HMS Networks (HMS) Q3 2024 earnings summary

Executive summary

• Organic net sales declined 30% year-over-year, with Q3 2024 net sales flat at SEK 792 million due to weak demand and ongoing inventory adjustments, especially in North America and Europe.

• Order intake rose 37% to SEK 677 million, but organic order intake declined 8% as destocking by key customers continued.

• Adjusted EBIT for Q3 was SEK 194 million (24.5% margin), down from SEK 226 million (28.7%) in Q3 2023, supported by a 22% reduction in organic OpEx.

• Cash flow from operations was strong at SEK 205 million, aided by significant inventory reductions.

• New organizational structure and acquisitions, including PEAK-System and divestment of MB Connect Line, are set to drive future growth and efficiency.

Financial highlights

• Q3 net sales: SEK 792 million (Q3 2023: SEK 789 million), with organic sales down 30% and acquired growth offsetting declines.

• Adjusted EBIT: SEK 194 million (24.5% margin), adjusted EPS: SEK 2.51, impacted by higher interest costs from acquisitions.

• Gross margin was 63.5%, down from 65.4% year-over-year, mainly due to product mix and Red Lion acquisition.

• Net debt stood at SEK 2,571 million, with net debt/EBITDA at 2.79 and net debt/equity at 0.80.

• Cash conversion approached 100% for the quarter, with inventory reduced by SEK 79 million.

Outlook and guidance

• Destocking is expected to persist for another quarter, with gradual improvement anticipated in 2025 as inventory adjustments subside.

• Large customers are not expected to place significant orders for 1–2 more quarters; recovery is projected for the second half of 2025.

• Focus in 2025 will be on integrating acquisitions, reducing leverage, and realizing cost savings from the new organization.

• Price increases will be moderate in 2025, with stable pricing expected.

• Cash conversion is expected to normalize around 75% over time.