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helios technologies inc (NASDAQ:HLIO)
Q2 2020 Earnings Call
Aug 4, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Helios Technologies Second Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I would now like to turn the call over to your host, Deborah Pawlowski, Investor Relations for Helios Technologies. Thank you. You may begin.

Deborah K. Pawlowski -- Investor Relations

Thank you, and good morning, everyone. Welcome to the Helios Technologies second quarter and year-to-date 2020 financial results conference Call. On the line with me are Josef Matosevic, our President and Chief Executive Officer; and Tricia Fulton, our Chief Financial Officer. Josef and Tricia will be reviewing the results that were published in the press release distributed after yesterday's market close. If you do not have that release, it is available on our website at www.heliostechnologies.com. You will also find slides there that will accompany our conversation today. If you look through the slide deck on 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 also during 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 where we are today. These risks and uncertainties and other factors are provided in our earnings release as well as in other documents filed by the company 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 earnings release as well as in the slides.

So with that, it's now my pleasure to turn the call over to Josef. Josef?

Josef Matosevic -- President, and Chief Executive Officer

Thank you, Deb, and good morning, everyone. Before I begin on slide three, let me start by saying how excited I am to have joined Helios Technologies. It is a strong company with a bright future and innovative best-in-class legacy brands. I appreciate the Board of Directors providing with this opportunity to lead and advance Helios to its next level as we work toward our Vision 2025 strategy. In my first two months here, I have been impressed with the management team. They have demonstrated their customer focus, nimble, enterprising and energetic as we adapt to the unusual circumstances of COVID-19. We continue to serve our customers, developing new technologies and look to expand our addressable market, all while considering the safety and health of our employees. Throughout the organization, we reduced costs and improved efficiencies, even in the face of strong headwinds. In fact, we delivered results that exceeded our expectation, which we will talk about in more detail later in the presentation.

Our objectives through this pandemic is to stay focused and disciplined to continue to generate strong cash flow and, importantly, to navigate into a strategic position for growth as markets recover. Our efforts are supported by a very strong balance sheet. Even during these challenging times, we are continuing to invest in select strategic initiatives. We have several projects under way with OEM in the power sports, ag and construction markets. This includes an OEM pilot production of our new a software tool and MCx hydraulic controllers. We are creating innovative solutions that combine our strong electronics capabilities with our hydraulics controls, and these innovations are at the heart of our potential to grow organically. We are also addressing potential opportunities to diversify our end markets. I have been impressed with our controlled technology and have identified key customer prospects where we can create value through innovative solutions. While industrial markets continue to be challenged, we are seeing the beginning of a recovery in many end markets.

Please turn to slide four, and I will summarize our strategic business highlights for the second quarter. As everyone is aware, the COVID-19-related headwinds were quite strong in the second quarter given the efforts to contain the spread that stalled economies around the world. All of our factories are operational and despite some positive COVID-19 cases, we have been able to manage our supply chain and production capacity to meet our customers' demands. Through all of this, our management teams have been able to adjust quickly through the changing market and business dynamics. We rapidly implemented cost containment measures to address the economic downturn from the COVID-19 pandemic and continued our efforts to improve productivity. Due to the agility of both segments of the businesses, we performed better-than-expected in the Hydraulics segment, where the global ag industry has remained resilient, while the Electronics segment was able to achieve plan in a very challenging market conditions. Despite lower sales, the efforts of both segments enabled us to achieve a better-than-expected consolidated decremental adjusted operating margin of 32%. Additionally, we demonstrated our strong cash-generating capabilities and realized $25 million of cash from operations and $23 million in free cash flow. We used the cash generated to further reduce debt so that our net debt position improved by nearly $17 million, furthering our strong liquidity position and maintaining our 2.1 times net-debt-to-adjusted-EBITDA ratio.

Moving on to slide five and some financial highlights. Sales came in at $119 million in the second quarter, supported by shipments of past due orders in our Hydraulics segment. Our GAAP earnings per share was $0.40. The Hydraulics segment exceeded planned expectation and Electronics was able to meet their plans. Both sales and GAAP earnings per share beat our internal expectations. Also, both were lower than last year due to impact of COVID-19 and its effect on our business, customers and end markets. Operationally, we realized a healthy adjusted EBITDA margin and non-GAAP cash EPS relative to our sales volume by executing the planned cost savings and productivity initiatives we had identified.

