Q1 2024 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 First Quarter 2024 Earnings Call. As a reminder, all participants are in listen-only mode. 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, Investor Relations. Please go ahead, madam.
Speaker Change: Good afternoon disease, the chorus call conference operator, welcome and thank you for joining the Stifel not to group first quarter 'twenty 'twenty four earnings call.
Speaker Change: As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions should anyone need assistance. During the conference call that may signal, an operator by pressing star enviable on the telephone.
Speaker Change: At this time I would like to turn the conference over to MS. Lisa miles Senior Vice President Investor Relations. Please go ahead Madam.
Speaker Change: Thanks.
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 Securities and Exchange Commission on March 7, 2024.
Lisa Miles: Good morning, and thank you for joining US with me today is shrunk as Devin Abdo Executive Chairman Frank Tomorrow C E.
Lisa Miles: Oh, and Margo to 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 tap as a reminder, some statements being made today will be forward looking in nature and are only predictions actual events.
Lisa Miles: <unk> results may differ materially as a result of the 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 Securities and Exchange Commission on March seven 2024.
Lisa Miles: Please take a moment to read our safe Harbor statements included in the front of the presentation and also in today's press release.
Lisa Miles: 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.
Lisa Miles: 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.
Speaker Change: For a reconciliation of the non-GAAP measures. Please see the company's most recent earnings press release and with that I will hand, the call to Franco's Devin opto for opening remarks.
Lisa Miles: Please take a moment to read our Safe Harbor statements, including in the front of the presentation and also in today's press. 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. 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-gap measures, please see the company's most recent earnings press release. And with that, I will hand the call to Franco Stevenato for opening remarks. Thank you, Lerner.
Franco Stevanato: Thank you, Lisa, and thanks for joining us. Today, we will review our first quarter performance, address our guidance change, and provide an update on our markets and the dynamics we are seeing today. While the for scored results did not meet our expectations, the fundamentals of our business have not changed, and the demand landscape remains robust. We are tackling two challenges today, and our number one priority is execution. First, the impact of the industry-wide temporary de-stocking was more pronounced than previously expected, especially in the more acquisitive, easy field areas. Customers are still working down excess inventories that were stockpiled during the pandemic.
Franco: Thank you Lisa and thanks for joining US today, we will review our first quarter performance and the rest of our guide does change and provide an update on our markets and the dynamics we have seen today.
Franco: While first quarter results did not meet our expectations the fundamentals of our business have not changed it and the demand landscape remains robust we.
Franco: We are tackling two challenges today and our number one priority <unk> show.
Franco: First the impact from the industry wide temporary destocking was more pronounced than previously expected, especially in the more accretive easy field by yes.
Franco: Customers are still working down excess inventories that were stockpiled during the pandemic. This has resulted in a temporary softening in demand for both bulk and ready to use by us, but we believe that once the market rebounds that the bias would be to return to normalized market growth rates.
Franco Stevanato: This has resulted in a temporary softening in demand for both bulk and ready-to-use VIAs, but we believe once the market rebounds, VIAs will return to normal market growth rates. Second, in the engineering business, we enjoyed a period of record orders in the second half of 2020. This large volume of work and long lead times for components put stress on our organization last year. But while external factors played a role, our execution simply could have been better.
Franco: Second in the engineering business, we enjoyed a period of record orders in the second half of 2022.
Franco: This large volume of work and long lead times for components put stress in our organization last year.
Franco: While external factors played out older our exit gousha simply could have been better.
Franco Stevanato: We've taken many actions over the last year, and we believe these steps will help us achieve a more optimized operational structure to maximize efficiencies to secure the success of projects going forward. I would like to take a moment to address our updated guide. The temporary stocking is the main factor in our guidance chain. Our updated guidance also assumes a recent postponement of expected orders for high-value solutions for a large customer that were forecasted to be shipped in 2024. This was due to a change in the customers' commercialization time frames. But nevertheless, we have removed the forecasted orders from our guide.
Franco: We're taking many extra on over the last year and we believe these steps will help us achieve a more optimized operational structure to maximize efficiencies to secure the success of projects going forward.
Franco: I would like to take a moment to address our updated guidance. The temporary desktop is the main factor in our guidance change it.
Franco: Our updated guidance also assumes a recent the postponement of expected orders for the high value solutions for a large customer that were forecasted to be shipped in 2024. This was due to a change in the customers' commercialization timeframes, but nevertheless, we have removed the forecasted orders from our guidance.
Franco Stevanato: Despite these factors, we remain confident about our long-term prospects, and we remain on the right path to achieve our near-term targets in 2027. Our unique value proposition of integrated offerings ideally positions Stevanato Group to capitalize on favorable secular tailwinds, such as aging populations with more complex health conditions, pharma innovation, particularly in sensitive biologics, and the trend toward the self-administration of medicine. We operate in growing and emerging markets, and we are well positioned in the fastest growing biologic segments.
Franco: Despite these factors we remain confident about our long term prospects and we remain on the right path to achieve our near term targets in 2027.
Franco: Our unique value proposition of integrated offerings ideally positions. They have another group to capitalize on favorable secretary weeds, such as aging populations with more complex health conditions.
Franco: Our main innovation, particularly in the sensitive biologics and the trend towards the South administration of <unk> disease.
Franco: We operate in growing end markets and we are well positioned in the fastest growing biologic segment that we believe that we have a leading presence in jail P was underpinned by a long term commercial contracts and we see many opportunities primarily in biologics over the next several years.
Franco Stevanato: We believe we have a leading presence in GLP-1s, underpinned by long-term commercial contracts, and we see many opportunities, primarily in biologics, over the next several years. Above all, our global footprint, differentiated product portfolio, and integrated end-to-end solutions offer customers a unique value proposition. This provides us with a sustainable competitive advantage. I will now hand the call over to Marco.
Franco: Above all our global footprint, the differentiated product portfolio and integrated end to end solutions offer customers a unique value proposition.
Franco: This provides us with a sustainable competitive advantages I will now hand, the call over to Marco.
Marco: Thanks Franco Biff.
Marco Dal Lago: Before I begin, I want to clarify that all comparisons refer to the first quarter of 2023 unless otherwise specified. Starting on page 7, for the first quarter of 2024, revenue decreased 1% and 40 basis points on a constant currency basis to $236 million. The biopharmaceutical and diagnostic solutions segment grew 2%, which partially offset the expected decline in the engineering segment. The revenue decrease in the first quarter was mainly driven by lower revenue related to glass vials in the BDS segment due to the industry-wide stocking, which we believe is transitory.
Marco: Before I begin I want to clarify that all comparisons refer to the first quarter of 2023.
Marco: Unless otherwise specified.
Marco: Starting on page seven four.
Marco: For the first quarter of 'twenty 'twenty four.
Marco: Revenue decreased 1% and 40 basis points on a constant currency basis to 236 media.
Marco: The biopharmaceutical and diagnostic solutions segment grew 2%.
Marco: Which partially offset the expected decline in the engineering segment.
Marco: The revenue decrease in the first quarter was mainly driven by lower revenue related to glass by us in the Bds segment due to the industry wide. This stocking, which we believe is transitory.
