Q4 2023 Stevanato Group SpA Earnings Call

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Operator: Good afternoon. This is the Corusco Conference Operator. Welcome and thank you for joining the Stevanato Group fourth quarter and year-end 2023 financial results earnings call. As a reminder, all participants are in listen-only mode.

Good afternoon. This is the chorus call conference operator, welcome and thank you for joining the stuff on auto group fourth quarter and year end 2000, Twenty's three financial results earnings call. As a reminder, all participants are in listen only mode. After the presentation there will be no.

Operator: After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Ms. Lisa Miles, Senior Vice President and IR. Please go ahead, Ms. Miles.

Opportunity to ask questions should anyone need assistance during the conference call. They may signal, an operator by pressing star and see around or telephone at this time I would like to turn the conference over to MS. Lisa miles senior Vice President and IR. Please go ahead with them.

Yeah.

Lisa Miles: Good morning, and thank you for joining us. With me today is Franco Stevanato, Executive Chairman; Franco Moro, CEO; and Marco de Lago, CFO. You can find a presentation to accompany today's results on the Investor Relations page of our website, which can be found under the Financial Results tab. As a reminder, some statements being made today will be forward-looking in nature and are only predictions. Actual events and results may differ materially as a result of the risks we face, including those discussed in Item 3D entitled Risk Factors in the company's most recent Annual Report on Form 20-F filed with the SEC. Please also take a moment to read our Safe Harbor Statement included in the front of today's presentation. The company does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances, except as required by law.

Good morning, and thank you for joining US with me today is Frank of stepping out, though executive Chairman Frank Tomorrow C. E O N. Margo just Lago C. F. O you can find a presentation to accompany today's results on the.

Relations page of our website, which can be found under the financial results tap.

As a reminder, some statements being made today will be forward looking in nature and are only predictions actual events and results may differ materially as a result of risks we face, including those discussed in item three D entitled risk factors in the company's most recent annual report on form 20-F.

Filed with the SEC.

Please also take a moment to read our safe Harbor statement included in the front of today's presentation.

The company does not assume any obligation to revise or update. These forward looking statements to reflect subsequent events or circumstances, except as required by law.

Franco Stevanato: Today's presentation may contain non-GAAP financial information. Management uses this information in its internal analyses of results and believes this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results, and providing meaningful period-to-period comparisons. For reconciliation of the non-GAAP measures, please see the company's most recent earnings press release. And with that, I'll now hand the call over to Franco Stevanato for opening remarks. Thank you, Lisa.

Today's presentation may contain non-GAAP financial information management uses this information in its internal analyses of results and believes this information may be informative to investors in gauging the quality of our financial performance identifying trends in our results and providing meaningful period to period comparisons for a reconciliation.

Nation of the non-GAAP measures. Please see the company's most recent earnings press release and with that I'll now hand, the call over to Franco stepping up though for opening remarks.

Thank you Lisa 2023 was very positive what as we close out another solid year with 10% growth or 11% on a constant currency basis.

Franco Stevanato: 2023 was very positive for us. We closed out another solid year with 10% growth or 11% on a constant currency basis. We continued to successfully execute our near-term objectives of advancing our capacity expansion projects and growing our mix of high-value solutions, while still delivering double-digit growth. At the same time, during 2023, we navigated some macro challenges in a dynamic environment of inflation uncertainty, ongoing supply chain issues, and industry-wide customer stocking.

We continued to successfully execute our near term objectives of advancing our capacity expansion projects and growing our mix of high value solutions, while still delivering double digit growth.

At the same time during 2023, we navigated some macro challenges in a dynamic environment of inflation necessity ongoing supply chain issues and industry wide customer destocking, even against the backdrop, we're benefiting from favorable secular tailwind, which we expect it will continue to drive demand.

Franco Stevanato: Even against that backdrop, we are benefiting from favorable circular tailwinds, which we expect will continue to drive demand for our high-value solutions. Meanwhile, at the same time, we have been investing heavily in expanding capacity to meet market demand. We expect that these investments will drive organic growth in the mid-term as we efficiently leverage our invested capital to exploit the opportunities in front of us. The fundamentals of our business remain strong. We operate in high-growth end markets, like biologics, where we see a broad range of opportunities. As the global leader in pen cartridges and with an enviable market position in preferred syringes, we are well positioned to capitalize on the growth in biologics and the trend toward self-administration of medicine.

For our high value solutions, while at the same time, we have been investing heavily in expanding capacity to meet the market demand that we expect that these investments will drive organic growth in the meat, Adam as we efficiently leverage our invested capital to exploit the opportunities in front of us.

The fundamentals of our business remain strong, but we operate in high growth end markets like biologics, where we see a broad range of opportunities as.

As the global leader in spend cartridges, and with an enviable market position, but it feel about sorry, and just we are well positioned to capitalize on the growth in biologics and the trend towards the self administration of magazine. My recent visits with several of our largest customers gave me continued optimism that we are on the right.

Franco Stevanato: My recent visits with several of our largest customers gave me continued optimism that we are on the right path. Customers favor our unique value proposition of integrated end-to-end solutions, our global footprint, our one quality standard, and our differentiated product set. We are focusing on driving future growth through solid execution, and we believe we have the right strategy, the right product portfolio, and the right team to succeed as we work toward creating and driving long-term shareholder value. Thank you. I will now hand the call over to Marco. Thanks, Franco.

Got that.

Thomas five or about a unique value proposition of integrated end to end solutions, our global footprint, our one quality standards and our differentiated product set that we're focusing on driving future growth through solid execution and we believe we have the right strategy the right product portfolio and the right team to succeed as we were.

Work towards creating and driving long term shareholder value. Thank you I will now hand, the call over to Michael.

Thanks, Franco before I begin I want to clarify that all comparisons refer to year over year changes unless otherwise specified.

Marco Dal Lago: Before I begin, I want to clarify that all comparisons refer to year-over-year changes unless otherwise specified. Starting on page 7, we delivered double-digit growth in the fourth quarter, which was slightly below our expectations and put us at the low end of our 2023 guidance range. However, the differences in fiscal 2023 actual results and our 2023 guidance were mostly due to lower vial volumes as customers worked down inventories they had stockpiled during the pandemic. The higher inventories are not limited to COVID-19-related customers but also customers with non-COVID-19 applications who built up stock to mitigate supply chain uncertainty and manage long lead times at the height of the pandemic. We believe this is a temporary imbalance of supply and demand across the industry.

Starting on page seven.

We delivered double digit growth in the fourth quarter, which was slightly below our expectations and put us at the low end of our 2023 guidance the range.

However, the differences in fiscal 2023 act were resolved and our 'twenty to 'twenty three guidance were mostly due to lower vial volumes as customers work down inventories they stockpiled during the pandemic.

The hiring vein threes are not limited to COVID-19 related gas demand, but also customers with known COVID-19 applications will built up stock to mitigate supply chain uncertainty in men as long lead times are the high of the pandemic.

We believe this is a temporary imbalance of supply and demand across the industry.

Marco Dal Lago: We are starting to see some early indications of market improvement, but our 2024 guidance assumes a slower recovery in vial demand, resulting in a growth rate of 9% to 12% for fiscal 2024. Looking beyond 2024, we are maintaining our mid-tier targets of low double-digit growth starting in 2025. In 2027, we still anticipate high-value solutions in the range of 40-45% and an adjusted EBITDA margin target of approximately 30%. Now, let's turn our attention to the fourth quarter results on slide 8, which will be the focus of my comments. Four-quarter revenue was a little bit below our internal expectations by about €5 million, which was evenly split across the segments.

We are starting to see some early indications of market improvement.

Our 'twenty 'twenty four guidance assumes as lower recall very in vial demand, resulting in the growth rate of 9% to 12% for fiscal 'twenty 'twenty four Luke.

Looking beyond 'twenty 'twenty four we are maintaining our meet their targets of low double digit growth starting in 2025.

In 2027, we still anticipate high value solutions in the range of 40, 45% and then adjusted EBITDA margin target of approximately 30%.

Let's turn our attention to fourth quarter results on slide eight which will be the focus of my comments.

Fourth quarter revenue was a little bit below our internal expectations by about 5 million Yoda, which was evenly split across the segments.

