Eckert & Ziegler Strahlen und Medizintechnik AG

XETRA:EUZ

Earnings Call Analysis

Eckert & Ziegler Expects Full-Year Growth

Eckert & Ziegler reported a sales growth of 10%, driven mainly by a 27% increase in the Medical segment attributed to the gallium generator business and radiopharmaceuticals. Despite higher revenue, net income fell 11% to EUR 10.9 million, mainly due to currency effects impacting EBIT by EUR 2 million. Asia's sales rose by 55%, signaling growing market importance. Net income guidance of EUR 25 million by year-end assumes stable FX rates. Cash remains strong at EUR 77 million, with a robust cash flow increase from EUR 5 million to EUR 15 million.

Operational Highlights and Financial Performance

Eckert & Ziegler has been actively progressing in the pharmaceutical and isotope product sectors. The company received GMP approval for lutetium-177 and is advancing PentixaPharm into Phase II and III for their imaging compound. Moreover, they've recently hosted a networking event to showcase their capabilities in theranostics. The first half-year demonstrated a 10% growth in net sales driven by radiopharmaceuticals. However, challenges such as the lower sales of oil well logging sources and the impact of hyperinflation have led to a decrease in EBIT compared to the prior year. The company remains profitable with net income reaching EUR 10.9 million but notes an overall decrease of 11% year-over-year. They anticipate improvements in the Medical area and the Isotope business in the coming quarters. Revenue growth was mainly observed in the Medical segment, with an impressive 27% increase, primarily credited to their gallium generator business.

Geographical Expansion and Sales Diversity

Sales growth has been distributed fairly evenly between Europe and the Americas, each accounting for 40% of sales. However, an outstanding growth of 55% was seen in Asia, primarily led by China. This upward trend in Asia is expected to continue, indicating its rising significance in Eckert & Ziegler's business strategy.

Radiopharmaceuticals Growth and Outlook

The radiopharmaceuticals sector is experiencing a robust growth of around 20% for the year, with the second quarter of the year showing a 30% increase and year-over-year growth of 35%. This growth is attributed to a combination of organic expansion and the strategic acquisition of Tecnonuclear. The company expresses confidence that this growth trajectory will maintain momentum in upcoming quarters and years.

Financial Strength and Investment Intention

Eckert & Ziegler's balance sheet reveals a strong cash position with EUR 77 million in cash and stocks, and a slight increase in loan liabilities. The net liquidity stands between EUR 45 to 50 million, reflecting a strategic choice to fund continuous investments.

Financial Outlook and Projections

The company's revenue has experienced growth, and they maintain a robust cash flow. Echoing this financial strength, a net income of EUR 11 million in the first half of the year points to an increase to about EUR 14 million in the second half, with an annual guidance of EUR 25 million net income if the foreign exchange rates do not present additional challenges.

Strategic Developments and Future Opportunities

The strategic focus lies in supplying isotopes for medical drug development in lutetium, actinium, and Y-90. These products are seeing increasing demand as more companies enter clinical phases with their therapeutic compounds. With a committed investment in manufacturing capabilities, such as the expansion in Boston and development of new sites in China, the company is set to meet the anticipated demand. Moreover, PentixaPharm, Eckert & Ziegler's subsidiary, is advancing into Phase III for imaging in marginal zone lymphoma, with a new imaging area in primary hyperaldosteronism also being explored. The equity story remains positive with growing revenues, an increase in net income, and the company's dedication to ESG criteria.

Reasons for Investment

Eckert & Ziegler holds a market-leading position in the high-entry-barrier isotope market. The strong growth in Asia, stable ownership with the Eckert family retaining a 30% stake, and the goal to achieve an EBITDA ratio of at least 20%, support their aspiration for growth in all relevant KPIs.

Earnings Call Transcript 2023-Q2

[Harald Hasselmann, executive]

Here we go. So the disclaimer is clear to everybody. I'm pretty sure you're aware with that. I would like to have the lay out here of some new slides in the layout, but also in the format, you might be being used to it in the past. So happy also to take your feedback later on your comments.

What were the operational highlights of the last quarter? We received for lutetium-177, non-carrier-added, we received GMP approval, which enables us to sell at any place in Europe, and also the DMF has been granted early upon. With our company, PentixaPharm, we are moving forward, and I will come to that in a later stage that we are moving now in Phase II and Phase III together for the imaging compound. We have held in June, in Boston, an amazing interesting network event for all the theranostic companies in order to stress and demonstrate the possibilities of Eckert & Ziegler. And we are also entering with PentixaTher into new areas of the therapy.

Next slide. So Eckert & Ziegler, in a nutshell, you are aware of all our products as well as in the industry, Isotope Product area, where we are selling all the radiation sources, service and others, whereas in the Medical business, and that is the main reason for our strong growth performance in the first half year is made in the pharmaceuticals. And then later on we'll also talk about Pentixa, PentixaPharm, PentixaTher and imaging.

Last year's result, 50-50 in terms of sales, profitability higher in Medical. You see, if you look to some ratios, then we have added here revenue per employee. And you see that regarding the revenue per employee is stronger in the Medical business as it is also for the EBIT based on last year's numbers.