With that overview, I will now turn the call over to Tricia to review the financial results for the second quarter and first six months of 2020 in a bit more detail. Tricia?

Tricia L. Fulton -- Chief Financial Officer

Thank you, Josef, and good morning, everyone. Let's begin on Slide six with a review of our second quarter consolidated results. While our global sales for the quarter were affected by the COVID-19 pandemic, the recovery we saw from most end markets and customers was faster than we originally thought it would be. April and May were difficult months from both a production and demand perspective, but we saw strong recovery in June orders and further growth in orders in July. APAC sales were a bright spot, showing growth in Q2 over last year of 3% as we continue to take market share in China. EMEA sales for the quarter declined 14% due to limited production capacity resulting from COVID-19, but was offset by a resilient ag market coming out of the shutdown, which has also continued into Q3. The Americas were more heavily impacted, down 30% due to the significant falloff in the Electronics segment in Q2, which was a clear trough in that segment. The remainder of the year for Electronics should rebound from Q2 levels. As previously mentioned, our pipeline for opportunities in this segment is significant and will drive growth in 2021 and beyond. Operational profitability was solid as a result of the cost reduction actions we took that included limited layoffs in our U.S. operations, compensation reductions by the Board and corporate officers and the measures executed across our operations to reduce costs in light of the lower demand. Those I've referred to are decremental margin of 32% on adjusted operating income. Our cost containment measures led to better-than-expected decrementals and adjusted EBITDA margin declined just 150 basis points to 22.6%. Please turn to Slide seven for a review of our Hydraulics segment second quarter operating results. Consistent with prior periods, I want to point out that cost not directly allocable to the segments, such as CEO transition cost and amortization, are not included in our operating segment numbers. They are accumulated in our Corporate and Other segment reported in the tables in the back of our earnings release and slides.

Sales for the Hydraulics segment declined 9%, excluding the impact of foreign currency, which had a $1.6 million unfavorable impact. From a geographic perspective, excluding the effects of currency, we saw 6% year-over-year growth for the quarter in the APAC region, reflecting strength in China as we take market share. This was offset by a 17% decline in the Americas and a 14% decline in the EMEA market, excluding the impact of foreign currency. The primary driver for the decline in the Americas and EMEA regions were softer end market demand due to the impact of the COVID-19 pandemic. Gross profit was impacted by the lower sales volume but gross margin benefited from the cost management initiatives, down only 60 basis points from last year to 36.7%. Operating income was also down on the lower top line, but operating margin expanded 30 basis points to 21.5% as a result of the cost containment efforts that reduced FDA expenses by $2.8 million.

Please turn to Slide eight for a review of our Electronics segment second quarter operating results. This segment was heavily affected in the quarter by the COVID-19 impact, with Q2 revenue down 43% from last year. Many OEMs shut down operations for some period during the stay-at-home conditions. On top of that, the oil and gas end market has been severely impacted due to supply imbalance and the dramatic fall off in demand. We also continue to experience some carryover from our intentional shift in customer base, which involve changes in certain contractual obligations. As previously referenced, although we immediately implemented many cost-saving measures and aligned our variable workforce to the lower demand, margins were nonetheless impacted by the large and immediate volume decline. Gross margin dropped only a couple of percentage points to 42.1%, but operating margin contracted 16.1 points to 5.5% of sales. This segment utilizes significant engineering effort related to future OEM projects, and we continue to invest to support these customer-focused solutions. Encouragingly, we saw improvement in orders in June, and there are select markets such as recreational marine that are seeing relatively strong demand throughout codes. Please turn to Slide nine for a view of our first half consolidated results.

