Earnings call transcript: hGears Q1 2025 sees revenue drop, stock slides

hGears AG reported its first-quarter 2025 financial results, revealing a 3.5% year-over-year decline in revenue to €25.1 million. Despite a sequential increase in revenue, the company’s stock price dropped by 2.05%, closing at $1.95. According to InvestingPro data, the stock appears undervalued based on its Fair Value analysis, though the company faces significant challenges. The market reacted to the company’s performance and guidance, which projected a challenging year ahead with potential recovery expected in 2026.

[Discover 10+ additional InvestingPro Tips and comprehensive analysis for hGears AG with an InvestingPro subscription.]

Key Takeaways

• Revenue declined by 3.5% year-over-year, but increased 8.6% sequentially.
• Adjusted EBITDA rose to €700,000, up from €500,000 in Q1 2024.
• Stock price decreased by 2.05% in response to the earnings report.
• Guidance for 2025 indicates a market trough, with recovery anticipated in 2026.
• Cost optimization and cash preservation remain focal points for the company.

Company Performance

hGears AG’s Q1 2025 results highlight a challenging environment, with a 3.5% year-over-year revenue decline to €25.1 million. However, the company achieved an 8.6% sequential increase in revenue, reflecting some resilience amid industry challenges. The E-Bike segment continued to face inventory destocking, while the E-Mobility and E-Tools segments showed stability and recovery, respectively.

Financial Highlights

• Revenue: €25.1 million (3.5% decline YoY, 8.6% increase sequentially)
• Adjusted Gross Profit: €11.7 million (0.7% increase)
• Gross Profit Margin: 46.7% (190 basis point improvement)
• Adjusted EBITDA: €700,000 (up from €500,000 in Q1 2024)
• Net Working Capital: Reduced by 12.9% to €8.4 million
• Net Debt: €13.8 million

Market Reaction

The market responded negatively to hGears’ earnings report, with the stock price falling by 2.05% to $1.95. This decline places the stock closer to its 52-week low of $1.43, with the 52-week high standing at $3.15. The stock has shown significant weakness, with a one-year total return of -32.05% according to InvestingPro data, reflecting investor concerns about the company’s future guidance and current market conditions.

Outlook & Guidance

hGears provided a cautious outlook for 2025, with revenue guidance between €80 million and €90 million. The company expects adjusted EBITDA to range from -€4 million to -€1 million, indicating a challenging year ahead. However, management anticipates a market recovery in 2026, driven by improvements in the E-Bike and E-Mobility segments.

Executive Commentary

Daniel Biszak, CFO, emphasized the importance of cash management, stating, "Cash is king." CEO Sven Arendt expressed cautious optimism about future recovery, saying, "We do expect a significant recovery because we feel that this year’s drop in demand is primarily driven by the sell-off of inventory." Arendt also cautioned, "One swallow doesn’t make a summer," highlighting the need for sustained improvement.

Risks and Challenges

• Inventory Destocking: Continued challenges in the E-Bike segment due to inventory corrections.
• Automotive Sector: Structural challenges impacting E-Mobility performance.
• Geopolitical Volatility: Potential impacts on trade and consumer confidence.
• Market Trough: Expected in 2025, with recovery not anticipated until 2026.
• Cost Management: Ongoing need for cost optimization and cash preservation.

Q&A

During the earnings call, analysts focused on cost-cutting measures and the potential for recovery in the E-Bike segment. Management outlined flexible labor cost strategies and expressed cautious optimism for clearer recovery signs in the latter half of the year. The E-Mobility segment was noted for its stable demand, particularly in smaller economic vehicle segments, while the E-Tools segment showed resilience despite potential US trade policy impacts.

Full transcript - hGears AG (HGEA) Q1 2025:

Sergeyin, Chorus Call Operator: Ladies and gentlemen, welcome to the HGIS Q1 Results twenty twenty five Conference Call. I’m Sergeyin, 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 question and answer session. The conference must not be called for publication or broadcast.

At this time, it’s my pleasure to turn over to Christian Head of Investor Relations. Please go ahead.

Tristan Weitz, Head of Investor Relations, HGEARS: Good morning, everybody, and welcome to HGEAR’s first quarter twenty twenty five results conference call. I am Tristan Weitz, Head of Investor Relations. And with me on the call today are Sven Arendt, our CEO and Daniel Biszak, our CFO. They will present our first quarter results and be available for the Q and A session following the presentation. Should you not yet have received our earnings documents, you may access them in the Investor Relations section of the website.

