Helios Technologies (HLIO) Q3 2025: Electronics Up 21% as Innovation Drives Margin Turnaround
Helios Technologies posted a pivotal Q3, with electronics segment revenue jumping 21%, fueling margin recovery and renewed growth across all regions and business lines. The company’s disciplined go-to-market and innovation execution is now translating into operating leverage and improved cash flow, while portfolio realignment and focused R&D investments are reshaping Helios for a more resilient, higher-margin future. Management’s tone and guidance signal conviction in a multi-year upcycle, driven by order momentum and a streamlined, innovation-led portfolio.
Summary
- Innovation-Led Growth: Electronics and hydraulics segments both returned to growth, with record innovation controls performance.
- Portfolio Realignment: Divestiture of CFP and refocus of i3 PD resources sharpened operational and margin focus.
- Order Momentum Into 2026: Double-digit order growth and healthier dealer inventories underpin management’s bullish outlook.
Performance Analysis
Helios delivered a 13% year-over-year sales increase to $220 million, exceeding guidance and marking the first broad-based growth after 12 quarters of declines. Electronics led with 21% growth, driven by record results at Innovation Controls and robust demand in recreational, mobile, and industrial end-markets. Hydraulics grew 9% despite continued end-market softness, reflecting both market share gains and early signs of recovery in agriculture.
Gross margin expanded 200 basis points to 33.1%, supported by improved capacity utilization, favorable mix, and operational efficiency. Adjusted operating margin reached 16.6%, with three consecutive quarters of expansion, while adjusted non-GAAP EPS grew 22% year-over-year. Free cash flow conversion remained strong, although cash from operations was impacted by higher accounts receivable tied to increased sales. The company’s net leverage ratio improved to 2.4x, with further deleveraging expected by year end.
- Electronics Outperformance: Innovation Controls posted record results, and new product launches drove adjacent market wins.
- Hydraulics Resilience: Growth in ag and mobile end-markets despite broader OEM weakness, with Faster and Sun teams stacking incremental wins.
- Margin Expansion: Sequential and year-over-year gross margin gains highlight operating leverage as volumes recover.
Portfolio moves, including the sale of Custom Fluid Power (CFP) and the i3 PD goodwill write-down, realigned the business toward core, higher-return segments. The electronics segment’s flat sequential outlook into Q4, after adjusting for $3 million of Q4 order pull-ins, still represents two consecutive quarters of 20%+ year-over-year growth.
Executive Commentary
"Our third quarter delivered positive measurable results, analogous to the current changing autumn season. Since I joined Helios nine quarters ago, our business have persevered through various market down cycles. I am pleased to finally report that the third quarter was a harvest season for Helios as we returned to growth and delivered above 20% adjusted EBITDA margin."
Sean Bagan, President and Chief Executive Officer
"I joined Helios because I see great potential for this business. I know that we have businesses that have strong cores with well-respected histories, great market positions with global brand recognition, deep customer relationships, and quality products that serve critical needs within the applications they are used."
Michael Conaway, Chief Financial Officer
Strategic Positioning
1. Go-to-Market Revamp and Share Gains
Helios’ sharpened go-to-market strategy, including new sales processes and accountability systems, is now delivering tangible market share gains. Order volumes have outpaced the last three years, and commercial wins are stacking up across both legacy and adjacent markets. The Faster team’s Agco win and Innovation Controls’ customer win-backs exemplify this momentum.
2. Portfolio Streamlining and Core Focus
The sale of CFP and the refocus of i3 PD engineers on core projects (such as NoRoads and CygnusReach software) signal a disciplined approach to capital allocation. The CFP divestiture, while removing a $60 million revenue stream, improved gross margin and focus in hydraulics. The i3 PD goodwill write-down reflects a pivot from third-party engineering services to embedding acquired talent in Helios’ product pipeline.
3. Innovation and R&D Investments
Helios maintained R&D spend through the downcycle, enabling a robust pipeline of new products now launching into recovering markets. Innovation Controls’ record quarter and the multi-faster product refresh in hydraulics are early payoffs, with management citing more new products coming in the next 18 months than in the prior decade.