Sales were down 13% compared with the same period last year excluding the unfavorable currency impact. For the first six months of 2020, sales to the Americas, EMEA and APAC regions were 43%, 28% and 29% of the consolidated total, respectively. Due to the uncertainty of COVID-19, we booked a goodwill impairment charge related to our faster business unit in Q1. This resulted in a GAAP loss per share of $0.99. Non-GAAP cash earnings per share were $1.11. Consolidated adjusted EBITDA margin declined just eight basis points to 23.1%, reflecting our cost management efforts as well as production efficiencies during the first six months of 2020. Please turn to Slide 10 for a first half review of our Hydraulics segment operating results. Sales in the Hydraulics segment declined 11% compared with the prior year period. Margins expanded despite the lower revenue. Gross margin increased by 60 basis points to 37.5%, and operating margin improved 30 basis points to 21.1%. This was the result of production efficiencies realized from the consolidation of our operations in Sarasota last year and the rapid actions taken to align cost with demand during this unusual COVID-19 pandemic. These achievements position us well in the economic recovery when we see top line growth in our end markets, which will drive further margin expansion.

Please turn to Slide 11 for a first half review of our Electronics segment operating results. Sales for the Electronics segment decreased 29% compared with the previous year. The decline was primarily due to a COVID-related reduction in demand, the falloff of the oil and gas industry and the intentional shift in customer base. Gross profit included a $900,000 nonrecurring benefit from the release of customer contractual obligations, resulting in a gross margin of 45.3%, a decline of just 50 basis points. Operating margin contracted to 13.3% for the 2020 year-to-date period, primarily due to reduced leverage of our engineering fixed cost base. Please turn to Slide 12 for a review of our cash flow and capitalization. In the first half of 2020, we generated $40 million of net cash from operating activities and $35 million of free cash flow, up from $21 million of free cash flow in the first half of 2019. In our second quarter this year, we generated $25 million of net cash from operating activities, resulting in approximately $23 million of free cash flow. Year-to-date capex is $5.2 million, down significantly from last year when we were investing in the manufacturing consolidation project and the engineering center of excellence. We are expecting capex to be in the range of $12 million to $15 million for the full year. We are continuing to invest in high priority and critical projects, but deferring other investments until economic conditions improve.

Regarding capitalization. In the second quarter, we reduced our gross debt by $7 million and our net debt by nearly $17 million. During the first half of 2020, we reduced our gross debt by $13 million and our net debt by approximately $28 million. At the end of the second quarter, our net-debt-to-adjusted-EBITDA ratio remained at 2.1 times, consistent with the trailing quarter and year-end 2019. We continue to have ample liquidity. At the end of the quarter, we had $37 million in cash over $205 million available on our revolving credit facility and the $200 million accordion, which is subject to certain pro forma compliance requirements. Last quarter, we talked about our scenario analyses, which considered annual sales declines ranging from 15% to 25% and demonstrated that we can continue to cover our operating cash needs. We validated that with our performance this quarter. These analyses also indicate that we can expect to maintain compliance with the covenants under our credit facility and remain cash flow positive for the year under all scenarios.

With that, let me turn the call back over to Josef to conclude our prepared remarks.

Josef Matosevic -- President, and Chief Executive Officer

Thank you, Tricia. Let me wrap up our prepared remarks by discussing our outlook on Slide 13 before we open up the lines for Q&A. Due to the continued uncertainty related to COVID-19, we will not be providing guidance for the year. Our conversations with our customers were more encouraging as we moved through June into July, giving us a better perspective on the expectations. However, our customers are cautious given the increased trend in cases, especially in the U.S. We do not expect to end the year at the low end of our scenario planning that consider drops in revenue ranging from 15% to 25%. Given the CVT business has caught up with its past dues, we expect third quarter will be the trough for the year, and the fourth quarter should improve from there. We're carefully monitoring market conditions and communicating with our customers on a daily basis to have a better understanding for the remainder of the year. In my earlier comments, I mentioned the importance of driving cash generation and reducing debt. We see this as critical to meeting our goals as we may act on opportunities with regard to M&A targets. We are developing additional value streams to augment our Vision 2025 strategy. These actions will leverage the strength and capabilities of Helios organization, including our well-respected brands our dedicated global employees and our strong balance sheet. We are in the final stages of refining these value streams with the operating businesses and will share them in due course. We believe the enhancement to the strategy will also provide greater clarity on the efforts required to accelerate our growth, specifically through our expansion into new end markets and new products as well as acquisitive growth. As we finish our strategic planning activities this fall, we will provide more details on how we expect to execute our growth strategy.

