Evotec SE Q2 FY2024 earnings call

Introductions and Agenda

• Christian Wojczewski introduces the team members and outlines the call agenda, which includes business revenue, operational update, and priority reset.

Business Update

• Evotec has evolved into an R&D powerhouse with key elements being its people, leading-edge technologies/platforms, and deep partnerships with top pharma and biotech. Group revenues in H1 2024 increased by 2% to EUR390.8 million. Shared R&D faced challenges due to the increase in integrated multiyear contracts and slower conversion of orders to revenue, while Just - Evotec Biologics grew strongly but had higher costs related to the ramp-up of the new J.POD facility in Toulouse.

Operational Update

• Shared R&D had a strong Q2 in Discovery sales but faced a mismatch between revenues and capacities, especially in the more transactional and fast-turning offerings. Just - Evotec Biologics expanded partnerships, secured government contracts, and has a growing sales order book exceeding EUR1 billion. Strategic reviews and capacity adjustments, including reducing workforce and optimizing footprint, are ongoing.

For shared R&D, total revenues decreased by 7% to EUR302.4 million in H1 2024. For Just - Evotec Biologics, revenues increased by 50% to EUR88.5 million in H1 2024. Shared R&D represents a significant portion of the group's revenue, while Just - Evotec Biologics contributed strongly to the revenue growth in the period.

2024 Guidance

• Group revenues expected to land between EUR790 million and EUR820 million. Adjusted EBITDA expected to be EUR15 million to EUR35 million. Cost savings of EUR40 million fully effective in 2025, with EUR10 million expected in H2 2024 from external spend optimization and reduction in force.### Future Outlook
• Ongoing strategic review to focus on portfolio adjustments, capacity improvement, external spend optimization, and leveraging revenue growth once the market recovers.

Risks

• Market Challenges: Slow market recovery, geopolitical factors, and economic growth leading to cautious decision-making in pharmaceuticals impacting R&D spending.
• Fixed Cost Base: High fixed costs relative to current revenue profile, affecting short-term profitability.
• Cyber-Attack Impact: Costs related to recovery from the cyber-attack gradually declining but investments in tech stack ongoing to enhance agility.

Q: On shared R&D, was the weakness due to fewer new projects starting or delayed work from existing contracts and how do recent wins translate into revenue over 12-18 months?

A: Matthias Evers responded that there are fewer transactional work projects due to market momentum, and recent wins in Discovery, with a large portion being multiyear projects, translate into revenues well into 2025 and beyond.

Q: Regarding cost savings, does the benefit ramp through H2 and continue into 2026?

A: Laetitia Rouxel stated that savings started in July 2024, with EUR10 million expected in H2 2024, and full year impact of EUR40 million in 2025, with recurrent savings continuing beyond 2025.

Q: On Just - Evotec Biologics, details on Toulouse capacity ramp-up and Sandoz commitment?

A: Matthias Evers said Toulouse capacity is being accelerated as per plan, not maximizing immediately, no plans to expand Redmond yet, and Toulouse will play a significant role in Sandoz partnership but exact percentages on Sandoz commitment weren't provided but it's a significant part.

Q: On cash flow, expectations for rest of 2024 and 2025?

A: Laetitia Rouxel expects stabilization of free cash flow trending towards breakeven for the rest of 2024, with improving operational performance and confirmed payments from BMS contributing to cash flow stability in 2025.

Q: On revenue mix in shared R&D and weak parts of Discovery?

A: Matthias Evers said shared R&D is roughly 70% Discovery and 30% Development, with weakness in the more transactional and fast-turning elements of Discovery, but there are highly differentiated offerings in Discovery like disease area expertise and PanOmics driven drug discovery that are performing well.