Stevanato Group S.p.A. Q3 FY2025 earnings call

• Delivered solid third-quarter financial results with revenue growth, record mix of high-value solutions, and margin expansion. - Benefited from favorable timing of product shipments in the BDS segment that were previously scheduled for the fourth quarter. - BDS segment grew 14% year-over-year driven by core drug containment business. - Engineering segment revenue declined as part of business optimization plan. - High-value solutions grew 47%, driven by Nexa syringes and EZ-fill vials. - Progress on capital investment projects in Fishers and Latina, with syringe lines ramping up and vial lines being installed. - Awarded EcoVadis silver medal, placing in top 15% of companies globally and 92nd percentile in the industry.

The BDS segment had revenue of $266.7 million in the third quarter of 2025, a 14% year-over-year increase. On a constant currency basis, BDS revenue grew by 17%. High-value solutions in the BDS segment reached $147.9 million, representing 55% of segment revenue. The Engineering segment had revenue of $36.4 million in the third quarter of 2025, a 19% year-over-year decline. The gross profit margin for the BDS segment increased 400 basis points to 32%, while the Engineering segment's gross profit margin declined to 10.4%.

• Reiterating fiscal 2025 guidance with revenue in the range of $1.16 billion to $1.19 billion, adjusted EBITDA between $288.5 million and $301.8 million, and adjusted diluted EPS between $0.50 and $0.54. - Expect revenue from high-value solutions to range between 43% and 44% of total revenue, up from prior assumption of 40% to 42%. - Currency translation impact is now expected to be approximately $15 million to $16 million, compared with prior range of $12 million to $15 million, fully offset by higher organic growth.

Q: Could you perhaps give us some more color on the $10 million outperformance in the quarter and on the top line, and then also talk a little bit more about the mix?

A: Marco Dal Lago stated the $10 million is an acceleration to accommodate customer supply chain needs of sales previously expected in Q4, predominantly in high-value solution, high-performance syringes.

Q: And then high-value solutions. What drove the strong growth in the quarter? And how does the trajectory look going into next year?

A: Marco Dal Lago said strong demand in high-performance syringes like Nexa, recovery in sterile vials following last year's destocking, and traction in physical vials improving; trajectory is robust with strong demand from big international clients and biosimilar interest.

Q: On the margin improvement story here, last quarter, you referenced that Latina was positive gross profit margins, but Fishers was not yet those seeing quarter-on-quarter improvement in both. I was wondering if you could update us as to where those stood today, if Fishers had crossed over to gross profit margin positive yet?

A: Franco Stevanato said Fisher is continuously improving every quarter and plans to go to positive gross profit margin towards the end of 2025.

Q: On the engineering, last quarter, you called out sort of a KPI site acceptance has significantly increased. It seems like maybe a positive indicator. I think now you're saying it's going to take more time to get back to historical performance. What's the right timeline to think about a return to growth? Can that segment grow in 2026? And if not, does the recovery period look like flat revenue? Or does it look more like the down 20%-ish that you guided to in the back half of 2025?

A: Marco Dal Lago said engineering has positive operational progress, increased site acceptance tests, and a healthy pipeline; slow delay in order conversion due to customer reevaluation of manufacturing footprint but sees positive trend in future quarters.

Q: In your prepared remarks, I think you made a callout about a biosimilar opportunity or essentially winning some biosimilar business, specifically for GLP-1s. I was wondering if you can talk bigger picture about biosimilars and how you see that opportunity contributing to Stevanato's growth in the coming years. Specifically, if you could talk to what part of the portfolio benefits that? Does that tend to be high-value Nexa? Or does that tend to be more bulk products or more routine products, standard products, whether that's incremental margins or top line? And just broadly, how important are biosimilars to you today?

A: Franco Stevanato said biosimilars help enlarge revenue, Stevanato is deeply engaged with its product portfolio in originator and biosimilars, with high-value product platforms like EZ-fill and Nexa syringes benefiting, and biosimilars contributing to revenue growth.

Q: And then a follow-up, if I can, on the guide for the year, and you called out FX currency is a little bit more of a headwind by, I think, EUR 2 million at the midpoint. It sounds like our assumptions for engineering should be a little bit worse, and you talk about organic offsetting it. So just kind of means that BDS is coming out a little bit better. You saw the pull forward into 3Q, but am I interpreting correctly that we should expect a little bit of a better pull forward and better result in BDS 4Q as well, even despite the pull forward just to offset currency in engineering?