Marco Dal Lago: Our product diversity helped expand our mix of high-value solutions, which represented 37% of total revenue in the first quarter. However, the product mix within high-value solutions was less accretive compared with the same period last year, mainly due to lower volumes from easy fill vials.
Marco: Our product diversity and expand our mix of high value solutions, which represented 37% of total revenue in the first quarter.
Marco: However, the product mix within high value solutions was less accretive compare with the same period last year.
Marco: Mainly due to lower volumes for our music fill vials.
Marco Dal Lago: For the first quarter of 2024, the lower revenue from easy-fill vials was the largest factor in the gross profit margin decrease to 26.4%. In addition, the underutilization of via lines contributed lower gross profit from the engineering segment. Temporary inefficiencies in our new manufacturing plant and higher depreciation also impacted gross profit margins, but to a much lesser extent. Lastly, the prior year period also benefited from government grants that helped offset the spike in utility costs that did not repeat in the first quarter of 2020.
Marco: For the first quarter of 2020 for the lower revenue from music feel buyers was the largest factor in the gross profit margin decreased to 26 by 4%.
Marco: These show the Underutilization on buyer lives lower gross profit from the engineering segment then.
Marco: Temporary inefficiencies in our new manufacturing plans and higher depreciation also impacted gross profit margin.
Marco: But to a much lesser extent.
Marco: Lastly, the prior year period also benefited from government grants that help offset the spike in the utility costs that did not repeat in the first quarter of 2024.
Marco Dal Lago: This led to an operating profit margin of 10.7%, and on an adjusted basis, operating profit margin was 12.3%. For the first quarter of 2024, net profit totaled $18.8 million, and diluted earnings per share was $0.07. On an adjusted basis, net profit was $21.5 million, and adjusted diluted earnings per share were $0.08, adjusted for the bid, which was $50.6 million, and adjusted for the bid margin was 21.4%. Moving to segment results on page 8, for the first quarter of 2024.
Marco: This led to an operating profit margin of 10, 7%.
Marco: And on an adjusted basis operating profit margin was 12, 3%.
Marco: For the first quarter of 'twenty 'twenty four net profit totaled $18 8 million and diluted earning per share was seven cents.
Marco: On an adjusted basis net profit was 21 5 million and adjusted diluted earnings per share were <unk> eight cents.
Marco: Adjusted the beat there was $50 6 million and the adjusted EBITDA margin was 21, 4%.
Marco Dal Lago: Revenue from the BDS segment increased 2% to $198.9 million. However, segment growth was impeded by the industry-wide vialed stock, and in the first quarter of 2024, revenue from VIAs decreased 43%. This was offset by strong growth in syringes and other product categories.
Marco: Moving to segment results on page eight.
Marco: For the first quarter 'twenty 'twenty four.
Marco: Revenue from the Bds segment increased 2% to $498 9 million.
Marco: Segment growth was impeded by the industry wide via the stocking in the first quarter of 2020 for revenue from by Us decreased 43%.
Marco: This was offset by strong growth in syringes and other product categories.
Marco: High value solutions grew 15% to 88 media in the first quarter.
Marco: While our revenue from other containment and delivery solutions decreased 7% to 110 to 11 million.
Marco Dal Lago: High-value solutions grew 15% to $88 million in the first quarter, while revenue from other containment and delivery solutions decreased 7% to $111 million. For the first quarter of 2024, the change in product mix due to the lower revenue from EZ-Fill vias had the most profound impact on gross profit margin of 27.1%. Gross profit margin was also tempered by the underutilization of vial lines and associated labor costs. The Temporary Inefficiencies from Startups, higher depreciation, and government grants that did not repeat in 2020. As a result, the operating profit margin for the BDS segment decreased to 14.1%.
Marco: For the first quarter of 'twenty 'twenty four the change in product mix due to the lower revenue from easy field by yes at the most profound impact on gross profit margin of 27, 1%.
Marco: Gross profit margin was also tampered by the Underutilization of buyer lines and associated labor costs that.
Marco: Temporary inefficiencies for a start up.
Marco: Hi, good depreciation and government grants that did not repeat in 2024.
Marco: As a result operating profit margin for the Bds segment decreased to 14, 1%.
Marco Dal Lago: For the first quarter of 2024, revenue from the engineering segment decreased 13% to 37.1 million due to lower sales from the pharmaceutical visual inspection and assembly and packaging line. As previously discussed, our main priority in 2024 is executing the last volume of work in progress and shortening our lead time. We have hired additional labor resources to support these efforts, along with other important long-term projects in the pipeline.
Marco: For the first quarter of 'twenty 'twenty four revenue from the engineering segment decreased 13% to 37.1 medium due to lower sales for our pharmaceutical visual inspection and assembly and packaging lines.
Marco: Previously discussed our main priority in 'twenty 'twenty four is executing the large volume of work in progress and shortening our lead times we.
Marco: We have hired additional labor resources to support these efforts along with other important long term projects in the pipeline.
Marco Dal Lago: In the first quarter of 2024, gross profit margin from the engineering segment decreased to 17.3% due to lower marginality from certain projects in process. This led to an operating profit margin of 6.7% in the quarter. Please turn to the next slide for a review of balance sheet and cash flow items. In March, we closed our follow-on offering and raised net proceeds of $170.5 million. The proceeds will be used for capital investment projects, working capital needs, and general corporate purposes to ensure an appropriate level of operating and strategic flexibility.
Marco: In the first quarter of 2024 gross profit margin from the engineering segment decreased to 17, 3%.
Marco: Due to lower amount of seasonality around certain projects in process.
Marco: This led to an operating profit margin of six 7% in the quarter.
Marco: The to the next slide for a review of balance sheet and cash flow items.
Marco: In March we closed our follow on offering and raised net proceeds of $170 5 million.
Marco: The proceeds will be used for our capital investment projects.
Marco: Working capital needs and general corporate purposes to ensure an appropriate level of operating and strategic flexibility with the cash infusion from the offering we are indeed, the quarterly cash and cash equivalents of $186 three medium and net debt by 186.
Marco Dal Lago: With the cash infusion from the offering, we ended the quarter with cash and cash equivalents of $186.3 million and net debt of $186.9 million. We believe our cash-on-hand gives us adequate liquidity to fund our strategic priority. As expected, capital expenditures for the first quarter of 2024 total $71.9 million, with approximately 88% tied to growth investment to advance our ongoing capacity expansion for high-value solutions. We continue to carefully manage trade working capital to support the growth of our business. In the first quarter, we benefited from strong collections of receivables, which drove cash generation.
Marco: 9 million, we believe our cash on hand gives us adequate liquidity to fund our strategic priorities ASIC.
Marco: As expected capital expenditures for the first quarter of 2024 totaled $71 9 million with approximately 88% tied to grow investment to advance our ongoing capacity expansion for high value solutions.
Marco: We continue to carefully manage trade working capital to support the growth of our business.
Marco: In the first quarter, we benefited from strong collections of receivables, which drove cash generation, but as expected our inventory levels increased in the first quarter, mainly due to the establishment of baseline mean bang the lease in our new plan, which.
