Stevanato Group S.p.A.

Good afternoon. This is the Corusco Conference Operator. Welcome and thank you for joining the Stavonato Group fourth quarter and year-end 2023 financial results 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. Liza Miles, Senior Vice President and IR. Please go ahead, Madam.

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 risks we face, including those discussed in Item 3D entitled Risk Factors in the company's most recent annual report, on Form 20F filed with the SEC. Please also take a moment to read our Safe Harbor Statement included in the front of today's presentation. The company does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances, except as required by law. Today's presentation may contain non-GAAP financial information. Management uses this information in its internal analyses of results and believes this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results, and providing meaningful period to period comparisons. For reconciliation of the non-GAAP measures, please see the company's most recent earnings press release. And with that, I'll now hand the call over to Franco Stevanotto for opening remarks.

Thank you, Lisa. 2023 was very positive for us. we close out another solid year with 10% growth or 11% on a constant currency basis. We continued to successfully execute our near-term objectives of advancing our capacity expansion projects and growing our mix of high-value solutions while still delivering double-digit growths. At the same time, during 2023, we navigated some macro challenges in a dynamic environment of inflation uncertainty, ongoing supply chain issues, and industry-wide cash fitting from favorable circular tailwinds, which we expect will continue to drive demand for our high-value solutions. While, at the same time, we have been investing heavily in expanding capacity to meet market demand. We expect that these investments will drive organic growth in the mid-term as we efficiently leverage our invested capital to exploit the opportunities in front of us. The fundamentals of our business remain strong. We operate in high growths and markets like biologics, where we see a broad range of opportunities. As the global leader in pen cartridges and with an enviable market position in prefillable syringes, we are well positioned to capitalize on the growth in biologics and the trend towards the self-administration of medicine. My recent visits with several of our largest customers gave me continued optimism that we are on the right path. Customers favor our unique value proposition of integrated end-to-end solutions, our global footprint, our one quality standard, and our differentiated product set. We are focusing on driving future growth through solid execution, and we believe we have the right strategy, the right product portfolio, and the right team to succeed as we work toward creating and driving long-term shareholder value. Thank you. I will now hand the call over to Marco.

