Earnings call transcript: hGears AG reports mixed Q2 2025 results

hGears AG’s Q2 2025 earnings call revealed a mixed performance as the company reported a slight decline in sales and gross profit, while adjusted EBITDA more than doubled. Despite operational challenges, the company remains cautiously optimistic about future market conditions. The stock saw a modest decline of 2.21% following the announcement. According to InvestingPro analysis, the company’s overall financial health score stands at 1.45 (WEAK), with particularly concerning metrics in profitability and cash flow. The stock currently appears undervalued based on InvestingPro’s Fair Value calculations.

Key Takeaways

• Total sales decreased by 1.8% compared to the previous year, reaching €49.5 million.
• Adjusted EBITDA more than doubled from the previous year, reaching €1.1 million.
• The E-Tools segment showed significant growth, increasing by 19.4% year-over-year.
• The company reduced operating expenses by €700,000 and personnel costs by €1 million.
• hGears AG remains committed to its 2025 guidance despite current challenges.

Company Performance

hGears AG’s overall performance in Q2 2025 was marked by a slight decline in key financial metrics, reflecting the ongoing challenges in the bicycle and automotive sectors. The company reported a total sales decline of 1.8% year-over-year, while adjusted gross profit fell by 4.1%. Despite these declines, adjusted EBITDA more than doubled from the previous year, indicating improved operational efficiency.

Financial Highlights

• Revenue: €49.5 million (1.8% decrease year-over-year)
• Adjusted Gross Profit: €22.6 million (4.1% decline year-over-year)
• Adjusted EBITDA: €1.1 million (more than doubled from previous year)
• Gross Profit Margin: 45.6% (110 basis points decline)
• Free Cash Flow: -€2.3 million (compared to -€1.7 million last year)

Outlook & Guidance

For the full year 2025, hGears AG projects group revenues between €80-90 million and an adjusted EBITDA ranging from -€4 to -€1 million. The company anticipates potential market stabilization in 2026 and is cautiously optimistic about maintaining current levels in the E-Tools segment.

Executive Commentary

CEO Sven Arendt emphasized the company’s commitment to its 2025 guidance, stating, "We remain committed to our 2025 guidance." He also noted initial signs of market recovery, saying, "We are seeing some initial signs that the trough may have been reached." CFO Daniel Balzock highlighted the importance of financial stability, declaring, "Cash is king."

Risks and Challenges

• The bicycle industry continues to struggle with inventory clearance, impacting sales.
• The automotive sector faces structural challenges, affecting the E-Mobility segment.
• Potential U.S. trade tariffs create uncertainty in the global market.
• Free cash flow remains a concern, with negative figures reported.
• Market recovery is anticipated but not guaranteed, posing a risk to future performance.

While hGears AG faces several challenges, its strategic focus on cost reduction and operational efficiency, coupled with growth in the E-Tools segment, provides a foundation for potential recovery. The company remains vigilant in navigating the uncertain market landscape as it progresses through 2025. Trading at a Price/Book ratio of 0.36 and maintaining a current ratio of 1.19, the company shows some financial stability despite its challenges. InvestingPro subscribers can access detailed valuation metrics, comprehensive financial health analysis, and expert insights through the exclusive Pro Research Report.

Full transcript - hGears AG (HGEA) Q2 2025:

Judith Van Rieder, Chorus Call Operator, Chorus Call: Ladies and gentlemen, welcome to the HGARS H1 Results twenty twenty five Conference Call. I’m Judith Van Rieder, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast.

At this time, it’s my pleasure to hand over the conference to Christian Weiss, Head of Investor Relations.

Christian Weitz, Head of Investor Relations, HKES: Good morning, everybody. This is Christian Weitz, Head of Investor Relations of HKES, and I’m looking forward to present to you together with Daniel Balzock, our CFO and our CEO, Sven Arendt, the first half twenty twenty five results. Then and Daniel will walk you through our first half results and take your questions in the Q and A session afterwards. Earnings materials are available in the Investor Relations section on our website if you not have yet received them. Before we start, I’d like to draw your attention to the disclaimer on Slide two, which sets out the legal framework under which this presentation must be considered and which I will assume you have read.

