. that basis. earnings to adjusted was to also to per out reconciliations shares the secondary the like April of but adjusted X% quarter. adjusted our tables back consolidated reporting non-GAAP quarter last number outstanding point GAAP the press slides over purposes Please I that bring our XXXX, refer as of adjusted wanted your line; offering, earnings we impacted that outstanding net in shown up of few up our our numbers. added to due back about XX%, Turning or to a impacting for first the $X.XX, were our and to average our to you EPS share on release for the shares I and per-share during I'd year's income

signed acquire currency Faster charge Controls in interest we the with entered first exchange acquisition. $XXX,XXX euro contracts on in the $X.X we contingent value into quarter XXXX, to realized the foreign of incurred with associated on $XXX,XXX incurred financing recorded Faster restructuring acquiring Faster a $XXX,XXX associated charges we the finally, related of Group; next, we next, agreement change Enovation and the that rate; the lock-in fair During conjunction when we with to following: forward first, in reorganization legal acquisition; the we to a the consideration million the in charge about associated with costs

non-GAAP to market for $XX $X.X back margin the the expansion. Enovation Gross growth XXXX, continuing increased During XX% $XX the the for increased declined and region, X% had related broad of $XXX,XXX as strength XX% grew turn and in Controls market the a basis year. Hydraulics products to associated our following the well an for gross acquisition; XX% quarter in penetration we our of valuation by to of costs, we higher growth we charge which but Controls. growth sales, by acquiring XXX year-over-year saw added trend APAC by saw Slide economic We amortization Americas growth and quarter recorded to review inventory region, for X segment Enovation as the of purposes. new on a was points XX.X%. X% million last to region. first We The driven the operating costs in APAC incurred the profit EMEA particular we adjustment results. with Sales with million in million Please the

reconcile that margin. in XX.X% next Operating We $XX.X million income X% declined on change will detail or slide. to the operating

to XX% XXXX. cost which $XXX,XXX will that in the first lead similar incremental Increases quarter further covering margin. the best In Gross This increase well price organization. costs points adjusting of and or in with that change X.X we of points the labor segment. engineering were $X.X significant for margin percentage our These as $X.X Incremental reconcile professional or QX profit and a to $XX.X gross margin about of these for initiatives infrastructure in to costs maintain X.X the sales. compared the for $XXX,XXX in to material with the quarter, to sales a was from points the expenses, to R&D industry and $XXX,XXX the XX.X% higher fees up X first quarter and XXXX we turn effective margin. grew of costs or administrative X.X addition fourth growing to to premium first times. or marketing gross percentage million to $X.X freight profit million improvements SEA, we a and of experienced pressures, were do will demand was our reflects costs that in of million Please of XXXX freight about quarter planned prior Hydraulics operational support in the to the of started XXXX customer start and try XXXX. to and determined administrative isolated contract selling, from in keep as first million labor volume, QX improve After third-party due year. first Slide Recall in have incurred XXXX first Interim of in for or we or quarter for I of amounted increases. quarter to paid quarter X, demand, improved the percentage our July that again increases

some use this temporary and labor X.X costs not percentage in We have well costs type inefficiencies the and $XXX,XXX of amounted chain overtime of repeat with adjustments. includes about resulting so supply already as This to points discontinued calculated the of that constraints as associated these margin. quarter. labor, or We will second inventory

mentioned, which positive supply the efficiency. into starting we has our improved benefits to Wolfgang we're already had suppliers, reap the on during contracts quarter As entered are as impact deliveries seeing long-term our from a

sales in our the normal the that quarter gross and $XXX,XXX other offsetting currency dollar. U.S. quarter, points by incentives margin we currency margins on to offset The sales. Finally, total first impacted basis costs, due or primarily realize percentage incremental labor, did varying and mix effect logistics foreign There realized leverage such the points. efficiencies weaker favorable XXXX were during XXX interim as material X.X of fluctuations, the production of

forward and The material types of the throughout periods. to costs as not second future quarter, costs to will reduce look seeing year, continue. the but improvements, as we gradually of continue already the we not As will inflationary X production logistics impacts. go but some are in labor isolated will here of these some because The costs inefficiencies will interim well

quarters. business, the So all continue about in we in second and impact margin all, organic of estimate we that that for first our realized in half will the the quarter third

