Investing.com -- Shares in Evotec AG (ETR:EVTG) plunged on Wednesday following a profit warning issued late on Tuesday night.
Evotec shares plummeted 36.1% to €5.33 at ET 5:33 am (0933 GMT).
The company has reduced its EBITDA guidance for FY 2024 to between €15-35 million, a sharp decrease from the previously anticipated mid-eighties million range.
This downgrade reflects ongoing challenges within its Shared R&D segment and accelerated investments in biologics capacity expansion.
As per analysts at RBC (TSX:RY) Capital Markets, the major factors contributing to the profit warning include weak revenue growth in the transactional Shared R&D market, which remains depressed, and high operating costs associated with Evotec's expansion efforts in biologics.
The company's high operating leverage and low current profit margins have significantly worsened its EBITDA.
“A charitable assessment would be that although near-term outsourced R&D market conditions are a little worse than expected, fundamentals in the business are unlikely to have changed,” said analysts at RBC Capital Markets.
Evotec's management attributed the delayed downgrade to slower-than-expected revenue generation from long-term contracts and inconsistent quarterly revenue from Just-Evotec Biologics (JEB). JEB's costs exceeded projections as the company rapidly expanded capacity to meet increased demand.
Furthermore, RBC Capital Markets flagged concerns over Evotec's debt covenants, noting that the company's gearing is likely to exceed 10x at some point during 2024, far surpassing the 3.8x covenant on some debt facilities.
Evotec has indicated that it is working on solutions with its banks to address these covenant breaches.
The company reported that Shared R&D revenues were "unsatisfying" in the first half of the year, and while Just-Evotec Biologics showed mid double-digit revenue growth, this did not fully offset the negative impact on overall profitability.