Marco Dal Lago: Nevertheless, total revenue increased 10% to $320.6 million, or 11% on a constant currency basis, driven by growth in the biopharmaceutical and diagnostic solutions segment, tied to higher volumes and an increasing mix of high-value solutions. However, growth was offset by a decline of approximately 33.8 million related to COVID-19. Without COVID-19, revenue growth in the fourth quarter would have been 24%. We have been managing the roll-off of revenue related to COVID-19 while at the same time growing our mix of high-value solutions. In the fourth quarter of 2023, we generated record sales from high-value products, which represented 37% of total revenue. As expected, the gross profit margin for the fourth quarter of 2023 decreased to 31.8%.

Nevertheless, total revenue increased 10% to $320 6 million or 11% on a constant currency basis, driven by growth in the biopharmaceutical and diagnostic solutions segment.

<unk> to higher volumes and the increasing mix of high value solutions growth was offset by a decline of approximately 33 point take meal are related to COVID-19.

Excluding COVID-19 revenue graph in the fourth quarter would have been 24% we.

We have been managing their law for revenue related to COVID-19, while at the same time growing our mix of high value solutions.

In the fourth quarter of 2023, we generated record sales from high value products, which represented 37% of total revenue.

As expected gross profit margin for the fourth quarter of 2023 decreased to 31.8%.

Marco Dal Lago: As a reminder, the fourth quarter of 2022 was an exceptionally strong quarter and included two benefits that did not repeat. First, we recognized higher revenue and profit from easy-fill vials, which led to a more favorable mix within high-value solutions. And second, we instituted some additional price adjustments to recover inflationary costs from prior periods, predominantly in the BDS segment. These two effects were the largest contributors to the step-down.

As a reminder, the fourth quarter of 2022 was an exceptionally strong quarter and included two benefits that did not repeat.

First we recognize higher revenue and profit for our music fill vials, which led to a more favorable mix within high value solutions and second we used it to that some additional price adjustments to recover inflationary costs from prior periods.

Predominantly in the Bds segment. These two effects were the largest contributors to the step down.

Marco Dal Lago: This was partially offset by the increase in high-value solutions. Gross profit margin was also unfavorably impacted by the currency translation and continues to be tempered by short-term inefficiencies tied to the start-up of new facilities, including higher industrial costs, depreciation, and naturally lower utilization during the ramp-up phase. For the fourth quarter of 2023, SG&A and R&D expenses were lower compared with the prior year, mainly due to a lower accrual for our performance-based management bonus program. In addition, we have prudent short-term cost management initiatives to counterbalance the temporary headwind. Operating profit margin decreased 160 basis points to 20%, mainly due to lower gross profit and a decrease in other income.

This was partially offset by the increase in high value solutions grasp.

Gross profit margin was also unfavorably impacted by the currency translation and continues to be tempered by short term inefficiencies tie to the startup of new facilities, including higher industrial costs, depreciation and naturally lower utilization during the ramp up phase.

For the fourth quarter of 2023, SG&A and R&D expenses were lower compared with the prior year mainly.

Mainly due to a lower accrual for our performance based management bonus program.

In addition.

We have prudent short term cost management initiatives to counter balance the temporary headwinds.

Operating profit margin decreased 160 basis points to 20% mainly.

Mainly due to lower gross profit and the crazy in other income on.

Marco Dal Lago: On the bottom line, for the fourth quarter of 2023, we generated net profit of $45.2 million, or $0.17 of diluted earnings per share. Adjusted Net Profit of $47.1 million, or Adjusted Diluted EPS of $0.18, and Adjusted EBITDA totaling $86.7 million, reflecting an Adjusted EBITDA margin of 27%. Let's review segment results on page 9. The Biopharmaceutical and Diagnostic Solutions segment delivered strong growth in the quarter despite the steep decline in COVID-19 revenue and industry-wide inventory destocking. For the fourth quarter of 2023, BDS segment revenue grew 12% and 14% on a constant currency basis to $260.6 million, driven by growth in our core drug containment solutions business. In the fourth quarter of 2023, revenue from high-value solutions grew 37% to $119.4 million, representing 46% of segment revenue. This was offset by a 3% decline in revenue due to other containment and delivery solutions. Gross profit margin decreased to 33.6% in the fourth quarter of 2021, mainly due to lower easy-fill vial volumes, currency translation, and short-term inefficiencies tied to the start-up of new plants. Additionally, lower vial volumes have led to short-term underutilization on some lines.

On the bottom line for the fourth quarter of 'twenty to 'twenty three we generated net profit of $45 2 million or 17 cents of diluted earnings per share.

Adjusted net profit of $47 1 million or adjusted diluted EPS of 18 cents.

And adjusted EBITDA totaling $86 7 million, reflecting an adjusted EBITDA margin of 27%.

Let's review segment results on page nine.

The biopharmaceutical diagnostic solutions segment delivered strong growth in the quarter. Despite the steep declining COVID-19 revenue and industry wide inventory destocking.

For the fourth quarter of 2023, Bds segment revenue grew 12% and 14% on a constant currency basis to 266 media driven by growth in our core drug containment solutions business.

In the fourth quarter of 2023 revenue for our high value solutions grew 37% to $119 4 million, representing 46% of segment revenue.

This was offset by a 3% decline in revenue due to other containment and delivery solutions.

Profit margin decreased to 33, 6% in the fourth quarter of 2023.

Mainly due to lower easily fill vials volumes currency translation and short term inefficiencies tie to the startup of new plants. Additionally, lower vial volumes led to short term underutilization on some lines.

Marco Dal Lago: For the fourth quarter of 2023, engineering segment revenue totaled $60.6 million, which was consistent with the same period last year. However, the gross profit margin for the engineering segment decreased 10 basis points to 21.1% compared with the same period last year. We are managing through a large volume of work in progress. Our main priority in 2024 is executing on these projects and shortening our lead time. On page 10, as of December 31st, 2023, we had cash and cash equivalents of $69.6 million and net debt of $324.4 million. Capital expenditures were $94.7 million in the fourth quarter and $453.3 million for the full year, which was in line with our expectations.

For the fourth quarter of 'twenty to 'twenty three engineering segment revenue totaled 66 million, which was consistent with the same period last year.

For the fourth quarter of 2023 gross profit margin for the engineering segment decreased 10 basis points to 21, 1% compared with the same period last year, we are managing through a large volume of work in progress.

Our main priority in 'twenty 'twenty four is executing on these projects and shortening our lead times.

On page 10 as of December 31st 2023, we had cash and cash equivalents of $69 6 million and net debt of $324 4 million capital expanded to swap $94 7 million in the fourth quarter and 453.

<unk> 3 million for the full year, which was in line with our expectations.

Marco Dal Lago: Our investments in expanding capacity in high-value solutions are essential to meet expected market demand. For the fourth quarter of 2023, cash flow from operating activities was $10.2 million, which reflects our current working capital needs to support organic growth. Cash used for the purchase of property, plant, and equipment, and intangible assets was $87.1 million, which resulted in a negative free cash flow of $76 million.

Our investments in expanding capacity in high value solutions out of essential to meet the expected market demand for the fourth quarter of 2023 cash flow from operating activities was $10 2 million, which reflects our current working capital needs to support organic growth.

Cash used for the purchase of property plant and they keep meant.

And the intangible asset was $87 1 million, which resulted in negative free cash flow of $76 million.

Marco Dal Lago: Over the past few months, we've strengthened our balance sheet with three new mid-term loans totaling $110 million and have drawn down approximately $60 million. We believe we have adequate liquidity to fund the needs of the business, and we will continue to explore additional financial options to support future growth. Lastly, on page 11, we are introducing our full year 2024 guidance. We currently expect Revenue in the range of $1,180,000,000 and $1,210,000,000, Adjusted bid in the range of $314.1M to $329.5M, Adjusted diluted EPS in the range of $0.62 to $0.66. In 2024, we estimate that CAPEX will range between 25% and 28% of total revenue, based on the midpoint of our revenue guidance. Our full year 2024 guidance assumes the following. The second half of 2024 will be even stronger than the first half.

Over the past few months, we strengthen our balance sheet with three new mid term loans totaling 110 million and that drove down approximately 60 million.

We believe we have adequate liquidity to fund the needs of the business and we will continue to explore additional financing options to support future growth.

Lastly on page 11, we are introducing our full year 2024 guidance.

We currently expect.

Revenue in the range of a 1.180 billion and 1.210 billion.

Adjusted EBITDA in the range of $314 1 million to $329 5 million.

And adjusted diluted EPS in the range of 62 cents to 66 cents.

In 2024, we estimate the Capex will range between 25, and 28% of total revenue based on the midpoint of our revenue guidance.