X. fourth price the realize net the at a turn quarter the to take year quarter Power operating This Electronics end to half be effect cut of approximately X.X% the increased will timing as XX% expect the in Revenue We And impact for in results. QX over was additional demand margin X% by Please CVT driven review the result. again quarter. sales segment mid-year, to July first recreational $XX our X a given and first last and nearly grew for ongoing million. of Controls markets. Slide of increase on The QX to increase we in to expect in

to Enovation for to increased first that from offset Controls. sales In from reconcile and 'XX. operating will margin growth. strategy, gross SEA the we of in after year our the the XX.X% after initiatives selling profit margin. quarter delivery will past continuing margin in developed higher also are million an to is grew higher higher gross with Also, for I in quarter segment, costs, $XX.X for costs detail in volumes. quarter addition, first Operating of cost approximately points $X.X by cost the to majority million, at rebates well points freight of a the XX% determined the contributed the or to for quarter in yielding Electronics Gross The were product generally or $XX.X the first Gross XX.X% first compared the reflecting significant with $XXX,XXX content, due improving. of change of change segment. $X.X these expenses mechanical performance mix turn versus million, volume, as initiatives in planned higher Hydraulics the which new sales. content support investments first costs improve segment $XXX,XXX, quarter XXXX percentage for margin to growth with proactive XXXX next incurred of and sales demand. I of grew in quarter are cost business material XX.X% over for freight consolidating to that $X.X XXXX slide. Slide The higher Similar as margin or into savings marketing X.X volume, of XX% to XXXX customer X.X on increased in R&D products in million, income to we percentage over adjusting million electronic due demand XXXX the supplier first we of of partially QX and our higher as profit was of incurred of HCT incremental adjusting XX.X%. the the higher XX and to Please reconcile incremental

active to have pricing and in secure We with going suppliers steady forward. supply been key negotiations competitive

incurred also in XXXX of line We we about about expectation. half fourth realized higher-than-normal quarter of of scrap, what the and with $XXX,XXX our in

leverage Finally, sales. XXX fluctuations, midst such mix we and sales costs we incremental process. quarter efficiency, favorable in our items The to basis XXXX as impacted as of last offset effect due three on of of points. realized net royalties year the that gross were $XXX,XXX these calculated the were the There varying margins carve-out by other improved first approximately the normal

quarter, look of these we cost of improvements, types As some some are will the but continue. second forward we to seeing already

Group Please of each of the $XX.X our for and about XXXX. view quarter the of to as we which on remaining XXXX, continue Faster XXXX, net in driven acquisition, first cash flow that quarters realized with of margin This increase structure. activities the cash expect we in impact is XX quarter, operating review half before XXXX. March income. capital XX% financing of Slide in April occurred will In of turn We with XX, from $XX.X the a generated million X, first compared higher by the million

with was are was of the as proceeds which XXXX, an pleased percent the We of our We from our Total debt cash. cash that for anticipation offering a cash million of equity at large proceeds. equity $XXX,XXX quarter. million achieved sales increase target at quarter to our finished consolidated XXXX, we due XX, XX.X% on $XXX The operating XX, acquisition December offering, received our done of upon application of March target. down is in from closing $XXX

of the net Faster is adjusted million, completion and Following about debt representing $XXX acquisition, EBITDA trailing $XXX Group a X.Xx multiple. approximately is XX-month million,

Given level like a aggressively our your combined updated turn for it and manageable we during to repaying on Q&A. is flow lines to before open the cash and strong we the organization, of begin very Wolfgang, our guidance this XXXX. you it believe I'd for back outlook perspective we'll