Thanks, Franco. Before I begin, I want to clarify that all comparisons refer to year-over-year changes, unless otherwise specified. Starting on page 7, we delivered double-digit growth in the fourth quarter, which was slightly below our expectations and put us at the low end of our 2023 guidance range. However, the differences in fiscal 2023 actual results and our 2023 guidance were mostly due to lower vial volumes as customers worked down inventories they stockpiled during the pandemic. The higher inventories are not limited to COVID-19 related customers, but also customers with non-COVID-19 applications who built up stock to mitigate supply chain uncertainty and manage long lead times at the height of the pandemic. We believe this is a temporary imbalance of supply and demand across the industry. We are starting to see some early indications of market improvement, but our 2024 guidance assumes a slower recovery in viable demand, resulting in a growth rate of 9% to 12% for fiscal 2024. Looking beyond 2024, we are maintaining our mid-term targets of low double-digit growth starting in 2025. In 2027, we still anticipate high-value solutions in the range of 40-45% and an adjusted EBITDA margin target of approximately 30%. Let's turn our attention to four-quarter results on slide 8, which will be the focus of my comments. Four-quarter revenue was a little bit below our internal expectations by about 5 million euros. which was evenly split across the segments. Nevertheless, total revenue increased 10% to 320.6 million, or 11% on a constant currency basis, driven by growth in the biopharmaceutical and diagnostic solution segment, tied to higher volumes and increasing mix of high-value solutions. Growth was offset by a decline of approximately 33.8 million related to COVID-19. Excluding COVID-19, revenue growth in the fourth quarter would have been 24%. We have been managing the roll-off of revenue related to COVID-19, while at the same time growing our mix of high-value solutions. In the fourth quarter of 2023, we generated record sales from high value products, which represented 37% of total revenue. As expected, gross profit margin for the fourth quarter of 2023 decreased to 31.8%. As a reminder, the fourth quarter of 2022 was an exceptionally strong quarter and included two benefits that did not repeat. First, we recognized higher revenue and profit from easy-fill vials, which led to a more favorable mix within high-value solutions. And second, we instituted some additional price adjustments to recover inflationary costs from prior periods, predominantly in the BDS segment. These two effects were the largest contributors to the step-down. This was partially offset by the increase in high-value solutions. Gross profit margin was also unfavorably impacted by the currency translation and continues to be tempered by short-term inefficiencies tied to the start-up of new facilities, including higher industrial costs, depreciation and naturally lower utilization during the ramp-up phase. For the fourth quarter of 2023, SG&A and R&D expenses were lower compared with the prior year, mainly due to a lower accrual for our performance-based management bonus program. In addition, we have prudent short-term cost management initiatives to counterbalance the temporary add-ins. Operating profit margin decreased 160 basis points to 20%, mainly due to lower gross profit and the decrease in other income. On the bottom line, for the fourth quarter of 2023, we generated net profit of $45.2 million, or $0.17 of diluted earnings per share, adjusted net profit of $47.1 million, or adjusted diluted EPS of $0.18, and... adjusted EBITDA totaling 86.7 million, reflecting an adjusted EBITDA margin of 27%. Let's review segment results on page nine. The biopharmaceutical diagnostic solution segment delivers strong growth in the quarter, despite the steep decline in COVID-19 revenue and industry-wide inventory stocking. For the fourth quarter of 2023, BDS segment revenue grew 12% and 14% on a cost and currency basis to $260.6 million, driven by growth in our core drug containment solutions business. In the fourth quarter of 2023, revenue from high-value solutions grew 37% to $119.4 million, representing 46% of segment revenue. This was offset by a 3% decline in revenue due to other containment and delivery solutions. Gross profit margin decreased to 33.6% in the fourth quarter of 2023, mainly due to lower easy-fill vials volumes currency translation, and short-term inefficiencies tied to the startup of new plants. Additionally, lower vial volumes have led to short-term underutilization on some lines. For the fourth quarter of 2023, engineering segment revenue totaled 60.6 million, which was consistent with the same period last year. For the fourth quarter of 2023, Gross profit margin for the engineering segment decreased 10 basis points to 21.1% compared with the same period last year. We are managing through a large volume of work in progress. Our main priority in 2024 is executing on these projects and shortening our lead times. On page 10, as of December 31st, 2023, we had cash and cash equivalents of 69.6 million and net debt of 324.4 million. Capital expenditures were 94.7 million in the fourth quarter and 453.3 million for the full year, which was in line with our expectations. Our investments in expanding capacity in high value solutions are essential to meet expected market demand. For the fourth quarter of 2023, Cash flow from operating activities was 10.2 million, which reflects our current working capital needs to support organic growth. Cash used for the purchase of property, plant and equipment and intangible assets was 87.1 million, which resulted in negative free cash flow of 76 million. Over the past few months, we strengthened our balance sheet with three new mid-term loans, totaling $110 million, and have dropped down approximately $60 million. We believe we have adequate liquidity to fund the needs of the business, and we will continue to explore additional financing options to support future growth. Lastly, on page 11, we are introducing our full-year 2024 guidance. We currently expect revenue in the range of $1,180,000,000 and $1,210,000,000, adjusted EBITDA in the range of $314.1 million to $329.5 million, and adjusted diluted EPS in the range of $0.62 to $0.66. In 2024, we estimate that CapEx will range between 25% and 28% of total revenue, based on the midpoint of our revenue guidance. Our full year 2024 guidance assumes the following. The second half of 2024 will be stronger than the first half. The BDS segment is expected to grow low double digits. While engineering will remain flat. as we focus on executing on our current work in progress. High value solutions in the range of 35% to 37% on total revenue. And lastly, we are estimating a currency headwind of approximately $7 to $9 million. Also, consistent with prior years, we expect a step down in revenue in the first quarter compared with Q4 2023. We currently expect the revenue in the first quarter of 2024 will be flat to slightly down compared with the same period last year. In Q1, this assumes mid single digit growth for the BDS segment and the revenue decline in the engineering segment compared with the first quarter of 2023. Overall, as the pandemic continues to wane, we are still operating in dynamic environment with the ongoing inventory normalization. Despite this, we believe that 2024 will still be a year of growth, and our mid-term outlook remains unchanged. Thank you. I will hand the call to Franco.

