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

hGears AG reported a 3.5% year-over-year revenue decline to €25.1 million in Q1 2025, despite an 8.6% sequential increase, and the stock price subsequently fell 2.05%. While adjusted EBITDA improved to €700,000 from €500,000 in Q1 2024, the company anticipates a challenging 2025 with revenue guidance between €80 million and €90 million and adjusted EBITDA ranging from -€4 million to -€1 million, projecting a market trough before a potential recovery in 2026; cost optimization and cash preservation remain key priorities.

Analysis

hGears AG's Q1 2025 financial results illustrate a company grappling with difficult market conditions. Revenue declined 3.5% year-over-year to €25.1 million, despite an 8.6% sequential increase, leading to a 2.05% drop in its stock price to $1.95. Positively, adjusted EBITDA improved to €700,000 from €500,000 in Q1 2024, and the adjusted gross profit margin expanded by 190 basis points to 46.7%, reflecting successful cost optimization efforts. However, the company issued cautious guidance for full-year 2025, projecting revenues between €80 million and €90 million and an adjusted EBITDA loss ranging from €1 million to €4 million, signaling expectations of a market trough. Segment performance was mixed: the E-Bike division's sales fell 32.1% YoY due to persistent inventory destocking, E-Mobility showed sequential growth but with warnings against extrapolation, while the E-Tools segment was a relative bright spot with a 20.4% YoY sales increase. Management is focused on cash preservation, evidenced by a 12.9% reduction in net working capital; nevertheless, net debt stands at €13.8 million, resulting in a high net debt to adjusted EBITDA ratio of 21.8x. A broader market recovery, particularly in the E-Bike and E-Mobility sectors, is not anticipated until 2026.

Key Decisions for Investors

• Investors should closely monitor the E-Bike segment for signs of inventory normalization and demand stabilization, as this is pivotal for hGears' projected recovery in 2026.
• Given the negative adjusted EBITDA guidance for 2025 and the elevated net debt of €13.8 million leading to a 21.8x net debt/EBITDA ratio, careful assessment of the company's liquidity management, cash burn rate, and progress on cost-cutting measures is critical.
• While InvestingPro data suggests potential undervaluation, the significant operational headwinds, negative 2025 outlook, and the stock trading near its 52-week low (-32.05% one-year total return) warrant a cautious stance; any investment decision should thoroughly weigh these risks against the long-term recovery prospects.
• Keep a watch on external factors influencing key segments, such as project timelines and demand in the automotive sector for E-Mobility, and potential US trade policy impacts on the resilient E-Tools business, as these could materially alter segmental performance.