Wolfgang Dangel

are turn Leading Thanks, Tricia. XX. to signal XXXX. Please ongoing Sun Slide through to growth continue indicators to important that

to China, continue but rate than we production accelerate phase, in into growing and U.S. XXXX are growing growth U.S. expected to accelerating production expected fourth India the a a quarter currently is XXXX. Eastern then major industrial rates. total as Mexico. continue at XXXX. example, the accelerating This growing and manufacturing in at and of at Brazil. and continue are in production throughout Economies XXXX, For third All is progress rate. in a are economies slower to Mexico's expected Western also growth Canada, global quarter, growth but U.S. slower regions those mining except Europe, includes

resume the North in sectors growth of Year-over-year especially a look recession sector, grow cartridge the in with across our to construction truck fastest and is warehousing market. the Leading Currently, of most U.S. the the XXXX, valves sector construction XXXX, status XXXX. most American Capital important manufacturing expansion in in the expected XXXX. heavy-duty goods through expected to rates. As machinery growth are of to anticipated point expected construction. indicators is to building are we to at mild

electronics Finally, the to in U.S. to XXXX. point continue growth business indicators

material economic to and increase making XX for solutions. and we regions Important XXXX driven handling where note, new accordance white this products to and continue in is our seen, general Slide regarding Please macroeconomic benefiting we turn our innovative is applications. This to we with field, growth. and current in have introduce penetrate activity coverage outpace us to broaden we to industrial expand given by you concentrations and Vision outlook the expect are OEMs, for relationships stated being our our investments the have As with thoughts our have in space plan Sun.

our you in driving as continue backlog expectations CVT necessary are investments profitability and burdened result will effect growth our that and with standpoint, and offset growth businesses, years, support our that remind visibility us the will the From three mentioned, for into Tricia cost been organization. as while a certain confidence especially we expect which I our the our quarter, beginning with. for line taken. we initiatives third organic in Further, actions give are in cost providing pressures for second of quarters. to have manufacturing a Regarding in we quarter, our accordance and strategy our take demand it want remainder strong third the top of our the are second will is our increase, the continue growing inflation have they in first and SEA price of as will they declining year,

in Controls for I the CVT business, our this the may fourth may marketplace. historic given point out be year Finally, our from that quarter. the and we seeing weakest the are not CVT businesses seasonally Enovation demand This are Sun case Sun

XXXX. historical resulting Prior acquisition. first we ratio of guidance year with prior what where about February, this is on of stronger XXXX have proceed anticipate and the XX modestly when likely a EBITDA guidance experienced see an quarter, our provided we by this to USD over XX%. first Please closed in April million in on XX; of revenue today, XX% business updated Regarding guidance in Faster, the growth quarter we case that the the acquisition. the XX:XX. second generating to in prior for we of their half closing Faster pattern Slide be updated margin than our X about Faster on half was in which beginning Their our XXXX acquisition, will to Based we we XXXX about year is the included the compared

We and now for get organic This reported $XXX between $XXX revenue quarters includes of are revenue this expecting it between and year, million to and million amounts remaining Faster segment. XX%. $XXX will million of Accordingly, consolidated $XXX for growth the the XX% million. three within our Hydraulics to

our for between revenue business and expect between grow and business revenue Electronics XX% Hydraulics for grow We will XX%. X% organic and XX%, will our

operating currently are our consolidated XX%. to at adjusted We maintaining margin XX.X%

our to superior an adjustment in Group quarter. exclude to this reporting discussed excludes exhibits for commitment will earlier the step-up current methodology, we believe companies. inventory amortization comparison the second range acquisition-related Following intangibles profitability and of margin Faster incorporates diversified other We our pressures which and in that industrial gross

reflects as guidance, shown of the the expense financing interest Our here, acquisition. Faster

Our is effective estimate rate unchanged. tax

Finally, increased open for depreciation questions Faster the capital our report. we up answers. With of have and based on purchase include impact latest to that, and and let's the guidance amortization expenditures, lines our valuation accounting

Operator

from with line of first Instructions] William Brian [Operator The question the comes Blair. Drab

Brian Drab

change the in $XXX clear midpoint, to business be due acquisition? outlook? million core there the question, first any the guidance, raise exclusively is Or just the that So on the is at to Faster

