Stevanato Group S.p.A. (STVN) Q4 2022 Earnings Report, Transcript and Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Stevanato Group’s Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Lisa Miles, Senior Vice President and Investor Relations of Stevanato. Please go ahead, madam.

Good morning, and thank you for joining us. With me today is Franco Stevanato, the Executive Chairman, Franco Moro, Chief Executive Officer; and Marco Dal Lago, Chief Financial Officer. A presentation illustrating today’s results can be found on the IR section of our website. Some statements being made today will be forward-looking in nature. Such statements 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 more recent Annual Report filed on Form 20-F filed with SEC. We encourage you to review the information contained in our earnings release in conjunction with our SEC filings and our latest Form 20-F. 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 a reconciliation of the non-GAAP measures, please see the Company's most recent earnings press release. And with that, I’ll hand the call over to Franco Stevanato for opening remarks.

Thank you for joining us as we close out another year of strong financial results. The collective efforts of our employees worldwide led to outstanding execution in 2022. We are building a track record of consistent delivery on our financial and operational objectives. We are well positioned against a backdrop of favorable demand, and the fundamentals of our business remain stronger. As we enter 2023, we expect to benefit from the secular tailwinds in high growth end-markets such as biologics. We currently see important opportunities in front of us to support customers across a broad range of therapeutic areas such as GLP1, monoclonal antibodies and mRNA applications. We are currently seeing trends toward sustained, robust demand for high-performance drug containment, and we have modified our investment plans to maximize this opportunity. Notably, these opportunities are enabling us to exploit our unique value proposition of end-to-end integrated capabilities. We are gaining more traction in supporting customers’ needs in multiple product categories across both segments. Lastly, our management team and Board of Directors are fully aligned on capitalizing on our future growth prospects. We are laser-focused on fulfilling the needs of our customers and cementing our leadership position as a key partner in the pharmaceutical supply chain worldwide. We are investing in the business, our people, our products, our communities, and scientific innovation, which we believe in turn should deliver durable organic growth to drive long-term shareholder value. I will now hand the call over to Franco.

Thank, you Franco. Starting on slide 7, our fourth quarter results led to a strong finish in 2022, with double-digit growth, expanding margins and a growing mix of high value solutions. We finished the year with record revenue from high value solutions, which represented approximately 30% of revenue for fiscal 2022. For the fourth quarter, new order intake totaled €237 million and we ended 2022 with backlog increasing 9% to €957 million. As expected, growth in backlog was partially offset by a lower level of orders to support Covid-19. Excluding Covid, our backlog increased 21%, compared with last year, reflecting favorable demand for new customer programs. On slide 8, our first-rate execution in 2022 enabled meaningful progress against our four strategic pillars: First, we advanced the buildout of our industrial footprint to add capacity in premium products to meet demand and drive growth. We also signed an agreement with BARDA to further expand vial capacity in Fishers. Second, we continued to grow our mix of high value solutions in 2022. The shift to high-performance, high-value products has been led by pharmaceutical innovation. New classes of treatments require specialized drug containment to ensure the highest integrity of the treatment and we remain ideally positioned to capitalize on this trend. Third, we continue to fuel innovation by investing in R&D and partnering with best-in-class players to fortify our market-leading position. In 2022, we launched our next-generation EZ-fill SmartTM platform, and advanced our portfolio of drug delivery systems. Most recently, we entered into a partnership with Transcoject to expand our portfolio with COC and COP syringes. This allows us to offer the broadest available suite of market-leading glass and plastic syringes. And lastly, we continue to build our pipeline of multi-year opportunities in high growth end-markets like biologics. As we further advance these strategic imperatives in 2023, we expect that our efforts will yield sustainable organic growth in the years to come. On page 9, we are refining our capital spending plans to optimize our global footprint amid rising demand. In the U.S. and Europe, future demand has outpaced our expectations since our IPO and our modular approach gives us the flexibility to adjust our plans accordingly. Over the last 18 months, we have worked alongside customers to better address their needs. With this added visibility, we are accelerating investments in Fishers to capitalize on the elevated demand outlook led by the expected growth in biologics. Concurrently, we are tapping the brakes on the phasing of our China expansion, so that we can prioritize our projects in the U.S. and Italy. Our refined CapEx plan for Fishers focuses investment in the U.S. market, where demand has been climbing for high-performance drug containment to meet the needs of sensitive drug classes such as GLP-1s, monoclonal antibodies, and mRNA applications. We have updated our industrial plan to adapt to these favorable market trends. First, we continue to see surging demand for syringes. To capitalize on this, we are adding approximately 60% more syringe capacity in Fishers, compared with our initial plan. This includes Alba syringes which are purpose-built for biologics. Turning to vials, we expect to double the capacity in the U.S. for ready to use vials, as we prepare the commercial launch of our next-generation EZ-fill SmartTM platform. Let me crosswalk the changes to our expected CapEx for Fishers, starting with our initial planned investment. At the time of the IPO, we assumed CapEx for Fishers of approximately €150 million. In March of 2022, we entered into an agreement with Barda to expand vial capacity for both EZ-fill and bulk vials. This is estimated at approximately €175 million. Most recently, we decided to invest an additional €175 million to further expand much-needed capacity for Nexa and Alba syringes. When you add it all up, the total CapEx for Fishers is approximately €500 million. This includes the portion of CapEx that is supported by Barda. We remain on track to launch validation activities in Fishers in the fourth quarter of 2023, and we expect that the revenue will begin to ramp in a meaningful way in 2024. Moving to slide 10, in Piombino Dese, the new building is complete, validation activities are well underway, and we started our commercial batch production. In Latina, we completed the largest cycle of CapEx. The site is on track for validation activities over the summer with commercial production beginning in the fall. We anticipate temporary inefficiencies through the natural progression of start-up activities as volumes and revenue grow over time. With the favorable demand in the U.S. and Europe, we are slowing down our expansion in China. China is strategically important, but our existing operations are currently sufficient. We are prioritizing our CapEx projects in the U.S. and Europe where our customers have the most pressing needs, and we can provide the greatest value. With that, I’ll now hand the call over to Marco.

