HELIOS TECHNOLOGIES, INC. (HLIO)

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words "expects," "anticipates," "believes," "intends," "plans," "will" and similar expressions identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Form 10-Q with the Securities and Exchange Commission. These forward-looking statements are subject to risks and uncertainties, including, without limitation, those discussed in this report and those identified in Part I, Item 1A, "Risk Factors" included in our Form 10-K. In addition, new risks emerge from time to time, and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. Accordingly, our future results may differ materially from historical results or from those discussed or implied by these forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.

OVERVIEW

We are a global leader in highly engineered motion control and electronic controls technology for diverse end markets, including agriculture, construction, data centers, energy, health and wellness, industrial, marine, material handling, and recreational vehicles.

We operate under two business segments: Hydraulics and Electronics. The Hydraulics segment designs and manufactures hydraulic motion control and fluid conveyance technology products, including cartridge valves, manifolds, and quick release couplings, as well as engineers hydraulic solutions and in some cases complete systems. The Electronics segment designs and manufactures customized electronic controls systems, displays, wire harnesses, and software solutions.

With our global operating network, we have the advantages of leveraging sales, marketing, innovation, customer relationships and operational capabilities across all our businesses. We continue to drive best practices and are committed to leveraging resources to best serve our customers and explore new opportunities.

Restructuring Activities

In January 2025, the Company began restructuring the Helios Center of Engineering Excellence (“HCEE”). Consistent with the Company's previously announced restructuring plan, during the end of the second quarter 2025, management ceased operations at the San Antonio office and reassigned resources to the operations at our other major facilities across the business, and eliminated certain positions. As a result of this planned change in the HCEE business operations, the workforce intangible asset associated with the HCEE acquisition was reviewed by management and it was determined that the remaining net book value of the asset should be accelerated and amortized over a useful life ending June 2025.

We initiated some optimization activities at the beginning of 2026 that will result in the movement of production activities between locations in order to drive operational efficiencies and reduce costs. We have consolidated the North American operations of the Hydraulics Faster entity in Toledo, Ohio, and are closing the Faster operation in Quebec, Canada, that was obtained as part of the acquisition of the assets of Taimi R&D, Inc. in July 2022. The activities began in the first quarter of 2026 and were substantially completed at the end of the second quarter of 2026. Some wrap up activities remain that are expected to be completed in the third quarter of 2026. In addition, we are moving additional production activities within our Electronics segment to our low cost manufacturing Center of Excellence in Tijuana, Mexico. These activities were paused in 2025 as a result of the uncertain and changing tariff landscape and are now being re-initiated and expected to take place throughout 2026.

Restructuring costs totaled $1.8 and $1.2, for the six months ended July 4, 2026 and June 28, 2025, respectively.

Global Economic and Geopolitical Conditions

We expect the challenging macroeconomic conditions to continue, characterized by economic uncertainty and market disruption driven by inflationary pressures, volatile oil prices, political uncertainty, potential changes to current global

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trade policies and modifications of existing trade agreements, the potential negotiation of new trade agreements and imposition of new (and retaliatory) tariffs, and the ongoing geopolitical conflicts in Ukraine and the Middle East. We are continuously monitoring these economic and geopolitical conditions and remain focused on liquidity management, pricing discipline, cost savings initiatives and production efficiency as ways to mitigate the risks associated with the uncertainty.

Refer to Item 1A "Risk Factors" of our Form 10-K for additional discussion of risks related to global economic conditions.

Tariffs

The global trade environment remains highly dynamic, with significant changes to U.S. tariff policy enacted during 2025 and continuing into 2026. These measures include new tariffs, modifications to existing programs, and ongoing legal and regulatory developments. Such tariffs were implemented under several legal frameworks, including the International Emergency Economic Powers Act ("IEEPA").

In February 2026, the U.S. Supreme Court ruled that certain tariffs imposed under the IEEPA were not authorized. During the three months ended July 4, 2026, the Company received approximately $5.5 of refunds related to tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). Consistent with its accounting policy under ASC 450-30, Gain Contingencies, the Company did not recognize any benefit associated with the IEEPA tariff recoveries until realization was assured through receipt of the cash refunds. The refunds reduced cost of sales by approximately $5.3 and increased other income by approximately $0.2 for related interest. The Company also recorded an estimated reduction of revenue for amounts expected to be returned to certain customers in accordance with ASC 606. As a result, the net benefit recognized in gross profit was approximately $1.2.