Thanks, Marco. For fiscal 2023, we achieved double-digit top-line growth and increased our mix of high-value solutions to 34% of total revenue. up from 30 percent last year. During the year, we made meaningful progress in our capacity expansion and enhanced our integrated value proposition. Nevertheless, we also faced the challenges that we continue to manage. On slide 14, as previously disclosed, we see a convergence of factors impacting the engineering segment. Over the last 24 months, we benefited from strong demand for engineering machinery, but we have been challenged with timely execution, mostly due to the long lead times for electronic components and the time needed to shore up the resources to deliver on the outsized demand. As we discussed last quarter, we believe that we are on the right path to better balance resources with demand. but it will take some time. We believe the most effective path is to prioritize execution and bring these projects to completion. This may negatively impact segment growth in the short term, but we believe this action will better position the business for long-term success. Turning to the BDS segment on slide 15, Despite the headwinds from the stocking, the underlying demand for biologics continues to rise. In our BDS segment, revenue from biologics, excluding COVID-19, represented approximately 28% of the segment revenue, up from 19% last year. We believe the slower recovery in viable demand is temporary. We currently expect the path to normalization will continue throughout 2024. And we are cautiously optimistic that all the flow will begin to pick up in the second half of the year. Longer term, we see many opportunities in the adoption of ready-to-use vials and cartridges. Today, less than 5% of the vial and cartridge market has converted to a ready-to-use format. compared with 95% of the syringe market. Customers increasingly see the advantages of leveraging ready-to-use configurations to reduce supply chain risk, enhance quality, and expand flexibility. In fact, based on market data, the number of fill and finish lines capable of processing sterilized vias and cartridges is estimated to have increased 32% in 2023. We also believe the changing regulatory landscape will galvanize adoption over the next decade. The diversity in our product portfolio is helping us navigate the lingering impacts from COVID-19. So while short-term buyer demand has been lagging, demand for other grass products particularly syringes, continues to be robust. In fact, in 2023, Biologics drove a record year in sales of high-value syringes, such as Nexa. Turning now to backlog and new order intake on page 16. New order intake increased 44% to approximately 342 million euros in the fourth quarter. And as a result, we exited the year with backlog of approximately 945 million euros, heavily weighted towards biologics. Because we often experience quarterly fluctuation in backlog and order intake, we believe that annual analysis of these metrics provides a more accurate view of demand trends. So beginning in fiscal 2024, we will provide backlog and order intake on an annual basis rather than quarterly. On page 17, our capital projects are multi-year investments that have multi-year volume and revenue ramps. In Latina, we launched commercial syringe production in the fourth quarter, and we expect a steady ramp over the coming years. In addition, we will be installing ready-to-use cartridge lines as part of a long-term project to support a customer's transition from bulk to sterilized cartridges. And these lines are expected to supply commercial volume beginning in 2026. In fissures, customer validation activities will continue into 2026 as planned. We remain on track to begin commercial production later this year, but do not anticipate a meaningful revenue contribution until 2025, when we'll begin ramping up production for GLP-1s and other biologics. The Fisher facility is currently expected to hit full productivity by the end of 2028. On slide 18, We continue to refine our integrated offerings to enhance our value proposition. Our technology excellence centers in Boston and Italy serve as the front line in supporting early stage drug development. We recently launched non-GMP fill and finish services for small batch operations. These services allow customers to identify any possible interaction between the drug and the container system during and after the fill-and-finish process. Our centers foster early customer engagement, which helps us gain a strategic foothold in supporting them throughout the entire drug lifecycle. In closing, on slide 19, our number one priority in 2024 is flawless execution of our operational priorities. As we consider 2025 and beyond, we remain bullish on our medium-term targets. We still expect to achieve low double-digit revenue growth in 2025 through 2027. And in 2027, high-value solutions in the range of 40% to 45% and an adjusted EBITDA margin of approximately 30%. Our confidence is underpinned by what we are seeing around us, including strong secular tailwinds, continued growth in biologics, and an increasingly strong competitive mode. We believe we are well positioned to fully capitalize on our investments to drive durable organic growth, expand margins, and deliver long-term shareholder value. Operator, let's open it up for questions.