Having a look to the first half year of '23, it is important to mention that in the first half year, we did not include the hyperinflation of Argentina based on IAS 29. That is why if you go to a deeper analysis of the comparison of this year and last year, you will see that we have restated last year's performance by the effect of the hyperinflation. And that will lead us through all the upcoming slides, where we do compare our numbers of this year with last year's numbers based on restated areas.

Now how does it look like in details? I will show you the overall group performance as well as the individual ones. On the group level, you have received today's press release, growing the company by 10% in terms of net sales and particular, the radiopharmaceuticals, which I am going to show in more detail, have a strong sales growth performance. And that's why Medical, as such, is driving momentum for the first half year, whereas in Isotope Products due to lower oil well logging sources in the first half year, we were lacking some of the sales.

If we look to EBIT and net income, I know you are aware with our presentation of net income, but we also want to move also and to demonstrate and present here the EBIT numbers. You see that we are suffering in terms of EBIT compared to last year's performance, and that is mainly due to the hyperinflation business, what you see here with an effect of EUR 2 million compared to last year in terms of currency effects. If we compare dollar-dollar last year and this year, we see -- have a negative effect of EUR 2 million, and that is the main reason why the performance compared to last year is lower. In terms of the outlook for the Q3 and Q4, we do see an improvement both in the Medical area as well as the Isotope business.

Looking to the individual numbers. So net sales in Medical, we're growing by roughly 27%, mainly due to a strong sales increase of our gallium generator business, which is not only getting approvals in more and more countries, but also the number of generators being sold in existing markets is increasing. We have had a onetime effect in last year of the divested HDR business, which we have sold, and that is why if that is adjusted, then the sales would have been even bigger, up to 30%.

In terms of EBIT, the EUR 2 million I mentioned is mainly here shown in the Medical area out of EUR 2 million currency exchange losses, which we see compared to last year, EUR 1.7 million is here within the Medical business. And that is why we -- mainly the reason why we are suffering here you see a decrease in the net income of EUR 6.9 million compared to EUR 7.6 million. If that would have been adjusted, then the net income would be much stronger compared to last year.

Looking to the Isotope business, there, we have seen headwinds. FX adjusted, the sales would be slightly positive. Basically, it's a plus/minus performance. And if you look to the EBIT number, then we see a strong decrease in our EBIT because our oil well logging sources business, we are failing and missing in the first half year, and that is being recovered in the second half year. So if I come to the outlook later on, you will see that we do expect an increase in profitability also in the Isotope business.

Now how does the overall net income look like? EUR 10.9 million is the net income group, as reported, adjusted by the currency exchange loss of EUR 2 million, that is roughly EUR 13 million compared to EUR 14.5 million of last year, is then a decrease of 11% compared to last year, which is then due to higher operating cost on the one side and lower profitability of the mentioned oil well logging sources sales and revenues, which didn't show up as expected in the first half year.

Now let's have a look to the regional split. And what is worthwhile to mention is that Europe and basically the Americas are sharing the [ road ] in 2 halves, 40% from Europe, 40% from Americas. But interesting enough that Asia is growing by 55% compared to last year, and we do expect that this is going to be continued. It's mainly coming from China, but also from other Asian countries, and that is likely to happen also in the years to come, and Asia will by then play a more important role.

Now let's have a look to what we call radiopharmaceuticals. Radiopharmaceuticals, we do define as a composition of various products that is the Isotope Products, Y-90, yttrium called, lutetium and later on also actinium, then we have the generators. And you know that, we are selling the PET/CT generator gallium-68 as well as technetium generator 99. We have cold kits, our CMO activities and other services. And if you look how this has been increased and how the year '23 will look like, then it's mainly an increase here by strongly roughly 20%.

Looking into more details, you will see that [indiscernible] we have split it up in organic growth and inorganic growth because we acquired a company called Tecnonuclear and -- by the end of '21. So there was a very small share of inorganic growth in '21, then something around EUR 11 million in 2022, and the same will pop up here as inorganic growth this year again, but also the organic growth is growing. And if we look to the numbers here, you see the percentages from Q1 to Q3, it is growing, as mentioned here in Q2 of last year and this year, a growth of 30%. And year-over-year, it's 35% growing due to the performances of the individual products I just mentioned. And we are very optimistic that this is going to continue in the quarters and years to come.

Having a look to the balance sheet, we remain cash rich with EUR 77 million of cash and stocks on the one side, but also we have slightly increased our loan liabilities. So the overall net liquidity is something around EUR 45 million to EUR 50 million, and that is by intention because we want to continue our investments, you are very well aware of, and that is why we are using our existing cash for financing our investments.

Looking to the key figures you might be interested in, that's cash flow investments, loan liabilities, equity ratio and headcounts. Our cash flow has increased in the first half year from EUR 5 million to EUR 15 million. That is mainly due to [ 2 effects ], and [indiscernible] Finance and Controlling, who is with me, can give you more details if needed, that is tax related and as well as also grant related, which we received from governmental funds. Investments, same ratio than last year, basically, equity ratio of about 50%. And headcount, we reached 1,000 employees now working for the company.