And with that, I’d like to hand over the call to Sven Arendt, our CEO.

Sven Arendt, CEO, HGARS: Thank you, Christian. Good morning, and welcome to everyone joining our first half twenty twenty five earnings call. Despite the fact that overall market conditions remain challenging, HGIS delivered solid results for the 2025. We benefited from the production brought forward into the first half, supported by streamlined structures and cost measures. In e Tools, the positive trend continued, and the business area remained the bright spot in our top line performance.

The strong development in the e Tools business area largely, though not fully, compensated for the slight decline in e Mobility and the anticipated drop in e bike sales. Meanwhile, we continue to streamline our structures and reduce costs, and these measures are increasingly visible in our profitability. In addition, we anticipated some production volumes originally planned for the second half into the first half of the year. This allowed us to increase utilization and improve the efficiency of our equipment while reducing start stop costs, all of which also had a positive impact on profitability. Daniel will later take you through the financials, which illustrate the positive impact of our actions, improving profitability and making us more resilient.

But let me be clear here, these volumes will not be available in the second half, so please do not simply double first half results and assume that that will be our full year performance. At this stage, we want to reiterate that we remain fully committed to our 2025 guidance. Given the challenging environment of persistent geopolitical uncertainty and trade policy hurdles, including the potential new U. S. Tariffs, uncertainty remains high.

In this context, we do not expect a recovery in our customers’ end markets for the remainder of the year as these factors continue to weigh on demand. We stay focused on cash preservation and on our stable balance sheet positions as well to weather the storm. We remain confident about the positive outlook once inventories in the e bike industry are cleared and the temporary challenges in the automotive sector are resolved. As you know, e Tools has stabilized at improved levels. Let’s now move to Slide four for a look at HGEAR sales development in the first half of the year.

On Slide four, you can see the sales performance of our business areas in the past quarters. The e bike business area remains under pressure due to sluggish development of the overall bicycle industry, which is still struggling to clear excess inventories along the entire supply chain. This process is taking longer and is proving more challenging than most market participants and experts, including ourselves, anticipated. We do not expect a meaningful improvement for the remainder of the year. However, we are beginning to see encouraging early signs that could point to a light recovery in the bicycle and e bike industry during the course of 2026.

This suggests that we may be close to or have already reached the trough. In a challenging automotive environment, the e mobility business area declined only slightly. However, the sector may increasingly feel the impact of structural issues in the Western Hemisphere’s automotive industry and tariffs imposed by the new U. S. Administration could further exacerbate these challenges.

Our focus on the luxury and sports car segments, which typically prove more resilient, helps cushion negative effects. However, while some inventory adjustments may occur toward year end, we remain cautiously optimistic about this business area. As in previous quarters, the e Tools business area remained the bright spot. We remain cautiously optimistic that the business area will hold at current levels. That said, as with the e Mobility business area, we are aware of potential headwinds from U.

S. Trade policy going forward. We’ve covered the key highlights, and now it’s time for the numbers. Daniel will do his best to make them as engaging as possible.

Daniel Balzock, CFO, HGARS: Thanks, Sven, and good morning, everyone. From my side, I know that in analyst calls, the numbers are as interesting as the story. So let’s dive in. Let’s turn to Slide six, where we all we will see with revenues before we move to profitability. At EUR 49,500,000.0, aged care sales for the 2025 were just 1.8% below last year’s figures of €50,500,000 Second quarter sales matched the prior year level, thereby showing a slight sequential decline of 2.5%.

Revenues in the eBack business area declined by another 28.6% in the 2025 compared to the same period last year. And even sequentially, the business area recorded another drop of 14.8. Given the ongoing depletion in the bicycle industry, we do not expect a near term recovery and volumes brought forward into the first half will further weigh on quarterly performance for the remainder of the year. EMobility recorded in the first half twenty twenty five three percent lower sales in the year over year comparison and as shown on Slide four, sequentially it lost 4%. That said, our order book in this area has remained very stable since the beginning of the year and we continue to see pipeline of interesting future projects, which gives us confidence in the longer term outlook for the e mobility business area.

