Stevanato Group S.p.A.

has led to highly differentiated product portfolio. We work alongside our customers to drive innovation by supporting them in the early stage development through the entire life cycle of the drug. Our mission-critical products are built into the regulatory filings, creating a captive customer base. We operate in growing end markets with strong secular tailwinds. We have an increasing presence in biologics, which is the fastest growing market segment. We see impulse opportunities in treatment classes such as GLP-1s, monoclonal antibodies, mRNA application, and biosimilars over the next several years. Our presence in GLP-1s dates back to 2010. We believe that we are well positioned to further support customers in the upcoming waves of new indications for GLP-1s. While this presents a significant opportunity for us, it is just one of the many favorable taste wins within the growing biologics market. Above all, our global footprint, differentiated product portfolio, and integrated end-to-end solutions offer customers a unique value proposition. This provides us with sustained competitive advantages. We believe we are ideally poised to seize the opportunities in front of us to drive long-term organic growth and build shareholder value. I will now hand the call over to Franco.

Thank you, Franco. Starting on slide 7, we are off to a good start with the first quarter results, highlighted by 12% revenue growth and an adjusted EBITDA margin of 26%. Strong demand for our EasyFeed products has driven the shifting revenue towards more accretive high-value solutions, which represented approximately 32% of revenue in the first quarter. For the first quarter, new order intake decreased to approximately 236 million euros compared to last year. This was due to the expected drop in COVID-19 orders and the normalization of customer ordering patterns as global supply chain stabilized. At the end of the first quarter, our backlog of committed orders totalled approximately 955 million euros. Turning to page 8, during the quarter, we announced an agreement with Thermo Fisher to launch a fully integrated supply chain for our proprietary on-body delivery system. The collaboration leverages the power of our integrated capabilities by bringing together our on-body drug delivery device, our ready-to-use easy-fill cartridges, and our assembly lines, while Thermo Fisher will provide fill-and-finish and final assembly services. The collaboration offers pharma customers a proven end-to-end supply chain to support clients from drug development to commercialization. We also signed an agreement to develop and manufacture our AMBA pre-fillable syringes for Resifarm's soft mist inhaler. The combination of our ALBA syringe and Resifarm's innovative technology delivers sensitive biologics more efficiently and provides enhanced stability and safety. Our ALBA platform is purpose-built for biologics because it significantly reduces any potential interaction between the drug and the container. On page 9, the self-administration of medicine and pharmaceutical innovation are creating demand for our products. Consequently, we expect that continued advancements in biologics, including mRNA applications, monoclonal antibodies, the newest class of GLP-1s and biosimilars, will drive durable organic growth over the long term. While GLP-1s have been an established treatment for diabetes for many years, they are demonstrating remarkable results in weight management. This is driving significant demand for obesity treatments. Diabetes and obesity affect a significant portion of the world's population, and the rates of incidence are expected to climb. According to the World Obesity Federation, an estimated 38% of the population was considered overweight or obese in 2020. This is projected to rise to 51% by 2035 if current trends prevail. Moving to page 10, today the majority of injectable treatments for these diseases use either a pen device or autoinjector for self-administration. In the case of a pen device, the doses can be modulated and the device can be used more than once. The pen uses a glass pen cartridge and it is the standard delivery format adopted globally for diabetes care. For single-use autoinjectors, the standard format is a syringe. As the market leader in PEN cartridges, we have built a leading franchise supporting diabetes management. Our established role in the diabetes market helped anchor our position as one of the primary suppliers in the GLP-1 market for obesity treatments. In fact, we are present in both commercialized GLP-1 products and new programs under development, including biosimilars. The range of products we supply today includes bulk cartridges, easy-fill cartridges, and high-value syringes. On the engineering side, we are also supplying lines for visual inspection, and lines for assembly and packaging. We expect that the GLP-1s will continue to contribute to growth in the coming years. Most importantly, our opportunity set is not limited to any single class of treatment. As Franco mentioned, we see broad opportunities across biologics, which is driving demand for high-value solutions. On page 11, a brief update on our capital projects. In both the US and Italy, progress is advancing largely as expected. As we mentioned last quarter, we accelerated our expansion plans in Indiana in response to higher demand for high-value solutions, driven principally by the growth in biologics. the first production lines are on site. We are actually bringing on staff and validation activities are still expected to begin in the fourth quarter. In Latina, Italy, validation is still expected to begin this summer, followed by commercial production in the fourth quarter. In summary, on page 12, we are making substantial progress. First, we are shifting our revenue mix toward high-value solutions. Second, we continue to build strategic collaborations to leverage our strengths and meet customer demand. Third, we believe we are well-positioned to capitalize on favorable industry trends, such as the expected increase in JLP1s. And finally... We remain on track with our capacity expansion in the US and Europe, as we aim to build durable organic growth. With that, I now hand the call over to Marco.