So financial overview. You see here, revenue has grown. Cash flow remains very strong. Adjusted net income, I reported about that. Cash balance, EUR 77 million. Equity ratio of 40%. So how does the outlook look like out based on the first half year, where we have EUR 11 million as net income. We do expect second half year with something around EUR 14 million. So we do put our guidance here in repeating pace at EUR 25 million by the end of the year based on the assumption that we will not get more headwinds from the FX ratios, [ US dollar, euro ] may be concerned.

For those who are interested in the upcoming events, we have tried to list up all the upcoming events for this year as well as for last year. And Karolin Riehle, taking care of Investor Relations, also participating in today's call is putting this presentation later on, on the Internet, so you can follow up on these numbers.

Now let's have a look to some focused topics. This is a slide you might have seen in a lot of different variations. Basically, what is this demonstrating is that in our areas, where Eckert & Ziegler is active, that is lutetium, actinium and Y-90, there's a big range of companies, who are developing medical drugs, compounds for imaging and therapy dose and these are the -- those for the therapeutics. And some of them are already approved, but the big wave here you see preclinical Phase I and II and III is still to come.

And of course, it's no surprise that it is Eckert & Ziegler's ambitious target to become a supplier to all of these companies or to the majority of these companies with our produced isotopes, lutetium, actinium and Y-90 as we are already doing so. And we do this with our full range of products and our product portfolio in isotope and services, contract manufacturing and the production of hot cells.

Lutetium for those who are not so familiar with it, as I mentioned, we submitted here DMF, and also we received GMP approval earlier in Q2 of this year. And we do have increased our weekly production with an annual capacity of 15,000 patient doses and by 2025, so I mentioned that the big wave is still to come, should be more than the 50,000 on a yearly basis.

Actinium, that is the isotope, still to come because those companies who are active in that field are still producing small, requesting small amounts of actinium quantities because it's all noncommercial. So what we do expect, and that is important for analysts is here that by 2028, we do expect something about the market of EUR 60 million and then later on the EUR 150 million by 2030, that is supposed to be the global demand, and Eckert & Ziegler should be one of the first companies producing actinium. We are going to sell actinium by the end of the year in GMP quality. And in less than a year's time, our own production will have started in producing actinium on our own production rate. And by that, we should be one of the leading companies doing so here.

The generator is familiar to everybody. I don't have to repeat that. We are offering a CMO contract manufacturing sites in Boston, in North America as well as in Germany, here in Berlin and in Braunschweig, and we are also erecting a site in China.

You are aware of our strategic alliances, which we have with our company, Tecnonuclear as well as Atom Mines in North America. Here, you see a picture of our facility in Boston, where we're offering 50,000 square feet for offices, but more importantly, for production and warehousing of companies making use of our sites. China, Berlin and Rossendorf and Dresden are the sites where we are continuing developing our new infrastructure sites for making more product and commercial sites available.

PentixaPharm that is our 100% subsidiary. And you know that we are active in both in imaging as well as in therapeutics. And for imaging, that is where we are most advanced in, that is based on gallium, our generator, will play a major role in the imaging part for marginal zone lymphoma, and we are entering now Phase III. First patients should be included in that study pretty soon, and that product is going to be marketed from '26 onwards. That is our target.

Now what is equally important is a new area, which we have identified with Pentixa is also imaging that is a disease called primary hypertension -- primary hyperaldosteronism, that is a hypertension disease. And what you see on the picture are the 2 kidneys you have, and if one of the 2 kidneys you have [ adrenal ] gland is producing too much of a hormone, called aldosterone, then the blood pressure increases substantially. And with Pentixa, we will be able to demonstrate whether that disease is unilateral or bilateral. And if it's unilateral, it's only one kidney who is suffering by producing too much aldosterone, then you can cure that disease, that hypertension by surgery. And in order to determine, which of the 2 kidneys is the wrong one, the bad producing gland, you use Pentixapharm because that is logging on that gland, which is producing too much aldosterone.

So the equity story, as you are all aware of, is basically revenues are growing. Net income, we have here the onetime effect because of our divested HDR business is growing, employees is slightly above 1000, and the CapEx is increasing. So basically, what the remaining part is what we are doing for ESG. We have now hired specific dedicated people, taking care of making sure that we are fulfilling MSCI, ISS and Sustainalytics in order to match the ESG criteria.

Now what is the reasons to be invested. Basically, we remain a market leader for isotopes, and there the entry barrier is extremely high. So that is why where we are positioned, and that is an established high price markets. Eckert & Ziegler plays a dominant role. And Asia, as I mentioned, is growing to 55% in the first half year. Eckert & Ziegler remains both an international company on the one side, but simultaneously, the Eckert family still owns 30% of the company, and that makes -- gives us guarantee that we can keep hierarchies flat and all communications very short and most efficient. Profitability, our aim remains to achieve an EBITDA ratio of at least 20%. And that's why we want to continue growing in all relevant KPIs.

Basically, ladies and gentlemen, this is in a nutshell, the performance of the first half year.