Marco Dal Lago: But, as expected, our inventory levels increased in the first quarter mainly due to the establishment of baseline inventories in our new plan, which includes products that are expected to be delivered to customers in future quarters. In the first quarter of 2024, net cash from operating activities totaled $71.6 million. Cash used in the purchase of property, plant, and equipment, and intangible assets was $102.7 million. This drove a negative free cash flow of $30.6 million in the first quarter.
Marco: Include but all those that are expected to be delivered to customers in the future quarters in the first quarter of 'twenty 'twenty four.
Marco: Cash from operating activities totaled $71 six medium.
Marco: Cash used in the purchase of property plant and equipment and intangible assets was $102 7 million.
Marco: This drove negative free cash flow of $30 6 million during the first quarter.
Marco Dal Lago: Lastly, we are updating our full year 2024 guidance on page 10. As Franco mentioned, the combination of temporary soft-violet demand and the postponement of a large customer order are the main reasons for taking a more cautious approach to our 2024 guidance. Our guidance now assumes a more gradual recovery in vials. We currently expect that vial orders will increase at the end of 2024 and into early 2025, with bulk VALs expected to recover first.
Marco: Lastly, we are updating our full year 2024 guidance on page 10.
Marco: As Franco mentioned, the combination of temporary salt vial demand and the postponement of a large customer order.
Marco: Out of the main reasons for taking a more cautious approach to our 2024 guidance our guidance now assumes a more gradual recovery in vials.
Marco Dal Lago: We currently expect the bylaw, thus will increase at.
Marco: At the end of 2024 and into early 2025 with bulk via suspected to recover first.
Marco Dal Lago: While our recent public offering had limited impact on dilution in the first quarter, our updated guidance includes an increase in weighted average shares outstanding. For fiscal 2024, we now expect revenue in the range of $1,125,000,000 to $1,155,000,000. Adjusted the bid in the range of $277.9 million to $292.2 million and the Just Dilute DPS in the range of $0.51 to $0.55. Thank you. I will end the call to Franco Moro. Thank you.
While our recent public offering a limited impact on dilution in the first quarter. Our updated guidance includes the increasing weighted average shares outstanding for fiscal 2024, we now expect.
Franco Moro: Our revenue in the range of 1.125 billion to 1.155 billion.
Franco Moro: Adjusted EBITDA in the range of 277 9 million to $292 2 million.
Franco Moro: And the adjusted diluted EPS in the range of 51 cents to 55%. Thank.
Speaker Change: Thank you I will hand, the call to Franco model.
Franco: Thank you Marco sparkling on slide 12.
Franco Moro: Starting on slide 12, over the last several weeks, we have spent a lot of time with our customers as they continue to manage excess vial inventory. As Marco noted, we now anticipate a slow-recovering bias, particularly easy-fill bias, which will unfavorably impact our mix of high-value solutions in 2024. It's important to remember that ready-to-use wires are currently a small portion of the market, and the vast majority of buyers are in bulk configuration.
Franco Moro: Over the last several weeks, we have spend a lot of time with our customers as they continue to manage the excess to buy your inventories.
Franco Moro: As Michael noted, we now anticipate lower recovering by us.
Franco Moro: <unk> is a few buyers, which will favorably impact our mix of high value solutions in 2024.
Franco Moro: It's important to remember that the ready to use why as it currently is more portion of the market.
Franco Moro: And the vast majority of buyers are in bulk configurations.
Franco Moro: We are the market leader in ready-to-use wires, and the temporary imbalance of supply and demand is having a pronounced impact on us, given our significant position in the market, coupled with the low volumes in the market today. We are carefully managing costs. And we have taken many actions on the labor side, including redeploying via production staff and improving efficiencies on maintenance activities while some via lines are idle. At the same time, we expect to retain most of the staff who work on herbicide production lines, despite the temporary underutilization.
Franco Moro: We are the market leader ready to use why yes.
Franco Moro: And the temporary imbalance of supply and demand.
Franco Moro: Is having a pronounced impact for us.
Franco Moro: Given our significant positioning the market coupled with the low volumes in the market today.
Franco Moro: In the near term.
Franco Moro: We are carefully managing costs and we haven't taken many actions on the LIBOR side, including redeploying Goodbye our production staff.
Franco Moro: And improving efficiencies on maintenance activities, while some via lines are idle.
Franco Moro: At the same time, we expect to retain most of the staff who work on our bio production lines. Despite the temporary underutilization.
Franco Moro: We believe this approach best positions us to be prepared for the recovery, especially considering the time it takes to recruit, hire, and train new staff to achieve full productivity. We believe it's the right thing to do for our business, and we do not want to take short-term actions that might compromise our future growth. Turning to the engineering segment,
Franco Moro: We believe this approach best positions us to be prepared for the recovery, especially considering the time it peaks to recruit hire and train new staff to a cheaper fruit productivity.
Franco Moro: We believe it's the right thing to do for our business and we do not want to take short term actions that might compromise our future growth.
Franco Moro: Turning to the engineering segment.
Franco Moro: The actions that we initiated last year are just starting to yield operational improvements in the business. The combination of additional resources, ongoing optimization of our industrial footprint, and streamlining internal processes is helping to improve the overall health of the business. These actions are ongoing, but improvements will take time. We expect that, in the longer run, they will drive operational efficiencies and shorten lead times, which in turn will benefit the segment's margins.
Franco Moro: The actions that we initiated last year.
Franco Moro: Just the stock in two years, the operational improvements in the business the.
Franco Moro: The combination of additional resources.
Franco Moro: Ongoing optimization of our industrial footprint and streamlining internal processes, helping to improve the overall half of the business.
Franco Moro: These actions are ongoing.
Franco Moro: But the improvement will take time.
Franco Moro: We expect that in the long run they will drive operational efficiencies and shortened lead times.
Franco Moro: Which in turn will benefit the segment's margins.
Franco Moro: Longer term, we believe the demand landscape for engineering remains favorable. For example, the self-administration of medicine is a growing trend, especially given the popularity of JLT1s, as patients become more comfortable with drug delivery devices like pain injectors and auto-injectors.
Franco Moro: Longer term, we believe the demand the landscaping engineering remains favorable.
Franco Moro: For example, the self administration, mainly C is a growing trend.
Franco Moro: Especially given the popularity of Jetblue, one as patients become more comfortable with drug delivery devices.
Franco Moro: Campaign, the injectors and auto injectors.
Franco Moro: This trend is generating customer demand for our assembly and packaging line, and we are supporting many customers as they rapidly expand their device programs. Let's turn to page 15 for a brief update of our expansion project. In terms of features, we remain on track to begin commercial production in the second half of 2024. Customer-related validation activities are in full swing, and will continue into 2026 as planned. In the meantime, we expect to deliver and install several more manufacturing lines in the coming months.
Franco Moro: This trend is generating customer demand for our assembly and packaging lines.
Franco Moro: And we are supporting many customers.
Franco Moro: As they rapidly expanded the device programs, let's turn to page 15 for a brief update of our expansion projects.
Franco Moro: T shirts, we remain on track to begin commercial production in the second half of 2024.
Franco Moro: Customer related validation activities are in full swing and we continue into 2026 as planned.