To close, I have been able to visit both Sun Hydraulics and innovation in person and engage with faster via video conferencing during this past quarter. I am confident in the abilities of our operating presidents to lead their businesses through the current economic challenges and drive long-term organic growth. I believe that we can leverage this solid foundation to become an even stronger Helios organization.

Now let's open up the lines for Q&A, please.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Please check with your question.

Jeffrey David Hammond -- KeyBanc Capital Markets Inc. -- Analyst

Hey, good morning to everyone. Sorry, if you covered some of this, I jumped on a little bit late. But can you just you talked about some of the past due backlog getting caught up. Can you just kind of level set us on where backlog is, either sequentially, how much it's down or down year-on-year? And maybe just walk through the order trends through the quarter and into July?

Tricia L. Fulton -- Chief Financial Officer

Yes. So let's start with the order trends throughout the quarter. We saw quite a big drop in orders in April, a further drop in May, which was the bottom for us, and we saw a significant pickup in June and further growth in July. So we're encouraged by what we saw in the June and July time frame from an order perspective as we go into Q3. With respect to the backlog, we still had past due backlog in our CVT business at the end of the quarter. We do expect to work through most of that past due by mid-Q3, so over the next couple of weeks. And at that point, we'll be shipping out of current demand for that business.

Jeffrey David Hammond -- KeyBanc Capital Markets Inc. -- Analyst

Okay. And then Electronics, certainly a lot weaker than what I had been modeling, and you cited a number of reasons. But at the same time, it seems like a lot of leisure end markets are being our pleasant surprise from a demand perspective. And so just give us a sense of kind of how you see the shape of that business into the second half with some of that solid demand on the leisure side. And then just maybe as you feather in kind of programs, some of this program changeover and when you start to see that business act a little better as you complete your transition.

Tricia L. Fulton -- Chief Financial Officer

Yes. So you're right. The recreational end markets were hit really hard in April and May because most of their OEMs were shut down during that period. However, the consumer demand has come back really strong in June and July, to the point that some of them are unable to keep up with the demand because of some supply chain constraints that they're seeing caused by COVID. Because of the shutdown, some of their new model rollouts in 2020 have been pushed to 2021, but we are encouraged by the continued demand that they're seeing in the recreational end markets.

Jeffrey David Hammond -- KeyBanc Capital Markets Inc. -- Analyst

And most of your new program wins are around, I guess, the original 2020 new models that now will get pushed?

Tricia L. Fulton -- Chief Financial Officer

Well, yes, we had some that got pushed out of 2020 into 2021, but we have not seen any change in the rollout dates of the 2021, which are really the more significant rollouts.

Josef Matosevic -- President, and Chief Executive Officer

So in summary, Jeff, really no cancellations in terms of the pipeline. The pipeline is full, and there has been numerous discussions just for pre-planning purposes and just staying firm that 2021 will be the rollouts and some may be pushed ahead into Q4. So that's we'll be monitoring very closely.

Jeffrey David Hammond -- KeyBanc Capital Markets Inc. -- Analyst

Okay, thanks. I'll get back in queue.

Operator

Our next question comes from the line of Brian Drab with William Blair. Please check with your question.

Brian Paul Drab -- William Blair & Company -- Analyst

Just on those programs in Electronics, can you spend another minute talking about in any way quantifying where we are with those now and the potential impacts? Next year, how many programs are we talking about? Is there potential for in a more normal macro environment for that segment to really snap back hard in 2021?

Josef Matosevic -- President, and Chief Executive Officer

Yes. So when we look at as mentioned previously a second ago, Brian, here, the funnel is really the pipeline is really full. And if you look at across the spectrum of the 25, 30, 35 new NPIs, they're going to go-to-market into 2021, only three are questionable, will they happen or will they not happen. So there is a good level of confidence here that what was committed to, and in some cases, funded or prefunded will happen in 2021 with the rollout starting, in some cases, as early as Q4, but certainly Q1 into 2021.