Thanks, Franco. Before I begin, I want to clarify that all comparisons refer to the first quarter of 2022, unless otherwise specified. Starting on page 14, For the first quarter of 2023, revenue increased 12% to $238 million, or 11% on a cost and currency basis, principally driven by growth in both segments and the shift to high-value solutions. We are making relevant progress growing our mix of high-value solutions, which increased 25% to $76.7 million in the first quarter of 2023. and represented 32% of revenue. As expected, revenue for COVID-19 decreased 57% over the prior year and accounted for 4% of revenue in the quarter. For the first quarter of 2023, gross profit margin increased 20 basis points to 32%, mainly driven by more accretive high value solutions and to a lesser extent, margin improvement in the engineering segment. As expected, this was offset by the increase in industrial costs and higher depreciation as our new plants come into service. We expect these temporary inefficiencies will continue throughout 2023, and this is assumed in our 2023 guidance. Operating profit margin in the first quarter decreased 80 basis points to 17.1%, mostly due to the higher SG&A expenses to support growth initiatives. Excluding startup costs on the new plans, adjusted operating profit margin was 18.3% in the first quarter and consistent with the same period last year. For the first quarter of 2023, net profit totaled 28.3 million, and we delivered diluted earnings per share of 11 cents. This included an unfavorable impact to diluted EPS of approximately 1 cent, recorded in finance expense, due to the unexpected strengthening of the Mexican peso against the euro and the U.S. dollar. Excluding startup costs, adjusted net profit was $30.4 million and adjusted diluted EPS of $0.11. Adjusted EBITDA increased 15% to $61.9 million and adjusted EBITDA margin was up 50 basis points to 26%. Moving to segment results on page 15. For the first quarter, Revenue from the biopharmaceutical and diagnostic solutions segment increased 13% or 12% on a cost and currency basis to $195.5 million over the same period last year. Revenue from high-value solutions increased 25% to $76.7 million, and revenue from other containment delivery solutions increased 7% to 118.8 million. Gross profit margin increased 80 basis points to 33.7% in the first quarter of 2023, mainly driven by the growing mix of more accretive high-value solutions. For the first quarter of 2023, operating profit margin for the BDS segment decreased to 19.8%, mainly due to higher SG&A costs. to support growth initiatives. For the first quarter of 2023, revenue from the engineering segment increased 7% to 42.4 million, driven by strong sales in visual inspection and assembly and packaging lines. For the first quarter of 2023, gross profit margin for the engineering segment increased 30 basis points to 21.7%, driven by higher margins in all-product families and ongoing business optimization effort. Improvement in gross profit margin and higher absorption of SG&A costs led to operating profit margin of 15.2% in the first quarter of 2023, an increase of 140 basis points over the same period last year. On slide 16, as of March 2021, 31st, 2023, we had the net debt for 46.5 million and cash and cash equivalents of 158.8 million. For the first quarter of 2023, net cash generated from operating activities was 37.1 million and reflects our current working capital needs to support the growth in the business. As expected, capital expenditures for the first quarter of 2023 were $113.2 million as we expand our industrial footprint amid rising customer demand. This was the main reason for negative free cash flow of $91 million in the first quarter. We believe that our cash on hand, coupled with our loan agreements, provides us with adequate liquidity to fund near-term growth. Lastly, on page 17, we are reiterating our full year 2023 guidance. We continue to expect revenue in the range of 1,085,000,000 to 1,115,000,000, adjusted diluted EPS in the range of 58 cents to 62 cents, and adjusted EBITDA in the range of 290.5 million to 302.5 million. Our 2023 guidance assumes that for the second quarter of 2023, revenue is expected to grow in the range of mid single digits to high single digits compared with the same period last year. Revenue will be stronger in the second half of 2023 compared with the first half of the year. High value solutions will represent approximately 32 to 34% of revenue. COVID-19 will represent approximately 2 to 3% of revenue. And lastly, we are estimating a currency headwind of approximately 13 to 14 million euro. Thank you. I end the call to Franco for closing comments.