Franco Moro: In the meantime, we expect to deliver in the store several more manufacturing lines in the coming months following the completion of our performance qualifications.
Franco Moro: Following the completion of our performance qualifications, customer validation will begin on this new line. In addition, we are set to begin the build-out of our contact manufacturing capabilities and features related to a drive delivery platform for multiple biologic indications for a large customer. Commercial activities related to this new CMO work are expected to begin in 2026. In Latin America, ramp-up activities are ongoing as we continue installing and validating new lines into 2026. Commercial production launched last year, and revenue is expected to grow over the next several years. I'll hand the call back to Franco Stevanato for his closing remarks.
Franco Stevanato: Customer validation will begin on these new lines.
Franco Stevanato: In addition, we are set to begin the build out of.
Franco Stevanato: For our contract manufacturing capabilities new features.
Franco Stevanato: Related to a drug delivery platform for marketable biologic indications for logic customer.
Franco Stevanato: Commercial activities related to these new CMO work.
Franco Stevanato: Expected to begin in 2026.
Franco Moro: In Latina ramp up activities are ongoing as we continue installing and validating new lines into 2026.
Franco Stevanato: Commercial production launches last year.
Franco Stevanato: <unk> is expected to grow over the next several years.
Franco Stevanato: I'll hand, the call back to Franco said on Apple for closing remarks.
Franco Stevanato: Thank you, Franco. In closing, Stefanato Group has cemented its leadership position as a mission-critical partner in the pharmaceutical supply chain. We have experienced significant growth, and we have been building the organization to support our long-term objectives. Our number one priority in 2024 is execution.
Franco Stevanato: Thank you Franco in closing seven Hunter group has cemented its leadership position as a mission critical partner in the pharmaceutical supply chain, we have experienced significant growth and we are being built in the organization to support our long term objectives.
Franco Stevanato: We are laser focused on ramping up our new capacity to meet the rising customer demand for high-value solutions, such as our Nexus ranges and Easy Fill cards. We are also strengthening our processes and driving efficiencies across our global operations to best manage our future growth. These are exciting times. We offer a unique value proposition of integrated solutions and differentiated products that resonate with customers. We operate in attractive end markets with long-term tailwinds. These factors position us to drive durable organic growth, expand margins, and deliver long-term shareholder value. Operator, let's open it up for questions.
Operator: Thank you. This is the 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 yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. We kindly ask you to limit your questions to one and one follow-up only and join the queue again for any further questions. The first question is from Michael Friskin with Bank of America. Please go ahead.
Michael Friskin: Mmm question, and one photo op only and joined the queue again for any further questions.
Michael Friskin: The first question is problem Michael Police came with Bank of America. Please go ahead.
Michael Friskin: Great, thanks for taking the time to answer the question. I want to dig in first on the inventory comments, obviously. I mean, it's something that's been going on in the industry for a number of months now. I wouldn't say it's exactly a surprise, but you could give us a little bit more color on what changed as you went through the quarter. I mean, if you look back to where you were in March versus where you are now, in early March when you reported 4-2 and initially got it for the year, you provided some color on destocking, but clearly, you underestimated the problem.
Michael Friskin: Right [noise].
Michael Friskin: Thanks for taking my question.
Michael Friskin: I want to dig into first on the inventory comments, obviously I mean, it's it's something that's been going on in the industry for a number of months now I wouldn't exactly surprise, but.
Michael Friskin: Can you give us a little bit more color on what changes you went through the quarter. I mean, if you look back to where you were in March versus where you are now in early March when you reported for acute initially got it for the year you provided some color on destocking, but clearly you underestimated. The problem. So is this something that changed during the quarter or is this something where you got better visit.
Michael Friskin: So is this something that changed during the quarter? Is this something where you got better visibility into customers? And I'll tack on the follow-on immediately after that is, you know, the new outlook that you're giving. It gives you confidence that destocking will fade as you go through the year. You know, is there any level of conversations you can have with customers or anything like that to point to the improved timeline?
Michael Friskin: Ability and customers.
Michael Friskin: I'll check on the follow on immediately after that is you know.
Michael Friskin: The new album that you are giving what gives you confidence that restocking will fade as you go through the year.
Michael Friskin: Any level of conversations you can side with customers or anything like that but the point too.
Michael Friskin: The improved timelines thanks.
Franco Stevanato: Thanks Mike. Just to make sure we've captured all of your questions. First, on what's changed since our last earnings call on de-stocking, and secondly, confidence in the fact that de-stocking will continue to fade, and we'll see that recovery later in the year on the new outlook. So I'm going to hand that over to Franco Stevanato, to begin.
Speaker Change: Thanks, and I just to make sure we have captured all of your questions first let's change since our last earnings call Destocking and secondly, the confidence in the fact that Destocking will continue to say it and we'll see that recovery later in the year on the new outlook, so I'm going to hand that over to Franco seven how to begin.
Franco Stevanato: So the pandemic presented an extraordinary challenge across our industry. We are still on the path to normalization, but the market is still choppy today. First, the impact from the stocking was simply more pronounced than previously expected. Frankly, the pandemic created a fast acceleration of viral demand as customers stockpiled inventory. We previously anticipated a lower path to normalization, but instead, we experienced a more rapid decline in viable demand due to excess inventory.
Franco Stevanato: Yes. Thank you so <unk>.
Franco Stevanato: <unk> <unk> a close nobody in the city. So we have seen it in the amount of two normalization, but the market. These two tells me today <unk>.
Franco Stevanato: To the bathroom. This dulcie was simply more pronounced abuses.
Franco Stevanato: Currently there someday I'd be created the <unk> the amount of the customer Mr. <unk>.
Franco Stevanato: We previously anticipated as lower pop into <unk> normalization, but they said that we experience a more rapid decline nobody abdomen due to excessive <unk> in this context customized and as a consequence faced challenges and anticipating I'm predicting the right timing as in Nancy T <unk>.
Franco Stevanato: In this context, customers and, as a consequence, face challenges in anticipating and predicting the right timing and intensity of fed out. This quota is partially out of guard. This, at the end of the game, is a temporary dynamic that is impacting 2024. Once completely over, we anticipate a return to pre-pandemic market growth rates. This includes low single digits for via bulk and double digits for area to via.
Franco Stevanato: <unk> <unk> <unk>.
Franco Stevanato: <unk> at the end of the game is a temporary then you said that this <unk> 2024 was completed yoga, we anticipate that <unk> <unk> growth rate is include low single digits for the by a <unk> in double digits <unk>.
Franco Stevanato: Mike's follow-up is the confidence that we see in the fading of the de-stocking throughout the year.
Franco Stevanato: Like follow up is the confidence that we see in the fading.
Franco Stevanato: Uhm destocking throughout the year.
Franco Stevanato: Yeah, during this year, as I said with Franco, we see a more difficult condition than previously anticipated. We don't see an increase during this year in the following quarters with respect to vials and dizzy field vials.
Mike: Yeah during <unk> set by Franco we <unk>.
Franco Stevanato: We see and more difficult condition than previously anticipated.
Franco Stevanato: We don't see during the Z R and K as in the following cost US we respect all the <unk> is mason during the commentary we now expect the aim.