Our full year 'twenty 'twenty four guidance assumes the following.

The second half of 'twenty 'twenty, four will be stronger than the first half of the Bds segment is expected to grow low double digits, while engineering, we remain flat as we focus on executing on our current work in progress.

Marco Dal Lago: The BDS segment is expected to grow low double digits, while engineering will remain flat as we focus on executing on our current work in progress, high value solutions in the range of 35 to 37% of total revenue. And lastly, we are estimating a currency headwind of approximately 7 to 9 million. Also, consistent with prior years, we expect a step down in revenue in the first quarter compared with Q4 2023. We currently expect revenue in the first quarter of 2024 will be flat to slightly down compared with the same period last year. In Q1, this assumes mid-single-digit growth for the BDS segment and revenue decline in the engineering segment compared with the first quarter of 2024. Overall, as the pandemic continues to wane, we are still operating in a dynamic environment with ongoing inventory normalization. Despite this, we believe that 2024 will still be a year of growth, and our midterm outlook remains unchanged. Thank you. I will hand the call to Franco.

High value solutions in the range of 35% to 37% on total revenue.

And lastly, we are estimating a currency headwind of approximately seven to 9 million.

Also consistent with prior years, we expect a step down in revenue in the first quarter compared with Q4 'twenty to 'twenty three.

We currently expect that lab and in the first quarter of 'twenty 'twenty four will be flat to slightly down compared with the same period last year. In Q1. This assumes mid single digit growth for the Bds segment.

And the revenue decline in the engineering segment compared with the first quarter of 2023 overall.

The pandemic continues to wane, we are still operating in a dynamic environment with the ongoing inventory normalization.

Despite these we believe that 'twenty 'twenty four will still be a year of growth and our mid term outlook remains unchanged.

Thank you I will hand, the call to Franco.

Franco Stevanato: Thanks Mark. For Fiscal 2023, we achieved double-digit top-line growth and increased our mix of high-value solutions to 34% of total revenue, up from 30% last year. During the year, we made meaningful progress in our capacity expansion and enhanced our integrated value proposition. Nevertheless, we also face challenges that we continue to manage.

Thanks, Michael.

For fiscal 'twenty to 'twenty, three we achieved double digit top line growth and increase our mix of high value solution to 34% of total revenue up from 30% last year.

During the year, we made meaningful progress.

Foundry expansion.

Our integrated value proposition.

Nevertheless, we also faced the challenges that we continue to manage.

Franco Stevanato: On slide 14, as previously disclosed, we see a convergence of factors impacting the engineering segment. Over the last 24 months, we have benefited from strong demand for engineering machinery, but we have been challenged with timely execution, mostly due to the long lead times for electronic components and the time needed to shore up the resources to deliver on the outsized demand. As we discussed last quarter, we believe that we are on the right path to better balance resources with demand, but it will take some time. We believe the most effective path is to prioritize execution and bring these projects to completion.

On slide 14.

Previously disclosed we see a convergence of factors impacting the engineering segment.

Over the last 24 months, we benefited from strong demand for engineering and machinery, but we have been challenged with.

Finally execution.

Mostly due to the long lead times for Tony components.

And the time needed to show rapid the resources to deliver on the outsized demand as we discussed last quarter. We believe that we are on the right path to better balance resources with demand.

It will take some time.

We believe the most effective path is to prioritize execution in bringing this project to completion.

Franco Stevanato: This may negatively impact segment growth in the short term, but we believe this action will better position the business for long-term success. Turning to the BDS segment on slide 15.

These may negatively impact segment growth in the short term but.

But we believe these actions will better position the business for long term success.

Turning to the Bds segment on slide 15.

Franco Stevanato: Despite the headwinds from the stockpile, underlying demand for biologics continues to rise. In our BDS segment, revenue from biologics, excluding COVID-19, represented approximately 28% of second revenue, up from 19% last year. We believe the slower recovery in vital demand is temporary.

Despite halloween's form the stocking the underlying demand for biologics continues to rise.

In our media segment.

Revenue from biologics, excluding COVID-19.

Represented approximately 20% of the cycle and for revenue.

Up from 19% last year, we believe the slower recovery in buyer demand is temporary.

Franco Stevanato: We currently expect the path to normalization will continue throughout 2024, and we are cautiously optimistic that order flow will begin to pick up in the second half of the year. Longer term, we see many opportunities in the adoption of a ready-to-use bias and cartridge. Today, less than 5% of the vial and cartridge market has converted to a ready-to-use format, compared with 95% of the syringe mark.

We currently expect the path to normalization, we continue throughout the 2024.

And we are cautiously optimistic that the order flow will begin to pick up in the second half of the year.

Longer term.

We see many opportunities in the adoption of our ready to use a bias and cartridges.

Be less than 5% of the buyer and cockpit market has converted to a ready to use format.

Compare that with 95% of the syringe market.

Franco Stevanato: Customers increasingly see the advantages of leveraging a ready-to-use configuration to reduce supply chain risk, enhance quality, and expand flexibility. In fact, based on market data, the number of fill and finish lines, capable of processing sterilized vials and cartridges, is estimated to have increased 32% in 2023. We also believe that the changing regulatory landscape will galvanize adoption over the next decade. The diversity in our product portfolio is helping us navigate the lingering impacts of COVID-19. So why has short-term vial demand been lagging? Demand for other grass products, particularly syringes, continues to be robust.

Customers increasingly see the advantages of leveraging a ready to use the configurations.

To reduce supply chain risk.

Enhanced quality and expand the flexibility.

In fact based on market data.

Number of our fill and finish line.

Capable of processing currently lies the vials and cartridges.

Is estimated to have increased 32% in 2023.

We also believe the changing regulatory landscape will galvanize our adoption over the next decade.

The diversity in our product portfolio is a happiness navigated the lingering impacts from COVID-19.

So why short term of buyer demand has been lagging demand for other glass products.

Kelly Syringe is continues to be robust.

Franco Stevanato: In fact, in 2023, Biologics drove a record-year increase in high-value syringes, such as NEX. Turning now to backlog and new order intake on page 16, new order intake increased 44% to approximately 342 million euros in the fourth quarter.

In fact in 2023.

Biologics drove a record year in sales of high value so ranges such as Maxim.

Turning now to backlog and new order intake on pages 16.

New order intake increased 44% to approximately 342 million euros in the fourth quarter.

Franco Stevanato: And as a result, we exited the year with a backlog of approximately 945 million euros, heavily weighted towards biology. Because we often experience quarterly fluctuations in backlog and order intake. We believe that annual analysis of these metrics provides a more accurate view of demand trends. So, beginning in fiscal 2024, we will provide backlog and order intake on an annual basis, rather than quarterly, on page 17. Our capital projects are multi-year investments that have a multi-year volume and revenue ramp. In Latin America, we launched commercial syringe production in the fourth quarter, and we expect a steady ramp over the coming years. In addition, we will be installing ready-to-use cartridge lines as part of a long-term project to support a customer's transition from bulk to sterilized cartridges.

And as a result, we exited the year with backlog of approximately nine common and 45 million euros heavily weighted towards biologics.

Because we often experience quarterly fluctuations in backlog and order intake.

We believe that annual analysis of these metrics provides a more accurate view of demand trends.

So beginning in fiscal 'twenty to 'twenty, four we will provide backlog and order intake on an annual basis rather than quarterly.

On page 17.

Our capital projects are multi year investments that type of multi year volume and revenue ramps.

In Latina, we launched commercial surveying to production in the fourth quarter, and we expect a steady ramp over the coming years.

In addition, we will be installing a ready to use Carthage at alliance as part of a long term project.

To support our customers transition from back to sterilize cartridges.

Franco Stevanato: And these lines are expected to supply commercial volume beginning in 2026, and Fischer. Customer Validation Activities will continue into 2026 as planned. We remain on track to begin commercial production later this year but do not anticipate a meaningful revenue contribution until 2025, when we'll begin ramping up production for GLT1s and other biologics. The Fisher facility is currently expected to hit full productivity by the end of 2028, as shown on slide 18. We continue to refine our integrated offerings to enhance our value proposition. Art Technology Excellence Centers in Boston and Italy serve as the front lines in supporting early stage drug development.

And these lines are expected to supplying commercial volume beginning in 2026.

E T shirt.

Customer validation activities, we continue into 2026 as planned.

We remain on track to begin commercial production later this year, but do not anticipate a meaningful revenue contribution.

