Medios AG

XETRA:ILM1

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, welcome to the conference call of Medios AG. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand over to Claudia Nickolaus, Head of Investor and Public Relations at Medios.

[Claudia Nickolaus, executive]

Ladies and gentlemen, welcome to our conference call on the results for the first 9 months of 2022. As in the past, all relevant documents can also be downloaded from our Investor Relations website. Additionally, this presentation can be followed in parallel via the Internet link provided to you in the invitation. The call today is hosted by our CEO, Matthias Gaertner; and our CFO, Falk Neukirch. Matthias will start with a summary followed by Falk, who will then provide details on the financials for the first 9 months of 2022 as well as on the outlook for the remainder of the year. And finally, Matthias will comment on Medios growth strategy. Both Matthias and Falk will be available to answer your questions afterwards. I would now like to hand over to Matthias.

[Matthias Gaertner, executive]

Okay. Thank you, Claudia, and also a warm welcome from my side. Thank you for joining this call and thank you for your interest in Medios. I'm proud to present a further set of excellent results today. The first 9 months of '22 were by far the best for Medios, and Q3 was our seventh consecutive record quarter. Let's go directly to Slide 3, providing an overview of the achievements and highlights for '22 so far, whereby my comments refer primarily to the third quarter. What were the highlights of the third quarter. First, we have received the manufacturing permit for our new GMP lab in Berlin. This is a significant step towards increasing our compounding capacity in the higher-margin segment, patient-specific therapies abbreviated PST. Furthermore, we will be able to prepare for compounding for next generation medicines, for example, in the field of personalized therapies. With this permit, everything is set to begin compounding for our partner network of specialized pharmacies next week. Those attending our Capital Markets Day on November 24, will get the first time look at our new cutting-edge labs here in Berlin. Second, the integration of NewCo is progressing very well, and we continue to see good synergy and cross-selling effects. And third, our financials are strong with another record quarter in terms of revenue and EBITDA pre driven by the integration of NewCo Pharma and to a lower extent, also by organic growth. In a nutshell, we are very well positioned to achieve our targets for this year. Consequently, we confirm our guidance for '22. Also, we were impacted by the changed reimbursement scheme in our PST segment for some cytostatic medicines, which became effective on September 1, '22. While we expect our revenue to reach the upper range of the guidance, EBITDA pre will presumably come in at the lower half of the range of EUR 52 million to EUR 58 million due to this effect. Five, we'll provide more details on our outlook later. Our mid- and long-term strategy, including internationalization will help us to mitigate further the potential negative effects of the general economic and regulatory environment. We are working on additional measures, which will also help us to offset the potential effect. We are very confident to successfully continue our growth story. Now a short summary on the financials for the first 9 months of '22 illustrated on Slide 4 to 6, impressively showing our profitable growth. Slide 4 illustrates the strong continuous quarterly growth of our 2 KPIs, revenue and EBITDA pre. Again, reaching new revenue and EBITDA pre record for the seventh record quarter in a row. The 9 months figures on Slide 5 highlights the disproportionate EBITDA pre growth of 55% to almost EUR 44 million, also leading to higher margins. We have also made good progress towards our goal of expanding the share of the compounding business within the meters portfolio as illustrated on Slide 6. This reflects the impact of the consolidation of NewCo Pharma since January, a remarkable increase of the share of PST business. Compared to last year, we increased the revenue share for PST from 5% to 14%. And for EBITDA pre, we doubled the PST share coming from 20% to now 41%. This development is fully in line with our strategy and goals to increase the share of the higher-margin PST business. As the numbers demonstrate, we are successfully integrating the NewCo Pharma Group. We are on track to combine growth with significantly and sustainably increased profit margin of the entire Medios Group. On Slide 7, we can see the strong network that we can build on with the integration of NewCo Pharma Group. Furthermore, the start of the compounding at our new GMP lab in Berlin will help to increase the Medios Group's manufacturing capacity in the higher-margin PST segment up to 600,000 separations per year. This new GMP lab is one of the most modern, safe and effective GMP laboratories in Germany. And at end, it will enable us to work even more efficiently, make processes over saver and increase profitability at the same time. This is all from my side for the moment. I now hand over to Falk to provide more details on the financials for the first 9 months of '22 and on the guidance for '22 as well.

[Falk Neukirch, executive]