Franco Stevanato: As mentioned during the commentary, we now expect orders to start increasing toward the end of the year with VIAS bulk starting first and immediately after the easy fill VIAS. We also mentioned the fact that, you know, we went down 43% year over year in VIAS. And as you said, this headwind is stronger than what we anticipated. We expected a lower reduction in VIAS. But matter of fact, this is what we can see today, and this is the main difference compared to two months ago. Correct. If you can further implement it,
Franco Stevanato: All of the <unk> to the end of the era with <unk> first and immediately after the <unk>, yes, Sir we may show so the fact that the.
Franco Stevanato: We went down 43% <unk> and as you said the.
Franco Stevanato: <unk> <unk> <unk> <unk> as a matter of fact that this is what we can see today and this is the main difference <unk> two two months ago.
Franco Stevanato: Correct. If I can further implement, Michael, we have a very close, intense relationship with our customers, in particular the supply chain, which is related to research and development and the engineering department. On the one hand, in 2024, we see the customer is really looking to bring the inventory back to the original scenario that was pre-pandemic. In parallel, we are starting to see more and more of our big customers talking to renew our long-term contract for buyers starting from 2030. This is the reason why we are going to see that this temporary stockpile, which was more pronounced than previously expected, is going to be closed at the end of 2021.
Franco Stevanato: Further implemented Michael <unk>.
Franco Stevanato: We have a very close.
Franco Stevanato: There's a relationship with the webcast somebody in particular for the supply chain, what is related to a research and development and into the apartment.
Franco Stevanato: From one hand in 2024, we see the customer is looking really to bring <unk> back into the reason <unk> <unk> <unk>, we are starting to see more and more I would be a good customer so talking to renew our longterm contract <unk> 65, you said the reason why we are going.
Franco Stevanato: To see that this temporary stalking that's it was more pronounced with a previous respected is going to be closer to the end of 2024.
Speaker Change: Okay. Thanks.
Paul Richard Knight: The next question is from Paul Knight with Key Bank. Please go ahead.
Franco Stevanato: The next question is from Paul Ninth Keybank. Please go ahead.
Franco Stevanato: Hi, thank you for your time. First question is, I would expect the Novo or Catalan site in Anagni to expand quite a bit. Will, would you be involved in that because you're so nearby in Latina in terms of, Have you historically been a provider for that site in that region?
Paul Richard Knight: Hi, Thank you for your time first question is I would expect that no more <unk> <unk> <unk> <unk> to expand quite a bit.
Franco Stevanato: Will would you be involved in that and because you're so nearby and a lot of pain in terms of.
Franco Stevanato: Have you historically been a provider for on that that that fight in that region.
Franco Stevanato: Yes, Paul. Thank you for the question. Obviously, we can repeat that our CAPEX decision and plans are not related to single customers that we are addressing mostly the biological space, where there is good growth because of the success of some three. We cannot obviously comment in terms of any relation we have with individual customers, but we can confirm also that the view about the utilization or new investment is very clear, and our capacity is almost taken up for very precise ideas.
Speaker Change: Yes, Paul Thank you for that <unk> ultimately, we can repeat that that that our capex decision and plans are not related the single castle have that we are not that I've seen mostly biologics space, whether it is a group of girls for because of the success of San.
Franco Stevanato: Three Smith, we cannot command Poppingly in time in your relationship we have with the single cast almost by the week canceled formoso that <unk> you mean vast mentha is very clear and our capacity is almost up taken up for.
Franco Stevanato: Very precise ideas and.
Franco Stevanato: In terms of the investment, it will give us the possibility to have more high-value solutions, both in syringes and, even more important, growth in the easy feed cartridges that is much more than expected at the time of our IPO to begin.
Franco Stevanato: <unk> the bathroom at the weird lag <unk>.
Franco Stevanato: <unk> disability to add more hype I just solution Bolsa <unk> and.
Franco Stevanato: <unk> <unk> is it a few cottages that is much more than I expected that at the time of our while I feel to be candid.
Franco Stevanato: Yeah, and then the single customer delay, is it a delay in clinical trial success is a delay in There are other CapEx that they're adding. Could you give a little color on what's behind this one customer delay?
Speaker Change: Yeah, and then the the the single customer delay is it a.
Franco Stevanato: Delay in clinical trial success.
Franco Stevanato: <unk> and <unk>.
Franco Stevanato: There are other capex, they're adding you could you give a little color on what's behind this no one customer delay.
Franco Stevanato: As for our understanding, there is a change in their planning for the commercialization of some drugs in the biological space that we are involved in with our high-value solutions. We are not talking about any cancellation of committed orders. We are just talking about the changing forecast, mostly in timing. So we expect to have some news in the near future with the customer. We continue to monitor the situation with them. In the meantime, obviously, we will have time to backfill the capacity to expand our business following other opportunities.
Speaker Change: <unk> is a change in their planning for the commercialization of <unk> biological space that we are involved in that we thought while high value solutions, we're not talking about the any cancellation will commit adult is way out just talking about the changing all forecasts mostly.
Franco Stevanato: Timing, so we expect it to have some news in the near future with the customer that we continue to monitor with them. The situation in the meantime, obviously, we will have time to <unk> the capacity to expand our business following other opportunities.
Franco Stevanato: Can I squeeze in the last one? What's your capacity utilization rate right now, Franco?
Speaker Change: Squeezing the last one what what's your capacity utilization rate right now Franco.
Franco Stevanato: It strongly depends on product line by product line. Obviously, it's clear that it's not the best environment, but we are under pressure to continue to serve our customers with syringes and all the most innovative solutions we are bringing to the market. So the rate of utilization is in the good or beyond the good standards that we expect.
Franco Stevanato: At the <unk> <unk> <unk>, it's clear that is not the best buy is about that we are on the pleasure to continue to serve our customer with us arranges with the for the most innovative a solution that we ought to bring it to the market.
Franco Stevanato: So <unk> civilization is in the <unk> or beyond that the <unk>. So that's what we expect.
Speaker Change: Mmm. Thanks.
Patrick Bernard Donnelly: The next question is from Patrick Donnelly with City. Please go ahead.
Speaker Change: The next question is from <unk> C. T. Please go ahead.
Patrick Bernard Donnelly: Hey, guys, thanks for taking the question. Maybe just a follow up on that large customer postponement. You know, can you talk about, I guess, the visibility into this order?
Patrick Bernard Donnelly: Hey, guys. Thanks for taking the question, maybe just a follow up on that large customer postponement. Yeah can you talk about I guess the visibility into this order is there any chance that materializes. This year it doesn't sound like it and if not.
Patrick Bernard Donnelly: Does that show up next year could that actually read twenty-five growth above try and just how do you think about that order when it shows up and what it means the numbers.
Franco Stevanato: Is there any chance that materializes this year? It doesn't sound like it? And if not, does that show up next year? Could that actually lead to 25% growth above trend? Just how do you think about that order and when it shows up, and what it means for
Patrick Bernard Donnelly: We put the <unk> at the Alright, cool very significant the recall vote for the same <unk> <unk>.