Prior to starting the presentation, I would like to draw your attention to the disclaimer on Slide two, which sets out the legal framework under which we consider this presentation and which I will assume you have read. And now I would like to turn over the call to Sven Arendt, our CEO.

Sven Arendt, CEO, HGEARS: Thank you, Christian, and good morning to everyone joining us today for our first quarter twenty twenty five earnings call. HGears was once again able to navigate a tough quarter. Market conditions have not improved since we last spoke. The ongoing market weakness together with the continued destocking in the e bike industry and structural problems in the automotive sector put further pressure on our sales and earnings in the first three months of the year. However, as in previous quarters, e Tools continued to stabilize and once again was a bright spot.

Despite the rough start to the year, which we had expected, we were able to improve our EBITDA. This shows that our structural adjustments and strict cost cutting measures are working and paying off. The geopolitical situation remains very volatile with the wars in The Ukraine and The Middle East and rising trade uncertainty under the new U. S. Government.

So far, we have not seen any direct impact on our business, but we continue to monitor the situation closely and are evaluating possible consequences for our business. As we mentioned in our last call, the investments announced by the German government could help boost consumer confidence and in the end demand, which would also benefit our products and our company. To be clear, this will not impact the short term, but will drive mid to long term demand in our end markets. Destocking in the bicycle industry is ongoing, creating challenges that all players face, including the big ones. We expect this year to be the weakest in years, but there’s strong upside once inventories are cleared.

We are seeing signs that suggest this inventory cleaning is now underway. Therefore, we remain confident that 2025 will mark the trough year for e bike production and expect a recovery in the medium term even though the exact timing remains uncertain. The automotive industry remains in crisis as seen in the recent first quarter twenty twenty five results of U. S. And European carmakers.

Despite this, we achieved a solid result in our e mobility business area. However, given the geopolitical and economic volatility, we do not expect an improvement. The e tools business saw a solid year over year recovery and also improved sequentially in the first quarter of twenty twenty five, though still at low levels. Nevertheless, we certainly appreciate this recovery and expect the business area to continue delivering solid sales and earnings at around current levels. Daniel will present the financials in more detail, which clearly show that our measures are working, supporting profitability and making us more resilient.

However, lower volumes continue to drive negative operational leverage and start stop inefficiencies, while a weaker mix also weighs on our results. We do not expect a short term recovery in our customers’ end markets as political uncertainty and unclear trade policies continue to weigh on demand. We, therefore, do not anticipate a major uplift in our top line in the coming quarters. This means we may not have reached the trough yet, and our ’25 guidance reflects this cautious view. However, we remain confident about the good prospects once inventories in the e bike industry are cleared and the temporary crisis in the automotive industry has been resolved.

As you know, e tools is stabilizing at current improved levels. Our clear focus remains on cash preservation, while our stable balance sheet enables us to weather the storm. Now let me turn to Slide four for some comments on HGEAR sales progression in the first three months of the year. On Slide four, you can see the historical quarterly development of our sales performance. As expected, e bike remained weak.

And as we noted on our last call, it would have been wrong to extrapolate the sequential development seen in the fourth quarter last year. The business area dropped by one third year over year and declined sequentially as well. Although demand for bikes and related products seems good this spring, the industry continues to sell off inventories and I’m afraid we may not have seen the worst yet, meaning the trough likely still lies ahead. As in the previous quarter, the e mobility business area declined year over year but recorded a sequential increase in the first quarter of twenty twenty five. This is a solid outcome given the ongoing crisis in the automotive industry, whose negative impact has likely not yet fully materialized.

Therefore, we would caution against extrapolating this positive sequential trend. The e Tools business remained a bright spot for us. It has been recovering in recent quarters, and we are cautiously optimistic that it will hold steady at current levels. That said, as with the e mobility business area, we are mindful that U. S.

Trade policy could present a potential headwind going forward. Now let me hand over to Daniel, who will expertly walk you through the highlights of our first quarter twenty twenty five financials.

Tristan Weitz, Head of Investor Relations, HGEARS: Thanks, Sven, and good morning, everyone. Great to have you with us. So let’s jump in. Let me start on Slide six, and let’s continue with the details on the sales performance before we have a closer look at profitability, gross profit and adjusted EBITDA. As we mentioned earlier, the first quarter results represent a solid start to the year, in line with our expectations.