4. Margin Discipline and Operating Leverage
Gross margin gains and cost control are driving operating leverage as volumes recover. The company continues to leverage its low-cost Tijuana facility, optimize its footprint, and manage SG&A below 2024 levels. Management is targeting a return to mid-20s EBITDA margins as volume recovers further.
5. Capital Allocation and Balance Sheet Strength
Debt reduction remains a priority, with nine consecutive quarters of paydown and a path to 2.0x leverage by year end. Helios is poised for strategic investment in 2026, but remains disciplined, with M&A to be driven by segment fit and return thresholds rather than corporate mandate.
Key Considerations
Q3 marked a strategic inflection for Helios, as innovation-led growth and portfolio actions converged to drive margin expansion and set up a favorable 2026 trajectory.
Key Considerations:
- Electronics Segment Momentum: Two consecutive quarters of 20%+ year-over-year growth, with record performance at Innovation Controls.
- Hydraulics Channel Health: Dealer destocking appears largely complete, with healthier inventory levels supporting order recovery in ag and mobile.
- Portfolio Realignment Impact: The CFP sale and i3 PD resource redeployment are improving margin mix and focusing R&D on core growth areas.
- Operating Leverage Visibility: Sequential margin expansion and cost discipline demonstrate embedded leverage as volumes return.
- Order Book and Pipeline Strength: Management cited double-digit order growth for six months, supporting conviction in sustained upcycle.
Risks
End-market recovery remains fragile, with continued choppiness in recreational and mobile demand, and ag and industrial OEMs still reporting weak retail sales. Execution risk persists around new product adoption and realization of R&D payoffs, while further portfolio actions could disrupt near-term results. Tariff headwinds and macroeconomic uncertainty also add volatility to margin and revenue trends.
Forward Outlook
For Q4, Helios guided to:
- Sales of $192 to $202 million (up 10% YoY at midpoint, adjusting for CFP divestiture)
- Adjusted EBITDA margin of 20 to 21%
- Diluted non-GAAP EPS of $0.67 to $0.74 (more than double YoY at midpoint)
For full-year 2025, management raised guidance:
- Sales growth of 4% over 2024 at midpoint (adjusted for CFP)
- Adjusted EBITDA margin of 19.1 to 19.4%
- Diluted non-GAAP EPS of $2.43 to $2.50 (up 12% at midpoint vs. original guidance)
Management emphasized:
- Order trends and healthier channel inventories support sustained growth into 2026
- Portfolio actions and innovation pipeline position Helios for higher-margin, organic growth
Takeaways
Helios’ Q3 results mark a decisive turn from multi-year contraction to innovation-driven recovery, with operating leverage and order visibility supporting a durable upcycle.
- Innovation Execution: New product launches and targeted go-to-market are driving share gains in both legacy and adjacent markets.
- Margin and Cash Discipline: Gross margin expansion and strong free cash flow conversion signal improved operational quality and balance sheet optionality.
- 2026 Setup: Double-digit order growth and a streamlined portfolio position Helios for continued sales and margin expansion as end-markets recover.
Conclusion
Helios Technologies’ Q3 2025 showcased the power of innovation, disciplined execution, and portfolio focus, with electronics-led growth and margin recovery positioning the company for a multi-year upcycle. Order momentum and a robust product pipeline underpin management’s confidence, while further deleveraging and capital flexibility set the stage for strategic investment in 2026.
Industry Read-Through
Helios’ results highlight a broader inflection in industrial and specialty electronics markets, where channel destocking is largely complete and order momentum is returning, especially in ag, mobile, and recreational segments. Competitors with robust innovation pipelines and disciplined go-to-market strategies are best positioned to capture early-cycle share gains. The importance of portfolio focus and R&D continuity through downturns is underscored, while the lingering volatility in OEM retail demand suggests caution for those exposed to late-cycle sectors. Margin recovery is increasingly tied to operational agility and footprint optimization, setting a template for peers navigating post-downcycle recovery.