Thanks, Marco. In closing, we are operating in an environment of favorable demand with attractive end markets characterized by strong secular tailwinds. We are executing against our strategic and operational priorities to capitalize on demand and support customers across the entire drug life cycle. We continue to make relevant progress as we Advance our global expansion plans to increase our capacity in high value solutions and enhance our proximity to customers. Grow our mix of high value solutions as customers turn to ready to use formats and move up the product value chain. Invest in R&D to maintain and accelerate our market leading position. and build a multi-year pipeline of new opportunities by supporting our customers through scientific innovation to meet their evolving needs. And lastly, we will host our first Capital Markets Day on September 27th in New York City. So stay tuned for updates over the next few months. And with that, let's open it up for questions.

Excuse me, 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 their touchtone telephone. To remove yourself in the question queue, please press star and two. Please pick up the receiver when asking questions. The first question comes from Derek DeBruin of Bank of America. Mr. DeBruin, your line is open, sir.

Oh, sorry, I was on mute. Thank you. Sorry. Good morning. Thanks for taking my question. So I appreciate the incremental color on the GLP-1. I think one of the questions that we've gotten from investors is, I mean, obviously these have been around for a while, and you've been building capacity and providing this market for a while. How should we think about what potential incremental color demand going here? I mean, are the capacities you're building right now, is it completely booked as it is for products, or is there some flexible opportunity to demand go a little bit higher? Just trying to understand what's embedded in your guide for the GLP-1s.

Derek, it's a little bit challenging to hear you. I think your question relates to the incremental capacity that we're building as it relates to GLP-1s. Is your question tied to the types of products that we're implementing as it relates to the capacity, or could you clarify that?

Yeah. Basically, I was asking the capacity that you're bringing on, what is, you know, is the capacity that you're bringing on wine mostly is already filled, or is there some incremental, or is there room for the growth? Basically, I'm just trying to figure out what is it. I mean, the GLP-1 has been around for a while. I'm just trying to figure out what's what is already embedded in your guide versus what could be incremental to the business, given this class of drugs, you'd be doing a little better.

Thank you, Derek, for the question. I have to start by saying that all the growth opportunities we have in front of us are not linked specifically to any single therapeutic area, and we are investing in high-value solutions because we see in the biologic space The most important opportunity that not only for GLP-1, but includes also other area or technologies like monoclonal antibodies, mRNA application, and then we look also to the expansion of biosimilar space for biologics. That said, obviously, also GLP-1 opportunities are embedded in our plan for the year and in our complex execution to have enough capacity to match customer demands in the years to come, and we are executing accordingly.

Thank you. A little bit of clarity on the second quarter guidance, mid-to-high single-digit revenue growth. That was? the lows, like where the consensus estimates were and where we were. Can we sort of talk about pacing of revenue to the back of the quarter? I mean, you have a really tough comp in the fourth quarter. So, I mean, just the way the guide reads, it's a little bit more back and loaded. Can you just talk about how would you think about pacing for the rest of the year in revenue?

Yes, very good morning. In the second half of the year, we expect higher revenue than in the first half of similarly to what we have done last year. This year in particular, we can see stronger revenue in second half due to the visibility we have in our backlog and in the forecast from our customers. And on top of it, you know very well, we are installing capacity in Italy that will be generating further revenue in the second part of the year. So this is what we can see. Today, we reiterate our guidance for the three-year. We expect the second quarter mid-single-digit to high-single-digit growth compared to last year's same period.

Great. Thank you very much.

Thank you, Eric. Operator, next question, please. Yes, madam. The next question is from Paul Knight of KeyBank Capital Markets.

Yes. This would probably be for Marco Del Lago. The question I have is when I look at COVID revenue in past periods, was that evenly distributed through all product lines or was it within the biopharma and diagnostics solutions group?

It's totally referred to the BDS segment. You know, the main formats used for COVID treatment are BIAS, both in bulk in this reconfiguration. As expected, we can see a slowdown in COVID as anybody else, and we reiterate our guidance to have between 2% and 3% of revenue from COVID in 2023. Okay. So, high-value solutions was designed

where most COVID would go, where revenue was recognized. Marco?

In COVID business, we haven't experienced a different mix compared to the rest of the company between high value and other containment delivery solution. So we expect that the slowdown of COVID will not affect our mix.

Okay. Got it. And then regarding the... the outlook on GLP-1s, Franco. Is there any estimate that you believe you have in terms of market share for this developing market of GLP-1s?

Yeah, you know, all the estimates for this business line in GLP-1 talks about multi-billion overall business. And important for us is that in this business, we have the right mix of products that are cartridges in bulk configuration and easy-fit configuration, and also syringes that are needed for the auto-injector. The current situation is overweighted in terms of cartridges and bulk cartridges because it is more coherent with the past. And GFP1 is something that is commercial since many years. It's not a completely new, and we expect the evolution of these markets going in the direction of high-value solutions, both for easy-fill cartridges and high-value syringes. That said, we expect to have a fair share of these market opportunities because we are the leader in the market for pen cartridges, and we are the second most important player in the syringe space. So we expect to have a fair share of these opportunities, and our visibility is giving us a good prospect in this direction.