2025, when we'll begin ramping up production for G. L. P was and other biologics.

The Fisher facility is currently expected to eat.

Activity by the end of 2028.

On slide 18.

We continue to refine our integrated offerings to enhance our value proposition.

Our technology excellence centers in Boston in Italy.

Server at the front line and supporting early stage drug development.

Franco Stevanato: We recently launched non-GMP fill-and-finish services for small batch operations. These services allow customers to identify any possible interaction between the drug and the container system during and after the fill-and-finish process. Our centers foster early customer engagement, which helps us gain a strategic foothold in supporting them throughout the entire drug lifecycle. Our number one priority in 2024 is the flawless execution of our operational priority. As we consider 2025 and beyond, we remain bullish on our medium-term targets. We still expect to achieve low double-digit revenue growth in 2025 through 2027, and in 2027, high-value solutions in the range of 40 to 45%, and an adjusted EBITDA margin of approximately 30%. Our confidence is underpinned by what we are seeing around us, including strong secular tailwinds. Due to continued growth in biologics and an increasingly strong competitive environment, we believe we are well positioned to fully capitalize on our investments to drive durable organic growth, expand margins, and deliver long-term shareholder value. Operator, let's open it up for questions.

We have recently launched non GMP feeling finished services for small batch operations.

These services allow customers to eating defy any possible interaction between the drug and the container system during and after the Pheno genius process.

Out of centers Foster early customer engagement.

Which at SASSA gain a strategic foothold in supporting them throughout the entire drag the lifecycle in closing on slide 19.

Our number one priority in 2024 is the flawless execution of our operational priorities as.

As we can see the 2025 and beyond we remain bullish on our medium term targets.

We still expect to achieve low double digit revenue growth in 2025 through 2027.

And in 2027 high value solutions in the range of 40% to 45%.

And an adjusted EBITDA margin of approximately 30% our confidence is underpinned by what we are seeing around us.

Including strong secular tailwind.

Continued growth in biologics and an increasingly strong competitive mode. We believe we are well positioned to fully capitalize on our investments to drive durable organic growth expand margins and.

And deliver long term shareholder value operator, let's open it up for questions.

Unknown Executive: Operator, before we jump into questions, I have one clarification regarding this morning's press release. I would like to correct an error as it relates to the backlog for fiscal 2022. It should be $957 million, not $944 million, as stated in this morning's press release. We apologize.

And operator before we jump into questions I have one clarification regarding this morning's press release.

Like to correct, an error as it relates to backlog for fiscal 2022 it should be $957 million.

944 million as stated in this morning's press release, we apologise, okay. We're ready to open up thank you.

Operator: Okay, we're ready to open up. Thank you. Thank you. This is the Corusco Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove themselves from the question queue, please press star and 2.

Yes.

Thank you. This is the chorus call conference operator, we will now begin the question and answer session anyone who wishes to ask a question May press star and one on those Touchtone telephone.

Great movie or soft from the question queue. Please press star two please pick up the receiver and asking questions.

Patrick Bernard Donnelly: Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Patrick Donnelly with Citi. Please go ahead. Hey, guys, thanks for taking the questions. Maybe a couple on stockings to start.

Wanted to ask a question May press Star and one at this time. The first question is from Patrick Donnelly with Citi. Please go ahead.

Hey, guys. Thanks for taking the questions maybe.

Maybe a couple on stocking to start just can you talk about the concentration youre seeing in terms of products and customers is it pretty broad based or is it is it more concentrated with with.

Franco Stevanato: Just can you talk about, you know, the concentration you're seeing in terms of products and customers? Is it pretty broad-based? Or is it more concentrated with, you know, a few of the higher-end customers, and then just the visibility that you have into when this is going to end and, and kind of the recovery path there? Yeah, thank you. It's a very good point. And taking part of the statement in Marco's commentary, the impact of this situation is not only the main player that had a good share of the market in COVID, but by consequence, and due to the risk in the supply chain, many others built, You just talk, to prevent any risk in their supply chain. So the answer to your question is that we see a general situation with some high points but is not highly concentrated in a few places.

A few of the higher end customers and then just the visibility you have.

And two when this is going to end.

And kind of.

The recovery path there.

Yeah. Thank you is a very good point, because and taking part of the statement and macro.

Commentary.

The impact of this situation is not only about the main player that have the good the shares off the market and COVID-19, but the bank cost of glass and due to the risk on the supply chain many others.

<unk> you just talk to prevent any risk in their supply chain. So the answer to your question, what we see as a general situation with the summer high point, but that is not highly concentrated in a few players in.

Marco Dal Lago: In terms of visibility, as we stated, it is not easy now, but we are receiving information, and interaction with customers, that supports our ideas to have some improvements in the second half of this year and with this situation going back to normal in the next period. Okay, that's helpful. And then just on the margin outlook, you know, this year, obviously, weighed down a little bit, 24, weighed down a little bit, seemingly by some of the stocking piece. Can you just talk about the moving pieces this year, what the headwinds look like? Because again, you reiterated the midterm targets, and obviously, the out-year expansion should be pretty strong. So is it, you know, there's a nice inflection in margins when the destocking piece eases, and there's an inflection higher, can you just talk about, you know, the headwinds there and maybe break out the moving pieces on margins this year? Thank you.

In terms of the visibility as we stated that is now.

<unk> <unk> two.

State of which will be the inflection point, but we are.

We're receiving information interaction with customer that to support a broader idea to have some improvement in the second half of this year and with the situations going to normal in the next period.

Okay. That's helpful. And then maybe just on the margin outlook. You know this year, obviously weighed down a little bit 24 way down a little bit seemingly by some of the stocking piece can you just talk about the moving pieces. This year, what the headwinds look like because again you reiterated the midterm targets, obviously the out year expansion should be.

Pretty strong so is it you know.

There's a nice inflection in margins when the Destocking piece eases and there was an inflection higher can you just talk about the headwinds there and maybe break out the moving pieces on margins. This year. Thank you.

Marco Dal Lago: Yes, thank you. For 2024, we see adjusted bid margin at the same level as this year at our center point. As for gross profit margin, we can see overall a slight reduction compared to 2023. We expect to slightly improve the profitability in the engineering segment.

Yes. Thank you for 'twenty to 'twenty four we see adjusted EBITDA margin at the same level of this year at our center point up about gross profit margin that we can see overall, a slight reduction compared to 2023.

With that we expect to slightly improve the profitability in engineering segment.

Marco Dal Lago: And on the other side, we see a slight decline in the BDS segment, mainly due to underutilization on the buyers line or some lines in the buyers. And basically, our ramp-up cost for the two new facilities that we are still ramping up in 2024. Thank you. Thank you. Thanks, Patrick.

On the other side, we see a slight decline in Bds segment.

Mainly due to underutilization on them bias lie of sound Leigh Leigh Leigh and seen them by Elsa.

And basically our ramp up cost in the two new facilities that we are still ramping up in 'twenty 'twenty four.

Yeah.

Operator: Operator, next question, please. The next question is from Jacob Johnson with Stephens. Please go ahead. Hey, good morning.

Thanks, Patrick Operator next question. Please the next question is from Jacob Johnson with Stephens. Please go ahead.

Jacob K. Johnson: Thanks for taking the questions. Maybe just first on the engineering segment, you mentioned outsized demand there, but you're pointing to a flattish year, and certainly understand kind of the supply chain challenges in that segment. But I guess I'm curious, kind of the demand environment there, how your expectations for that engineering segment and the demand you're seeing today, compared to maybe your investor day last year, whatever point you want to point to just, we've seen a number of fill finish, capacity announcements recently. So I'm just curious whether that's improved even further more recently. Thanks.

Hey, good morning, Thanks for taking the questions.

Maybe just first on the engineering segment, you mentioned outsized demand there, but you are pointing to a flattish year, certainly understand kind of the supply chain.

Talent is in that segment, but I guess I'm curious kind of on the demand environment there.

Your expectations for that engineering segment and that demand youre seeing today compare to maybe your investor day last year or whatever point you want to point to just we've seen a number of fill finish capacity announcements recently, so I'm just curious.

That's improved even further more recently thanks.

Franco Stevanato: Yeah, thanks for the question. The tight answer is that we see demand in line with the expectation we deliver our capital market day in the mid single-digit growth as an average. Obviously, we are talking about a business that's based on projects, so we are used to seeing some fluctuation in quarters and years. But I want also to draw your attention to the fact that comparing the two last years, 23 to 22, we enjoy a very healthy growth of the segment in the range of 26%. So the partially changing in the growth rate for the next year is part of a journey that is really positive, and the success of our solution on the market deserves our main attention in serving the customer better. Got it. Thanks for that, Franco.