Brian Paul Drab -- William Blair & Company -- Analyst

Okay. And there's 20 to 25 NPIs and what what is a typical year look like if you can just remind me how many I guess there are not too many this year, just for frame of reference?

Tricia L. Fulton -- Chief Financial Officer

Yes. I mean there were definitely less in 2020, and we knew that going into this, and we talked about it on earlier calls that this was a bit of a lull in that production cycle. Certainly, what we see for 2021, 2022 and even into 2023, are very strong product development years in this business. We're starting to roll out some pretty significant programs beginning in 2021.

Brian Paul Drab -- William Blair & Company -- Analyst

Okay. And how are you thinking about further cost cuts and potential impact on decrementals in the third quarter? What are you expecting decremental to be in the third quarter? I don't know if you can comment on that since you're not guiding.

Tricia L. Fulton -- Chief Financial Officer

Yes. I'm not going to comment specifically on decrementals for Q3. But in looking at the full year, we expect the decrementals to be somewhere around 40%. We saw some challenges, with Q3 being the trough in the Hydraulics segment from a decremental perspective. And certainly, we know from this business that it rebounds very quickly when we come out of it, and we believe that we're starting to see the beginning signs of coming out of it. So we don't want to significantly change our cost structure, so we're prepared for that. But in anticipation of a lower Q3, we do have some things planned in the CVT business that have been announced to the employees already, including a 1-week shutdown in early September and then moving to rolling furlough programs in that business once we work through the past due orders and are working off actual demand until we start to see what we expect to be a Q4 pickup in demand.

Brian Paul Drab -- William Blair & Company -- Analyst

Okay, got it. Thanks for taking my questions.

Operator

Our next question comes from the line of Mig Dobre with Baird. Please check with your question.

Nathan Hardie Jones -- Stifel, Nicolaus & -- Analyst

I want to go back yes. I want to go back to where Jeff kind of started us off here. And I got to be honest with you, I've struggled for a few quarters, not to try to understand exactly all the moving pieces to what's been happening with your backlog. And it seems to me like we're to the point where this is becoming a really important dynamic to really kind of have good perspective on because it not only informs Q3, but Q4 and progression into 2021. So I guess my question to you, Tricia, is as you're looking at Q2, can you tell us where you started the quarter in terms of backlog, dollar backlog and where you exited? I'm trying to understand how much backlog contributed to Hydraulic segment revenue, backlog burn or reduction or conversion, however you want to call it.

Tricia L. Fulton -- Chief Financial Officer

Yes. We don't give backlog numbers, but I'll give you a little bit of color on the backlog. So at least the past due portion backlog, we always have backlog in this business, but let's focus on the past due portion. So if we look at where we ended Q1 from a past due perspective in the CVT business, we were able to ship about half of that in Q2, and we expect to work through the other half of it in Q3 by mid-August.

Mircea Dobre -- Robert W. Baird -- Analyst

Well, yes. But if this past due is $2 million, then essentially, it really didn't impact the quarter all that much. If the past it was $50 million, using an extreme example here, then this would have been a really material impact. So maybe to ask this question differently, if you were to look at your reported organic decline of, call it, 9%, how do you think you fared versus the industry more broadly? Or maybe even comment on your Americas business because I know you get data from the Fluid Power Association so that you compare your trend to the broader industry. Can you tell us what the delta was?

Tricia L. Fulton -- Chief Financial Officer

So we've performed better than the NFPA numbers would indicate in the Americas. So we believe that this past due is really pent-up demand that we saw. And it would have been in a prior period if we were able to ship it. We had very few cancellations, if any, in that business. So I think that we're going to be catching up now to where we should be. And if you'll recall that the book-to-ship cycle in that business is generally very short, so we're not used to having this level of past due backlog that we've seen for many quarters. Some of that was a little self-inflicted as we went through the manufacturing consolidation project. But certainly, I think we saw significantly more demand during that time period that we built up this backlog than our competitors did, and that was reflected in our ability to exceed what the NFPA numbers were showing, at least in the North American market.

