HMS Networks (HMS) Q2 2024 earnings summary

Executive summary

• Q2 2024 net sales reached SEK 845 million, up 20% year-over-year, driven by the Red Lion acquisition, while organic sales declined 20%.

• Adjusted EBIT for Q2 was SEK 172 million, with a 20.4% margin; adjusted EPS was SEK 2.12.

• Cash flow from operations improved to SEK 152 million, nearly doubling from the prior year, aided by initial inventory reductions.

• Red Lion integration is progressing as planned, with early cross-selling initiatives and operational synergies underway; restructuring program completed, impacting 44 positions and expected to save SEK 41 million annually.

• North America is showing signs of recovery, while Europe remains sluggish and APAC is stable with destocking effects still present in Japan.

Financial highlights

• Q2 2024 net sales: SEK 845 million, up 20% reported but down 20% organically year-over-year; Red Lion contributed about one third of total business.

• Adjusted EBIT was SEK 172 million (20.4% margin); gross margin was 61.9% (63.9% excluding Red Lion).

• Q2 order intake increased 9% to SEK 769 million, with acquired growth of 36% and organic decline of 22%.

• Adjusted EPS was SEK 2.12; net financials impacted by SEK 43 million in interest costs from Red Lion acquisition financing.

• Cash flow from operations: SEK 152 million, with inventory levels starting to decline.

Outlook and guidance

• Sequential organic order intake up 9% from Q1, with expectations for further improvement in Q3 and a stronger recovery in Q4.

• Customers and management expect a return to growth in 2025, with recovery delayed by about two quarters from earlier forecasts.

• Book-to-bill ratio at 0.92 in Q2, expected to exceed 1.0 in coming quarters as destocking subsides.

• No major price changes planned; annual price updates typically occur at year-end, with inflation compensation likely.

• Long-term confidence in industrial ICT market growth, both organically and via acquisitions.