At the group level, HTS recorded an 8.6% sequential revenue increase, but compared to the previous year, revenue declined by 3.5% to €25,100,000 from €26,000,000 In the EBAG business areas, sales declined by 32.1% year over year, impacting the group sales mix and placing additional pressure on profitability. This development reflects the industry’s ongoing efforts to normalize inventory levels, as Sven mentioned before. Compared to the fourth quarter, sales were down only by 2.6, indicating that adjustment process is still underway. And as previously mentioned, signs of continued market volatility remain, but we believe these are part of necessary transition towards a more balanced and sustainable demand. EMobility recorded 3.8% lower sales in the year over year comparison, but as shown on Slide four, sequentially, the business area was able to add 17.3%.

Let me repeat what Sven also said before. We would caution against extrapolating this positive sequential trend. After a steady recovery throughout the past year, we are encouraged to see that e tools business area holding firm at current levels. In Q1 twenty twenty five, the segment grew by 2.6% versus Q4 twenty twenty four and market an impressive 20.4% increase compared to the same quarter last year. These results reflect solid momentum, and while we remain prudent in our expectations, the current trend is positive indication of underlying strength.

Moving on, let’s look at the gross profit and gross profit margin. So in the middle of the chart, despite a 3.5% decline in revenues driven by lower volumes, a softer sales mix and continued start stop inefficiencies, our adjusted gross profit rose slightly by 0.7% to $11,700,000 This positive development was supported in part by changes in work in progress and finished goods. These changes reflect a time shifting effect where production costs absorbed in prior periods are now contributing to margins as inventory moves through the system, temporarily supporting gross profit despite current revenue headwinds. The adjusted gross profit margin improved by 190 basis points year over year, reaching 46.7% in the first quarter. Given the ongoing challenging environment, we view this as a solid result that reflects disciplined execution and careful cost control.

It also marks a positive step towards our target of returning to gross profit margins above 50% and indicates that we have made progress in addressing inefficiencies related to ramp up of new projects. Despite 3.5% year over year decline in sales, we achieved an increase in adjusted gross profit of $100,000 supported by stronger margin and operational discipline. Additionally, cost optimization efforts and ongoing saving programs contributed another $100,000 As a result, and you can see it on the right side of the slide, the adjusted EBITDA improved to $700,000 in Q1 twenty twenty five, up from $500,000 in the same period last year, demonstrating again enhanced profitability even in the lower revenue environment. The cost savings and adjusted personnel costs result from further workforce reductions as indicated during the full year 2024 release. These measures are a necessity due to declining volumes, but also a consequence of improved capacity allocations.

Net operating expenses declined by only 100,000 year over year. However, this comparison is somewhat distorted by a one off gain from disposal of fixed assets recorded in the prior year period. Adjusting for this effect, the underlying improvement in operating expenses in the current year would amount to approximately €500,000 This means that the underlying impact of our structural and cost savings measures was much stronger than the numbers initially suggest. Let’s now turn to the next slide, which provides an overview of the key balance sheet items. Once again, we actively managed our balance sheet and successfully reduced net working capital by €1,200,000 year over year, bringing it down from €8,400,000 This represents 12.9% reduction, clearly outperforming the 3.5% decline in group revenues.

As a result, net working capital accounted for 8.8% of revenues over the last twelve months, remaining virtually unchanged from last year, 8.7%. Importantly, this reduction also had a positive impact on our free cash flow, emphasizing the effectiveness of our working capital management. Total financial liabilities stood at €28,100,000 with net debt at €13,800,000 at the end of the first quarter. The net debt to EBITDA ratio stands at 21.8 times due to temporarily low profitability. However, we are confident this ratio will decrease rapidly as our leaner organization and ultimate cost structures begins to show stronger results once market conditions normalize.

We reported a net equity ratio of 47.2% and closed the quarter with a position of €14,300,000 of cash. This capital base give us the flexibility to navigate the current environment with confidence. Preserving liquidity remains a key priority, and we will maintain our prudent financial approach. As you’ve heard from me many, many times in the last year, and I’ll keep saying it, Cash is king. It’s a simple truth, and it remains at the core of our priorities.

Our focus continues to be on preserving liquidity. So now let me hand back to Sven for the outlook and some closing remarks.