Franco Stevanato: We put an embed in our guidelines; we don't expect a recovery, or a significant recovery for the same volume this year. We are talking about high-value solutions, mostly syringes. So we expect to follow the trend of growth in this space, not only because of this single opportunity but for many others. The time to react in this specific case is also impacted by the longer lead time to start a different production because we have to order the proper components.
Franco Stevanato: We are talking about high value solution. Most of this oranges. So we are expected to follow the trends of good old <unk> in this space and not only because of visa single opportunity to but for many others.
Franco Stevanato: Time to react in this specific case is always impacts of the by the longer the time to start a different production because of all but we have to order the profile component of the.
Franco Stevanato: Propera tubing, and then to plan the production, execute production, including final sterilization. So it's a matter of time more than of the disability opportunity. Timing execution cannot allow us to react in a very, very short time.
Franco Stevanato: <unk>.
Franco Stevanato: <unk> and then <unk> plan their production execute put a dachshund and could within the finance toward realisation. So is metal with time more than uhm, Oba, Adam disability opportunity thymine execution.
Franco Stevanato: <unk> to react in a very very short time.
Marco Dal Lago: Okay, that's helpful. And then Marco, maybe just in terms of the cadence of the year, can you help us think about, you know, 2Q, what that looks like, and just trying to figure out that 2H ramp and how to get comfortable with it. So again, if there's any way you can kind of frame up the 2Q numbers, that'd be helpful.
Speaker Change: Okay. That's helpful and then Marco maybe just in terms of the cave into the year can you help us think about.
Marco Dal Lago: Two Q, what that looks like and just trying to figure out that that two H ramp and how to get comfortable with it. So again, if if there's any way you can kind of frame up.
Marco: The two two numbers there'll be certainly helpful.
Marco Dal Lago: Yes, we expect that revenue will increase incrementally quarter by quarter throughout the year. We still anticipate the second half of 2024 will be stronger than the first half because the challenges that we mentioned today, we expect will persist in the second quarter. We still anticipate the second quarter will be largely in line with the prior year, so growing compared to Q1, but still not growing compared to the prior year.
Marco: Yes, we expected Avenue will increase incrementally by Claude throughout the year.
Marco Dal Lago: We still anticipate the second <unk> 2024 will be stronger than the first sir because the challenges that we may shown today.
Marco Dal Lago: Respect with a C C and the second <unk>, we still anticipate the second quarter will be larger Lee in line with that by your ear, so that all when compared to <unk>.
Marco Dal Lago: Not at all when compared to the <unk> line and.
Marco Dal Lago: And for the year, we expect for the BDS segment, we expect a mid single-digit to high single-digit growth driven by syringes that are still very strong. In the first quarter, we have been able to offset the 43% drop in vials with syringes that are growing in line with our expectations. And our model now assumes a mid-single-digit decline in engineering business for the year. So this is the kind of color we can provide today that is based on the visibility we have. And it's based also on the fact that we are installing more capacity syringes throughout the year.
Marco Dal Lago: For the year, we expect for the B B S segment.
Marco Dal Lago: To me the single digit too high single digit girl driven by Sierra <unk> steal that is stronger we <unk>, we have been able to set the the 43 per cent dropping by us with syringes growing in line with our expectations and.
Marco Dal Lago: <unk> made the single digit decline in engineering business for the ear. So this is the kind of call or we can provide today is based on the visa beat it we Ava.
Marco Dal Lago: And this bezos on the fact that we are installing <unk> throughout the year.
Marco Dal Lago: No, that's helpful. I appreciate it.
Speaker Change: No that's helpful. I appreciate it.
Matthew Richard Larew: The next question is from Matt Laro with William Blair. Please go ahead.
Speaker Change: The next question is from <unk> <unk> <unk> <unk>. Please go ahead.
Matthew Richard Larew: Mmm.
Sam Martin: Hi, Sam Martin on behalf of William Blair on behalf of Matt LaRue. So when I think about the large customer delaying an order, is there any way you can somewhat kind of quantify the impact that had on the reduction to the guide? And then when we think about destocking, accelerating, or really even spreading to easy-fill vials, can you speak about when you first noticed that? You know, you held your Q1 call, I think, in early March. And then can we're earlier in mid-March, and then can you speak to really when you notice that it's spreading to easy-to-fill bills, easy-to-fill ballots are accelerating, you know, past your expectations?
Matthew Richard Larew: Hi, Sam are known for William Blair on behalf of Maseru.
Sam Martin: So when I think about the large customers laying in order.
Sam Martin: Is there any way you can somewhat kind of quantify quantify the impact that had on the reduction to the guide and then when we think about destocking accelerating or really even spending to easy feel biles can you speak about when you first noticed that you know how's your cue on call I think in early March and then can.
Sam Martin: William in March and then can you speak to really when you notice. The it's spreading can you feel bills you spell bowser accelerating no patch expectations.
Marco Dal Lago: Yeah, our guidance is assuming now a gap compared to prior guidance of approximately 55 million, about the same gap. About 65% of the gap is related to bias with a more pronounced gap on easy field bias over this period of time. [inaudible] 25% is associated with the large order we were mentioning, and 10% is related to engineering. So this is the breakdown of the delta we assume today, based on, again, the visibility we have and the review guidance for those three reasons.
Speaker Change: Yes, our guidance is assuming now a <unk> of approximately 55 meal Sir.
Marco Dal Lago: About the <unk>.
Marco Dal Lago: About 65% of the <unk> more pronounced <unk> <unk> in this period of time.
Marco Dal Lago: The remaining.
Marco Dal Lago: 25 per cent fees associated to the large or the <unk> and 10 per cent is related to engineering. So this is the break down of the of the Delta we assume today.
Marco Dal Lago: Based on again <unk>, we have in the review guidance, Florida, those three reasons.
Sam Martin: And Sam, I apologize. Can you please repeat the second part of your question? We missed that.
Speaker Change: Okay I'm I'm I apologize can you. Please repeat your second the second part of your question <unk>.
Sam Martin: No, no, you, you, oh, sorry, just really, when I think about kind of when you first noticed de-stalking and vials accelerating to easy fill, when did you really notice that? Was it late March? Was it over the course of April? Just kind of when did it first start to become apparent that the stocking was going to be worse or more pronounced than you thought?
Sam Martin: No no no you you you at Oh, sorry, just really when I think about kind of when you first noticed destocking and vials accelerating easy easy Phil.
Sam Martin: When did you really notice that was it late March was it over the course of April just kind of wanted to first start to become a parent that'd be stocking was going to be worse or more pronounced anytime.
Franco Stevanato: Basically, two months ago, we were assuming a situation similar to Q4 and the beginning of the year. In reality, in Q1, revenues and orders went down more than our expectations. And we don't have today any clear signals of a different situation in the following quarters throughout the year. We are taking an approach with VIAs in line with the new situation, new compared to Q4 and compared to the beginning of the year to give you even more color.
Speaker Change: Ah basically two months ago, we were assuming.
Franco Stevanato: And it is situations similar to Q4 and beginning of the era reality in queue. One arrive in your <unk> and.
Franco Stevanato: And we don't have today clear <unk> situation in the following <unk> throughout the year. So we have <unk> <unk> with the <unk> with the.
