Evotec SE

Dear ladies and gentlemen, welcome to the conference call of Evotec SE. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press the star key followed by zero on your telephone for operator assistance. May I now hand you over to Werner Landtaler, CEO, who will lead you through this conference. Please go ahead.

Thank you so much. This is Werner speaking from Evotec. Welcome to our Q2 report 2021. We have uploaded a presentation for this conference call, which is titled Driving Growth and Getting Ready for Launch. That's the theme of this first half of 21 that we are preparing and investing for accelerated and future growth out of all lanes on the R&D Autobahn to Cure. If you go to page number two of this presentation, let me welcome our CFO Eno, who is here together with me and who will guide us together with me through this conference call. If you go to page number four of the presentation that we have uploaded, you see that we are performing extremely strong on all lines of our R&D Autobahn to cures. It's actually fair to say that the company is in a strong, maybe in a very strong situation. We can say this for our base business and we can also see this because some of the very important milestones for our profitability are imminent. If you look at page number four, you see some of the highlight events that have happened in the past few months. But let me point you to one which I think is extremely important, which is the new data that came in of the Phase 2b study on P2X3, which was delivered by our partner Bayer. Why is this important? Not only that we confirmed excellent data, that we have already seen in phase 2a but it is also confirming our long-term business model where we are building the largest royalty pooling industry and where P2X3 will be an important first element to this long-term strategy. What you see also on these highlights that all lanes are at full speed at this stage and you will see that with milestones coming in also not only our top line is growing very nicely, but also our bottom line will grow nicely. With this on page number five of this presentation, let me confirm our goals for 21 when it comes to our financial goals, but let me also confirm that our scientific goals for long-term value creation are on full track. Page number six of this presentation is just a reminder that we do what the industry really needs. By integrating and bringing together the best of science to the best of platform on evotec, we are creating an innovation hub that delivers what R&D efficiency is at its best. Achieving leadership in data science and multimodality for better and more access in industry. We see a mega trend that is just starting and that Evotech is creating and leading at the same time. If you go to page number seven of this presentation, you should see and this page should indicate to you that we are offering our services on a standalone basis but increasingly we see what we call Evo IR&D offerings which is basically integrating all our offerings into packages that truly deliver to our partners and to the industry. At this stage we can report back to you that we see order books that are at record levels for long-term demand on basically all our offerings and that's also the driver for us to build capacity into the future because we see a trend that does not stop when it comes to research that comes from evotech. On that note let me hand over to Enno who will bring you a bit deeper into our financials at this stage.