Due to the fluidity of the tariff environment and potential subsequent changes to effective dates of certain tariffs, amounts of announced tariffs, and various exemptions for imports into the U.S. (especially in light of the recent decisions invalidating tariffs implemented under the IEEPA), we are unable to fully quantify the impact any tariffs will have on our results of operations when and if enacted. Our expectation, however, is to continue to leverage our regional production capabilities, source components from local suppliers, and take certain pricing actions, which we believe may mitigate the impact of higher tariff costs. We cannot provide any assurances that these or other actions that we take will be able to offset any or all tariff-related costs. Additionally, increased prices could impact demand for our products, including our ability to attract new customers or cause increases in existing customer attrition. If our attempts to mitigate tariff-related costs are not sufficient or executed in a timely manner, our business, results of operations, and our financial and/or operating costs may be adversely affected.

We export products from our U.S. locations to more than 40 countries. Our total U.S. exports were approximately $36.0 or 15.5% of total sales in the three months ended July 4, 2026. For the six months ended July 4, 2026, our total U.S. exports were approximately $81.0 or 17.6% of total sales.

We will continue to monitor developments in trade policy and assess the potential impact on our cost structure, supply chain, and customer demand.

Industry Conditions

The capital goods industries in general, and the Hydraulics and Electronics segments specifically, are subject to economic cycles. We utilize industry trend reports from various sources, as well as feedback from customers and distributors, to evaluate economic trends. We also rely on global government statistics such as Gross Domestic Product and Purchasing Managers Index to understand macroeconomic conditions.

Hydraulics

According to the National Fluid Power Association (the fluid power industry’s trade association in the U.S.), the U.S. index of shipments of hydraulic products increased 3% during the first six months of 2026 compared to the first six months of the prior year while the U.S. index of orders of hydraulic products increased 18% during the same period. In Europe, the CEMA (European Agricultural Machinery Association) Business Barometer reported in June 2026 that the general business climate index for the European agricultural machinery industry has declined significantly, pushing the sector back into

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recession after just over a year. The decline is driven by notable deterioration in both the current business evaluation and turnover expectations.

Electronics

The Federal Reserve’s Industrial Production Index, which measures the real output of all relevant establishments located in the U.S., reports second quarter 2026 output of semiconductors and other electronics components increased from the prior quarter. The Institute of Printed Circuits Association (“IPC”) reported that total North American printed circuit board (“PCB”) shipments were up 12.0% in June compared with the same month last year. PCB bookings in 2026 were up 31.5% in June compared to the prior year and June year to date bookings increased 29.0% for the same period last year. The book to bill ratio, calculated as the value of orders booked over the past three months divided by the value of sales in the same period, was above 1.3 for June 2026, indicating the strong demand environment that started the year continues. The IPC also reported that North American electronics manufacturing services (“EMS”) shipments increased 6.7% in June compared to the prior year while being up 5.2% and 3.1% year over year in May and April, respectively. EMS bookings increased 29.3% in June year over year after increasing 28.7% and 4.6% in May and April, respectively, highlighting the sector's strong demand in the quarter.

2026 Second Quarter Results and Comparison of the Three Months Ended July 4, 2026, and June 28, 2025

(In millions, except per share data)

The following is a discussion of our second quarter of 2026 results of operations and liquidity and capital resources. Comparisons are with the corresponding reporting period of 2025, unless otherwise noted.

The following table presents our consolidated results of operations:

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The operating results of the Hydraulics and Electronics segments included in Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented on a basis consistent with our internal management reporting. Segment information included in Note 16 of the Notes to the Consolidated Financial Statements included in this Annual Report is also presented on this basis. All differences between our internal management reporting basis and accounting principles generally accepted in the U.S. (“U.S. GAAP”), specifically the allocation of certain corporate, divestiture-related, and acquisition-related costs, are included in Corporate and Other.

Overview

We are a global leader in highly engineered motion control and electronic controls technology for diverse end markets, including construction, material handling, agriculture, industrial, mobile, energy, recreational vehicles, marine and health and wellness.

