Evotec SE

Good day, ladies and gentlemen, and welcome to the Evotech SE half-year reports 2022 conference call. For information, today's conference is being recorded. And at this time, I turn the call over to your host today, Dr. Werner Landtaler. Please go ahead, sir.

Thank you very much and good morning and a great day to everyone. Accelerating precision medicine, that's the theme. of today's analyst presentation for our first half of 2022. Welcome to this. We have uploaded a presentation and will guide you through this presentation throughout the next couple of minutes. If you go to page number two, you can see that I'm here together with my team. I'm here with our CFO, Enno Spilner, our CSO, Cord Dohrmann, our COO, Craig Johnson, and we are very happy to give a brief update about our recent quarters and also an outlook for the remainder of 22 and into the longer aspirations of Evotech. Our recently joined new colleague, Matthias Evers, is also on the call and we are very happy that he joined us recently. If you go to page number four of your presentation, you can see that significant new partnerships based on data-driven platforms are accelerating our company. We see strong overall performance and progress in all lanes of the so-called R&D Autobahn to QS. Actually, I think it's fair to say that we see a very strong business inflow. We see a very strong business inflow despite a somewhat challenging funding environment for some of our especially biotech colleagues. and we also can already today see a very strong demand into 2023. So with this so far, we do not notice any impact for a more compromised funding environment of biotechs. When we look forward, we expect several very important milestones which allow us to overall confirm our strong business outlook for the rest of 2022. Page four also highlights Some single events that are all supporting our unique business model. Cord will illustrate much more about this in his presentation and Craig as well. But we are very happy that we were able to strike one of the largest extensions and expansions in targeted protein degradation ever together with our partners at BMS. We see several new integrated discovery, indigo, CMC, and sample management agreements. We are very happy about our long-term new partners, for example Almiral in dermatology, Bernd Ingelheim with our induced pluripotent stem cell, L.A. Lilly on our molecular patient database, Janssen on a targeting protein degradation approach, and also Sanova. We made noteworthy progress in many of our collaborations, and here we want to highlight our neuroscience collaboration with BMS. We also see that just Evotech Biologics, which is still in its build-up phase and its initial investment phase, is going the right path. You will see in Craig's presentation that we are very happy with the overall projections here. Our co-owned pipeline is progressing very well, and in addition to our amazing platform, we have added GCMP cell therapy manufacturing potential and capacity with the acquisition of regenerant which will in the future be named Evotec Modena. Overall our co-owning strategy is fully on track and with this we are also going down the path of further investing into highly promising companies like we have done for example with Cernova. We also have to mention low lights in the last two quarters especially strong headwinds from rising energy and material costs and overall inflation are also something which we cannot ignore and which are impacting our cost base a little bit but this will not stop us. Another low light of course was the termination of our P2X3 antagonist by our partners Bayer. Overall our profitability going forward will accelerate with more milestones and here we see very good progress in many partnerships and our profitability will accelerate with more transactions to come where some of them are imminent. If you go to page number five, you can see that we keep the pace and keep our strategic direction. Page five gives you the summary of our financials and shows a slightly refined guidance. We see positive influences from ethics that are impacting especially our top line to the positive side. And at the same time, we currently see unavoidable cost burden that are impacting our EBITDA situation Thank you very much. With this initial view of the company, let me hand over to Enno, who will give you a more detailed view on our numbers.