Josef Matosevic -- President, and Chief Executive Officer

Yes, Mig, maybe just an additional data point here that may help you get you to ease in answering some of your questions. So if you mentioned numbers between $2 million and $50 million in terms of past to backlog, it was clearly in the single digits. So our strength in the Q2 was clearly not based on 80% or 90% shipping past to backlog, so that number was in the single digits. But if you look at the pattern of the orders here, like Tricia said a few minutes ago, we the order scale off the cliff in April, about bottomed out in May, we saw a significant recovery in June, and July was even better than June. So and that leads us to believe that we need a couple more data points into August in the first half of September to have a firm understanding, and that was the largest driver for us not being comfortable enough to give guidance. So there's no hidden skeletons here, there's no 80% past due backlog shipping. That's exactly where it is. So I hope they will answer some of your questions and get you these.

Nathan Hardie Jones -- Stifel, Nicolaus & -- Analyst

When you're Josef, when you're saying single digits, am I to understand is that single-digit millions or that single-digit contribution to growth?

Josef Matosevic -- President, and Chief Executive Officer

Yes, single-digit million, Mig.

Mircea Dobre -- Robert W. Baird -- Analyst

Single-digit millions. Okay.

Josef Matosevic -- President, and Chief Executive Officer

Yes.

Mircea Dobre -- Robert W. Baird -- Analyst

And then OK. And then when back-to-order trends, so May was truly marks the bottom in terms of orders, and then you've seen a sequential improvement in June. Can you give us a sense whether or not June was still down year-over-year or was it actually up year-over-year in orders?

Josef Matosevic -- President, and Chief Executive Officer

So certainly, Mig. So year-over-year number was still down.

Mircea Dobre -- Robert W. Baird -- Analyst

No doubt. Okay.

Josef Matosevic -- President, and Chief Executive Officer

Year comparing to previous year, correct.

Mircea Dobre -- Robert W. Baird -- Analyst

And we are to understand that as you're looking at July and August and such into Q3, the magnitude of the decline in order intake essentially exceeds the reported revenue decline in Q2?

Josef Matosevic -- President, and Chief Executive Officer

That is correct, Mig.

Mircea Dobre -- Robert W. Baird -- Analyst

Okay. I'm sorry for all the questions here. I'm just I, for one, I'm a little bit confused as to all the moving pieces here, which is why I'm trying to kind of understand what's going on. And then my follow-up here for you, Tricia, maybe, as we're thinking about the seasonality of this business and sort of recognizing that this is a very strange year, certainly not normal here. But my reflection is that the fourth quarter can sometimes be a seasonal downtick in revenue just based on production schedules and such into December and whatnot. I guess I'm wondering how you're thinking about that knowing what you know today. Do you think there is enough kind of end market momentum and maybe some catching up on production to support 4Q or should we kind of think about normal seasonality here?

Tricia L. Fulton -- Chief Financial Officer

Yes. It's not going to be a normal seasonality. I don't think. If we look at the first half versus the second half, I know we're not giving guidance, but we're trying to help you guys understand, at least what we're seeing right this minute when there's still some uncertainty, clearly, around that. But if we look at first half, second half, we're about 50-50, with the first half being a little bit better than the second half from a total revenue perspective. So knowing that we have stated that Q3 is our trough, that would lend itself to a higher Q4, which is not, as you stated, for us, normal seasonality. But given what we're seeing in the end markets and our expectations for the pickup in demand in the back half of the year and then going into 2021.

Mircea Dobre -- Robert W. Baird -- Analyst

Got you. So fourth quarter, a little bit better. Okay. Very helpful.

Josef Matosevic -- President, and Chief Executive Officer

Thanks, Mig.

Operator

Our next question comes from the line of Joe Mondillo with Sidoti. Please check with your question.

Joseph Logan Mondillo -- Sidoti & Company -- Analyst

So I think Mig dug pretty deep there, but I was just wondering if I could go maybe one step further. Is there any way you could actually provide the April through July monthly year-over-year order changes? I mean that would give us a pretty good indication of what degree, I mean we're sort of throwing darts or just guessing at what kind of order decline you're seeing outside of that past due backlog.