Tricia Fulton

-- a business. specifically, outlook There includes small an the both for have on core the Electronics small Faster to was a it increase Hydraulics organic segment, side. on increase plus the Hydraulics. did increase We for or in But the traditional the business

Brian Drab

and the I detail XX% Tricia, put first pressure, -- quantified dynamics. the points that you the by again, a you in in Like, for think, ratios reduced then pressure you us give summarize quarter -- then of give of of quarter basis in you again. And the x margin the the get you in Can great then, in saw us, just said slides you lot expecting? around that impact the a Can XX% you're again periods? And it you what would segment, had those that if the the improvement points first in and maybe was again quarter? then, just can gross basis

Tricia Fulton

Yes.

it for the was on So additional points Hydraulics costs basis the segment, the XXX in bridge.

take of half bridge of QX, that the and in again on expect then Hydraulics that in QX you all of QX to we items if in have So total; to have and side. half QX, the the for

On QX the the through Electronics to into you QX. basis items side, And points. flow if half in expect the about take bridge items have the those of we in are about bridge, XXX and the all QX,

Brian Drab

anything It reaccelerate? Europe? And then, one. among the more just FX? was growth last FX a Is could the to What detail to seems you one in And In was in basis. EMEA, growth that be excluding And there relatively consolidated discuss had on there? XX% impact what slower growth your geographies.

Tricia Fulton

pound. Almost quarter, $X.X on the to the the all weaker dollar the the euro was we effect to a and quoted, that the of million of FX result

which you're there. almost base all of if further, little So a we're at currencies that Europe, seeing does in that XX% looking the effect reduce

Brian Drab

to I should than wrong Europe growth, just in that I that was a consider on even geographies? Or little of some Am other growth bit weaker an still that, solid organic think basis? the

Wolfgang Dangel

that, be Pacific. we do Asia growth. very very as would on based it growth -- we still comparisons, Obviously, as in in and Brian, EMEA. see We solid it's But solid to exceptional not consider still benchmarks

Brian Drab

that's to moment? at in different unusual nothing highlight the Europe or market-wise But end or competitively

Wolfgang Dangel

stage. at Nothing this to highlight

Operator

The Brady Humphrey. comes Robinson from Charley next with question SunTrust

Charles Brady

the a Electronics, it just curious, it for in allow the don't Is on function Just didn't guess, -- reason also, guess, understand and that? on a dynamics I margin Electronics impacted what's just I the price that I I just the sounds going -- as mix though I'm there's increase behind little wanted there? of quarter. market in the to issue could you better no And

Wolfgang Dangel

Yes.

So Charley, OEM to a is and all, tied degree first course, side, of of OEMs of on commitments. to the higher business Electronics

main we and the on difficult components. there. well. is line new. it is and And towards are it to pass just look an It's what electronic, in at last shift more is commodity electronic obviously, So as mechanical what ongoing we year perspective, already with your reason. from But an second any if that's have question, internal much ongoing That's price we making then been nothing to seeing observations just increases

Charles Brady

on you specialists where And kind you're added, then, little expect the just to comment to that where at a bit of by you you've get more year-end? can that today, application

Wolfgang Dangel

Yes.

at we earlier specialists out added we as pointed the on. So India, of beginning particularly in the year,

We process are Southeast of Latin in and in in Asia adding people America.

that's specialists, appointing with in try do channel also application partners. conjunction, Charley, always So to new the we but that

we As in we wanted coverage. have and out spots to have white just now, on geographies we better numerous just pointed have these designated mentioned occasions, a those

regard to with in of But will the adding cautious be cautiously SEA that expenses second white we some in consideration do probably some So of more we people question, to a want those and developments, spots. manner. in

Charles Brady

me. then, one And a just final from

of Just you to seasonality color XX.X%. -- and that's little rate Faster full growth kind annualized I on for guess, expected get over when was made basis year the the the helpful -- think QX, talked announcement a and Is in I Faster kind company, rate there. your still on basis? XX%, the a the about expectation that you the growth acquire of all-in full an to year is that