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

Thank you. This is the Corusco Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one under touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Patrick Donnelly with Citi. Please go ahead.

Hey, guys. Thanks for taking the questions. Maybe a couple on stocking to start. Just can you talk about you know, the concentration you're seeing in terms of products and customers? Is it pretty broad-based, or is it more concentrated with, you know, a few of the higher-end customers? And then just the visibility that you have into when this is going to end and kind of the recovery path there.

Yeah, thank you. It's a very good point, and taking part of the statement in Marcos's Commentary. Impact of this situation is not only about the main player that had the good shares of the market in COVID, but by consequence and due to the risk on the supply chain, many others built you just talk to prevent any risk in their supply chain. So the answer to your question, we see as a general situation with some high points, but is not highly concentrated in a few players. In terms of the visibility, as we stated, it is now not easy to which will be the inflection point, but we are receiving information, interaction with customer that support our idea to have some improvement in the second half of this year and with the situation going to normal in the next period.

Okay. That's helpful. And then maybe just on the margin outlook, you know, this year obviously weighed down a little bit, 24, weighed down a little bit seemingly by some of the stocking piece. Can you just talk about the moving pieces this year, what the headwinds look like? Because, again, you reiterated the midterm targets. Obviously the out-year expansion should be, you know, pretty strong. So is it, you know, there's a nice inflection in margins when the destocking piece eases and there's an inflection higher? Can you just talk about that? the headwinds there and maybe break out the moving pieces on margins this year. Thank you.

Yes, thank you. For 2024, we see adjusted BIDA margin at the same level of this year at our center point. About gross profit margin, we can see overall a slight reduction compared to 2023. We expect to slightly improve the profitability in engineering segment. And on the other side, we see a slight decline in BDS segment, mainly due to underutilization on the BIOS line or some lines in BIOS. And basically our ramp up cost in the two new facilities that we are still ramping up in 2024.

Thanks, Patrick. Operator, next question, please.

The next question is from Jacob Johnson with Stephens. Please go ahead.

Hey, good morning. Thanks for taking the questions. Maybe just first on the engineering segment, you know, you mentioned outsized demand there, but you're pointing to a flattish year. Certainly understand kind of the supply chain situation. challenges in that segment. But I guess I'm curious kind of on the demand environment there. How do your expectations for that engineering segment and the demand you're seeing today compare to maybe your investor day last year or whatever point you want to point to? We've seen a number of Phil finish capacity announcements recently. So I'm just curious if that's improved even further more recently. Thanks.

Thanks for the question. The straight answer is that we see demand in line with the expectation we delivered our capital market day in the mid-single-digit growth as an average. Obviously, we are talking about a business that's based on projects, so we are used to see some fluctuation in quarters and in years. But I want also to drive your attention to the fact that comparing the two last year, 23 to 22, we enjoyed a very healthy growth of the segment in the range of 26%. So the partially changing in the growth rate for the next year is part of a journey that is really positive in the success of our solution on the market.

deserve our main attention in serving the customer at the best got it thanks for that franco and then i guess is my my follow-up um you know one of your competitors on their call a couple weeks ago mentioned the the opportunity from this annex one regulation in europe i i think in your deck you mentioned kind of an increased shift to ready to use uh vials and cartridges do the regulatory landscape so I guess I'm kind of curious your view on NX1 and what that could mean for Stevanada.

It's a very, very good point because if we refer to our innovation, our products, one of our main innovation in the easy-fill industrial market for cartridges and visors is linked to our new technology, the easy-fill smart. that is addressing the risk of particle contamination in filling lines because we reduce a lot the possible impact with our new secondary packaging, innovative secondary packaging that is possible applicable also to the syringe market. So the increasing expectation time of quality are one of the main barrier to entry for our market, and the fact that we are playing on innovation inside this market is one of the reasons we are confident in the future of our new products. Got it. Thanks for taking questions.

Thank you, Jacob.

Operator, next question, please. The next question is from Matt Leroux of William Blair. Please go ahead.

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

Yes, for sure. It's a mix. I start giving you an angle on the market and referring to buyers, that is only a portion of our business. Yes, we see some forecast improving for the next quarters, but not immediately. And as I said before, we expect to have more after the year end. In terms of the visibility, I have also seen to stress that our visibility is also linked to the needs for other product lines and linked to this expectation from customers. We are also relying on this ramping up of the new facility, specifically Latina in 2024. That will be more and more during the year, obviously.