Thank you, Werner. And then I will start with all the details. First of all, however, warm welcome to every one of you. It's a great pleasure having you on the call here once again today. And let me start with the high-level summary of our consolidated group numbers. Six months 2022 numbers show an excellent 24% increase on our revenue line and revenue growth at constant currency rates stood at 19%. Gross margin amounted to 18.8%, below last year's 20.8%, but it is important to note, as Werner just indicated, the investment state of just Evotec Biologics, which continues. So total gross margin excluding just Evotec Biologics would have reached 27.3% versus 24.6% during the same period of the last year and this despite lower contribution from milestones, upfronts and licenses and despite significant inflation. Group R&D expenses remained roughly constant with 36.8 million euros, thereof Unpartnered R&D expenses of Evotec Innovate increased by 20%. The R&D spent in Q2 was focused on enhancing our multiple platforms plus, of course, the continued acceleration of our co-owned pipeline. The increase of 20 million euros or 21 million euros or 46% respectively in the SG&A expenses versus last year is mainly caused by increasing headcounts in the global functions. and higher depreciation of facilities due to just J-Port as well as our biopark Toulouse. Furthermore, the new requirements in the context of our US listing impacted the numbers noticeably. And also, M&A expenses show an important deviation due to the unbudgeted consultancy and transactions cost which occurred lately. The other operating income and expenses increased by 3.2 million euros and continued to be driven by tax credits and ID Lyon related reimbursements from Sanofi. Main reasons for the increased income were tax credits in Toulouse, France and newly gained tax credits in Italy which could be claimed from June 2021 onwards and hence had no comparable income in The first half of 2021. With a total of 33.6 million euros, our adjusted EBITDA lands within our expectations, but slightly below last year's 36.2 million. This was driven by shift of cost structure, driven by investment in manufacturing capacity for our JPOD in the US, for example, high energy and material costs, M&A efforts, as well as the increase of the overall SG&A expenses. The net income shows further impact from fair value adjustment of the Evo equity investment in Accenture. Here for H1 2022, we report a net loss of 101.2 million euros. And in the same half year, Accenture's share price dropped, which resulted in a non-cash loss from equity of 97.3 million euros. The next slide depicts our strong revenue growth of 24% overall, which was spread across all business areas. While this increase was supported by tailwinds from favorable FX movements, and here in particular from Euro versus US dollars, we recognize at constant FX rates year-on-year very strong revenue growth increasing by 19%. The underlying business grew strongly by 26% to €330 million in H1 2022, while milestones, upfront and royalty payments of €6.8 million were below last year's H1 2021 numbers. JustEvoTech Biologics contributed revenues of €21.9 million in the first half of 2022. The underlying biologics business recorded growth of 23% compared to the same period of the last year. The reported gross margin reflects our continued and accelerated investments into our precision medicine platforms as well as the capacities build-up of our JustEvoTech biologics with continuous ramp-up costs related to this JPOD facilities and operations in the US and in France. Also, overall inflation with significantly rising energy prices and more expensive materials as well as increased logistic efforts or cost efforts for logistics made significant impact in Q2 2022. But let me emphasize again, total gross margin excluding just Evotec biologics would have reached 27.3% during the same period of versus 24.6% during the same period of last year, so a good increase. And this, again, despite lower contribution from the milestones and despite strong inflation. Both segments show very strong growth versus H1 2022. Year-to-date Execute revenues, including inter-segment revenues, grew by 26% to €351 million in the first half of 2022. Revenues were driven by strong base business, which stepped up to 21%, excluding just Evotec Biologics and stepped up even 24%. EBITDA of Execute was €54.7 million, with a positive development, and it is above The six-month 2022 innovate revenues amounted to 78 million euros, excellent 36% above last year due to continuous high demand for precision medicine reflected by expanded existing as well as several new partnerships as Werner just indicated to you. Higher base revenues of 17.6 million euros are mainly driven by higher FTEs in the BMS collaborations. However, and as a result of continued R&D investments, the adjusted EBITDA of Evotec Innovate remained as expected negative. Looking at the single quarter, here overall my comments from the just made H1 2022 perception also applies for Q2 2022. The base revenues further accelerated in Q2 versus Q1 2022 as well as Q2 2021 in comparison. And this counts for across all business lines. So far, we didn't recognize any relevant impact from changing funding environment to reconfirm what Werner just described. R&D investments further accelerated and SG&A reflects further dynamic growth, scaling, strategic projects, and the US listing. Adjusted EBITDA remains stable despite all the investments and extra costs. Slide 11 summarizes Evotec's very strong non-P&L related financial KPIs where I would like to guide you through. And here the balance sheet expansion resulted mainly from the revaluation of Accenture to the downside, not affecting cash and being overcompensated by the 200 million US dollars upfront payment received from BMS. The equity ratio is very strong with 55.6%. and our liquidity position increased to 888 million euros despite significant capex continuing and respective capex expenditures and equity investments. This will allow us to continue plan capex investments to support and accelerate growth projects such as JPOD US, and JPOD Toulouse as well as general expansion of our capacities, technologies and platforms. Furthermore, we plan to continue our EU equity engagements into new as well as into existing equity holdings. Last but not least, trade accounts receivable decreased by 25 million euros and this helped to improve our DSO or so-called days sales outstanding figure for Q2 2022 to 59 days, thus being within our targeted corridor of 50 to 60 days. And this completes my financial overview, and I therefore would like to hand over to Cord. Thank you very much for your attention.