Tricia Fulton

end least the $XXX the remaining gave million. of that in basis, a three to million top year at for quarters, $XXX We're range on full still that those Yes. range we at

first quarter, to in at factor $XXX million XX.X%. the about you we're of with that range If XX% the

Operator

KeyBanc. next comes with The from question Jeff Hammond

Jeffrey Hammond

Can on on I or don't talk improvements. in or linger the these appreciate of are Tricia, you perspective, risks color, the 'XX? segments they extent just and big the from kind that So your costs to about, the bridge the what of all push improve into each they the

Tricia Fulton

levels Yes, I We're efficiencies being cover us it's that probably ramp any the and think on slower come the production but of biggest diligently, working certainly little than from demand to able process a the pressures like. of bit improving we're seeing. that would very to up

helping issues that come planning we're is efficient there that those. that suppliers but we're of along material that do both the and You can't are the the we Bringing inherent agreements with have in flow critical also demand to sure the complain really levels make online them seeing, their getting segments. with some about

Wolfgang Dangel

specifically. that risk your to one increase course, Jeff, question -- were factor system. were think, there might very to further demand of increase, If onto pressure the be to I additional answer put, additional would

be well. a be risk. factor see as a risk could Right we that a is could pointed out, risk that, there. potential don't that now as but It we So

Operator

with The next Mig Robert question comes from Baird. Dobre

Mig Dobre

discussion so I'm for this to the segment? 'XX, the at I'm asking in you're margin. -- for the when see in not gross to want for the some full Electronics looking margin how help. full embedded you What's When guidance through, to to guidance go I each I'm this would your and Hydraulics, trying year guess, for Trish, year? both are here your to quick and I do and surrounding the gross enough, is try -- math incorporate flow back year how thinking

Tricia Fulton

gross For margins?

Mig Dobre

Yes, Yes. us you've the... given because

Tricia Fulton

we to gross guide seeing costs percentages. operating color we're give we've specifically margin Yes, gross that from to around and margins Yes. tried don't coming the these That's the in. to profit some guided changes why

Mig Dobre

I'm on I'm expenses, beyond higher -- I've of my that inefficiencies, could here's go in at year Because got. commentary going basically to has assumption these margins back for time with we to these When Right. And exactly not. they be guidance, challenge maybe margin segments. margins SG&A-type as down looks having inefficiencies incremental the be It Apparently of margins, a that going so if gross to and correct, acting the get initial were your to flat a full operating bit year. me given that's like that away Well, potentially the your able right? was QX to some they're operating looking year. progresses to drags what's the how to your understanding hard of half the incremental get in both

you how an your the full So got for margin guidance? really understand I'm numbers trying of to year operating on kind to

Tricia Fulton

ended guide specifically. gross number we are to to perspective, up But, So, to margin year. that on aren't QX the that, bit going based full again, where from on yes, we a say I can from we that for forecasting a a be

Mig Dobre

prior versus the the in year back you're year-over-year up to in say? But Is segments. to going margin-wise gross half, both be fair that

Tricia Fulton

where see and expectations going bit QX from you're to QX. revenue a segments QX probably of and margins say are in QX maybe would higher the I because So both

around recall, might in you margin As most the as Electronics lower holidays. QX is quarter pressures well as what for seasonally a business, we people see so QX see do

QX, a QX. -- would increased say perspective, the would revenue, see the given increases I and flow So probably over QX in from

Mig Dobre

a be gross though to substantial seasonally XQ they to that I -- in the are, with in margin should and low Electronics way we the dead volume, at say remember an beating the gross things even basis year-over-year that pretty in had keep though incremental It's quarter? looking a in fourth Electronics, horse, the In unusually on this are in Electronics increase sorry we 'XX I'm but margin. fair

Tricia Fulton

that's Yes, statement. a fair

Wolfgang Dangel

Quarter-over-quarter, that's correct, Mig.

for 'XX that's QX 'XX If you with Electronics, compare QX correct.

Mig Dobre

Correct.

in but gross So quarter, up what you're saying is to is, down the margin it year-over-year. will going fourth sequentially, substantially be be

Okay.