Yeah. Thanks for the question that the right answer is that the we see demand in line with expectations, we delivered to our capital market day.

Meet the single digit growth as it enable Asia, obviously, we are talking about a.

Business, that's based on projects of this what we are used to see some fluctuation in quarters and years.

I want also to drive your attention to the fact that comparing it to last year 'twenty three to 'twenty two we enjoy a very healthy growth of this segment in the range of 26% So theyre partially.

Changes in the growth rate for the next year is part of a journey that is a really positive and the success of our solution on the market.

The server our main attention survey the customer base.

Got it thanks for that Frank and then I guess as my follow up.

Franco Stevanato: And then, as my follow-up, you know, one of your competitors on their call a couple weeks ago mentioned the opportunity from this Annex 1 regulation in Europe. I think in your deck, you mentioned kind of an increased shift to ready-to-use vials and cartridges through the regulatory landscape. So I guess I'm kind of curious your view on Annex 1 and what that could mean for Stevanato. It is a very, very good point because we refer to our innovation, our product. One of our main innovations in the easy-fill industrialized market for cartridges and vitals is linked to our new technology, the Easy-Fill Smart, that addresses the risk of particle contamination in filling lines because we reduce a lot the possible impact with our new secondary packaging innovative secondary packaging that is also applicable to the syringe market.

One of your competitors on their call a couple of weeks ago I've mentioned the opportunity from this annex one regulation in Europe I think in your deck, you mentioned kind of in an increased shift to ready to use vials and cartridges does the regulatory landscape. So I guess I'm kind of curious your view on Nx, one and what that could mean for.

Stefan on it.

He is a very very good point because of it.

He would have or we refer to our innovation our product.

One of our main innovation in the ease of filler in there. So I love market for cottages advisors is linked to our new technology. There is it appears mark that is addressing their risk of a particle contamination is feeling lives because we reduced a lot.

The possible impact that we thought were new secondary packaging innovative secondary packaging that is possible applicable or shuttle the stringent market. So the increasing expectation demo quality are one of the main that barrier to entry.

Franco Stevanato: So the increasing expectation of quality is one of the main barriers to entry for our market, and the fact that we are playing on innovation inside this market is one of the reasons we are confident in the future of our new product. Got it. Thanks for taking the question. Thank you, Jacob.

For our market and the fact that we are playing on innovation inside these market is one of the reason why we are confident in the future while our.

New products.

Got it thanks for taking questions.

Thank you Jacob Operator next question. Please. The next question is from Matt Larew of William Blair. Please go ahead.

Operator: Operator, next question, please. The next question is from Matt Larew, William Blair. Please go ahead.

Yeah.

Matthew Richard Larew: Hi, thanks for taking the question. I just wanted to ask about destocking again. So with the first quarter guided flat to down year over year, you know, to reach the full year guidance, even if it's back half loaded, it does require, you know, a step right back up in the second quarter. I would think others in this space, as you alluded to, have sort of talked about stocking ending by the midpoint of the year as well. So just curious, what level of visibility do you have for that rebound after the And is, you know, the guidance supported by actual orders that are in schedule for production, or more based on customer conversations around when inventory might get worked out? Yes, for sure, it is a mix.

Hi, Thanks for taking the question just wanted to ask on <unk>.

Talking again, so with the first quarter guided flat to down year over year to reach the full year guidance, even if it's back half loaded it does require yes.

Right back up in in the second quarter I would think.

Others in this space as you alluded to had as I've talked about stocking ending by the midpoint of the year as well. So just curious what level of visibility do you have to that rebound after the first quarter and as you know the guidance supported by actual orders that are in schedule for production or more.

Just on customer conversations around when inventory might get worked out.

Yes for sure is a mix I start by giving you an angle on the market.

Franco Stevanato: I started giving you an angle on the market and referring to VIA, which is only a portion of our business. Yes, we see some forecast improvement for the next quarters, but not immediately. And as I said before, we expect to have more after the year end. In terms of visibility, I have also to stress that our visibility is also linked to the needs of other product lines and linked to these expectations from customers.

And referring to via that is only a portion of our business. Yes, if we see some forecast improving for the next quarters, but not immediately and as I said before we expected to add more in the after the year end.

Tamara although the visibility I have also to stress that our visibility is also linked to their needs for other product lines and that link to these expectations forecast. However, we are also relying on this ramping up of the new facility specifically Latina in 2000.

Franco Stevanato: We are also relying on the ramping up of the new facilities, specifically Latina in 2020, that will be more and more during the year. As for our model, we see a stronger second half of the year compared to the first half. So a growing business quarter after quarter, also leveraging the installed capacity we are putting in place in Latina and also the start of commercial production in Fisher. Okay, and then, you know, something you called out in the prepared remarks was the challenge from a comp perspective on the pricing side where, you know, the last couple years, you were able to take outsize pricing related to raw material inflation. So just curious what we should be thinking about from a pricing perspective here.

<unk>.

At the wheel the more and more are during the year obviously.

The about our model, we see stronger second half of the year compared to the first half.

So at growing our business quarter after quarter also leveraging the installed capacity we are putting in place in the in Latina and also the start of the commercial production Lindsey shifts.

Okay, and then southern you called out in the prepared remarks was.

The challenge from a comp perspective on the pricing side.

A couple of years and you were able to take outsized pricing related to raw material inflation. So just curious what we should be thinking about from a pricing perspective here moving forward.

Marco Dal Lago: So first of all, we plan to keep on expanding our high-value products. In our model, we have high-value products between 35 to 37% for 2024. We are keeping on pricing as in the past, let's say, frequently readjusting our cost calculation and price accordingly. We know we don't see in our model a price decline.

So first of all are we plan.

Plan to keep on expanding our high value products in our model, we have added value products between 35% to 37% for 2020 for water.

We are keeping on pricing as in the pasta.

Let's say frequently readjusting, our cost calculation and price Accordingly, we no we don't see in our model of price decline.

Marco Dal Lago: Matt, just to address your question on the pricing, which I think you're reading through the materials, those cost recoveries that we referred to in the fourth quarter of last year were really to secure some price adjustments for the spike, particularly in natural gas and other raw materials, but you should think as those price adjustments are more pass-through in nature, and we have since returned to our more annualized pricing adjustments. Okay, that's all very helpful. Thank you. The next question is from Derik de Bruin, from Bank of America. Please go ahead. Hi, good morning.

And Matt just to address your question on the pricing, which I think you're I'm reading through the material those cost recoveries that we referred to in the fourth quarter of last year were really to secure some price adjustments for the <unk>.

Spike, particularly in natural gas and other raw materials, but you should think as those price adjustments as more pass through in nature, and we have since returned to a more annualized pricing adjustments.

Okay. That's all helpful. Thank you.

The next question is from Derik Debruin of Bank of America. Please go ahead.

Derik De Bruin: Thank you for taking my question. I'm sorry if I missed it, but what's your embedded expectation for COVID-related revenues this year?

Hi, Good morning, Thank you for taking my question.

I'm, sorry, if I missed it but what's your embedded expectation for Covid related revenues this year.

You said.

Marco Dal Lago: We don't model COVID anymore because we consider it negligible in our revenues for the year, as you can see in Q4 2023, the amount relative to COVID was very, very small. I think the good news is that our ability to shift to our therapeutic areas is growing. 24% in Q4 excluding COVID. So for 2024, we don't have revenue in the model. Great, that's what I was thinking.

We don't model any more the call it because we consider it a negligible in our revenues for the year as you can see in Q4 of 2023.

Mt.

To call. It was that if that is more or less.

I think the good news is that our ability to shift to our dogs therapeutic I'd ask rowena.

24% in Q4, excluding call. They just saw for 'twenty 'twenty four and the model revenues for oncology.

That's what I was thinking.

Marco Dal Lago: And on going back on some of the margin commentary. So can you sort of talk about gross margin pacing throughout the year just given the dynamics going on, particularly as you've got some capacity overhead? Yes, as mentioned, we see expansion in the engineering segment, more in the second part of the year, for the reason I mentioned before. I mean, the under utilization of some buyers line. We obviously expect to recover the situation in the second half of the year, but we have some headwinds during the first part of the Nevertheless, we see that there's a temporary effect, obviously as the market. I got it. And you're, I mean, you're the midpoint of your revenue guide, it's like 10 and a half percent. On the street, with 11% looking for it.