Thanks, Matthias. Welcome from my side also. I will give you now an overview on the numbers and we'll focus on the first 9 months of '22, unless I go to a different period. A full set of financials, as always, you can find on the -- on our website. So let's start with Slide 9. As the revenue increased by 22.5% there, 6.7% organic and 15.8% inorganic, resulting from NewCo Pharma acquisition. We see a disproportionate rise of earnings position compared to previous year. So the gross margin increased from 5% to 6.7% due to the higher share of PST business, also resulting mainly from NewCo Pharma acquisition. EBITDA pre rose by 55.1% and the EBITDA pre margin reached 3.6% compared to 2.9% in the previous year. Personnel costs followed the higher number of headcounts with 514 as of September 30, the increase of personnel costs by EUR 10.2 million to EUR 24.3 million is mainly attributable to EUR 7.4 million personnel cost of NewCo Pharma, EUR 1.2 million from stock option programs and the development of central functions and bought renumeration. The increase of other operating expenses by EUR 7.6 million to EUR 16 million was in the amount of EUR 5.1 million driven by the integration of NewCo Pharma Group, followed by rising rental costs primarily due to the increase in rented space and the new manufacturing site in Berlin, further cost increases resulted from higher energy consulting and integration costs. Despite these higher expenses, EBITDA pre outperformed revenue growth considerably. So the NewCo acquisition is already paying off. For your information, the adjusted EBITDA, so called EBITDA pre was adjusted by extraordinary expenses in the amount of EUR 2.7 million. On the one hand, for stock options by EUR 2.1 million, and on the other hand, for M&A transaction cost of EUR 0.6 million. Depreciation and amortization climbed from EUR 11.6 million to EUR 16.1 million mainly due to the amortization of customer-related intangible assets at reputable to NewCo Pharma. Of the EUR 16.1 million, almost EUR 11.2 million result from former PPAs, roughly EUR 5 million result from non-PPA acquisition and thereof EUR 2.3 million from IFRS 16 amortization. Operating cash flow amounted to roughly EUR 18 million, thereof EUR 8 million in the third quarter of 2022 compared to around EUR 40 million in the first 9 months last year. This development is caused by 2 extraordinary effects in '22, the tax and social contribution payments for stock option plans of almost EUR 8 million in the first quarter of '22, and the temporary increase in inventory in the first half of '22 to prepare for expected price increases. We already started to reduce our stock in the PS segment and would expect continuing reduction with further positive side effects for operational cash flow during the fourth quarter of '22. Cash flow from investing activities was especially impacted by effects in connection with the acquisition of NewCo Pharma. The cash component of the purchase price for NewCo acquisition was EUR 88 million and further operational investments of EUR 3.5 million mainly in the new manufacturing site in Berlin. The financing cash flow of minus EUR 39 million resulted primarily from the repayment of Tranche A of the syn loan of EUR 25.2 million. Furthermore, the cash flow includes the scheduled repayment of almost EUR 10 million from former shareholder loans of the Newco Pharmaceutical. Currently, Medios has access to a credit facility of EUR 17.5 million, which has not been used yet. Medios currently negotiate a syn loan of EUR 75 million to replace the present loan. Cash and cash equivalents amounted to EUR 62.1 million at the end of the reporting period. The equity ratio increased from 75.2% by end of '21 to a very solid level of 75.6%. On Slide 10 and 11, we provide a breakdown of the organic and inorganic growth per segment for the 9 months of '22. Let's start with Slide 10. Revenue grew organically by EUR 66.8 million or 6.7%. The inorganic growth amounted to EUR 155.9 million or plus 15.8% driven by the acquisition of NewCo Pharma. Around 74% of the inorganic revenue growth were allocated to our PST segment and the remainder to PS segment. The organic growth of EUR 66.8 million occurred almost entirely in the PS segment. Slide 11 shows the EBITDA breakdown by segment for the first 9 months of '22. EBITDA pre grew inorganically by almost EUR 60 million because of the NewCo Pharma integration, thereof EUR 12.7 million were allocated to our PST segment and the remainder to PS segment. The increased demand for headquarter function possible merger integration efforts and consulting cost increased cost level in the segment services. Let's now switch to Slide 12. As just explained, organic sales growth was 10.5% in the segmentation specific therapies and overall segment revenue client because of the NewCo Pharma acquisition. EBITDA pre rose, respectively. This is fully in line with our strategy to focus on higher-margin products and to increase the share of compounding business. The EBITDA pre margin decrease is a result of NewCo PST business with lower margins due to a different product mix and the regulatory price reductions is so called risk factor effective since September '22 for compounding of some cytostatic drugs. As already highlighted by Matthias, the share of the segment PST in EBITDA pre of the group is as it was for the first half of '22 above the target level of 40%, while PST revenue is at 14% of group revenue. Let's now switch to Slide 14 and 15. Despite ongoing economic and regulatory uncertainties, Medios confirms the guidance for '22, we expect revenue to reach the upper end of the range of EUR 1.45 billion to EUR 1.6 billion. However, EBITDA pre is expected to reach the lower half of the range of EUR 52 million to EUR 58 million due to the regulatory changes in the patient-specific therapy segment for the compounding of certain types of studies. According to our current projections, they reduced purchase price from September 1, '22 and the adjusted manufacturing prices for the compounding of the patient-specific therapies from October '17 will lead to a negative EBITDA pre effect in the amount of EUR 3.2 million up to EUR 3.6 million in '22. Global uncertainties, as outlined on Slide 15, to still exist such as rising inflation and supply chain bottlings. Our growth cost is currently not affected, but we are cautious and are monitoring the situation closely. In addition, we must include the impact from the most recent regulatory change that affects our PST business. Ladies and gentlemen, the numbers demonstrate the sustainable and profitable growth story of Medios. A summary of our growth initiatives, both organic and via M&A is outlined on Slide 16 and will now presented by Matthias.

[Matthias Gaertner, executive]

Thank you, Falk. We are very excited to introduce the new strategy in 2 weeks from now. Therefore, I will only briefly highlight the key ambition. The general direction of our growth strategy remains unchanged, but I would like to emphasize our efforts relating to M&A, in particular, in the field of compounding, which will help leverage our additional compounding capacity. One of our main goals is to increase our EBITDA pre margin. That's why we want to test further opportunities, which will enable us to achieve our objective in particular by internationalizing our business in the future and by potentially launching new segments, respectively, new services, all within the field of specialty pharma. We are excited to present more information and details on how we plan to achieve these goals at our Capital Markets Day in 2 weeks. This is all now -- from me for now. We are looking forward to seeing some of you at our Capital Markets Day. Of course, we will publish the presentation on the Medios website as well. Before I conclude the presentation, let's switch to Slide 17. I just want to highlight that the implementation of our ESG software tool is scheduled to be finalized by year-end. Ladies and gentlemen, this concludes our presentation. We hope to see you in person in 2 weeks here in Berlin. Thank you for attending.