Josef Matosevic -- President, and Chief Executive Officer

Yes. Certainly, Joe. Look, I think you will understand that we can't get into specific numbers month by month. But I was very genuinely here summarizing and giving you guys pretty much what you need to have for your models. And once again, the story is, the way that data is rolling up now and the orders are coming in pretty much across the board, is April really fell off the cliff, May bottomed out, and June came back in a vengeance, and July was even stronger. So the data points are clearly pointing to a some sort of recovery. And when you speak with the OEM customers, when you speak with the distributors, you get a mixed bag, some of them are pre-ordering, some of them are going really strong, many are just cautious just by the uptick in cases here in the U.S. But as we discussed this internally here, I was not quite comfortable getting out there with the guidance, not having a couple more data points. So I genuinely mean what I say. We are well-positioned here. I have no data that points into another depth, just the contrary. But we just want to watch it another four to six weeks, and to have a better understanding and a firmer perspective. So that's kind of where we are, Joe.

Daniel Marcus -- VP Sales Marketing

Okay. Understood. As far as the gross margins that you saw at the Electronics segment in the second quarter, is there any way you can help us understand how to think about the back half of the year, going into 2021? The gross margin was weaker than I was looking for, should we is there a reason to believe that the gross margins would rebound in the second half or just or stabilize? Or just try to give us any information that you have that point us in the direction of what kind of margins to expect potentially directionally at the very least in the back half for Electronics?

Josef Matosevic -- President, and Chief Executive Officer

Yes, certainly, Joe. I will start and then hand over to Tricia for some numbers here. But the primary so the answer to your question is, yes, we will protect the profitability and the gross margin. We have made the decision to hold on to certain layers in the organization due to the fact of the strong innovation pipeline we've seen and then also dovetails into the four additional value streams that I outlined in my prepared remarks, one of them being the organic growth piece that will drive additional business in a diversified market, so diversifying our market position, and we needed to hold down to a certain portion of engineering and innovation folks to get us ready to launch that. So but overall, the answer to your question is will we protect profitability, yes, we will.

Tricia L. Fulton -- Chief Financial Officer

Just to add a little bit more color, Joe. Q2 was the trough for the Electronics segment, and we took a pretty hard hit in the first couple months of that quarter. So to Josef's point, we expect to see top line increase, and we will be able to protect that profitability and go back to the higher gross margins. Now keep in mind that Q1 does have the impact of the contractual obligations in it from the onetime buys, so that will not be a repeatable event, but we will definitely expect to see margins go back up in this segment as we roll through and are able to increase the top line revenue off of where we were in Q2.

Joseph Logan Mondillo -- Sidoti & Company -- Analyst

Okay. And Tricia, your comments on the decrementals of 40%, was that for the overall company in general going forward?

Tricia L. Fulton -- Chief Financial Officer

That was for the overall company for the year.

Joshua Charles Pokrzywinski -- Morgan Stanley -- Analyst

Okay. And last question, just in regard to how you're managing your cost structure through all of this and given the moving pieces and the past two backlog that's held up your production, at least through the second quarter, where are you with managing the cost structure? Do we see I mean you mentioned furloughs and a one week break in September at CVT. Are there other things that you're doing? Or where are we with the cost structure? And is there any costs coming back in the third quarter? It doesn't sound like there would be, but could you just help us understand what you're doing on the cost side?

Josef Matosevic -- President, and Chief Executive Officer

Yes, certainly. So look, across all the three business units, very detailed planning cycles and discussions. One of the strength of Helios truly is that planning cycle and been resilient and understanding if the volume is not coming our way, here are the levers we need to pull. So plans have been on the shelves. We have modeled three different scenarios, 10% down, 15% down and 25% down. And as we see the top line flexing, the cost will come out of the business in terms of furloughs, in terms of reducing the hours in the factories, watching our spending very closely, travel, by nature, has fallen off, obviously, due to the situation. But in summary, Joe, there have been good plans on the shelf for the three scenarios that I've outlined, so we are prepared to do whatever it takes to protect our profitability. And in effect, we will protect our profitability.

Joshua Charles Pokrzywinski -- Morgan Stanley -- Analyst

Okay. Thanks for taking my questions. Good luck. Thank you. Once again

Operator

[Operator Instructions] Our next question comes from the line of Nathan Jones with Stifel. Please check with your question.

