Stevanato Group SpA Q1 FY2024 earnings call

• Execution is the #1 priority: Addressing industry-wide destocking, especially in EZ-fill vials, and execution issues in the Engineering business due to large order backlog and long lead times.
• Market dynamics: Temporary destocking impact on vials, Engineering order backlog stress, and actions taken to optimize operations, including hiring additional labor resources.
• Balance sheet and cash flow: Follow-on offering raised net proceeds of EUR 170.5 million, ending the quarter with cash and cash equivalents of EUR 186.3 million and net debt of EUR 186.9 million; capital expenditures totaled EUR 71.9 million, with ~88% tied to investment for high-value solutions; inventory levels increased mainly due to new plant baseline inventories.
• Expansion projects: Fishers on track for commercial production in H2 2024 with customer validation activities ongoing; Latina ramp-up ongoing with commercial production launched last year and revenue expected to grow.

For the first quarter of 2024, revenue decreased 1% to EUR 236 million. The Biopharmaceutical and Diagnostic Solutions (BDS) Segment grew 2% to EUR 198.9 million. Revenue from vials in the BDS Segment decreased 43% due to industry-wide destocking, but was offset by strong growth in syringes and other product categories. High-value solutions in the BDS Segment grew 15% to EUR 88 million, while other containment and delivery solutions decreased 7% to EUR 111 million. The Engineering Segment revenue decreased 13% to EUR 37.1 million due to lower sales from pharmaceutical visual inspection and assembly and packaging lines.

• Updated 2024 guidance: Revenue expected in range of EUR 1,125 million to EUR 1,155 million; adjusted EBITDA in range of EUR 277.9 million to EUR 292.2 million; adjusted diluted EPS in range of EUR 0.51 to EUR 0.55.
• Impact factors: Temporary vial destocking (more pronounced than expected) and postponement of a large customer order for high-value solutions.

• Industry-wide temporary destocking leading to softening demand for vials, especially EZ-fill vials.
• Execution challenges in the Engineering business due to large order backlog, long lead times, and external factors impacting operational efficiency.
• Uncertainty from changes in customer commercialization timelines for certain drug products.

Q: Can you give more color on inventory comments and why you underestimated the destocking problem?

A: The impact from industry-wide temporary destocking was more pronounced than expected, especially in EZ-fill vials; customers were working down excess inventories stockpiled during the pandemic, catching us partially off guard.

Q: Would you be involved in Novo or Catalent site expansion in Anagni?

A: CapEx decisions not related to single customers, but focused on biologics space with planned capacity for high-value solutions.

Q: Can you quantify the impact of the large customer delay on the guide?

A: Guidance gap is ~EUR 55 million, with ~65% related to vials (more pronounced on EZ-fill), 25% related to the large customer order, and 10% related to Engineering.

Q: Can you speak to demand for cartridges?

A: Strong demand for cartridges as they are containment solutions for pen injectors, driven by self-administration trends and stricter regulations.

Q: Any improvement in electronic component lead times for Engineering?

A: Situation more normalized in terms of supply reliability, but still some longer lead times than pre-pandemic, with planning adjusted to new situation.