Earnings call transcript: Cherry AG sees revenue decline in Q2 2025

Cherry AG reported a challenging first half of 2025, with revenue declining 25% year-over-year to €46 million and adjusted EBITDA turning negative to -5%, primarily due to a difficult German market and strategic restructuring efforts. Despite these poor financial results, the company's stock rose 3.08% on the news, with InvestingPro analysis suggesting it is undervalued at a Price/Book ratio of 0.21. Cherry AG is actively pursuing a strategic shift towards digital health solutions, reducing inventory, and has sold its hygiene peripherals business for €21 million to improve liquidity, projecting 2025 revenue guidance between €100-115 million and an adjusted EBITDA margin of 0-2% as it navigates economic headwinds and focuses on its eHealth segment.

Analysis

Cherry AG is undergoing a significant strategic overhaul amidst severe financial headwinds, as reflected in its H1 2025 results. Revenue declined 25% year-over-year to €46 million, with Q2 revenue falling 34%, pushing the adjusted EBITDA margin into negative territory at -5%. This downturn is attributed to a deliberate reduction in peripherals sales to clear channel inventory, a persistent recession in the key German market, and weak performance in the Americas. In response, management is executing a multi-faceted turnaround plan: the company has divested its hygiene peripherals business for a target price of €21 million to bolster liquidity, extended its financing until late 2027, and successfully halved group-wide inventory from its 2023 peak. The core of the new strategy is a decisive pivot to the Digital Health & Solutions segment, discontinuing the legacy 'CardLink' product to focus exclusively on the 'TI Messenger' SaaS platform. This move is supported by regulatory tailwinds mandating telematics infrastructure connectivity, with leading indicators such as a 500% YoY increase in SMCB card applications and a surge in July eHealth terminal orders suggesting strong future demand. Despite the poor headline figures, the stock rose 3.08%, and the company's Price/Book ratio of 0.21 suggests the market may be pricing in the potential success of this restructuring and a significant second-half recovery, which is implied by the full-year 2025 guidance of €100-€115 million in revenue and an adjusted EBITDA margin of 0-2%.

Key Decisions for Investors

• Treat Cherry AG as a special situation turnaround play, looking beyond the weak H1 2025 results to focus on the execution of its strategic pivot towards the high-margin Digital Health & Solutions segment.
• Investors should closely monitor leading indicators for the second half of 2025, particularly the guided acceleration in eHealth terminal sales and progress on the TI Messenger SaaS platform, to validate the recovery thesis.
• Acknowledge the high-risk profile tied to the German recession and peripherals market weakness, but consider the low Price/Book ratio of 0.21 as a potential value entry point, contingent on management's ability to execute its turnaround and manage cash effectively.
• Pay close attention to the transition to the new CFO, as their ability to oversee the company's financial discipline and transformation will be critical for achieving the guided return to profitability.