Helios Technologies, Inc.

Greetings, and welcome to the Helios Technologies first quarter 2024 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tanya Allman, Vice President of Investor Relations and Corporate Communications for Helios Technologies. Thank you. You may begin.

Thank you, Operator, and good day, everyone. Welcome to the Helios Technologies First Quarter 2024 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 hlio.com. You will also find slides there that will accompany our conversation today. On the line with me are Joseph Matasevic, our President and Chief Executive Officer, and Sean Bagan, our Chief Financial Officer. They will review our first quarter results along with our outlook for 2024. We will then open the call to your questions. If you turn to slide two, 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 have been provided in our 10-K filing as well as 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'll 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 three and four now. With that, it's my pleasure to turn the call over to Joseph.

Sonja, thank you and welcome everyone. We had a solid start to the year and our results validate our commitment and ability to deliver to plan. Our Helios team continues to demonstrate the dedication to keeping our promises and meeting our responsibilities to our customers. Thank you to the global team for a great quarter out of the gate. I am encouraged with the improvement over the fourth quarter with demand stepping up in all regions. We just completed the trip to Asia, and not only are we starting to see green shoots in our results there, but we see long-term opportunity for real growth. While global geopolitical and macroeconomic conditions remain somewhat nimble, there are clearly pockets of strength regionally and by end market. The higher volume, financial discipline, and the structured actions we took to protect the business delivered strong, sequential improvement. We saw this in our margins, which we expect will continue to expand as we keep executing our plan. Importantly, we are comfortable with affirming our previous guidance for 2024. Behind the scenes, we continue to make great headway as a newly integrated operating company. We have enhanced a couple of new subsystems and have officially entered the commercial food service space. And we have only just begun. We expect this market to become meaningful for us over the next several years. Importantly, we have created innovative, 50 solutions that add value in every application. Our innovations can provide better end-user control, remote access, and greater durability with lower power consumption, enhancing total cost of ownership. We continue to advance several other opportunities as we leverage our unique position at the intersection of hydraulics and electronics. In fact, All the opportunities we previously described are still in play, and we continue to work closely with our customers to identify new ones. As we have brought the various pieces together through flywheel acquisitions and internal innovation, our system solution offerings are really starting to resonate with our customers. This has been repeatedly validated through direct feedback received from our recent customer visits. Many of our distributors are making significant expansion to their own capacity, gearing up to go with us. They understand the strategic value and opportunity in participating in subsystem sales with Helios and are already selling several examples in the market today. Just as exciting, we also announced that we have partnered with Water Guru. As you know, having clean and balanced water is a critical factor for any water-based application. We are bringing to market an industry-leading water sensing and automated treating solution for the spa, plunge pool, and cold plunge markets. This is a truly unique collaboration where we are exclusively licensed and integrating their patented technology for the worldwide spa OEM market. This is another example of how Helios is a leader in driving innovation for the markets we serve. Additionally, this will provide another recurring revenue opportunity for our business model. You will hear more about this as the year progresses. Finally, as a part of our integration progress, we are improving our financial forecasting and instilling stronger financial processes and discipline across all the organizations. All of our operating companies are more tied into our strategy than ever before. I will now turn the call over to Sean to discuss the progress we saw this quarter through our results. Sean, please.