And about our model, we see stronger second half of the year compared to the first half. So a growing business quarter after quarter. Also leveraging the installed capacity we are putting in place in Latina and also the start of the commercial production in Fishers.

Okay. And then, you know, something you called out in the prepared remarks was the challenge from a comp perspective on the pricing side that, you know, the last couple of years you were able to take outsized pricing related to raw material inflation. So just curious what we should be thinking about from a pricing perspective here moving forward.

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

Matt, just to address your question on the pricing, which I think you're reading through the materials, those cost recoveries that we referred to in the fourth quarter of last year were really to secure some price adjustments for the spike, particularly in natural gas and other raw materials. But you should think as those price adjustments is more pass-through in nature, and we have since returned to our more annualized pricing adjustments.

Okay, that's all helpful. Thank you.

The next question is from Derek De Bruin, Bank of America. Please go ahead.

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

We don't model anymore the COVID because we consider it negligible in our revenues for the year. As you can see in Q4 2023, the amount related to COVID was very, very small. I think the good news is that our ability to shift to our therapeutic areas is growing rapidly. 24% in Q4 excluding COVID. So for 2024, we don't have in the model revenues from COVID.

Great. That's what I was thinking. And going back on some of the margin commentary, so can you sort of talk about gross margin pacing throughout the year, just given the dynamics going on, particularly as you've got some capacity overhead coming through? Thanks.

Yes, as mentioned, we see expansion in the engineering segment, more in the second part of the year. For the reason I mentioned before, I mean the underutilization of some buyers line, we obviously expect to recover the situation in the second half of the year, but we have some headwind during the first part of the year because of the reason I mentioned. Nevertheless, we see that there's a temporary effect, obviously, as the market is expecting.

Got it. And the midpoint of your revenue guide was like 10.5%, and the street was 11% looking for it. So it's sort of much in line. But I guess the difference between your 9% and your 12% in your revenue guide, what's the delta there?

Yes, the delta is based on the... We are covered with our backlog between 55% to 60% and we have other forecasts from customers to complement. The uncertainty is mainly related to the restart of the market and so the inflation point associated to the stocking.

Basically, Derek, it's the different pace of recovery within the vile market.

Got you. So it goes to the point, if the market just sort of stays where it is right now and it doesn't really see recovery, are you still confident in that 9% at the end? Is that still there or do you have to see some recovery to get it?

That's what he says.

The answer is yes. We're still confident in the 9%, Derek, just to clarify.

Yeah, yeah, okay. That's what I thought you meant. Yeah, understood. Thank you very much. Okay, bye-bye.

Thanks. Operator, next question, please.

The next question is from Larry Solo, CJS Securities. Please go ahead.

Great. Good morning or good afternoon, and thanks for taking the question. I guess just first question, just you mentioned backlogs. Annual numbers more important. Obviously, you had some nice growth this quarter, year over year. But how should we look now? Backlog is kind of flat-ish year over year. Are we now, you know, going forward, has sort of the supply chain and order backlog kind of, you know, stuff that mostly normalized? And should we expect orders to kind of be in line with, you know, plus or minus kind of end market demand on a go-forward basis?

So compared to the pre-pandemic situation, our backlog is much higher. And you know, the peak in the pandemic was, in our opinion, mainly related to order patterns from our customer to secure their supply chain. So we believe the backlog and the order pattern is going toward a normalization after the pandemic. This is how we see the situation, and as mentioned by Franco during the commentary, we believe it's more reliable figures to provide the number on a yearly basis rather than on a quarterly basis with the fluctuation that can happen.

And on top of that, you have to consider that is only one of the indicators for the demand because we have a backlog where we just put only committed order with all commercial details, but we have also Forecast, we have a material agreement. So as we delivered in the past, we consider backlog and ordering tickets just a couple of useful indicators, but they cannot represent the real landscape in demand that we are able to look at with our customers.

Okay. And in terms of just the cadence, depreciation rising, can you just give us some you know, idea, or at least maybe on full year, how much that higher DNA is going to impact margin, at least operating margin, on a year-over-year basis?