The recovery of EPO’s business area continued in the second quarter of the year. In the 2025, the segment grew by 19.4% compared to the same period last year and posted a sequential increase of 5.5% in the second quarter. The main driver of this solid performance was the Gardening segment. However, we remain mindful that existing and potential U. S.

Trade tariffs could act as headwind and may limit the pace of volume growth in this business area. With that on the market and demand side, let’s turn to profitability and have a look at the gross profit and gross profit margins in the middle chart of the slide. Adjusted gross profit came in at €22,600,000 down 4.1% year over year. This decline was mainly driven by 1.8% drop in revenues, a softer sales mix and ongoing startstop inefficiencies. To improve capacity utilization and reduce these inefficiencies, we brought forward production volumes mainly in the eBack business area from the second half of the year into the first one.

However, this was not enough to fully offset the less favorable product mix. The adjusted gross profit margin therefore declined by 110% basis points year over year, reaching 45.6% in the first half, slightly below our 50% target, a gap we are actively addressing. Finally, on the right side of the slide, you see the chart depicting the adjusted EBITDA and adjusted EBITDA margin. Despite lower gross profit and continued lack of operational leverage, we improved our adjusted EBITDA to $1,100,000 in the 2025, more than double last year’s level, albeit from a very base from a very low base, of course. This improvement was primarily driven by savings of around $1,000,000 in personnel costs along with the reduction of OpEx of €700,000 These figures clearly reflect the impact of our rigorous cost saving efforts, which led to meaningful structural improvements.

That said, that job is not done yet. We continue to look for further efficiencies and opportunities to improve our profitability. The next slide provides us with an overview of the free cash flow bridge for the first six months and our working capital. And as I always repeat, cash is king, so the next slide is the Royal Palace. So please flip to Slide seven.

Here we can see what shapes our free cash flow in the last six months versus the same period of a year ago. While the significantly better non adjusted EBIT had a positive impact on operating cash flow, this was partially offset by seasonal buildup of net working capital, mainly of receivables due to a higher share of eTools sales at the end of the reporting period, which with contractually agreed longer payment terms. The CapEx spending in the first six months of 2025 was €1,200,000 higher than last year, but the explanation here is actually a very low base of first half twenty twenty four rather than overspending in 2025. In the first half of the previous year, we generated €800,000 from asset disposals. Excluding that one off gain, the year over year increase would have amounted to €400,000 With total CapEx spending in the first six months of €1,300,000 we remain below our 3% threshold for maintenance CapEx, reflecting our disciplined approach to investments.

At the end of the day, the free cash flow came in at negative $2,300,000 compared to negative €1,700,000 last year, a respectable outcome all things considered. Furthermore, we show here the development of our working capital, which decreased from $9,800,000 in the previous year to $8,600,000 at the June 2025. Please note, however, that this year over year reduction should not be confused with the seasonal buildup I mentioned earlier between December 24 and June 25. So this decline year over year of 12.2% is clearly steeper than the 1.8% year over year decrease in revenues, and it underlines that we continue to optimize our balance sheet. So let’s move to the next slide to take a closer look at the additional balance sheet items.

Our net debt increased by €900,000 compared to the previous quarter, primarily due to new long term leasing liabilities for equipment. Hence, the leverage ratio significantly declined due to increased profitability in the last twelve months. Cash and cash equivalents stood at €9,400,000 at the June, that’s down from €17,100,000 at the year end. But one important point to know. In the second quarter, we deliberately made less use of our available credit lines by €5,000,000 to reduce interest costs.

These credit lines remain fully available if needed. If we were to include the undrawn credit lines, our cash position at the June would have been $14,400,000 compared to $17,100,000 at the year end 2024 when all available credit lines were drawn. Our equity ratio at 47.8% at the end of the first half twenty twenty five compared to 49.4 at year end 2024 remains to be solid. That solid capital base gives us the flexibility to navigate the current environment. And here comes of course my mantra, you’ve probably heard me say the last few years, cash is king and we will continue to make an utmost effort to preserve it and to remain in a good position to manage the ramp up once market conditions improve.

