Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Evotec SE (EVOTF, Financial) reported a 2% increase in Group revenues to EUR390.8 million for the first half of 2024.
- Just - Evotec Biologics saw a significant 50% revenue growth, reaching EUR88.5 million.
- The company has a strong order book, with Q2 2024 being one of the best quarters in terms of closed sales.
- Evotec SE (EVOTF) has secured various new partnerships, including with the US Department of Defense, Pfizer, and Bayer.
- The company is making progress on its priority reset program, aiming for EUR40 million of gross savings fully effective in 2025.
Negative Points
- Adjusted EBITDA for the first six months was minus 0.5% compared to EUR33.9 million in the first half of the previous year.
- Total shared R&D revenues decreased by 7% to EUR302.4 million.
- The company is facing a challenging market environment with no new signals of recovery expected within 2024.
- Evotec SE (EVOTF) has a high fixed cost base in relation to the current revenue profile, impacting short-term profitability.
- Costs related to the ramp-up of the new J.POD facility in Toulouse are higher than initially planned.
Q & A Highlights
Q: Was the weakness in shared R&D due to existing customers delaying work or fewer new projects starting? How do recent wins translate into revenue over the next 12 to 18 months?
A: The weakness is due to both factors. Existing customers have delayed work, and there are fewer new projects starting, particularly in fast-turning, transactional work. Recent wins, especially in Discovery, are multiyear projects that will translate into revenue over a longer period, extending into 2025 and beyond. (Matthias Evers, Chief Business Officer)
Q: Regarding cost savings, will the benefits ramp through H2 and be fully realized by 2025, or will they continue to ramp through 2025?
A: The benefits will start to be realized in H2 2024, with around EUR10 million in savings this year. The full impact of EUR40 million will be realized in 2025 and will be recurrent savings. (Laetitia Rouxel, Chief Financial Officer)
Q: Can you provide color on the relative contribution from each business segment for the 2024 guidance?
A: Shared R&D is impacted by delayed market recovery and slower sales-to-revenue conversion, reducing EBITDA expectations by EUR50-55 million. Just - Evotec Biologics faces higher costs due to ramp-up, impacting EBITDA by EUR15 million. Non-core businesses like Halle and Orth contribute around EUR5 million to the EBITDA downside. (Laetitia Rouxel, Chief Financial Officer)
Q: What are you seeing from large pharma in terms of spending trends? Are there any shifts due to pressures like the IRA?
A: Large pharma is prioritizing R&D spending on clinical phases and key therapeutic areas, putting research spending under pressure. There is some interest in more transactional activities, but it's too early to see a significant shift. The IRA adds economic pressure, but small molecules remain scientifically important. (Matthias Evers, Chief Business Officer)
Q: What if market challenges persist beyond 2025? How do you feel about the long-term growth construct?
A: While we anticipate market recovery in 2025, if challenges persist, we will continue to optimize our portfolio and capacity. We are conducting a strategic review and transformation program to enhance productivity and reduce complexity. (Christian Wojczewski, Chief Executive Officer)
Q: Can you provide more details on the capacity ramp-up in Toulouse and any plans for Redmond? How much reserve capacity is committed to Sandoz?
A: We are accelerating the existing capacity plan for Toulouse but not maximizing it in one step. There are no current plans to expand Redmond. Toulouse will play a significant role in the Sandoz partnership, but we remain open to other partners. (Matthias Evers, Chief Business Officer)
Q: How much more time are you giving yourself for the initial strategic review? Will you provide a new medium-term outlook at the Capital Market Briefing on November 6?
A: The strategic review is ongoing, and we will not wait to make decisions that improve performance. We aim to provide further updates at the Capital Market Briefing, but it's too early to confirm a new medium-term outlook. (Christian Wojczewski, Chief Executive Officer)
Q: What is your view on the increasing competition and pricing pressure in the CRO space? Do you stand by your statement that you're not losing market share this year?
A: Competition is high, especially in transactional work, but our win rates are stable. We are not losing market share in integrated, high-value offerings, which remain attractive to our customers. (Matthias Evers, Chief Business Officer)
Q: What do you expect for cash flow for the rest of 2024 and into 2025? Can you share details on the covenants for the new RCF?
A: We aim to stabilize free cash flow towards breakeven for the rest of 2024. The new RCF has a covenant around 3.75x net debt to EBITDA at year-end 2024, and we have a strong plan to meet this target. (Laetitia Rouxel, Chief Financial Officer)
Q: Can you provide details on the revenue mix within shared R&D and the performance of different parts of the Discovery business?
A: Shared R&D is roughly 70% Discovery and 30% Development. The weakness is in fast-turning, transactional work, which is about 30% of the business. Integrated offerings in Discovery are performing well, while transactional services face challenges. (Matthias Evers, Chief Business Officer)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