Thank you, Joseph, and hello, everyone. I will start to review first quarter results, talking to slides five through 11. As we enter a new year, we took the opportunity to redesign our earnings presentation. We streamlined some repetitive data out between these slides and the press release. In addition, we have incorporated new insights on our operational performance and the markets we serve. Moving to the first quarter results, Sales came in at $212 million, above our expectations due to stronger demand and order fulfillment at our Balboa business. This drove the increase in electronics revenue both year-over-year and sequentially. Compared with the fourth quarter, hydraulics came off a low base as the mobile market and the APAC region really began to turn positive. We expect that normalization of inventories, order patterns, and demand will provide moderate support through the year from these categories. In addition, our new hydraulic manifold solutions center of excellence, located in Mishawaka, Indiana, is continuing to ramp up. Geographically, we were up in all regions quarter over quarter. Compared with last year, we had improvements in the Americas and APAC of 1% and 5%, respectively. There was a 7% decline in EMEA, reflecting the slowing of the broader agricultural market, as well as other geopolitical impacts continues to negatively impact the region. On a year-over-year basis, health and wellness is performing strong. We expect the spring season to remain solid, while the latter half of the year will likely level off. more so from a seasonality perspective. Marine, agriculture, and recreational vehicle markets are in various stages of their own cycles, and for now have moderated at a lower level compared with the last few years. The improvement in volume helped drive gross profit up 22%. Gross margin expanded 310 basis points compared with last year's fourth quarter, with further room for improvement as the year progresses. Gross profit declined $3.8 million, and gross margin contracted 160 basis points year-over-year to 31.7%. As a reminder, our health and wellness business has a lower average gross margin profile that is offset with lower SEA expenses, which in a normalized capacity utilization structure gets to a very similar operating margin as the rest of our electronic segments. As it is ramping back to full capacity to the degree that it outperforms our plan, we can have a short-term mix impact. Of course, we have focused actions we are taking to continue to improve productivity, rationalize costs, and deliver higher margin profile solutions, which will also continue elevating those margins. Non-GAAP adjusted operating margins of 14.5% in the quarter is nearly 200 basis points above our low in the trailing quarter. Our facilities are positioned to realize further operating leverage inherent in the business as our volumes continue to grow along with disciplined pacing of investments and expenses. We were encouraged by the improvements delivered in the first quarter but acknowledge we are not yet optimized and still have work to do to get back to historical financial returns. We have added in both cost of goods sold and operating expenses, reflecting our investments to expand our capabilities and capacity. We expect these investments to yield expanded volume and to grow into higher margin business, enabling us to revisit historical return levels. Year over year, adjusted EBITDA in the quarter of $38.6 million, or 18.2% of sales, contracted 210 basis points for all the reasons I have discussed. Encouragingly, and despite the unfavorable segment sales mix, the sequential improvement of 150 basis points reflects the impact of our focused efforts to deliver profitable sales growth and disciplined spending. Our effective tax rate in the first quarter was 23.2%. This is driven by the regional mix of different tax jurisdictions and the impact of discrete items. Diluted non-GAAP EPS of 53 cents in the quarter reflects the impact I've mentioned. It also includes a 4 cent impact from increased interest expense from higher interest rates and average debt balances compared with last year. Briefly by segment. On slide nine, you will find the first quarter review of our hydraulic segment. Sales were up 7% over the trailing period, with improvements very broad-based across nearly all markets. Sales were down 4% over the prior year across several end markets against more challenging comparables, despite the benefit of $1.9 million in acquired revenue. We had 0.2 million unfavorable foreign exchange impact to the segment compared to the prior year period. Sequentially, hydraulic sales improved, a relatively healthy 8.7 million. Sequentially, gross profit increased 3.3 million, or 8%, and gross margin expanded 50 basis points, reflecting the growing volume. Gross profit declined $5.5 million year-over-year, resulting in gross margin contraction of 260 basis points, primarily due to fixed cost absorption on lower volume and higher labor costs. SEA expenses grew $0.9 million, or 2%, with the prior year period. Our cost containment measures helped to offset the run rate impact of acquisitions with labor and operating costs while maintaining our investments in R&D. Please turn to slide 10, and we'll discuss the electronic segment. Given its U.S. sales concentration, foreign currency has nominal effects for this segment currently. Year-over-year, electronic sales improved by 4.1 million, or 6%, including 2.0 million in revenue from acquisitions. Double-digit growth in health and wellness, along with positive contribution from off-road vehicles, partially offset by the continued weakness in the marine and industrial end markets. Sequentially, the electronics segment expanded $9.9 million, or 17%, driven by double-digit growth in health and wellness and modestly improving conditions in the industrial markets. Higher volume led to 1.7 million increase in gross profit year-over-year, or 8%, resulting in gross margin of 32.6% of 50 basis points. Sequentially, electronics gross profit were up 8.6 million, or 61%, and gross margin expanded 900 basis points. The sequential revenue and gross profit growth drove solid operating leverage in the segment. Compared with the fourth quarter of 2023, operating income grew 6.1 million, or 610%, and margin expanded 850 basis points. This is where the incrementals start to really show through in our business model as the volume returns. SEA expenses were up 16% compared with last year, and up 19% compared with the trailing fourth quarter. We did not close the Shopee's acquisition until the end of January last year and the I3 PD acquisition until the end of May. So the year-ago period did not have either of those fully loaded into the compare. Please turn to slide 11 for a review of our cash flow. This quarter demonstrated our financial priority to shorten our cash conversion cycle. We generated cash from operations of $17.8 million up from $12.3 million in the first quarter of last year. The first quarter is historically our weakest for cash generation, so this level coming out of the gate is encouraging, but also leaves room for further improvement. We had free cash flow of $12.3 million in the quarter, measurably improved over the prior year first quarter of $3.2 million. This was also our first sequential quarterly inventory decline over the past seven quarters. We are executing on our inventory reduction plan and expect more optimized inventory management processes to be a meaningful contributor to our improved cash conversion cycle as we step through the balance of the year. Capital expenditures for the quarter of $5.5 million for 2.6% of sales were primarily focused on maintenance capex, tooling and the expansion at faster in italy turning to slide 12. at the end of the first quarter cash and cash equivalents were 37.3 million and we had 197 million available on our revolving lines of credit providing us ample liquidity total debt was down modestly from the end of 2023 and has shown steady declines over the last three quarters at quarter end our net debt to adjusted EBITDA leverage ratio was 3.08 times. With our targeted ratio between two to three times, we think at the midpoint of our guidance, we would be close to 2.5 times ending 2024. Ultimately, as we get closer to the lower end of our target range, we have the ability to plus up for acquisitions and other investments. Turning to slides 13 to 14, we are affirming our outlook for 2024. We are presenting the key metrics here, and you can find the other modeling items in the supplemental slides with no changes to our 2024 fiscal year estimates from what was communicated with our February 2024 press release and earnings materials. As shown, sales are expected to be in the range of 840 to 860 million, adjusted EBITDA in the range of 19.5% to 21%, and diluted non-GAAP earnings per share in the range of $2.35 to $2.75. Given our solid sequential results in the first quarter, paired with further sequential bottom-line improvements anticipated for the balance of the fiscal year, we are confident in affirming our full-year guidance for 2024. As we did for the first quarter, we would like to establish our second quarter estimates for sales in the range of $213 to $218 million, an adjusted EBITDA margin of 19.0 to 20.5%. Current demand and order levels support further sequential sales improvements. This incremental expected sequential volume, coupled with operational improvements and disciplined cost management, support further profitability rate expansion. As we signaled earlier in the year, we continue to expect the first half of 2024 to be tougher on a year-over-year comparable basis. Slide 14 is a new slide intended to provide some understanding of where we see our market and operational drivers by segment. Looking at slide 15, I want to remind you of our financial priorities for 2024. As I have said before, this year is all about execution and driving consistent and predictable performance. We are strengthening the underlying financial discipline and structure of Helios. We expect the resulting cash generation and profitability will provide improving returns on our investments. So let me turn it back to Joseph for some closing remarks.