Yeah, sure. In 2023 compared to 2022, we increased depreciation as a percentage of revenue by about 60 basis points. in 2024 we expect a similar level of depreciation as a percentage of revenue so it means about 10 more in euro amount compared to 2023 got it and just to clarify on the engineering segment it sounds like there's some growing pains there um so order uh so growth taking a little bit of a step back and and

just shoring up manufacturing and execution. But you also mentioned you still do expect a little bit of, I think that's correct, but you also mentioned a little bit of still margin expansion in 24 in that segment. Did I hear that right?

yeah yeah this is uh what we expect we expect to improve the overall situation in our projects and on top of it to push more on after sales activities and uh yes about the grow you are right but we need also to underline the fact that we are growing significantly in engineering we had a compound annual grow rate of 26 percent if we compare to 2019 so In this project business, we believe it's normal to have some fluctuation, but the trajectory is still there.

Got it. Okay. And just lastly, just on the in vitro diagnostics piece, I know there's a bunch of moving parts on the vials and less vial demand. Just specifically on the in vitro diagnostics, I think that also was a driver, a little bit of down demand on vials in 23. Do you expect that to normalize or is that also lingering into 24?

Yes, the situation is not exactly the same in bias. We have already seen some positive signals in recovery in the last part of last year, but we still expect to have a business that will not be at the normal situation in 2024, and we expect that the situation will normalize later. But these kind of expectations are completely embedded in our guidance, hopefully.

Gotcha. Great. Thank you very much. I appreciate all the call.

Thank you, Larry. Operator, next question, please. The next question is from Dave Windley at Jefferies. Please go ahead.

Hi. Thanks for taking my questions. I have a few. I want to start as a follow-up to Larry's question on engineering, particularly, Marco, on the sales part. I believe I'm hearing... say that you're kind of tamping down the sales activity in there and in that business in favor of focusing on current projects and bringing them to fruition. Am I understanding that correctly? Are you not adding to orders or adding to backlog in engineering right now?

Basically, you know, we are really focused to deliver to our customers in this period of time. Please remember that the revenue recognition is a base to a cost to cost approach. So we are mainly mainly focused to complete our projects and we expect the near flat in terms of third parties revenue to compare to prior year. The overall segment is growing, also leveraging the fact that we are growing our capacity for fishers and for Latina, so this is our expectation for 2024.

David, does it mean that we are not putting focus on the future growth of the engineering segment because we are putting more resources, we are optimizing our supply chain, and also the industrial setup, so is not because we are stepping down from expectation for the future. It's just that we want to be very conscious about having new business according to the possibility to deliver.

Understood. Second question. Second topic is around margin. So I want to understand more specifically particular, I mean, overall, but particularly in BDS with the, the vials are a headwind. I understand that. And I understand high-value vials or ready-to-use vials are more, you know, quote-unquote high-value than ready-to-use syringes. But you also called out in the deck ready-to-use Nexa syringes, which I would think would be higher value, higher margin. So the question is, why with higher high-value percentage... In the highest you've ever recorded, did you actually see margin pressure in BDS given the mix?

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

And Dave, one other piece of color as it relates to Q4 of last year and the extraordinary margin performance out of BDS. I just want to point out that as it relates to those easy fill vials, that that was for one specific customer that we deliver those for, and it was highly accretive.

Okay. Okay. Last question is around kind of committed orders. And, and Marco, you also addressed this a little bit earlier on the, on the low end of the range. But if, if I look at, you know, flattish committed orders year over year, and, and because you're, you're not going to provide that number of quarterly, it'll be, you know, obviously harder to track. And I heard you say in the prepared remarks that, you expect orders to pick up in the second half, which implies to me that that pickup doesn't really impact the second half revenue, but rather probably helps 2025. Second half revenue, but rather probably helps 2025. I'd love for you to elaborate a little bit more on how a flat order book picture a revenue contribution from fishers kind of starting in earnest in early 25 instead of mid 24 and an overall order picture that you know doesn't pick up until later in the year gets you to 10 percent revenue growth well again this is not the only tool of visibility we have we have also forecast from our customer that will be translated into orders

in line with our model. I also want to reiterate the fact that we see a different order pattern from our customers compared to the pandemic. During the pandemic, our customer used to order much in advance, in advance compared to the lead time of the delivery to secure the supply chain. This is the main reason you see the orders flat in 23 compared to We got 1,073,023 compared to 1,016,022. But the reality, the 1,016,022 was much higher than our revenue. So the book to bill was high due to the habit of our customer to secure the supply chain. So it's not a one-to-one equation.