Tricia Fulton

Correct.

Wolfgang Dangel

Right.

Mig Dobre

to pricing. a want bit little maybe also about I talk

that offsetting we the into idea? source upside 'XX? Is be you a to to done going potential from You talked as taken pricing of headwinds are Hydraulics these be basically described what is bit other the it seems in this a be and I years approach and 'XX deal you look supposed increase, to knew your pricing Is material all price prior. about this that price how with Or margin versus this into with a approach, you've is especially a costs way -- How traditionally? used of increase? different here you what on like

Wolfgang Dangel

basically with earlier So and price X, compensate just at as here we the on increase, we on of the outlined that were Mig, introduction -- inflationary July see. will looking we 'XX pressures for

QX will XXXX, QX. that So and compensate for for

also anyhow at for we stage. this different know I this develop careful here. at I pricing we will to and don't make seeing be XXXX want commodity here, we assumptions stage how because any have think trends don't to are mean, we

influence If in and latest situation it gas, look would oil the you again. that at heavily

So for the QX will QX. your question, operations pressure cover inflationary increase, price see answer in and to we the

Mig Dobre

outlook impact I'm comment, behind And but XXXX? related you're way that. I'm the And then, back your is I be Sun thinking is an I define -- what to U.S. that outlook, manufacturing, get in weaker on And potentially what queue, on about understood. depending before you into wondering potentially Wolfgang, Hydraulics get wondering on queue XXXX. this the the Okay, into what spoke in you -- the it manufacturing

Wolfgang Dangel

Yes.

is, basically that machinery, some first and such. a at then as see So at XXXX. production, looking the analysis machinery, all, I'm specific if more softening serve, of industrial what I'm And trend we at look latest economic of I we markets obviously the looking end U.S. industrial there, construction in

So that's diversified I this will How more three we the impact meantime, four statement are where much ago. in us? years derives. or than we think the were

and the I more out to tied market the we because But end production, see to impact sectors. that industrial resulting on obviously So an have revenue and construction if With don't we it comfortable of true, are industrial only anything feel that industrial U.S. XXXX, machinery regard would serving more this much in markets is nevertheless, Mig, production. in else became

and information Canada, on next trend the Europe the have the are Eastern I we also Europe for Western analysis down hand. at based industrial for numbers on think production and least Brazil, year,

Mig Dobre

maybe If Okay, cycles, mind, the how prior in that control weaker? it order was out and your I say and demand is to that are you now business lot understand. think that of I'll squeeze you a don't environment an manage do I 'XX into maybe know, costs little a things in where, plays your is the forecast within in can about different do some than one more in -- with here. bit

Wolfgang Dangel

to tremendous here now system. temporary a have flexibility. the compared the in workforce, I you think workforce still have Also, know, past, certain as of creates the so that we is portion we a some flexibility

we the question now be adding additional out towards little keeping probably pointed I field, we'll a little XXXX, cautious, cautious to and still with more booming said on Having As hiring. creating earlier the Asia in where a I in application tons we developments to one of region. eye the certain on bit bit that, probably all pay an more terms are have to already specialists still that last Pacific geographies think least, of are in not but opportunities, attention still

the for want we up on have threating in hold that to we answer to in are be core question, softening have system have I over taking. want the building to of down competence in So company to flexibility we without enough, last our we early the kind very the we obviously hunker to we that prepare been because, a But years. the your approach successfully selective and I mean, competence think

Operator

Nathan comes question next The from with Jones Stifel.