Thank you much, Sean. As we committed, 2024 is the year of executing and elevating as we leverage the strong foundation we have built and start seeing the returns on our invested capital growth. The traction we are gaining on our financial priorities is already showing positive improvements in our results. We will maintain our strong focus and collaboration with our customers suppliers, and employees, ensuring we have an aligned strategy. When we started this journey several years ago, we completed perception and other service with our customers, investors, and with our people as we augmented our strategy. We continue to value and incorporate the voice of the business in all that we do. In fact, the feedback from our customers did give us the conviction to make the investments across innovation, acquisitions, and regional capacity, which has now primed us for growth as the markets recover. With a good deal of integration work completed and having our regional structure and product growth improvements in place, we expect to get back to our normalized gross margin levels over time. As many of you know, The way our model is structured is our volume growth, the incrementals show up. We have been redefining Helios and securing our place as a global leader in the industrial landscape that can deliver top-tier margins and cash flow. Our strong foundation, coupled with methodical investment, sets us up for continued growth and profitability for years to come. With that, let's open up the lines for Q&A, please.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.

Hey, good morning guys. Congrats on a good start to the year. Thanks for taking a couple of questions. Maybe we can start on the commercial food service space. Can you maybe just talk a little bit more about the nature of these applications and when you might expect to, you know, have them start impacting revenue?