We operate under two business segments: Hydraulics and Electronics. The Hydraulics segment designs and manufactures hydraulic motion control and fluid conveyance technology products, including cartridge valves, manifolds, and quick release couplings as well as engineers hydraulic solutions and in some cases complete systems. The Electronics segment designs and manufactures customized electronic controls systems, displays, wire harnesses, and software solutions for a variety of end markets.

With our global operating network, we have the advantages of leveraging sales, marketing, innovation, customer relationships and operational capabilities across all our businesses. We continue to drive best practices across all of our businesses and are committed to leveraging resources to best serve our customers and explore new opportunities.

Acquisitions

Our acquisition activity over the past three years, driven by our strategic vision, has enabled us to diversify our product offerings and the markets we serve and expand our geographic presence.

In January 2023, we completed the acquisition of Schultes Precision Manufacturing, Inc. Schultes is a highly trusted specialist in manufacturing precision machined components and assemblies for customers requiring very tight tolerances, superior quality, and exceptional value-added manufacturing processes. Currently serving the hydraulic, aerospace, communication, food services, medical device, and dental industries, Schultes brings the manufacturing quality, reliability, and responsiveness critical to its customers’ success. Schultes provided additional manufacturing know-how and expanded our business into new end markets with attractive secular tailwinds.

In May 2023, we completed the acquisition of i3 Product Development. i3PD is a custom engineering services firm, with engineers specializing in electronics, mechanical, industrial, embedded and software engineering. i3PD specializes in transforming customer’s ideas into industrial design solutions through rapid prototyping and creating 3D models in-house. Their solutions are used across many sectors, including medical, off-highway, recreational and commercial marine, power sports, health and wellness, agriculture, consumer goods, industrial, sports and fitness.

In 2024 and 2025, the Company continued to explore and evaluate potential acquisitions, but no acquisitions were executed.

Global Economic Conditions

Geo-Political Conflict

We continue to monitor the ongoing conflicts in Ukraine and in the Middle East and evaluate the broader economic impact those conflicts could have on our operations, supply channels and the operations of our partners and customers. We do not have operations in these regions at this time and those conflicts have not and are not expected to have a material impact on our financial condition or results. Refer to Item 1A Risk Factors of this Annual Report for additional discussion about geo-political risks.

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Tariffs

During the fiscal year 2025, additional tariffs were imposed on goods imported into the U.S. from China, Mexico and Canada. In addition, tariffs on steel and aluminum were increased and various reciprocal tariffs were also imposed. These costs are reflected in the cost of sales on our Consolidated Statements of Operations. Such tariffs were implemented under several legal frameworks, including the International Emergency Economic Powers Act ("IEEPA"). Courts have found that IEEPA does not authorize the President of the United States to impose tariffs, and the enforcement of other tariffs may prove inconsistent over time. It remains to be seen whether the federal government may impose further tariffs under other statutory regimes or legal theories. These decisions introduce future uncertainty regarding potential refund processes and future trade policy actions and could affect the Company's cost structure and supply chain planning. We are unable to predict the ultimate outcome or effectiveness of any current or future tariff policies.

We export products from our U.S. locations to more than 40 countries. Our total U.S. exports were approximately $133.2 or 15.9% of total sales in the year ended January 3, 2026, of which exports to China were $13.4 or 1.6% of total sales in the period. Trade relations between the U.S. and other countries are fluid and we are unable to predict if tariffs (including retaliatory tariffs) imposed by other countries on our U.S. exports will change in the future.

Due to the fluidity of the tariff environment and potential subsequent changes to effective dates, amounts of announced tariffs, and various exemptions for imports into the U.S. (especially in light of the recent federal court decisions invalidating certain previously announced tariffs), we are unable to fully quantify the impact the tariffs will have on our results of operations when and if enacted. Our current expectation, however, is to leverage our regional production capabilities, source components from local suppliers, and raise our prices, which we believe may mitigate the impact of higher tariff costs, though we are not able to provide assurances that we will be able to offset any or all tariff-related costs. Additionally, increased prices could impact demand for our products, including our ability to attract new customers or cause increases in existing customer attrition. If our attempts to mitigate tariff-related costs are not sufficient to offset our increased tariff-related costs adequately or in a timely manner, our business, results of operations, and our financial and/or operating costs may be adversely affected.