Now let me hand back to Sven for the outlook and his closing remarks.

Sven Arendt, CEO, HGARS: Thanks, Daniel. All right. Let me try to bring all of this together in a quick summary. Our balance sheet remains stable and should enable us to navigate the current uncertainty. The structural adjustments, cost discipline and personnel measures we implemented over recent quarters are now bearing fruit as reflected in the figures presented today.

That said, we remain committed to driving further efficiency gains with a proactive and hands on approach. We’re seeing a slight and steady recovery in e Tools, which may, however, stumble due to U. S. Tariffs. Meanwhile, our e Mobility division continues to demonstrate resilience despite increasing pressure in the automotive industry and the market conditions to remain challenging.

In the Bicycle segment, inventory levels appear to be gradually normalizing. While it is still early, we are seeing some initial signs that the trough may have been reached and that a gradual turnaround could begin to take shape over the course of 2026. And yes, we had a somewhat better first half, but let’s be clear, this was supported by production volumes that we were pulling forward from the second half. It goes without saying that these volumes will obviously be missing in the coming quarters. So please don’t make the mistake of simply dubbing the first half year results and assuming that’s our full year performance.

Nonetheless, we feel comfortable with our 2025 full year guidance, which predicts group revenues of 80,000,000 to €90,000,000 and adjusted EBITDA of minus €4,000,000 to minus €1,000,000 a free cash flow of between minus 6,000,000 and minus €2,000,000 This concludes our review of the first half twenty twenty five. I would now like to hand the line back to the operator to open the call for the Q and A session.

Judith Van Rieder, Chorus Call Operator, Chorus Call: Thank you. We will now begin the question and answer session. Our you. First question comes from Jordi Drankos of

Srudhorn, Analyst, ABN AMRO: Hi, good morning. So, Srudhorn from ABN AMRO, also speaking on behalf of Martin. And I would like to take my questions one by one, if that’s okay. Sure. Thank you.

The first question, can you talk a little bit about destocking in e bike and why you assume that it will end in the latter part of 2025? And furthermore, if European stock levels normalize and production at e bike drive systems improves, what kind of growth in e bike in 2026 at age gear should we expect versus 2025?

Sven Arendt, CEO, HGARS: Okay. I mean, destocking is taking place. I think there were some publications also of the Bicycle Association in Germany, probably since around the middle of last year. The one thing that was unclear is how much stock is actually in the pipeline, but we are getting feedback from our customers that they see stocks slowly reducing. Of course, that will vary greatly from manufacturer to manufacturer.

We have not seen any further reductions in call offs, and that’s why we think things are stabilizing. That was different than previous years, but of course, we are at a very low level right now. Due to this whole mix of different situations by bicycle manufacturer, I think it’s impossible right now to really comment on when will it turn around and by how much. That is something that I think the next few months will show as the planning will take place for all the players in the market for 2026, but that will still be a few months before we have some clarity on that.

Srudhorn, Analyst, ABN AMRO: Okay. Thank you. And one follow-up question on that. What kind of assurance does HDRs have that large clients just don’t internalize more? Porsche, for example, has its own facility in Italy?

Sven Arendt, CEO, HGARS: Yes. But I think it’s contractual commitments basically on the customers, even with the ones that have in house alternative production that is typically a quota tied to the contract. So in the end, we believe everybody is really sticking to those quotes and quotas and to those numbers. And that has been reconfirmed also by all the customers.

Srudhorn, Analyst, ABN AMRO: All right. Thank you very much. Then my next question is how much production volume have you brought forward from H2 twenty twenty five or 2026 into the 2025? Can you maybe quantify that a bit even in rough terms?

Sven Arendt, CEO, HGARS: Yes. It’s only out of 25,000,000 to be fair, and it’s around €3,000,000

Srudhorn, Analyst, ABN AMRO: All right. Thank you very much. And if so if production volume in H2 is material lower than H1, what cost measures can you still take to support the gross profit and adjusted EBITDA?