Sven Arendt, CEO, HGEARS: Thanks, Daniel. Therefore, let me summarize. We have a stable balance sheet, which will help us to weather the storm. The structural changes, cost saving efforts and personnel measures we put in place over the previous and current quarters are paying off, as clearly reflected in the numbers presented. Nevertheless, we will continue to proactively drive efficiency improvements.

We are seeing stabilization in e Tools, and our e Mobility division remained resilient despite an increasingly challenging market environment. In the bicycle industry, inventories are declining, and we’re seeing small signs that may indicate a turnaround could be reached towards the end of this year. And yes, we’ve had a good start to the year, but one swallow doesn’t make a summer. We have good visibility for the next quarters, but we remain realistic and cautious and don’t expect a short term recovery. Therefore, we reiterate our 2025 outlook, 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 and a free cash flow of between minus 6,000,000 and minus €2,000,000 This concludes our review of the first quarter twenty twenty five.

I would now like to hand the line back to the operator to open the call for Q and A.

Sergeyin, Chorus Call Operator: Ladies and gentlemen, we will now begin the question and answer session. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and then one at this time. And we have our first question coming from the line of Emma Romney Kopmans from ODDO BHF. Please go ahead.

Emma Romney Kopmans, Analyst, ODDO BHF: Good morning, all. Thanks. I’m also speaking on behalf of Martijn and Reiffer from ABN AMRO ODDO BHF. I have a few questions, so I’ll cover them one by one, if that’s okay. And I’ll start off with a question on the cost.

Following the implementation of various cost cutting measures in 2024, have you taken any additional actions during the first quarter of twenty twenty five? And do you also expect to take further measures later on in the year?

Sven Arendt, CEO, HGEARS: What we’ve done basically at the moment is due to adjust to any cyclicality in the business is that we’ve agreed a short time program in the German plant where basically we are able to flex labor costs throughout the year depending on demand. And the other one is that we’re still implementing final stages productivity or efficiency improvement program in Italy that will show some effect throughout the year.

Emma Romney Kopmans, Analyst, ODDO BHF: Okay. And then I’ll move over to some questions that are specific per division. On the e biking sector, the CEO of Bosch e bike system expects the first time of recovery already in 2025. Do you share that expectation? Because you also mentioned some signs that the inventory is underway again?

What are your thoughts on that?

Sven Arendt, CEO, HGEARS: I think in the end, let’s face it, we’ve now become very cautious because over the last few years, people kept saying that the recovery was going to happen. I think at the end of last year, we saw looking at numbers that we basically calculated, but also at numbers published by the Bicycle Association in Germany that really any cleanup of inventory had only been started in 2024. Now it is unclear how much inventory still needs to be cleaned out in ’twenty five before we go back to having supplies into the system being equal to retail sales. We do expect that at some point, we will see a recovery. But let’s face that customers right now for the season have basically done call offs so that they have products available throughout the season, albeit at low levels because I think financing in this industry is becoming more difficult for stocks and inventories.

And then I think we will really only see in quarter three, quarter ’4, the extent and the point of time when things come back. When it does come back, we do expect a significant recovery because we feel that this year, the drop in demand we see is primarily driven by the sell off of inventory.

Emma Romney Kopmans, Analyst, ODDO BHF: Okay, clear. And do you also foresee any impact, either positive or negative, from the acquisition of Brose e bike systems by Yamaha?

Sven Arendt, CEO, HGEARS: I mean, we’ve worked with both companies. It’s too early to tell where this will lead, but we’re in close contact with both customers as they now merge to understand which systems will go ahead and how this will also impact their success in the industry.

Emma Romney Kopmans, Analyst, ODDO BHF: All right. And then moving over to e mobility. Normally, the premium and luxury segment is pretty stable. But Ferrari, for example, already indicated that tariffs will have a material negative impact on the sales volumes. What are you seeing in terms of order intake or backlog for this segment?

Sven Arendt, CEO, HGEARS: Honestly, it’s relatively flat. In fact, we see on some conventional business actually quite some strong demand. It seems to us and again, we don’t have really data to back that up, but that on certain segments, customers have waited now several years to make decisions on what kind of vehicle they buy. And then now finally going ahead and buying especially smaller, more economic vehicles that we that’s what we see on one product. And on the luxury segment, honestly, we don’t really see any declines happening yet and don’t really expect that to happen either.