And on going back on some of the margin commentary.

So can you sort of talk about gross margin pacing throughout the year, just given the dynamics going on particularly as you've got some capacity overhead coming through.

Yes as mentioned, we see expansion in our in the engineering segment.

More in the second part of the year.

Uh huh.

There is I mentioned before I mean, the underutilization of some buyers lineup, we obvious back to.

Let me cover the situation in the second half of the year, but we have some headwinds during the first half of the year because there is a national.

Nevertheless, we'd see that as a temporary effect, obviously is as the market is expecting.

Got it and your I mean, your the midpoint of your revenue guide you. It's like 10, 5% in the street and 11% looking for it. So it's very much in line, but I guess the difference between your nine and your 12 in your revenue guide what's the Delta.

Marco Dal Lago: So it's sort of in line. But I guess the difference between your nine and your 12 in your revenue guide, what's the delta? Yes, the delta is based on the. We are covered with our backlog between 55 to 60%. We have other forecasts from customers to complement. The uncertainty is mainly related to the restart of the market. And so the inflation point associated with the stock.

Yes, the Delta is based on the day.

We are co over with our backlog between 55% to 60% or we have other forecast from cost of muscle to complement.

They uncertainty is mainly related to the restart of the mine.

And so the inflection point associated with the stocking.

Marco Dal Lago: So basically, Derik, it's a different pace of recovery within the vial market. Gotcha. So it goes to the point if the market just sort of stays where it is right now, and it doesn't really see recovery, are you still confident that 9%? Is that still there?

So basically it's a different pace of recovery within the vial market.

Gotcha.

It goes to the point if the market is sort of stays where it is right now and it doesn't really seem recovery are you still confident that 9% at the end.

Marco Dal Lago: Or do you have to see some recovery too, Massaricios? The answer is yes, we're still confident in the 9%, Derik, just to clarify. Yeah, yeah. Okay. That's what I thought you meant. Yeah, understood. Thank you very much.

Is that still there or do you have to see some recovery to get it.

Now studies, yes.

The answer is yes, we're still confident in the 9% yeah just to clarify yeah. Yeah. Okay. That's what I thought you meant understood. Thank you very much okay.

Marco Dal Lago: Okay. Thanks. Operator, next question, please. The next question is from Larry Solow, CJS Securities. Please go ahead. Great. Good morning or good afternoon.

Thanks, Operator next question. Please the next question is from Larry Solow, well C. J F. Curious is please go ahead.

Greg Good morning, or good afternoon. Thanks for taking the question I guess just first question just you mentioned backlog.

Larry Solow: Thanks for taking the questions. I guess just the first question, just, you mentioned backlog. Annual numbers are more important, obviously, you had some nice growth this quarter year over year, but how should we look now that backlog is kind of flat ish year over year? Are we now, going forward, has sort of the supply chain and order backlog kind of mostly normalized, and should we expect orders to kind of be in line with, you know, plus or minus kind of end market demand on a going forward basis? So compared to the pre-pandemic situation, our backlog is much higher.

Annual numbers more important obviously you had some nice growth this quarter year over year, but how should we look now backlog is kind of flattish year over year.

Are we now going forward is the sort of the supply chain.

The order backlog kind of.

Is that mostly normalize and we should should we expect orders to kind of be in line with you know plus or minus kind of end market demand that on a go forward basis.

So compare to Debra pandemic situation, our backlog is much I guess and you know the peaking the pandemic was in our opinion mainly related to order patterns from our customers to secure their supply chain. So we believe that backlog and the order pattern is going to what a normal.

Marco Dal Lago: And you know, the peak in the pandemic was, in our opinion, mainly related to the order pattern from our customers to secure their supply chain. So we believe the backlog and the order pattern are going toward normalization after the pandemic. This is how we see the situation.

<unk> got the comeback.

This is how we see the situation and as mentioned by Franco during the commentary we believe it's a.

Franco Stevanato: And as mentioned by Franco during the commentary, we believe it's a more reliable number to provide the number on a yearly basis rather than on a quarterly basis with the fluctuation that can occur. And on top of that, you have to consider that is only one of the indicators for demand. Because we have a backlog, we just put only committed orders with those commercial that is, but we have also for a cut; we have the material agreement. So, as we have done in the past, we consider backlog and order intake just a couple of useful indicators, but they cannot represent the real landscape in demand that we are able to look at without consulting with our customers. Okay.

A more reliable sequels to prior to provide that the number on a yearly basis, rather than on a quarterly basis with the fluctuation that can happen.

On top of that that you have to consider that is all in one of their indicators for the demand.

Cause that we have.

Backlog, where we just put the only committed order windows commercial the days, but we have also forecast that we have a multiyear agreement that so as we delivered in the path, we can see the backlog and the order intake adjust cut.

Paul I'll use a form indicators that they cannot xanthoderma yellow landscaping demanded that we are able to look at but without.

With our customers.

Okay.

Marco Dal Lago: And in terms of just the cadence, depreciation rising, can you just give us some idea, or at least maybe for the full year, how much that higher DNA is going to impact margin, at least operating margin on a year-over-year basis? Yeah, sure. 2023 compared to 2022 we increase depreciation by, e se percentage ora e veniu?

Terms of just the cadence.

Depreciation ryzen can you just give us some idea or at least maybe I'm full year, how much that that higher DNA is going to impact.

Margin at least operating margin on a year over year basis.

Yes sure.

2023 compared to 2022, we are.

We increased the Prestea as shown.

As a percentage of revenue.

Marco Dal Lago: by about 60 basis points. In 2024, we expect a similar level of depreciation as a percentage of revenue. So it means about 10% more in the euro amount compared to 20%.

By about 60 basis points in.

In 2024, do we expect a similar level of depreciation as a percentage of revenue. So it means.

About 10% more in a euro amount I'll come back to 2022.

Marco Dal Lago: And just to clarify, on the engineering segment, it sounds like there's some growing pains there. So orders, so growth, taking a little bit of a step back and just shoring up manufacturing and execution. But you also mentioned you still do expect a little bit of, I think that's correct. But you also mentioned a little bit of still margin expansion in 24 in that segment. Did I hear that right?

Got it and just to clarify on the engineering segment. It sounds like there's some growing pains. There so order growth you've taken a little bit of a step back and just shoring up manufacturing in execution.

But you also mentioned you still do expect a little bit is that I think that's correct, but you also mentioned a little bit of still margin expansion in 'twenty four in that segment that did I hear that right yeah.

Marco Dal Lago: Yeah, this is what we expect. We expect to improve the overall situation in our projects and, on top of it, to push more on after-sales activities. And yes, about growth, you are right, but we need also to underline the fact that we are growing significantly in engineering; we had a compound annual growth rate of 26% if we compare it to 2019. So in this project business, we believe it is normal to have some fluctuation, but the trajectory is still there. I got it.

Yeah. Yeah. This is what we expect or we expect to improve the overall situation in our projects and on top of it to push more on after sales activities.

And yes about the girl here, either but we need also to underline the fact that we ought to go away in the <unk>.

Significantly in engineering, we are the compound annual growth rate of 26%. If you compare to 2019. So in this project business. We believe it is normal to have some.

Luke do as shown by the project.

It is still there.

Got it Okay, and just lastly, just.

Marco Dal Lago: Okay, just just lastly, just just on the in vitro diagnostics piece, has that I know there's a bunch of moving parts on the vials, and you know, less vial demand has been specifically for the in vitro diagnostics. I think that also was a driver for a little bit of down demand on vials in 23. Do you expect that to normalize? Or is that also lingering into 24?

Just on the in vitro diagnostics pizza is that I know, there's a bunch of moving parts on the on the vials or the less the math is the just the specifically on the in vitro diagnostics I think that also was a driver a little bit of down demand vials. In 'twenty. Three is do you expect that to normalize or is that also lingering into 'twenty four.

Oh, yes, the sufficient is not exactly the same in bias or we have already seen some positive we're seeing about seeing a recovery in the latter part of last year, but we see less access to have a business that.

Marco Dal Lago: Yeah, the situation is not exactly the same in Valles. We have already seen some positive signals of recovery in the last part of last year. But we still expect to have a business that will not be in a normal situation in 2024. And we expect that the situation will normalize later. But these kinds of expectations are completely embedded in our guidance. Gotcha. Great. Thank you very much.