Franco Stevanato: New situation.
Franco Stevanato: New compared to two four in compared to the beginning of of.
Speaker Change: Okay, you have to give you even more color.
Franco Stevanato: We.
Franco Stevanato: We went down quite significantly in 2023 in bioles. However, we did not expect such a strong headwind to further decline the level of market demand in 2024. That is what we are now putting our guidance for the rest of the year.
Franco Stevanato: We went down quite significantly in 2023 <unk> Sir.
Franco Stevanato:
Franco Stevanato: We did not this bad <unk>.
Franco Stevanato: Too far out of a decline.
Franco Stevanato: Bill of a market the demand.
Franco Stevanato: Mmm 2024 that is what we are now putting out what God does for the rest of the year.
Speaker Change: Thank you that's helpful.
Rammers Tooker: The next question is from Rammers Tooker with Geoffrey's. Please go ahead.
Speaker Change: The next question is from vendors to kind of wait Jaffray. Please go ahead.
Rammers Tooker: Hello. Can you guys hear me all right?
Rammers Tooker:
Rammers Tooker: You guys hear me all right.
unknown: Hi Tucker, yes, we can hear you this. All right.
Rammers Tooker: Hi, Tucker, yes, we can.
Rammers Tooker: The first kind of question I had was on the margin impacts. Can you kind of divide between the mix with lower absorption and the mix with higher absorption? Um, oh, sorry, divide between mix and lower absorption, um, said 15% grown APS. Uh, that seems like it would be a benefit to mix, but we didn't really see that. So we can kind of break down just the mix and absorption pieces in the margin.
Rammers Tooker: All right, great. Thank you for taking my question.
Rammers Tooker: Alright, great. Thank you for taking my question. The first question I had was on the margin packs could you kind of divided between the mix of lower absorption.
Rammers Tooker:
Rammers Tooker: Between mixed in more absorption and 50 <unk>, yes that seems like it would be a benefit to mix, but we didn't really see that so we can kind of breakdown just a mix and absorption pieces in the margin.
Marco Dal Lago: Yes, of course. I'll start with the mix.
Rammers Tooker: <unk> I I start with the mixer.
Marco Dal Lago: First of all it's it's go though we are shifting syringes modem more to her high value put all those sir <unk>.
Marco Dal Lago: First of all, it's a good thing that we are shifting syringes more and more toward high-value products. This is the main driver for increasing the share of high-value products. Within high-value products, on the other hand, we are, as you know, the market leader in sterile vials. And this is a very attractive product for us.
Marco Dal Lago: This is the main driver floating could of using the sure alright that you put all those sir.
Marco Dal Lago: We deny value put all those on the other side, though we are as you know markedly that in <unk> and this is a very collective put all those four dasa and the sharp decline <unk> effect within the make somebody that you put all those sir.
Marco Dal Lago: And the sharp decline in easy-fill vials is what impacted the market the most, so it has an effect within the mix of high-value products. The second reason is, as mentioned, the underutilization we have in bulk vial slime, mainly because this is where we have more quantity and fixed costs compared with other lines. And so the impact has been significant also there. In the first quarter, we had the IGAR depreciation, as you can see from the NAPA in the range of 150 basis points, more. So the combination of these, Factor in order to set the makeshift to a high value product in general.
Rammers Tooker: Gotcha. Thank you. And if I can get one more in,
Rammers Tooker: <unk> <unk>, mainly because this is where we have more.
Rammers Tooker: Quantity and fix up cause compared with the other line Sir so the impact has been significant also diarra. It first quarter, we had I got the pronunciation.
Rammers Tooker: <unk> around the ranch over.
Rammers Tooker: 150 basis point, Sir Mota, so the combination of these.
Rammers Tooker: <unk>.
Rammers Tooker: One of the the make shift to a high value for all those things are in.
Rammers Tooker: So what were the temporary inefficiencies in Italy, in particular, but kind of in both Fishers and Italy?
Speaker Change: Gotcha. Thank you I'm gonna get one more and so.
Rammers Tooker: What were the temporary inefficiencies in Italy in particular, but kind of both fissures in Italy.
Marco Dal Lago: Yes, it's more in Italy, of course, because today the most important factory for Easy Philly is still in Italy. Obviously, fishes, we are in the ramp phase, but yes, the short answer is yes.
Speaker Change: Yes, it's more in Italy of course, because today they lost the Panther.
Marco Dal Lago: Panther.
Marco Dal Lago: 34, <unk> in Italy, obviously Fisher regarding that <unk>.
Marco Dal Lago: <unk>, but yeah, the short password yes.
Marco Dal Lago: All right, yep, thank you. That's all for me.
Marco Dal Lago: Alright.
Speaker Change: Thank you that's all for me.
Larry Solow: The next question is from Larry Solow with CJS Securities. Please go ahead.
Speaker Change: The next question is from <unk> C J F K.
Larry Solow: Please go ahead.
Will: Hey, this is Will. I'm on behalf of Larry Solo. I understand today's revision is related to a temporary slowdown in the market and widespread inventory de-stocking. Can you update us on the competitive environment and ready-to-use products?
Larry Solow: Hey, this is will on for Larry sell out I understand today is your vision is related to a temporary slowdown in market and widespread inventory destocking.
Will: But can you update us on the competitive environment and ready to use products.
Franco Stevanato: Yeah, in terms of I start answering from VIAS, we maintain our leadership position in ready-to-use VIAS. Our view about the expansion of capacity in ready-to-use VIAS in the mid to long run is unchanged. Obviously, it takes time because we are talking about the conversion of a market from buy configuration to ready-to-use configuration. So it's much more important for us to look at the mid to long run than for a single quarter or single year volume. But the outlook on the adoption of the ready-to-use configuration, not only via but sourcing cartridges, as I mentioned before, is more important, very important for us.
Speaker Change: Yeah, <unk> <unk> <unk> <unk> <unk>.
Franco Stevanato: <unk>, we maintain our leadership position and you have read it to use wire.
Franco Stevanato: Our view about the expansion of a capacity you know 82 via via <unk> in the long run it is unchanged.
Franco Stevanato: Obviously, it takes time, because we are talking about <unk> and mark at the former by configuration to read it to use configuration. So he is much more important for us to look at that they meet the longer on them not to a single quota or a single to Europe.
Franco Stevanato: Mmm volume.
Franco Stevanato: But the <unk> on the adoption they'll read it to use configuration up on you by about switching <unk>.
Franco Stevanato: Four is more important very important for us.
Franco Stevanato: All right, great. And then just one more. There's a lot of talk about tightening regulations on drug packaging quality and adoption of high-value solutions and services for not only new drugs but conversion of older legacy pharmaceuticals. Have you seen increased customer interest on this front?
Speaker Change: Alright, great and then.
Franco Stevanato: Just one more there's a lot of talk of tightening regulations on drug packaging quality and adoption of high value solutions and services for not only new drugs spot at conversion on older legacy Pharmaceuticals have you seen increase customer interest on this front.
Franco Stevanato: Yep, sure, sure. There are some regulations that are becoming stricter and stricter. I can mention Annex 1 that is pushing customers to adopt more stricter rules about particle contamination. And really, using vials and cartridges is the right answer to these needs, in the current configuration, even more when we will have the commercial volume for the new generation of the same product. So it's one of the most important drivers for adoption, for sure.