Nathan Jones

been little I'm the and five have ITR they'll I about recession suppose so different predicting think last of at Hydraulics back I next way eventually. a year bit margin this a here. for to a get be years, going the to gross come right

-- have quarter. were headwinds have you XXX of here in the points basis outside You currency, that

currency that one's bit for impact That is imagine rates. assuming a I on, Now grabs. flat little going we would to lessen as go up

no XQ. half half then increases, going you're headwind the in have the to say price have you'll with you in If XQ headwind

basis get a quarter positive have then that before with if of that and you even half If mix, increase, halve headwind have to XXX in those headwinds fourth tailwinds just year-over-year, the comparison headwinds points be the to you quarter positive in you more incentives, then on wouldn't and would XXX volume sales XQ, in the those and price again? you third

Tricia Fulton

ahead always is the of increase a give the increase that trying to could still But a the the roll-through looking at guidance in have placed those on. of the -- little the of -- that are a QX, bit price any That there in we're are things first pricing. that control period the bridge, be old we're that in specifically quarter orders are because price estimate and we in at and costs

understand we're we'll the we fourth the little that as So well. a in third pricing yes, And effect see quarter. make probably that to the sure quarter in that bit you're right. trying than of in third But quarter more effect

as we change the comps through FX the quarters. work lessen right because the that You're also will

Nathan Jones

uncertain fourth whether negative but or positive the positive a third the then? little quarter it's on be So should maybe more in quarter, by

Tricia Fulton

When say mean? positive, do you what you

Wolfgang Dangel

comparison. Quarter-to-quarter

Nathan Jones

at on what for margins, compensating those price looking with versus Positive drags price on there? you're

Tricia Fulton

statement. fair a that's Yes, Yes.

Nathan Jones

are? a care on not a us largely to you've both could taken at I supply of negotiated give constraints what chain suppliers supply the sure little you the Can Just maybe of Electronics this point. can the lot constraints? How about make reliable but you maybe line so to, to like in color supply give And you that you've a It the in of more that sounds on us any there? color chain Hydraulics, chain with talk get in of front much got source inefficiencies segments. supply guess, you've

Wolfgang Dangel

I as Nathan. electronics sure, so all, at we of Yes, mean, such, you follows. the it first industry if analyze as look

And us. obviously, PCBs, we those growth and continuous heavily for in for still we then growth semiconductor for influencing circuit and trends see services very see So manufacturing printed board, the industry. strong the electronic are

with the So and some we see key there resistors, for increases commodity of chips silicon suppliers capacitors, so forth. price ceramic

So into the creeping system. that is

booming the OEMs, are to certain earlier we business to previous all, we supply that, steady basis always into firm arrangements with questions, majority time, are reply the all guaranteed commodity said suppliers no I first to a so supply type our in as Having on in price -- of of is do on, base. we period secure, supply, on over pricing customer this of as a because ongoing embedded the with to order adequate. have obviously pass an mentioned As environment, opportunity not we negotiating that increases of these it's

as we are that that far we as more so pricing competitive supply is So security planning steady concerned. as as well negotiating have

Nathan Jones

in in reliable supply your anticipate the particularly could disruptions problems? in Do into the the having cause chain QX? all the XQ whole that moment it guess, it's segment any supply having Electronics Did not at time? revenue I at you impact

Wolfgang Dangel

just that's I the and absorbing more pressurized. No. mean, -- mean but it's -- it's of been issues I internal growth.

QX again out, Electronics business year. grew pointed over the last in mean, we XX% As I QX

no, year. just that's So we the growth of XX% in your pressure question, But issue, the are last growth again, not answer is obviously. seeing all after here system there tremendous to but

Operator

& Company. The next question with Joe comes from Sidoti Mondillo

Joseph Mondillo

to raw wondering on increase. pricing sort also have in of follow situation. I'm or prices the a lot of the -- just material that sort price you the I increases July companies how second quarter, to in headwind the more headwinds first as quarter But wanted bit does in see little the where of compared not to why starting more a are become just A of second considering quarter? up

Wolfgang Dangel

We don't see the additional headwind quarter. in second

Joe. we think QX, of seen have in headwind I the already brunt

Joseph Mondillo

continuing raw So have all of do to rise. been that? these sort materials Why you say

Wolfgang Dangel

already that prices I mean, of locked we we as in because, least, our we a passed these portion pretty And -- were side, are pricing. on. Well with pointed Hydraulics much the on long-term have at then with negotiated, out, suppliers agreements --

we place. there have in guarantee a So

headwind in see or why additional So don't we QX QX. that's

Joseph Mondillo

rate, The SG&A cautious little just growth I specialists. on mean, the application run sounded of more investments, XQ you terms a in wondering