Good morning, Chris, and thank you. In terms of commercial food services, everyone is aware that it's been a target market of ours now for a couple of years. And we certainly geared up with the product, the technology, and the differentiation we needed to not just compete and enter the market, but also lock up the market in certain applications where we knew we have a chance to win. So this is a very large market for us. We are taking very methodical steps to get a strong entry. We have now total of three wins in hand, two separate customers on one product line. And that is not baked in into our 2024 guidance. We're still dealing with this headwinds of the economy, but we do believe when we get beyond this, that this will be a significant play for us for the years to come and a profitable play. And then looking to expand beyond just one or two product lines into other areas of the commercial food service space. not just from a commodity play, but more from a closed-loop systems play.

Got it. Very helpful. Thank you, Joseph. It sounds like the bigger system deals are still progressing. OEMs perhaps not looking for you to discuss at this stage. Is there anything else you can share to give us a better feel for the scope? And maybe the second part of that is, Is it reasonable from where you sit today to expect that at some point in 2024 you will be discussing specifics on a couple of these bigger deals?

It's certainly our expectation to continue to keep all of you folks obviously updated. We have invested in this area. We have invested. strong collaboration with our customers, all those mid and larger deals continue to be in play. Naturally, the geopolitical situation obviously has an impact on that, or we could have gone a little quicker and faster. Above and beyond that, we are still finishing our capacity expansion in Europe to support the true global launch. And then, you know, in terms of communication, everyone in this market is super sensitive about getting, you know, a leg up and some type of exclusivity. So we continue to discuss and negotiate with our customers at what point in time can we communicate accordingly. But to answer your question, the deals are still in play, and we have every intention to communicate once we get the green light.

And Chris, this is Tanya. I just think it's worth adding to, you know, Joseph had mentioned in his prepared comments, you know, there's some subsystem sale wins with smaller and medium-sized OEMs, which, you know, we've started to win. And, you know, we've already talked about how a lot of our distributors are already selling our products in subsystem sales, and they're investing in additional capacity to sell more. So, You know, we really think that all of this points to just the market validating that we've got the right product in the right strategic direction. You know, everyone knows the largest of the OEMs, those timelines can be a long process, but we feel very encouraged by all the additional data points that we're seeing from other parts of our channel.

And maybe, Chris, just one more data point on an additional system sale in terms of the recent water glue uh announcement we did in the health and wellness you know that's been obviously a pinch point in the health and wellness industry for a long time having clean balanced uh water application and so when you look at that partnership we have established with water guru here it gives us it leverages both companies strength and gives us the ability to not only sense but also over time treat the water through an automated system coupling with an AI application that you can log on and see on your phone, you know, the water clarity, the chemical levels, and as it gets lower, it's automated. dispensing system kicks in and then if there's any parts needed or any chemicals needed, it automatically sends the order to the supplier. So, you know, this is a pretty significant deal for us that over the years to come will certainly pay dividends.

Got it. Very helpful. I will pass it on for here. Thank you very much. Thank you, Chris.

Our next question comes from the line of Jeff Hammond. Please proceed with your question.

Hey, good morning, guys. Good morning, Jeff. Good morning, Jeff. So I'm really just trying to get a better sense of what you think is improving cyclically versus seasonally. You know, it seems like historically 1Q is better than 4Q. There seems to be some seasonality certainly in health and wellness. But, you know, what are you seeing? actually getting, you know, fundamentally better versus kind of a seasonal uplift. And then I think you mentioned mobile as, you know, kind of moving off the bottom. And I'm wondering maybe what within mobile feels better because it seems like construction and, you know, rental and markets seem to be, you know, weakening along with ag. Yeah. Yeah.

The improvements we are seeing in health and wellness, that improvement has now three quarters under the belt, and it's clearly going in the right direction. So we do have some confidence level that the market is starting to rebound, not just in North America, but also in APEC and at a slower pace in Europe. We see a very stable, good US egg market, at least in our product offerings. Europe, on the other hand, has contracted, as everyone knows, in the egg in the ag industry. On the industrial side, we see alternative energy, mining. The general industry has been pretty stable for us. On the mobile side, stable. The only one that's contracted somewhat is the European one. in the mobile industry. And then we have the China, obviously, that is still in the process of recovering and rebounding. There's certain markets that are coming back nicely. There's others that will take longer. So that's kind of, hopefully, the summary that you were looking for.