Sven Arendt, CEO, HGARS: In the end, the concept concept was really to have a short time program again in Germany, so that we basically have, like we mentioned earlier, concentrated production, not stopping and starting the line so often. So right now, we have a very quiet period with even planned shutdowns for a week or two weeks. And then basically, as we’ll go back into ramp up, we’ll normalize again. So those are really the measures, of course, and then to also control the cost during those months.

Srudhorn, Analyst, ABN AMRO: All right. Thank you very much. The next question is about free cash flow. It was more negative in H1 twenty twenty five than expected, driven by higher seasonal working capital outflow. Why was the seasonal effect stronger this year?

And what should we expect from the working capital in the second half of the year?

Daniel Balzock, CFO, HGARS: No, the effect was actually not stronger. And as I mentioned during the we were able to reduce the net working capital in comparison to June more than the sales reduction despite, I mean, assuming both of the volumes brought forward. So we expect by the end of the year and this is basically our normal seasonality that in the first part of the year, the free cash flow is worse than in the second part of the year due to also ramp up of inventories towards the sell off in the summer seasons when both of the European plants have their long vacation. So that being said, we do expect till the end of the year to improve the free cash flow and to stay on that level at least and to make sure that we are also reaching the guidance for the full year.

Srudhorn, Analyst, ABN AMRO: All right. Thank you. Then about CapEx, the capital expenditures were higher last year at EUR 1,300,000.0 or were higher than last year at 1,300,000.0 versus EUR 900,000.0 in 2024. Why is the capital expenditure higher if the sales volumes are lower? And what should we expect for the second half in 2026?

Daniel Balzock, CFO, HGARS: Yes. As I mean, the vast majority of the CapEx in the first part of twenty twenty five was maintenance CapEx. And the maintenance CapEx is less predictable, I would say, than the CapEx for new projects. It was slightly higher in the first half of this year versus last year due to some unexpected maintenance that we were forced to do also due to the fact that we brought forward some of the volumes. We do expect for the full year in the second part of the year to see a lower level of CapEx in comparison to the first part of the year.

So it will definitely stay below 3,000,000 for the full year.

Srudhorn, Analyst, ABN AMRO: All right. Thank you very much. My second to last question. The decision to repay the expensive credit lines makes sense from a savings perspective. Do you have plans to further increase liquidity by pledging Chinese or Italian assets?

Or do you feel comfortable with the current financing in place?

Daniel Balzock, CFO, HGARS: We are always working on optimizing also this type of balance sheet position, and we have, of course, a plan on how we would like to reduce our interest expenses and from one side, from the other side, still to have the flexibility from the financing partners to have once the markets are recovering. So I think the level of interest expenses in the 2025 represents the current level of lenders that we have. And we are working on optimizing it and making sure that we have enough flexibility also in the following years to maintain the current level and to ramp up the business once the markets are recovering.

Srudhorn, Analyst, ABN AMRO: All right. Thank you very much. Then my final question. You have reduced full time employees overall, but full time employees have increased in China. Why is that?

Is it solely linked to eTools? Or is there another explanation?

Daniel Balzock, CFO, HGARS: Yes. First of all, the assumption is correct. It is mainly driven by the higher demand in eTools and the number of employees that we have increased is temporary employees in Suzhou that we needed to deliver the higher demand in Itools. So it is sort of a tool that we are using by having an agency employees in Suzhou to better cover the demand that we have there. In the European entities, we reduced the FTEs in the first part of the year by 30 employees.

Srudhorn, Analyst, ABN AMRO: All right. Thank you very much. That was it from my side.

Sven Arendt, CEO, HGARS: Thank you. Thank you. Okay. I think if there are no further questions, then I suggest we close the meeting today. Thanks for participating, and we look forward to talking to all of you again soon.

Thank you.

Judith Van Rieder, Chorus Call Operator, Chorus Call: Thank you, sir. Ladies and gentlemen, that concludes this conference call. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.