Okay. And then lastly, Franco, is the when will Latina and when will Indiana, in your opinion, be generating revenue?

We are on track with our plans, so we expect to have commercial sales from Latina in the last quarter of this year and validation activities in Fisher, Indiana under completion in the last part of the year to have a first arriving regeneration in the first part of 2024. Okay, thank you.

Thanks, Paul. Sherry, can we have the next question, please? The next question is from Patrick Donley from Citi.

Hi, good morning. You have Lizzie on for Patrick. So just one more question on the second quarter guide. How should we think about margins? And then for the back half of the year as well, should we think of second half margins as higher than first half along with revenue as you discussed before? Thanks.

Thank you for the question. In the second part of the year, We expect to keep on having the similar needs we had in Q1. Our guidance is between 32% to 34% on high-value solutions. We would like some better opportunity to leverage our fixed expenses in the second part of the year due to the higher revenue. On the other side, we expect some inefficiencies related to the startup cost of the new facilities in Indiana and in Latina and Italy. But overall, we plan to expand our margin in the second part of the year.

Thanks for that. And then on the China facility, I think you mentioned last quarter you were pausing for now and then resuming planning and development in 2024. Is that still the right way to think about it? just given there's so much demand in the U.S. and Europe, I guess, for GLP-1s. And that's it for me.

Thanks. We confirmed that what we said also during the last call. We are allocating our capital where we see the best opportunity and the closest need of our customer. So we decide to accelerate investment in Italy and in Europe. in Indiana because there is the opportunity to leverage on the strong demand there. China will remain a strategic target for us in terms of market, and we decided not to pause the investment for a while, and we still expect to take a decision for a new start of the initiative sometime in 2024. Great. Thank you.

The next question is from Tim Daly of Wells Fargo.

Great, thank you. So I did want to dig a bit into market dynamics on self-injectables. So I appreciate the color and the commentary around Sevenado's number one position in pen cartridges, and I think you mentioned your number two in auto-injectors. I believe WeGovie and Ozempic are single-shot cartridges, injectors so kind of that auto injector number two position just given the attitudes around waste environmental plastics etc um does this market leak like allow itself or does the drug allow itself to be utilized in a pen cartridge approach so a multi-dose injector or you know just just any color there around you know this is a very attractive market it's That's your number two position, that's your number one, and any potential for this segment to change in terms of the delivery mechanism. Thanks.

First of all, I have to reiterate that GLP-1 is something that is commercial since a while of the introduction of the third GLP-1 treatment was approved by FDA. in 2005, and we are in the business from 2010 for the LP1. So there is a current situation that is more linked to the format for delivery adopted in the beginning, where the only format for cartridges was the bulk one, and the pen injector has been the first delivery system adopted globally, and is still the dominant one. It doesn't mean that the new treatments are not targeted different delivery formats, trying to adjust to the patient needs and preferences. And for us, it's very important to be able to serve both formats, PEMA injector with cartridges and easy-feel cartridges, that are for multiple use, and also auto-injector with syringes that are for single use at the moment with the current technology. It's also important for us that auto-injector needs very high-quality syringes with special performances in terms of mechanical resistance and also the lightning force to let the auto-injector work well. Our strength is to be present both formats, and that is the reason why we are not targeting one single opportunity, but we are ready to serve our customers both ways.

Tim, the only thing I want to add to that is that we are seeing different approaches by different customers, and it's also important to point out that there are different approaches regionally as well.

All right. No, I do appreciate all that, Collin. Thank you so much for all that. And then just curious on the order intake in the quarter, you know, just curious, can you give us a net new business growth rate on an ex-COVID basis to help us understand kind of the book-to-deal dynamics, you know, when we take COVID out of the revenues and take COVID out of the orders? Thank you.

Was your question new order intake ex-COVID, Tim? Sorry, it was a little... I'm trying to get the bill on a clean kind of non-COVID basis.

Yes, we are looking at this trend about order intake, but I want to stress that order intake and backlog are good indicators of the demand, but they are not the only way we have visibility into the customer needs because we have... always talks with customer and also discussion about the long-term agreement, multi-year agreement. The visibility in their needs is, in this sense, much higher, much deeper than only what is committed orders because the backlog and order intake is only for, we consider only committed orders. Sometimes the customer has to wait for for issuing the committed order because they don't have already set the supply chain where they wanted to fill the container. So committed orders and order intake are good indicators, but we have much better visibility, and it's the visibility that allows us to plan the future in our CAPEX.