Yeah, okay. And then... Joseph, I know you spent time in commercial food service. It sounds like you got multiple wins there on single product lines. It does seem like that market, you know, those players in that market want to go to common controls across product lines. And I'm wondering if your customers are of that view and what it takes to kind of, you know, broaden out the portfolio beyond a single product line to more of those common controls.

Yes, certainly, Jeff. That has been obviously a desire in the field for a long, long time. The challenge was there was really not one single belly button who can have the product offering, so it became very complicated in terms of supply chain, and that's what we have invested in now for going on two years. It is a path we have that not only to switch over to a calming control platform but also have different variations within that offering coupled with wire harness and also AI applications and algorithm application and our sickness monitoring system that can connect the entire commercial food service kitchen and so the equipment can talk to one another. And independent, if you have one brand or numerous competitive brands in the kitchen, you still will be able to use that application. So, you know, then the ratio is coming up here shortly, and I'm sure you will be there, Jeff, so we can demonstrate some of those applications we're talking about.

Okay, great. And then just last one. You know, Sean, it sounds like you know, working capital you think is a pretty big opportunity around shortening cash conversion. Just wondering if you have any initial views on how much working capital you think you can take out of the system over a couple years.

Yeah. Hey, Jeff. Thanks for the question. So definitely a huge area of focus for us given where it's trended the last couple years. And as we got into this year, I think the first quarter we showed a little bit of improvement. Historically, the company was able to operate in the 100, 110 day kind of cash conversion cycle. We didn't take out quite 10 days in the first quarter, but we did take a reduction from the end of the year. We're not going to get back to those levels this year, but over time, that's the target to get back to those historical levels. So we'll enter here the first quarter, enter the second quarter around 135 days or so. So continue to drive that down towards that 100 target longer term.

Okay. Thank you.

Thanks, Jeff. Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

Good morning, everyone.

Morning, Nathan.

Morning, Nathan.

I wanted to follow up on Jeff's question about the mobile market and the improvement that you're seeing there. I think it's fairly clear from some of the machinery OEMs reports that mobile equipment production is going to be down in 2024. Is the improvement here more of a, you know, de-stocking is running at a lower level rather than any actual thoughts that the market itself is going to improve? There's going to be more units produced. And is there still de-stocking going on in the channel at the OEMs? And when do you expect that to come to an end?

Hey, Nathan, it's Sean. So I think on our first slide on our net sales within our earnings side, we kind of showed the quarter over quarter trend. And I think a little bit of a dynamic for us is we're coming off a pretty soft second half last year where we felt a lot of that impact. So from a sequential perspective, it improved. And I think specific to where we're seeing strength is over in the Asia Pacific market, particularly China. and South Korea strengthening significantly. And so we're feeling some of that coming back. Some of that was validated. Joseph and I were just over there last month and clearly seeing some green shoots as he highlighted in his prepared remarks there. So I think that's a little bit of what we're feeling. We were probably on the earlier side of the cycle from a supply and a manufacturer and think we're kind of getting through that already.

Okay, thanks for that. And then my follow-up question, I wanted to ask about the gross margin rebound in electronics and look to get a little bit more color there. Obviously, a huge improvement of 900 basis points from the fourth quarter to kind of what were the drivers behind that sustainability of gross margins at those levels and any expectation for further improvement?

Yeah. There's two key drivers there. And as you know, last year, we made some pretty significant investments in manufacturing centers of excellence down in our Tijuana plant. And, you know, we had some of that headwind in our margin last year. Some of that cost was coming on as we finished that plant. But what went on in the first quarter relative to the fourth quarter is two big dynamics. First was on the Balboa side, the health and wellness strength. The orders were really strong and outpaced our expectations. So we were even able to overdrive our internal plans on that. And I would attribute kind of the upside to our to our beat from our guide to that specifically, and those incremental on that, because it was so contracted in the second half of last year. And frankly, most of all of last year, those incremental come through quickly. The other piece was at our innovation controls business. Although the revenue and top line wasn't as strong and the growth wasn't there, all those actions we took in the fourth quarter last year from a cost perspective and then some of the integration efforts that we had by moving some production from Tulsa to Tijuana and that lower cost certainly helps as well. So those were the main drivers to the sequential improvement. Thanks very much for taking my questions.