A: Marco Dal Lago said there are moving pieces with currency effect, high-value product acceleration, and slower engineering orders, but BDS segment benefits from margin improvement.

Q: Could you tell us what is utilization rate in Fishers and utilization rate in Latina? And with it how many years to get to full capacity, if that's possible to answer?

A: Franco Stevanato said installation of syringe lines in Fishers will continue throughout 2026 to 2027, with goal to be at full potential by end of 2028; Latina is ramping up production for Nexa Syringes and preparing for next phase of EZ-fill cartridge production, with capacity ramping up over 1 to 3 years until end of 2028.

Q: I wanted to follow up on Paul's question on capacity, put maybe a slightly different spin on it. On the HBS guidance for the year, the previous guidance for the year at, I believe you said 40% to 42% and 1Q started off pretty favorable to that. And I think at the time, the commentary was that your ability to see HBS continue to rise as a percentage from that first quarter favorable level was somewhat gated by capacity and when lines were coming on. So this quarter, obviously, you were able to pull that $10 million forward. The trends have been pretty favorable. I guess I'm coming back again to Paul's question about capacity and utilization. Are lines in place to continue to support HBS outperformance, but for the pull forward, I guess, in the near term? Or are you kind of in a position where you have to wait for additional lines to be validated before you can see HBS continue to move higher?

A: Franco Stevanato said demand is driven by capacity put in place, with intense program to install capacity in all formats, continuing to ramp up capacity in Latina, Fisher, and Germany until end of 2028 to meet customer contracts.

Q: So you had a really strong high-value solutions quarter that was partially offset by standard bulk coming in a bit light of our model. I'm just wondering, based on your commentary, it seems like this is just timing. Is that right? Or is there some other more durable shift in mix and demand that we should be contemplating as we update our models?

A: Marco Dal Lago said acceleration in BDS volumes from Q4 to Q3 in high-value products, priority to switch to high-value syringes over low-value ones, with Franco Stevanato adding goal to be a fully solution provider in high-value products in next 5-10 years.

Q: There have been a number of recent headlines around large pharmaceutical companies essentially making deals with the U.S. government around drug pricing. And recently, it's been speculated that Lilly and Novo may announce a deal as soon as today. Is it logical to assume that a significant price drop and thus some elastic response in terms of market expansion via Medicare and Medicaid could be an absolute good guy for packaging suppliers? I'm just wondering, as you think about these settlements potentially leading to an increase in volume, wouldn't that, by extension, be good for Stevanato?

A: Franco Stevanato said biosimilar coming on board helps enlarge revenue, and cost of primary packaging is minor compared to overall drug costs, so seen as a net positive effect for Stevanato.

Q: Franco, maybe to follow up on Dave's question on the vials. Can you just talk about where we are on the inventory side? I mean it feels like destocking far less of an impact. Are we fully past that? What's the latest you're hearing from customers on that front, and confidence on the go forward there?

A: Franco Stevanato said clients are starting to normalize their inventory, with revenue around vial increasing 12% compared to last year, showing continued positive signal across regions.

Q: So first, I wanted to just maybe get a little deeper into the High Value Solutions guidance for the year. On my kind of rough math, I think it implies for Q4 a range of 39% to 42% of revenue versus 45% year-to-date or so. So could you maybe just give a little more color around the assumptions you have there? And is that kind of based on customer orders or anything else to be aware of?

A: Marco Dal Lago said guidance implies 40% to 41% in Q4, driven by backlog and acceleration of some revenue from Q4 to Q3, with Franco Stevanato adding pipeline spread across various clients and therapeutic drugs in the product portfolio.

Q: And then quickly on contract manufacturing. I know the press release called out strong growth in Q3. And then you mentioned Fishers should start commercial activities for contract manufacturing, I think, end of '26, early '27. So can you maybe just give some high-level thoughts about how we should think about this going forward? Is that going to become a more meaningful growth driver for the business?

A: Franco Stevanato said building contract manufacturing capabilities in Fisher for auto-injectors for big customers, with strategy to deliver IP products and also serve as a CMO business model, potentially becoming a meaningful growth driver.