Helios Technologies turns from stabilization to takeoff with data centers

The Engine Turns: From Stabilization to Broad-Based Growth

Helios Technologies (HLIO) is no longer telling a turnaround story. On the Q2 2026 call, CEO Sean Bagan framed it explicitly: “This is no longer a story of business stabilization -- it's a story of profitable, broad-based growth.” — Sean Bagan, Chief Executive Officer (CEO) · 2026-08-11 The numbers back him up. Sales of $232 million were at the high end of guidance, and adjusted EPS of $0.88 beat the outlook by $0.05. Gross margin expanded 280bps to 34.6% — the fourth straight quarter of year-over-year expansion. The company generated a second-quarter record $42 million of operating cash flow, allowing it to cut net debt to $264 million (lowest since 2020) and bring leverage down to 1.4x, below its target range.

The momentum is not just a one-quarter spike. CORE Strategy — the 2030 plan introduced in March — is already pacing ahead of its organic growth and margin commitments. With the first half complete, management raised the full-year outlook: sales of $880–$900 million (implying ~12% growth over 2025) and adjusted EPS of $3.05–$3.25. Bagan noted that at the midpoint, "2026 could represent the highest annual sales in Helios' history" — a remarkable feat given the $60 million run-rate divestiture of CFP last year.

The Big Bet: Data Center Thermal-Management Couplings

Perhaps the most strategically significant development is the push into data center thermal management. Helios is leveraging its data centers heritage — specifically Faster's quick-disconnect couplings — to penetrate a market that management describes as the largest opportunity in the company's history. The company has invested in a new facility in Toledo, Ohio (a grand opening scheduled for September), built clean-room capacity, and begun sampling product to a dozen prospective customers. Bagan said,

This represents our single largest opportunity across Helios today... we now have samples out with about a dozen prospective customers that are sampling our products.

This is a fresh theme — not just sector boilerplate. In prior quarters the company talked about "green shoots" and "early wins," but never a dedicated new end-market with this level of investment. IEEPA tariff refunds helped the quarter (approximately $1 million of net benefit), but the data center bet is a long-term growth engine that could transform the mix.

Margin Expansion and Balance-Sheet Firepower

Margins are being driven by volume, mix, and relentless footprint optimization. CFO Jeremy Evans explained that the biggest lever is volume filling existing capacity. “the biggest lever that we have when it comes to gross margin is our volume and just filling up the capacity that we have.” — Jeremy Evans, Chief Financial Officer (CFO) · 2026-08-11 The company closed a Faster facility in Canada and consolidated North American operations, driving efficiency benefits in the second half. Gross margin improved 280bps year-over-year to 34.6%, with a similar expansion in operating margin. Management reiterated its path to mid-20s EBITDA margins over time, though the immediate trajectory is more measured.

The balance sheet is now a competitive asset. Net debt fell to $264 million, and adjusted leverage dropped to 1.4x — well below the 1.5x–2.5x target range. This gives Helios the optionality to increase capital returns, invest organically, and pursue M&A. Indeed, capital allocation has shifted from debt paydown to "investing in organic growth opportunities" and "pursuing strategic acquisitions." The company repurchased $6 million of shares in Q2 and continued its 118-quarter dividend streak.

Risks: The Second-Half Comp and Macro Volatility

Management remains cautious about the second half, citing tougher comparisons (2025 ramps) and external headwinds such as energy costs, tariffs, and geopolitical risks. As Bagan noted on the prior call, “we do believe carrying that momentum from 2025 into 2026 is real” — Sean Bagan, Chief Executive Officer · 2026-03-03 — but that was before the full-year raise. The Q3 guidance (adjusted EPS $0.70–$0.77) implies only 2% growth at the midpoint, reflecting seasonality and the ramp of new wins. Still, the order book remains robust — July was the best month ever for both revenue and order intake, and the company has now seen four straight quarters of double-digit order growth.

The sustainability of the data center win remains the key upside catalyst. As CFO Jeremy Evans put it, "we would expect some sales in '27 and then a gradual ramp outward." If the hyperscaler validation cycles accelerate, Helios could be looking at a much larger addressable market than its traditional industrial niches. For now, the market has taken notice: HLIO stock is up 7% over the last 90 days, though still 18% off its 90-day peak — suggesting investors are watching the execution.