Not to be the normal situation in 2024, and we expect that the situation will normalize later.

But is that is kind of our expectation are completely embedded in our guidance.

Got you great. Thank you very much I appreciate all the color.

Larry Solow: I appreciate all the calls. Thank you, Larry. Operator, next question, please. The next question is from David Windley, Jeffreys. Hi, thanks for taking my questions. I have a few I want to start as a follow-up to Larry's question on engineering in particular, Marco on the sales part.

Thank you Larry Operator next question please.

Next question is from Dave Windley of Jefferies. Please go ahead.

Hi, Thanks for taking my questions I have a few I want to start as a follow up to Larry's question on an engineering on that particularly.

Marco on the sales part.

David Howard Windley: I believe I'm hearing management say that you're kind of tamping down the sales activity in there and in that business in favor of Focusing on current projects and bringing them to fruition. Am I understanding that correctly that are you not adding orders? or adding to backlog and engineering right now? Basically, you know, we are really focused on delivering to our customers in this period of time. Please remember that revenue recognition is the basis for a cost to cost approach. So we are mainly mainly focused on completing our projects.

I believe I'm hearing.

Management say that you're you're kind of tamping down the sales activity in there in that business in favor of focusing on current projects and bringing them to fruition.

My understanding that correctly are you not adding.

So orders are adding to backlog in engineering right now.

Basically you know we are really focused to deliver to our customers in this period of time. So please.

Remember that the revenue recognition is a base to a cost to cost approach.

No.

We are mainly mainly focus to complete our projects and we.

Marco Dal Lago: And we expect a near flat in terms of third-party revenue to compare to the prior year. The overall segment is growing, also leveraging the fact that we are growing our capacity for Fisher's and for Latina. So this is our expectation for 2020.

We expect the knee.

Flat in terms of third party revenue to compare to prior year. The overall segment is good all winter also leveraging the fact that we ought to grow in our capacity for Fisher Central Latina. So this is our expectation for 2024.

David Howard Windley: David, it doesn't mean that we are not focusing on the future growth of the engineering segment because we are investing more resources, optimizing our supply chain, and also the industrial setup. So it is not because we are stepping down from our expectations for the future, it's just that we want to be very conscious about having a new business according to the possibility to deliver. Okay. Second question, the second topic is around margin. So I want to understand more specifically, I mean, overall, but particularly in BDS, with. The vials are a headwind.

David It doesn't mean that we are not putting a focus on the future growth of the of.

The engineering segment, because we are.

Putting more resources, we are optimizing our supply chain, we are and also the industrial setup.

<unk> is.

Not because we are stepping down from my expectation for the future is just that we want to be very conscious about the.

Having new business according to the possibility to deliver.

Understood.

Second question second topic is around margin so wanted to understand more specifically.

Particular, I mean overall, but particularly in V D S.

With the vials or a headwind I understand that and understand high value vials are ready to use vials.

David Howard Windley: I understand that and I understand high-value vials are ready to use vials, are more, you know, quote unquote, high value than ready to use syringes. But you also call down in the deck ready to use Nexa syringes, which I would think would be higher value, higher margin. So the question is, Why a higher high-value percentage? It's the highest you've ever recorded. Did you actually see margin pressure in BDS? Given the mix.

Our more quote unquote high value then ready to use syringes, but you also called out in the deck ready to use syringe next syringes, which I would think would be higher value higher margin. So the question is.

Why with fire high value percentage.

And the highest you've ever recorded did you actually see margin pressure in Bds.

Given the mix.

Marco Dal Lago: David, you are right. As I have mentioned many times, the range of gross profit margin on products I value is between 40% to 70%. So we have, how can I say, a big, quite a big range that the mix within the mix can impact. And this is one reason. The other one, as mentioned, is more bulk and underutilization, temporary underutilization of our lines, and obviously the cost and efficiency that this temporary underutilization can bring to our P&L. So those are the two main reasons, together with the already anticipated startup cost and validation cost for the ramp-up in Fisher's and Latimer. We have also in our model, just to complete the picture, in the model, some currency Edwin, we expect the Euro to get stronger with respect to the US dollar, and as you know very well, today we have more manufacturing footprint in Europe and partially in Mexico compared with the US, where we are on the other side, growing our sales with the growing sales in US dollars. So this is another fact we have in our model to explain the slight decline we expect in BDS Partially offset, obviously, by the makeshift solution to arrive at your problem.

Yes, David you are right as we mentioned many times the range of gross profit margin high value products is between 40% to 70% or so we have oh can I say it'd be quite the bigger ranger the mix within that mix can impact us.

And this is why are you. So the other wireless main shown is.

Morning, Balkan Underutilization temporary underutilization of our lines up and obviously the cost and efficiency that these are temporary underutilization Cambrian ignite two hour in there. So those are the two main reasons together to the already anticipated.

Startup cost and validation costs, therefore, the ramp up in the efficient Latina have all seen our mall just to complete the charter.

In the mall there some currency headwind we expect.

Euro to get stronger with respect of the U S dollar and as you know very well today, we have more manufacturing footprint in Europe, but partially Mexico compared with the U S. So where we are on the other side.

Growing our sales with growing sales in U S. Dollar. So this is another effect we have in other malls in our model to explain the slight decline.

We expect in our.

Bds, partially offset obviously.

The mix shift toward high value problems and Dave one other piece of color as it relates to Q.

David Howard Windley: And Dave, one other piece of color as it relates to Q4 of last year and the extraordinary margin performance out of BDS. I just want to point out that as it relates to those easy-fill vials, that was for one specific customer that we deliver those for, and it was highly accretive. Okay, last question is around kind of committed orders. And Marco, you also addressed this a little bit earlier on the low end of the range, but if I look at, you know, flattish committed orders year over year, and because you're, you're not going to provide that number quarterly. It'll be, you know, obviously harder to track.

Q4 of last year, and the extraordinary margin performance out of Bds I, just want to point out that as it relates to those easy felt vials that that was for one specific customer that we deliver those four and that was highly accretive.

Okay.

Okay last question is around.

Kind of committed orders and market you also address this a little bit earlier.

On the on the low end of the range, but if.

If I look at you know flattish committed orders year over year.

And because you're.

Youre not going to provide that number of quarterly it'll be you know obviously harder to track.

David Howard Windley: And I heard you say in the prepared remarks that you expect orders to pick up in the second half, which implies to me that that pickup doesn't really impact second half revenue but rather probably helps 2025. I'd love for you to elaborate a little bit more on how a flat order book picture, a revenue contribution from Fishers kind of starting in earnest and early 25 instead of mid 24. And an overall order picture that, you know, doesn't pick up until later in the year gets you to 10% revenue growth. Well, again, this is not the only visibility tool we have.

And I heard you say in the prepared remarks, you expect orders to pick up in the second half, which implies to me that that pickup doesn't really.

Impact the second half revenue, but rather probably helps 2025.

I'd love for you to elaborate a little bit more on <unk>.

How.

Flat.

Order book picture.

A revenue contribution from Fisher is kind of starting in earnest in early 'twenty five instead of mid 'twenty four and an overall order picture that doesn't pick up until later in the year gets you to 10% revenue growth.

Well again this is not the only tool of visibility we ever we have also forecast from our customer that will be translated into orders. So.

Franco Stevanato: We also have forecasts from our customers that will be translated into orders, in line with our model. I also want to reiterate the fact that we see a different order pattern from our customers compared to the pandemic. During the pandemic, our customers used to order much in advance, in advance compared to the lead time of the delivery to secure the supply chain. This is the main reason you see the orders flat in 23 compared to. 22, we got 1,073,023 compared to 1,016,022. But the reality, The billion 1622 was much higher than our revenue.

In line with our model.

I also want to.

Right. The fact that we see a different order path for all our customers compared to the pandemic during the pandemic.

Our customer used to order much in advance.

In advanced compared to the lead time of the delivery to secure the supply chain. This is the main reason you see the orders flat in 'twenty three compared to.

'twenty two we got a 1.073 billion in 2003 compared to 1 billion link 16, 22, but the reality.

The billion 16, 22 was much higher than our revenue. So the book to Bill was high due to the heartbeat of our cash symmetrical to secure the supply chain. So it's not the one to one equation.