All right, great. Thank you so much for your time.

The next question is from Dave Windley of Jefferies.

Hi, good morning. Thanks for taking my questions. Good afternoon in your case, probably. I wanted to follow up on Tim's question on the committed orders. So if I look at the magnitude of COVID revenue in last year and this year, which would have been in the kind of 22 million last year and maybe nine-ish, nine and a half, 10 million this year, I'm guessing that the order magnitude for COVID would have been something around those numbers. Your change in orders year over year is 88 million. So it would seem like the majority of the change in orders year over year probably comes from the non-COVID region, the changes in timing of orders. So I wondered if you could peel that apart a little bit, confirm what I'm thinking, and maybe talk about what's happening in your order flow aside from COVID, ex-COVID. Thanks.

Yes, thanks, David, for the question. Marco speaking. Last year we won about 41.5 million of fresh orders in the first quarter related to COVID. This year the amount is zero. If you look at the fluctuation excluding COVID, yes, we had 282 million last year and 235 this year. But it's normal for us having quarterly fluctuation in these KPIs. And as Franco was mentioning, this is not the sole indicator we have to measure the demand coming from the market. So we experienced fluctuation, but this is not the only indicator we have.

Got it. And related to that, you're talking about stronger growth in the second half. Can you talk about the visibility that you do have to that?

Sure.

Either in committed orders or otherwise.

Yeah. Considering the QR revenues and the committed backlog only, we are covered for about 80% of the center point of our guidance. So we still have nine months to generate the threshold and to convert them into revenues for reaching our guidance.

David, we can confirm that this is a very normal situation at this time of the year. It's nothing that is different from the past if you don't consider the different situation we experienced during COVID, but it's a very normal situation for the first quarter.

Got it. Great. Thank you. On the cost side, highlighted some additions in SG&A costs and BDS. I suspect those are hires as you get closer to opening facilities in Latina and Indiana. You can correct me if I'm wrong there, but I'm wondering if that continues to ramp as we get closer to commercial revenue in those facilities, or have we seen a step function that now is more flat as we proceed through the year?

We expect SG&A will be better leveraged in the second part of the year. We are increasing SG&A expenses mainly driven by the fact that we will start meeting customers, doing fair exhibition, and we are also strengthening the organization in G&A expenses with the regional organization and the public company status. Nevertheless, we expect in the second part of the year to better leverage our fixed expenses due to the growth of our business.

Okay, great. I'll leave it at that. Thank you.

Thanks, Dave. The next question is from John Sowerby of UBS. Yes.

Hi, hello. This is Tenchi calling in for John. So very good hybrid HVS growth in this quarter. Can you talk a little bit more about the traction with customers on HVS? What is the typical timeline for introducing new products, and what are the drivers to get to this long-term mid-30 percentage target? Thank you.

Just to confirm, your question is around high-value solutions and some of the drivers to get to our near-term target of the high 30%?

Yes, that's correct. And also, what's the typical timing for introducing new products in HBS?

Yes, the main driver for the growth of high-value solution is the fast-going area of biologics where we have a very strong demand related not only to GLP-1, as I mentioned before, but also in monochrome antibodies and mRNA applications. And this is evident that our strategy to invest in high-value solutions is really something that matches the needs of our customers. And the fact that we decided to accelerate our investment both in Europe, in Italy, and in the U.S., is because we have active programs with our customer that are in direction of the adoption of EZ-CLIL cartridges and vials as a new standard in that space, and high-value syringes like NEXA syringes for injectors and other syringes that is the perfect answer to the need of high-sensitive biological molecules.

Thank you. If I could just give you one more. Can you talk a little bit more on pricing? What kind of inflationary pressure are you experiencing in the quarter? And any pushback from customers on those pricing dynamics? Thank you.

May I ask you to repeat the question one last time?

Yeah, sure. So can you talk a little bit more on pricing? What kind of inflationary pressure are you experiencing in the quarter? And are you receiving any pushback from customers on the pricing dynamics?

We can see inflation as anybody else. There are different levels of inflation depending on the items. For example, we had a bit of relief in energy cost and gas price in the first quarter, but on the other hand, the cost of labor is growing. So our methodology is the same we applied last year, planning in advance, more in advance compared with last year, but we keep on recalculating our cost basis and price accordingly to our customers.

Thank you very much. Congratulations.

As a reminder, if you wish to register for a question, please press star and 1 on your touch-tone telephone. For any further questions, please press star and 1 on your telephone. This ends the Q&A session. Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.