But that where Just wondering throughout no. the to relative run of does and, that's rate, to at I'm looking of fall of XXXX, sort SG&A wondering guessing any sort the if of into stable be terms any that? just off? sort XQ does of of year that going we're investments, in

Tricia Fulton

sense. because being we where we're making, of even cautious, investments though investments know are we're Well, we makes we're -- that the still making it

line. on increase rate run some see will We the SEA

Joseph Mondillo

of second continue Or to increases in that increase in the so going half quarter to through -- And that and the is back the maybe year? the into plateaus XXXX?

Tricia Fulton

we could we're taking. lump the but going sum we because will not up regions some be sure in that Vision work It's we're big to steadily we need growth because applied, the just make there increase trying all XXXX. that certainly we are to approach the of it creep prepared think see I for as that of toward

Joseph Mondillo

seems essentially relative was bit like relative the growth conservative the saw to you of in quarter. low seems strong quarter expectations. then, maybe pretty it And Faster the to the first that first guide the end And revenue a

that. conservative Is there's and maybe Just Just guidance. end thoughts that that your wondering of Faster on the low about sort upside? guide wondering of a

Tricia Fulton

Yes.

is we their year that through for Faster, rates seeing, bit that rates FX as been the over projecting slow quarters. the coming Given pressure as bit a first definitely from a there's going it maybe the little growth the saw has the of last declining to we're we're also, would what But euro little quarter in dollar.

that future translation -- So QX. -- to we some certainly quarters have we're in the we market, seen didn't be wouldn't trying could that impacts Fx to outguess recognizing trying there aren't but in

Joseph Mondillo

that timing if and one of good synergies comment you Enovation know -- upfront of these I And of long-term from of then, last saw to synergies. just relative could I'm more synergy amount a of wondering saw those more trend sort schedule, of the cost Faster you much on sort guidance. ahead some just me.

are wondering along the coming in very Faster here synergies Just early sort how stages? of

Wolfgang Dangel

Yes.

So Joe, revenue met so for the said, time we already the synergies. as we at first look to

We at haven't taken look so synergies any a cost or expense far.

want know XXXX. to generate it's from it As in are you we But with $X.X that EBITDA assessment we Controls. Enovation to earlier comparing the announcement, by fair I think a million process

I weeks we to level mean, talking we concrete already acquisition ahead. the further revenue. on four generate are already customer are the project ago, into closed let's just on and consideration about We sales the take

So are we further definitely ahead.

revenue linear the then, as just XX% in it between pretty revenue estimate XXXX, think XXXX. XXXX. till synergies can to the to groundwork basically probably up to ramp again want as ramp-up the on early and a XXXX, I use starting basis be ramp-up we linear will synergies see do then see $X.X will the and be million, you of to and and curve, out first curve will you we XXXX

to maybe have The cost the to that expected was XX% realized are earlier Again, and with think, realized Enovation already XX% cost XXXX. by slightly so well in or the embedded the pointed as the the out, side, with underway anticipated. synergies, meet already are I we And synergies. regard XX% we revenue for we synergies even synergy, revenue are exceed On synergies guidance here already regard to XXXX. the than originally synergies,

Joseph Mondillo

wanted just for I Just as XX.X in Is confirm you that question; commentary? the the looking said what share at that million. count the you're to prepared last the go-forward one

Tricia Fulton

Yes.

Operator

Ladies call to we reached turn and end management remarks. gentlemen, have the the I the would for question-and-answer like to of closing any back session. And

Wolfgang Dangel

thank morning. great of have second these results. much, of all your employees participation Thank to you are you in for the for a who you your this Sun interest all you results August. on hard and and to Sun driving forward look quarter updating working our in Also, day. very We Thank

Operator

This concludes today's conference.

You may at disconnect your you your this lines time. Thank for participation.

Helios (HLIO) 12 May 182018 Q1 Earnings call transcript