Emma Romney Kopmans, Analyst, ODDO BHF: All right. And in the nonpremium and luxury segment, you mentioned the delays of project launches and overall weak demand. What kind of customer behavior do you see here?

Sven Arendt, CEO, HGEARS: Well, again, like I said, on the current projects, we actually have a relatively decent demand. I think the one issue we do have, and again, this is not one of our customers. We’re not dealing with Mercedes, but Mercedes basically changing the strategy on e vehicles and conventional is basically delaying vehicle launches by up to two years. And that means for us also, especially on certain components that we’re involved in, that if we got a nomination, the SOP may be moved up somewhere between six and eighteen months. And that’s what’s impacting, of course, the midterm perspective, which is still good overall, but it’s basically slowing down progress.

Emma Romney Kopmans, Analyst, ODDO BHF: Okay, great. And then moving on to the E2 segment. A number of clients such as Hilti, Sparna and Busch have European production locations, but they export to The US. Some of your China based customers also export to The US, although most of the sales will be local for local. And Hooch fana reported 9% sales decline in its Gardena division.

Given the macro backdrop, what do you expect from the E2 segment?

Sven Arendt, CEO, HGEARS: Honestly, I mean, of course, the hope is there that these things will not I mean, maybe two things. One, even in the whole discussion when the import duties from China to The U. S. Had reached close to 150% or slightly higher, we saw no change in call offs of our customers in China.

I think basically because they were probably holding back shipments to try and, I think, to see things getting resolved. Of course, we have now a ninety day window with an agreement in place. So that could even lead to increased demand. We have to wait and see that. And maybe the other thing is one of the very big players a few years ago did an analysis to see what would happen or what would need to be done if China was not a viable source anymore.

And the conclusion in the end was, even with some tariffs and issues, it was still a highly economic country. But I think in the end, what we would most likely see is that then all the customers we have in the end have production locations in Europe or in China or in The U. S, and they would probably just move final assembly from locations like China to maybe Europe or to even South America or Eastern Europe and then export from there, which would then again have no significant impact on our shipments to these customers and would just change the location we ship to.

Emma Romney Kopmans, Analyst, ODDO BHF: Okay. And do you assume that interest rate cuts will help the construction side of the business in Europe?

Tristan Weitz, Head of Investor Relations, HGEARS: Yes. I think so. That’s the macroeconomic books, yes, but it is not going to happen in the short term.

Sergeyin, Chorus Call Operator: The next question comes from the line of Marie Thelis Gruppner from HAIB. Please go ahead.

Emma Romney Kopmans, Analyst, ODDO BHF: Yes, good morning, and thank you for taking my question.

Marie Thelis Gruppner, Analyst, HAIB: I think they focus rather on the balance sheet. And I would like to better understand where you stand with this level of covenant, this level of net debt to EBITDA, which is close to 22x? What are the banks saying? That’s one question. And then the second one is, if you indeed are not seeing really the trough yet, Should we brace for some impairments, be it on your fixed tangible or intangible assets or inventories?

How is the situation within that? Those are my two questions, please.

Tristan Weitz, Head of Investor Relations, HGEARS: Marie. Daniel here. On the first question regarding the financing that we have in the balance sheet, all of our current financing, which sums up at $28,000,000 is without covenants. And we already started initial discussion with additional financial institutions to see if we can get more flexibility and more liquidity in the future. For the time being, we don’t see any urgent need in that.

That being said, there are current discussions ongoing, and we already received some nonbinding offers for additional financing, if will be required. We do have in our plan, of course, the ramp up towards 2026 when we expect the markets to start to recover, and this is something that we will be able also to finance with internally with the liquidity that we have.

Sven Arendt, CEO, HGEARS: And I think that, in a way, will answer question two. I think when we’re talking about drops, it’s really the question of have we seen the lowest months yet. And I think that what we have to expect, especially if you look at things like power tool, but especially the e bike business, the highest months are typically the first four to five months of the year. So we do have to expect that we will see some declines throughout the year before then the market 26 starts feeding into the pipeline. And that’s why we say we’ve not seen the lowest months, and that’s why we hold on the current year plan.

Sergeyin, Chorus Call Operator: There are no more questions at this time. I would now like to turn the conference back over to Sven Arden for any closing remarks.

Sven Arendt, CEO, HGEARS: Thanks, everyone, for joining the call today. And yes, we look forward to speaking to you or seeing you in the next few months, and all the best.

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