Industry Conditions

The capital goods industries in general, and the Hydraulics and Electronics segments specifically, are subject to economic cycles. We utilize industry trend reports from various sources, as well as feedback from customers and distributors, to evaluate economic trends. We also rely on global government statistics such as Gross Domestic Product and Purchasing Managers Index to understand higher level economic conditions.

Hydraulics

According to the National Fluid Power Association (the fluid power industry’s trade association in the U.S.), the U.S. index of shipments of hydraulic products decreased 4% in 2025, after decreasing 15% in 2024 and decreasing 4% in 2023. In Europe, the CEMA Business Barometer reported in December 2025 that the general business climate index for the European agricultural machinery industry has declined from November to December. The majority of survey participants expect incoming orders to decline in the coming six months as the current business situation is assessed similarly to the previous month. CEMA further reported that Tractor and harvesters’ manufacturers see a deterioration in the current situation. A comparison of countries shows a slight improvement for the current situation in German and France, while in Spain the situation has deteriorated. Export business has been improving for three months due to improved orders outside of the EU. Australia and New Zealand are expected to be areas of growth ahead of Western Europe and Africa. This is expected to help compensate for the decline in the United States.

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Electronics

The Federal Reserve’s Industrial Production Index, which measures the real output of all relevant establishments located in the U.S., reports output of semiconductors and other electronics components increased sequentially each quarter in 2025. The Institute of Printed Circuits Association (“IPC”) reported that total North American printed circuit board (“PCB”) shipments were up 11% in December after being up 21.1% in November and up 24.4% in October compared with the same months last year. PCB bookings in 2025 were up 11.0% in December compared to the prior year, while bookings for the full year were higher by 15.0%. The book to bill ratio, calculated as the value of orders booked over the past three months divided by the value of sales in the same period, was above 1.2 for each month, indicating the stronger demand environment that started the year continues. The IPC also reported that North American electronics manufacturing services (“EMS”) shipments decreased 0.4% in 2025, however increased 5.6% in December compared to the prior year. EMS bookings increased 5.1% in December year over year after decreasing 4.1% in November and increasing 6.4% in October, highlighting the sector's choppiness in the quarter.

Restructuring Activities

During 2025, we incurred $1.6 of costs related to our restructuring activities, down from $5.3 in 2024. Restructuring activities include activities within our Hydraulics segment related to the creation of our two new Regional Operational Centers of Excellence ("CoE") which are now complete. We also continue to add capabilities and activities to our recently expanded Tijuana, Mexico facility to support our Electronics segment. Initial efforts have focused on circuit board assembly and wire harness production.

The initial phase of the restructuring activities to better optimize our European regional operations is complete. This included transitioning some manufacturing of manifolds and integrated package assembly to our Roncolo, Italy location. To create capacity in Roncolo, we moved some turning and lathing operations from Roncolo to our Rivolta, Italy location. These activities included transferring equipment and operations between facilities. Additional phases of this project are currently paused, we continue to evaluate plans for restructuring activities to optimizing operations in the European Region.

In January 2025, the Company began restructuring the Helios Center of Engineering Excellence (“HCEE”). Consistent with the Company's previously announced restructuring plan, during the end of the second quarter 2025, management ceased operations at the San Antonio office and reassigned resources to the operations at our other major facilities across the business, and eliminated certain positions. As a result of this planned change in the HCEE business operations, the workforce intangible asset associated with the HCEE acquisition was reviewed by management and it was determined that the remaining net book value of the asset should be accelerated and amortized over a useful life ending June 2025.

Executive Officer Transition

In July 2024, the Board of Directors terminated the former President and Chief Executive Officer, Josef Matosevic. Sean Bagan was immediately appointed to serve as Interim President and Chief Executive Officer in addition to his role as Chief Financial Officer, and Philippe Lemaitre as Executive Chairman in addition to his role as Chairman, while the search for a replacement was underway. On January 6, 2025, the Company announced that the Board of Directors of the Company promoted Sean Bagan to President and Chief Executive Officer of the Company, effective January 6, 2025. In connecti

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