Adam Michael Farley -- Stifel, Nicolaus & Company -- Analsyt

This is Adam Farley on for Nathan. I wanted to talk about the regional sales dynamics. The Americas declined the most, followed by EMEA, and APAC actually showed growth. I think you mentioned share gains there. So first part of that is, do you believe there's any pent-up demand in the APAC region? And do you believe these levels of revenue are sustainable going forward?

Tricia L. Fulton -- Chief Financial Officer

I don't think there's any pent-up demand in APAC. I think the demand coming out of COVID has been strong and has gone up to pre-COVID levels. And in some cases, we expect to exceed our original budgets in those region in parts of that region. So I don't think it's pent up, I think it's actual demand coming out of APAC.

Adam Michael Farley -- Stifel, Nicolaus & Company -- Analsyt

Okay. And then what do you think it would take for the Americas to follow the pattern in APAC? Again, I know there's a lot of share gains in China specifically, but as the economy is growing forward and roll up, do you think you'll see gradual improvement regionally?

Tricia L. Fulton -- Chief Financial Officer

So in the Americas I mean Q2 was clearly hard hit on the Electronics segment because about 85% plus of that business is in the Americas, so that was overall driving that down a bit. I think what we're seeing out of CVT on the distributor side, in the Americas specifically, is taking a step back to make sure that they understand where are we with our inventories in this cycle, where are we with our OEM demand, and we believe that coming out of this, we'll have a stronger Q4 as a result of that. But I think we started to see a little bit of that low in Q2 in the Americas on the CVT side and then the Electronics was just a reaction to the shutdown of COVID.

Adam Michael Farley -- Stifel, Nicolaus & Company -- Analsyt

Okay. Then shifting over to end markets, I guess you highlighted a pretty resilient bag market. What's driving that relative strength? And maybe some more color on which end markets are doing better and what you're doing worse on a relative basis?

Tricia L. Fulton -- Chief Financial Officer

Ag was very strong coming out of 2019, and we expected to have that continued throughout the year. We saw a little bit of a lull clearly when we had all the shutdowns in Europe and the ag markets there. But as we've come back out of it, we've seen that same pickup that we started to see in Q1. We believe that some of our OEMs are actually going to be better than we anticipated for the year. So clearly, we're happy to see that, that market has continued to grow as we've gotten through a lot of the COVID shutdowns.

Adam Michael Farley -- Stifel, Nicolaus & Company -- Analsyt

Okay. Then any other end market strength or weakness construction? I know oil and gas is weak.

Tricia L. Fulton -- Chief Financial Officer

Yes. I mean I think we've been happy with the what we've seen on the recreational side from an end market perspective. Even though it was hard to hit, it's coming back pretty nicely. Clearly, demand in China for us has been strong, and that's primarily on the industrial application side in wind power. Those are really the most too resilient. We've started to see some pickup also in the Americas on the construction side with some of the customers, but we're seeing mix signs globally on the construction piece.

Operator

There are no further questions left in the queue. I would like to turn the call over back to Josef Matosevic for any closing remarks.

Josef Matosevic -- President, and Chief Executive Officer

Thank you for your participation this morning and your interest in Helios Technologies. Also, I would like to extend a very genuine thank you to all of our hard-working Helios employees who are driving these results. We look forward to updating all of you on our third quarter in November. Have a great day, and stay healthy and safe, please.

Operator

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Duration: 49 minutes

Call participants:

Deborah K. Pawlowski -- Investor Relations

Josef Matosevic -- President, and Chief Executive Officer

Tricia L. Fulton -- Chief Financial Officer

Jeffrey David Hammond -- KeyBanc Capital Markets Inc. -- Analyst

Brian Paul Drab -- William Blair & Company -- Analyst

Nathan Hardie Jones -- Stifel, Nicolaus & -- Analyst

Mircea Dobre -- Robert W. Baird -- Analyst

Joseph Logan Mondillo -- Sidoti & Company -- Analyst

Daniel Marcus -- VP Sales Marketing

Joshua Charles Pokrzywinski -- Morgan Stanley -- Analyst

Adam Michael Farley -- Stifel, Nicolaus & Company -- Analsyt

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