Franco Stevanato: So the book to bill was high due to the habit of our customer to secure the supply chain. So it's not a one to one equation. Then we also have the possibility to have more orders for buyers in the second half of the year compared to the first half of the year. But as Marco was saying, the lead time, in terms of the average, the lead time on the order book is shortening, so it reflects faster than during a pandemic in actual revenue. And Dave, that specific comment within our prepared remarks was actually related to file recovery. Okay. So last one for me. Sorry for all the questions, but on Fishers, your prepared remarks say later in the year and a more material ramp-up in Fisher's revenue in 2025. Is that basically the same as you were thinking before, or is that a later start to Fisher's activity than what, you know, kind of the mid-year comment, mid-year 24 comments that you had provided before? No, no, we are in line with previous expectations. Obviously, we are talking about complex projects with validation activities with many variables in place, but we are in line with our Project and Estimated Thermal Revenue. Yeah, okay, great.

Then we have also have the possibility to have a more order for <unk> also in the second half of the year compared to the first half of the ear, but as Michael was saying.

The lead time is in.

In terms of the average lead time on the order book is a short in anger, so is a red flag or faster than during pandemic.

October revenues and is that that specific comment was in our prepared remarks was actually related to the buyout recovery.

All right.

So last one for me.

Sorry for all the questions, but one on fishers.

Youre prepared remarks say later in the year and more material ramp in.

Fisher's revenue in 2025.

Is that basically the same as you were thinking before or is that a later start to fisher's activity than what kind of the mid year common mid year 'twenty four comments that you had provided before.

No no we are in line with our previous expectations. Obviously, we are talking about complex projects.

With validation activities are with many variables are in place, but we are in line with our.

Project thing expectation tomo revenues.

Yeah, Okay, great. Thank you thanks for taking all my questions.

David Howard Windley: Thank you. Thanks for taking all my questions. Operator, next question.

Thanks, David.

Our next question please.

John Newton Sourbeer: The next question is from John Sourbeer, UBS. Please go ahead. Hi, and thanks for taking the questions. First one here, on the engineering segment specifically, any color and just what the lead times there look like today for installing equipment? And how would you expect that to be normalized throughout the year or what would be a normal range there?

Next question is from John Sourberry UBS. Please go ahead.

Alright, thanks for taking the questions.

Personal here just on the engineering segment specifically.

Any color on just what the lead times, there look like today for installing equipment and how would you expect that to be normalized throughout the year or what would be a normal range there.

Franco Stevanato: And obviously, John, we are looking at, That is, not only one single product. So we have a very huge, complex assembly line that will take even two years for the full completion of the project. And we have them, a more simple visual inspection system that may take some months in terms of delivery time. So in terms of the mix, now we are considering a lead time that is longer than in the past because of the situation. In terms of electronic components, availability is now reliable, but the delivery time is longer than for the pandemic. So we are considering something more than in the past at the end. But their situation is much more under control now compared to two years ago. I appreciate that.

Obviously.

We all of us.

At a.

A segment that is not the only one single product. So we have a very huge complex assembly line that they serve.

Even two years for the full completion of that project and we have them.

More simple visual inspection system that.

May I ask for some answers and time of delivery time and so.

In terms of the mix. So now we are considering.

Our lead time that is longer than in the past because of the situation.

In the time of our electronic component availability is now reliable, but the delivery time or longer than that.

Before the pandemic. So we are considering something more than in the past at the end.

After the situation is much more under control now compared to two years ago.

Franco Stevanato: And in your prepared remarks, I think you mentioned 28% of DDS is within biologic products. Just a point of clarification, are you including GLP-1s under biologics? And just any thoughts on Outlook for those products once guidance in 24? You're right, GLP-1s are biologics, at least the dragons we are looking at.

Appreciate that and on your prepared remarks, I think you mentioned, 28% of Dts is within our biologic products. Just a point of clarification are you, including GOP ones.

Biologics and just any thoughts on <unk>.

Look for those products. It wants to include in guidance in 'twenty four.

No you're right jud be ones that are biologics at.

A list of the drag that we are looking at.

Franco Stevanato: So they are included both in our share of the impact of biologics on our revenues and also in our guidance, without any color on the outlook for those products or what your assumptions are for for 2024 guidance, time of the share. We have a process to understand which could be the final number. We can obviously update you in the next course, but we see more material impact in 2025 and beyond, as I stated in my commentary about fissures, where our high-value solution capacity is overweighted in biologics, but we expect to have material impact in revenues mostly in 2025 and beyond. And John, that's not a KPI that we guide to.

They are included both in our share overall.

The impact of biologic because on our rabies and I said also in our guidance.

Any color on the outlook for those products or what your assumptions are for 2020 for guidance.

In terms of the share.

All right.

Or in the process to understand which could be the final number. We obviously, we cannot update you in the next quarters, but we see more material impact in 'twenty and beyond as I stated in my commentary about the <unk>.

T shows where our high value solution capacity is overweighted in biologics, but we expect to have a material impact in revenues, mostly in 2025 M. B all.

And John that's not of Kpis that we guide to and and one other clarification on the numbers embedded in the press release I'm pleased to note that that's in biologics revenue for the DDS segment, excluding COVID-19.

Unknown Executive: And one other clarification on the numbers embedded in the press release. Please note that that's some biologics revenue for the BDS segment, excluding COVID. Thanks for taking the questions. Thanks, John. Operator, next question, please. Our last question comes from Paul Knight of KeyBank. Please go ahead. Yeah, thanks for the time. Um, you know, Franco, I think you may have seen something like this in the past where, you know, an acquisition like Novo and Catalan happens.

Thanks for taking the questions.

Thanks, John Operator next question please.

Our last question comes from Paul Knight of Keybanc. Please go ahead.

Yes.

Yeah, Thanks for the time.

No.

Franco I think you may have seen something like this in the past where you know what.

The acquisition like Novo and Cadillac occur.

Paul Richard Knight: Do you think the presence of Novo owning a bill finish, a group of businesses in the world, is that helping your visibility, and also, they have more cash to spend on investment than I'm sure I know a Cadillac did. Does that help it as well in terms of how you think about, Quick, how quickly your business accelerates? Does it change your thinking on that?

Do you think are the presence of novo owning a.

Fill finish.

Group of businesses in the World.

Is that help your visibility and also.

They have more cash to spend on investments that I'm sure I know what Cadillac did this does that help it as well in terms of how you think about.

Quick how quickly.

Your business accelerates does it does it change your thinking on.

Franco Stevanato: Is there more visibility now for your business with Novo and a better capitalization company in the field? Paul, you know that I cannot enter into details about any information we can have from a single customer because we are bound by a confidentiality agreement. In terms of the landscape, I believe that this kind of emergent situation, in some capacity, linked to a single player provides more opportunity than risk for us because there is a reaction in time of new capacity needed by other players. So it means more investment, and more opportunities for the engineering segment.

Is there more visibility now for your business with Novo with better capitalization company in the field.

Okay.

Paul you'll note that I cannot enter into stays about any information we can have a from a single customer because we are bound by confidentiality agreement.

In term of the landscape I believe that this guy.

Emergent situation.

Some capacity linked to a single player provide more opportunity in general is good for us because.

There is a reaction at time of a new capacity if needed to buy other players. So it means a more investment and more opportunities for the engineering segment.

Franco Stevanato: And later on, we are dealing with the biggest player in the market to have a fair share of opportunities in emerging biologics and specifically in GRP-1. So overall, we expect positive news from us, but I cannot comment. More specific details. Okay, thank you. Ms. Miles, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Thank you for joining us today for Stevanato Group's fourth quarter and year-end Fiscal 23 earnings call, and we look forward to further engagement in the future.

Later on we are dealing.

Dealing with the B.

Player in the market to have a fair share of opportunities in the emerging.

<unk> specifically in Jetblue, one so overall.

We expect the positive means but on ours about though I cannot comment they need.

More specific details.

Okay. Thank you.

Okay.

Thanks, Paul.

As my as there are no more questions registered at this time I turn the conference back to you for any closing remarks.

For joining us today for <unk> fourth quarter and year end fiscal 'twenty three.

This call and we look forward to further engagement in future.

Lisa Miles: Thank you. Thank you. Thank you. Ladies and gentlemen, the conference is now over, and you may disconnect your... Me and the girls, straight out of town, over the hills and undercover, undercover, undercover. She says green, green grass, blue, blue skies

Okay.

Yeah.

Ladies and gentlemen, thank you for joining the conference is now over and you may disconnect your telephones.

Okay.

Okay.

Tom.

Yes.

Okay.

Okay.

Yes.