Franco Stevanato: Yep sure sure there does that sound regulation that.
Franco Stevanato: <unk> <unk> <unk> are pushing customers to <unk> take that order was about particle contamination.
Franco Stevanato: To use of items in Carthage is the right password to these needs.
Franco Stevanato: In the current configuration I, even more why not we will have a promotion volume a new generation of the Saint products. So is one of the most important driver for the adoption for sure that is the on thoughtful hall the.
Franco Stevanato: That is on top of the other benefits we deliver to customers of total cost of ownership reduction and flexibility, something that is very important for our customers. And just to add one comment on that.
Franco Stevanato: Other benefits, we deliver to customers <unk> perfect.
Franco Stevanato: <unk> cost of ownership redaction.
Franco Stevanato: And the flexibility that there's something that is very important for a customer.
Franco Stevanato: And just to add one comment on that, as we discussed on Capital Markets Day, we are seeing this adoption, and we can see it in the infrastructure and the industry, particularly as it relates to fill and finish lines capable of processing ready-to-use containers. So we see that as an important leading indicator as well as Annex 1 that will further enable that adoption as we move forward. All right, thank you. The next question is
Franco Stevanato: And just to add one comment on that as we discuss or a capital markets. Today. We are seeing this adoption and we can see it in the infrastructure in the industry, particularly as it relates to finish lines capable of processing ready to use containers. So we see that is important leading indicator as well as an extra.
Franco Stevanato: One that will further enable that adoption as we move forward.
Speaker Change: Alright, thank you.
Lisa Miles: The next question is from Curtis Miles with BNP Paribas Exxon. Please go ahead. Thank you for taking my questions. So you and the BDS segment had commented that you're seeing strong demand for surrender.
Speaker Change: The next question is from Court case miles <unk> B M. P. <unk>. Please go ahead.
Lisa Miles: Yes. Thank you for taking my questions. So you and the B D. S. Pigment had commented that you're seeing strong demand for syringes I just wanted to check can you get a little bit of Colorado, and the demand that you're seeing credit card digits as well.
Franco Stevanato: You know that we are a market leader in cartridges for many years because the cartridges are the containment solution for Peninject. So the growth of, generally speaking, the South Administration and, even more, the expected growth in pen injectors is driving volume for the future. In this space, the adoption of higher quality standards and the protection of quality that is more pronounced when they use a ready-to-use configuration is accelerating the demand for such containment solutions in the market.
Lisa Miles: And you know that the we have a market leader and cottages are seeing so many years.
Franco Stevanato: Because the <unk> of the containment solution for Penny Injectables.
Franco Stevanato: So the cross off generally speaking of the sauce on inspiration and even more than the expected the girl in the Pan injectors is driving volume for the future.
Franco Stevanato: This base the adoption of a higher quality standards and that.
Franco Stevanato: The protection of quality that's you.
Franco Stevanato: Mora for now so when that they use.
Franco Stevanato: I need to do is configuration.
Franco Stevanato: Is that X.
Franco Stevanato: Excellent 18th of demand of such container containing a solution to market. So our capex alright really in line with these plans and we expect them to take opportunities that most of them biologics because of the quality of our containment solution and because our ability to serve them.
Franco Stevanato: So our CAPEX is really in line with these trends, and we expect to take opportunities mostly in biologics because of the quality of our containment solutions and our ability to serve them in a ready-to-use configuration. That is also linked to the positive impact on the business we have from the same trends in engineering for our assembly lines and visual inspections.
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Franco Stevanato: And if I could just add another one on the engineering segment, you had previously mentioned that there were long lead times for electronic components. I'm just curious, have you seen any improvement there? Or do you have a timeline of when that will be kind of normalized? Thank you.
Speaker Change: Super Thank you and if I could just add another one on the engineering segment. You had previously mentioned that there were a long lead times for electronic components Uhm I'm. Just curious have you seen any improvement there or do you have a timeline of when that will be kind of normalized thank you.
Franco Stevanato: The comments of Franco before were mostly related to what happened in 2022. Now, the situation is much more normalized in terms of the reliability of the supply. There are still lead times that are longer than five years ago. What is now needed to be ordered two months in advance. A few years ago, it was out of shelf supply, but now we have adjusted our planning to do so. The new situation, and so we are dealing with the tale of what happened one year ago or more. Super, thank you.
Franco Stevanato: The <unk> will before was mostly related to <unk> 20, twenty-two nowadays situation.
Franco Stevanato: Much more normalised <unk> availability.
Franco Stevanato: The ability of the supply at <unk> <unk> longer than five years ago. What is now what is now needed to be order to <unk>. A few years ago, what was out of the shell to supply, but now we adjusted that we're planning to.
Franco Stevanato: The new situation and so we have man dealing with the <unk>.
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Franco Stevanato: Super Thank you.
Operator: For any further questions, please press star and 1 on your telephone. Once again, if you wish to ask a question, please press star and 1 on your telephone. Ms. Miles, gentlemen, there are no more questions registered at this time. The floor is back to management for any closing remarks.
Franco Stevanato: Or any further questions. Please press star N. One on your telephone.
Operator: Once again, if you wish to ask a question. Please press star N. One on your telephone.
Operator: NASA miles.
Speaker Change: Gentleman there are no more questions registered at this time flies back to management for any closing remarks.
Franco Stevanato: Thank you. Franco Stevanato will add some closing remarks. Thank you, Lisa.
Speaker Change: Thank you Franco seven had a little add some closing remarks.
Franco Stevanato: Thank you, Lisa. Despite this near-term headwind that we are facing in 2024 for VIA that is more pronounced than expected, it is, for me, extremely important to reassure all of you that our strategy is extremely solid. We are confident in our future. We are so proud and honored to invest in this new greenfield plant because we are behind big customer programs, in particular for syringes, necks, and easy-fill cartridges, and we are today laser-focused on execution. Nothing has changed in our strategy to deliver to our customers a high-value solution program for them. So today the organization, in a humble approach, is going to more and more reinforce attention on execution and efficiency in order to deliver what we presented during the capital market in New York. Thank you.
Franco Stevanato: So.
Franco Stevanato: Decided to these neostem Halloween that you're facing Twenty-twenty, Florida for <unk> that is more pronounced both was expected what's it for me, it's just really important to reassure <unk>.
Franco Stevanato: <unk> strategy is extremely sorry is your confidence in our future. We are so proud of the Honda to invest in this and you'll get a few plans because we have behind B a good customer program in particular <unk> next I, usually could carpet just today.
Franco Stevanato: Today laser focus too exiguous nothing changed on our strategy to deliver to our customers high.
Franco Stevanato: High value solutions program for for then so today the organization in the humble approach is going to the modem more <unk> and efficiency in order to deliver what we presented during the customer as a new York. Thank you.
Operator: Ladies and gentlemen, thank you for joining us. The conference is now over. You may disconnect your telephone.
Speaker Change: Ladies and gentlemen, thank you for joining the complaint is not all that you may disconnect telephones.
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Operator: [noise].