Pleasure to do so and thank you Werner and to all of you a very warm welcome. Great having you here on the call today and I'm looking very much forward to introduce you to our Q2 2021 financial numbers. Let's continue on page number nine and looking at the H1 2021 numbers, which show an excellent 17% increase on our revenue line, substantially pushed by the development of our base business. And adjusted for FX and portfolio effects, we even would recognize a strong 27% gain and the organic growth of our revenues. I will come back to the further analytics of these growth factors later on page 12. The gross margin amounted to 20.8%, lower than last year's 23%, and this is mainly due to the often mentioned end of the Sanofi subsidy for our side in Toulouse after the Q1 2020. R&D expenses continue to increase as anticipated by a strong 90% compared to last year's level, especially driven by further enhancing our multiple platforms and pushing our co-owned pipeline. The growth in SG&A comes in at an expected plus 27% and aims to secure further organic and inorganic growth, as well as integration like for example the recent Verona site takeover from GSK and especially ramping up our JPOD1 getting ready to become operational very soon. The other operating income turns out to be slightly above last year's level and contains two components almost traditional one could say. On the one hand side R&D tax credits and the Sanofi recharges for ID.Leon on the other side. All in all, this development results in an increase of 7% of the other operating income. With a total of 36.2 million euros, our adjusted EBITDA lands within our expectations, but also experiences shift of anticipated milestones into H2 of this year. So details on this to come on page 14. The net income amounted to 111.9 million euros and benefits substantially from a very positive one-off effect in the non-operating income, resulting from a fair value upgrade of our Accenture Evo equity engagement. And Accenture successfully closed two financing rounds in March and again in April of this year, which changed also the valuation of our shares quite significantly. The next slide. depicts our strong base business development leading to the above or before mentioned 17% overall sales growth. And this is despite negative counter effects such as the end of the Sanofi Toulouse subsidy and unfavorable FX effects. Therefore, our base revenues adjusted for these effects year on year even grew by 22%. And milestones in that context have also doubled against H1 2020. Margin-wise, we arrived within expectations. The decrease versus last year is triggered by the same effect as just described for the revenues plus additional ramp-up cost for the JPOD 1 in context of preparing the launch. Adjusted for the Sanofi and FX effect, actual total margin would be visibly above the prior year margin. Taking a look into H2, we expect substantial additional income from milestones that were originally foreseen in Q2 2021, thereby further improving the margin. That's our anticipation here. Looking at the two segments, both continue to grow and perform well, reflecting a broad basis of our goal and looking at execute first. Year-to-day execute revenues, including intersegment revenues, grew plus 18%, coming from 237 million in H1 2020. And this is driven by an increasing demand for integrated offerings and a strong demand for the base business. The execute gross margin for first half of 2021 basically experiences the same effects as just described for the consolidated group. and the same is also true for the execute adjusted EBITDA. H1 2021 Innovate revenues amounted to 57.3 million, excellent 27% above last year due to continuous high demand for precision medicine and reflected by expanded existing as well as several new partnerships. Innovate's total R&D amounted to 40.5 million euros, 27% above last year, once again confirming our continued investment into innovation projects and long-term sustainability. The Innovate adjusted EBITDA was negative, but within the forecasted range and amounted to minus 15.7 million versus last year's minus 11 million. and here the main reasons where the anticipated increase in R&D and SG&A investments like for instance further developing our Penhunter platform. Looking at the year-on-year revenue development, the increase is mainly driven by our very significant plus 27% organic growth for the base business reflected in a 60 million euro step up versus last year. This is another evidence for continuously high revenue quality coming from a healthy mix of our sustainable repeat business with our long-term partners and strong additional demand for our EVO IR&D offerings. Mostly due to the weakened US dollar against the Euro in the first half of 2021, revenues were negatively affected by a currency effect of minus 11.5 million and at constant 2020 FX rates applied, Sales would have ended even better at approximately 283 million euros. So based on this very positive overall development for the full year view, we expect to come out with the upper half or within the upper half of our 2021 guidance. Moving to page 13. Well-balanced global reach has always been the strategic goal in building our innovation hub and the current portfolio mix of our partners and where they come from points absolutely in the right direction what we want to achieve. On page 14, netting out the already priced in portfolio and negative FX effects, Evotec's EBITDA shows once again Organic increase of 5 million compared to H1 2020, even overcompensating contrary effects from increased R&D investments, SG&A for growth, as well as the delay of certain milestones. In the end, the achieved 36.2 million euros lie within our estimate. That said, to further support our strong business growth by, for example, significant business ramp-up, Continued capacity expansion investment into R&D sustainability as well as facing some FX headwinds, we currently estimate our full year adjusted EBITDA to come out in the lower half of our guidance range for 2021. Coming to the Q2 results, we can see the temporary impact of the capacity buildup for future revenue and margin expansion. Q2 2021 numbers show a strong 24% increase on the revenue line, coming to 138.2 million. And this is reflecting the excellent base business across all lines and despite FX headwinds. Cross-margin development, cross-margin developed well, mostly due to the growing base business and higher milestones than in the first half year. of last year obviously. R&D expenses increased by 15% to 17 million in line with investment driven expansions of our Cohen pipeline and our platforms. We also observe a similar even stronger dynamic development for SG&A costs laying the foundation for further future growth. Other operating income is partially positively influenced by a new legislation in Italy, which once again leads to a higher part of eligible cost and thereby higher R&D tax credits, while the overall tax credits volume from most of the other countries, such as France or the UK, keeps increasing as well. The net income amounted to 59.2 million, substantially benefiting from the second fair value adjustment of our Accenture Evo equity engagement in April. Slide 16 summarizes Evotec's very solid and sustainable non-P&L related financial KPIs. Looking here at the balance sheet, which is going up by 11%, mirroring the ongoing dynamic growth. One relevant reason for the step up is the valuation increase of our Accenture holding, which had a single total impact of 116 million in total H1. Furthermore, Trade accounts receivables could be further reduced, leading to an improved DSO figure. In addition, the equity ratio steps up to a good 53%, and the net debt position, including IFS 16, shows an excellent ratio factor of 0.7. These factors together indicate plenty of headroom and a lot of flexibility to further invest into organic and strategic growth. Total liquidity decreased to 450 million at the end of H1, mainly driven by expected capex investments to support growth projects such as the JPOD 1 in Redmond, as well as general expansion of our capacities across sites and equity activities. Page 17. On Monday, the 2nd of August 2021, EvoTech released an ad hoc news that we are going for approval offering of ADS at the Nasdaq in the US. And with this potential listing, we want to increase engagement of US institutional investors while at the same time supporting and accelerating our resilient growth in terms of expanding our scale and presence in the US improving our chances for market share gains and getting closer to our industry partners in the US. In the end, Evotech will become even stronger and better prepared for reaching our very ambitious long-term goals. And with this, I complete the financial overview and hand back to Werner. Thank you.