As a reminder, if you would like to ask a question, press star one on your telephone keypad. Our next question comes from the line of Mig Dobre with Baird. Please proceed with your question.

Thank you for the question. You know, I want to follow up on hydraulics as well. Trying to get a sense for how you think about revenue sequentially here and sort of what's embedded in the guide in second quarter versus second half. And when you kind of look at Americas versus EMEA, you know, EMEA is over-indexed to agriculture, where obviously we know that production is coming down quite a bit for OEMs. But what are your assumptions around Americas that sort of support your revenue outlook? Thank you.

Hey, Meg. It's Sean. Thanks for the question. So, yeah, you're spot on in terms of geographic mix with respect to EMEA and our faster business highly indexed to agriculture. And that's where certainly some of the pressure is felt from a top line perspective. And the growth would be more so coming from our sun hydraulics business, which is more indexed to the Americas, but also Asia. And some of that strength I mentioned in Asia earlier is contributing to some of that from a kind of quarterly look. We expect hydraulics to look pretty similar every quarter in terms of the top line. And again, the faster business will be pressured, we expect, just given the current order demand that we're seeing and the kind of run rates. But overall, more of that growth will come from some business.

I see. And the net effect then for margins through the year here, Is there a sort of kind of like cost management component that you're applying to this specific segment? Or should we sort of think that margins are going to be similar to Q1 given what that revenues are going to be similar to?

No, we're going to expect to see increasing margins despite revenue levels being similar. The key drivers there is a lot of the pricing actions that went into play in hydraulics was at the end of last year. And so we really didn't get much of that uptake in the first quarter because those orders were already in play. In addition, there's been some center of excellence movements, as you know, in the Americas that we pointed play last year. That is really starting to starting to hum. Now, we still are working through a bit of a past due backlog with our Damon and manifold center of excellence. But similarly in Europe, we're going through a bit of a consolidation as well that is, as you know, we've grown acquisitively in Europe, whether that's with FASTER or NEM. And so really looking to leverage those facilities in addition to our sun, our existing footprint there. So those will help support the growing margins as we go. And certainly we're being very disciplined on cost, particularly the areas where our top line is under pressure.

Okay. One final one, if you'll allow it. Going back to the commercial food discussion here, I guess I'm trying to get a better sense for exactly what it is that you're selling into this vertical. Are you selling full controls for things like high-speed ovens or something like that? And when I'm thinking of the classic innovation control type offerings, they don't seem to sort of fit that vertical. So I'm assuming this is probably something that comes out of your Balboa group that's been adapted. So maybe you can clarify that. And I'm also curious as to what the opportunity is here. So if I look at, say, marine in your electronics business, I think that's, what, $15 to $20 million worth of business. Can commercial food be of similar size as marine at a point in time? I mean, how do you frame this opportunity for investors? Thank you.

Good morning. In terms of... framing the opportunity, you know, you mentioned 20 million and could it be larger or bigger? We look at that market much larger than that over the years to come. As you know, it's a significant market space. in terms of products that we are selling um it's actually as you remember we had a good better best strategy in place and we certainly leveraging those products we have developed and invested in new products internally to enter the market space leveraging bug boards and innovation capabilities if it's either through different screen sizes or motherboards or algorithms or software and hardware so our focus was not so much selling commodities versus selling a system so that will include the system and in many cases subsystem and replacements we are starting pretty much at a level of hot and cold side And then over time, expand into the beverage area. So that's kind of where we are.

Okay. Thank you. Thank you, Nate.

Thank you. We have reached the end of the question and answer session. Ms. Almond, I would now like to turn the floor back over to you for closing comments.

Thank you, everyone, for joining us today and for your interest in and support of Helios Technologies. We will be attending a number of investor conferences over the next couple of months, so we look forward to seeing all of you on the road. Please feel free to reach out to me with any follow-up questions. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.