Then we have also the possibility to have more order for buyers in the second half of the year compared to the first half of the year. But as Marco was saying, the lead time is, in terms of the average, the lead time on the order book is shortening, so it reflects faster than during pandemic in the actual revenues.

And Dave, that specific comment within our prepared remarks was actually related to the vial recovery.

Okay. So last one for me, sorry for all the questions, but on fishers, your prepared remarks say later in the year and more material ramp in fishers revenue in 2025, Is that basically the same as you were thinking before, or is that a later start to Fisher's activity than what, you know, kind of the mid-year comment, mid-year 24 comments that you had provided before?

No, no, we are in line with the previous expectation. Obviously, we are talking about complex projects with validation activities, with many variables in place, but we are in line with our project and expectation in terms of revenues.

Okay, great. Thank you. Thanks for taking all my questions.

Thanks, Dave. Operator, next question, please.

The next question is from John Sauerbier, UBS. Please go ahead.

Hi, and thanks for taking the questions. First one here, just on the engineering segment specifically, any color on just what the lead times there look like today for installing equipment and how would you expect that to be normalized throughout the year or what would be a normal range there?

Obviously, John, we are looking at a segment that is not only one single product. So we have a very huge, complex assembly line that deserves even two years for the full completion of a project. And we have the more simple visual inspection system that may ask for some months in terms of delivery time. So in terms of the mix, now we are considering a lead time that is longer than in the past because the situation in terms of electronic components availability is now reliable, but the delivery times are longer than before the pandemic. So we are considering something more than in the past at the end. But the situation is much more under control now compared to two years ago.

Appreciate that. And on your prepared remarks, I think you mentioned 28% of BDS is within biologic products. Just a point of clarification, are you including GLP-1s under biologics? And just any thoughts on outlook for those products once included in guidance in 24?

You're right. GLP-1s are biologics, at least the drug we are looking at. So they are included both in our share of impact of biologics on our revenues and also in our guidance.

Any color on the outlook for those products or what your assumptions are for 2024 guidance?

In terms of the share? we are in the process to understand which could be the final number we obviously we can update you in the next course but we see more material impact in 25 and beyond as i stated in my commentary about features where our high value solution capacity is overweighted in biologics, but we expect to have material impact in revenues mostly in 2025 and beyond.

And, John, that's not a KPI that we guide to. And one other clarification on the numbers embedded in the press release, please note that that's biologics revenue for the BDS segment excluding COVID.

Thanks for taking the question.

Thanks, John. Operator, next question, please. Our last question comes from Paul Knight, KeyBank. Please go ahead.

Yeah, thanks for the time. You know, Franco, I think you may have seen something like this in the past where, you know, an acquisition like Novo and Catalan occur. Do you think the presence of Novo owning a bill finish firm group of businesses in the world. Does that help your visibility? And also, do you have more cash to spend on investment than I know a Catalan did? Does that help it as well in terms of how you think about how quickly your business accelerates? Does it change your thinking on is there more visibility now for your business within Novo and a better capitalization company in the field.

Paul, you know that I cannot enter in details about any information we can have from a single customer because we are bound by confidentiality agreement. In terms of the landscape, I believe that this kind of emergent situation in some capacity linked to a single player provides more opportunity than risk for us because there is a reaction in terms of a new capacity needed by other players. So it means more investment, more opportunities for the engineering segment. And later on, we are dealing with the potential biggest player in the market to have a fair share of opportunities in the emerging biologics and specifically in GRP-1. So overall, we expect a positive impact on us, but I cannot comment on any more specific details.

Okay. Thank you.

Thanks, Paul.

Ms. Miles, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.

Thank you for joining us today for Stavron Auto Group's fourth quarter and year-end fiscal 23 earnings call, and we look forward to further engagement in the future.

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