Thanks Franco. On slide 12, we ended 2022 with strong financial results. For the fourth quarter, revenue increased 26% to €292.1 million or 23% on a constant currency basis, driven by growth in both segments, the shift to high value solutions and currency. Our top-line results for the fourth quarter were better than expected due to the recognition of revenue that was previously forecasted in Q1 2023. This includes revenue from certain Engineering projects and Covid-19. As a result, revenue from Covid-19 was higher than our forecast and represented 12% of total revenue. We are making relevant progress growing our mix of high value solutions, which increased 31% to €87.2 million in the fourth quarter. For the fourth quarter, gross profit margin increased by 290 basis points to 34.3%, due to higher revenue, a favorable mix, better leverage of fixed costs and the recovery of inflationary costs. Operating profit margin in the quarter increased to 21.6% and included a benefit of €3 million in other income, related to a joint development project. Excluding start-up costs on the new plants, adjusted operating profit margin was 22.2%, compared with 18.8% in the same period last year. On the bottom line, this resulted in: A better-than-expected net profit of €48.3 million, or 18 cents of diluted earnings per share, adjusted net profit of €49.6 million or adjusted diluted EPS 0.19 cents, and adjusted EBITDA totaling €81.9 million, reflecting an adjusted EBITDA margin of 28%, which was up 270 basis points over last year. Turning to slide 13, on a full year basis, revenue increased 17% to €983.7 million, driven by growth in both segments, the mix shift to high value solutions and currency. On a constant currency basis, revenue grew 13% over last year. As expected, full year revenue growth was partially offset by lower revenue from COVID-19 which represented 11% of total revenue in 2022, compared to 15% in 2021. As revenue from COVID-19 rolls off, we have been successfully backfilling this decrease with new projects across a broad range of therapeutic areas. For 2022, high value solutions grew 41% to a record of €293.2 million and represented approximately 30% of revenue. Our solid growth, favorable mix shift, and operational efficiencies led to expanding margins for the full year. As a result, gross profit margin for 2022 increased 110 basis points to 32.5%, despite inflation. While we recovered nearly all of the inflationary costs through price adjustments, it had a dilutive effect to gross profit margin in 2022. For the full year, operating profit margin for fiscal 2022 was up 40 basis points to 19.6%. Excluding start-up costs on the new plants, adjusted operating profit margin increased to 20.2%, compared to 19.2% last year. This led to solid delivery on the bottom line with net profit of €143 million or diluted earnings per share of 54 cents for 2022. On an adjusted basis diluted EPS increased 17% to 56 cents. For 2022, adjusted EBITDA increased 21% to €263.6 million resulting in an adjusted EBITDA margin of 26.8%. Let’s move to segment results on Slide 14. The Biopharmaceutical and Diagnostic Solutions Segment once again delivered strong results for the fourth quarter and full year. For the fourth quarter, revenue increased 25% to €231.5 million, and 21% on a constant currency basis over the prior year. Revenue growth was mainly driven by a 31% increase in high value solutions and a 21% increase from other containment and delivery solutions. In Q4, gross profit margin increased to 37.3% due to strong revenue generation, the favorable mix, better leverage of fixed costs, and the recovery of inflationary costs. Operating profit margin for the Segment was 23.7% in the quarter. For the full year, revenue grew 15% to €799.7 million, and 11% on a constant currency basis, compared with fiscal 2021. Revenue from high value solutions grew 41%, while other containment and delivery was up 4% over the prior year. For the full year, gross profit margin for the BDS segment increased 120 basis points to 34.3%, and operating profit margin improved to 22.8%, despite inflationary headwinds. Financial results for the Engineering Segment were better than expected in the fourth quarter and revenue increased 30% to €60.6 million, mostly due to the timing and progression of projects. For the full year, revenue increased 23% to €184.0 million driven by growth in all business lines. For the fourth quarter of 2022, gross profit margin decreased 50 basis points to 21.2%, mostly due to project mix, and operating profit margin was 12.2%. For the full year, gross profit margin improved 230 basis points to 21.6% mainly driven by contributions from more accretive business lines, as well as ongoing business optimization efforts. As a result, operating profit margin improved to 13.8% On slide 15, as of December 31st, 2022, we had a positive net financial position of €46 million, and cash and cash equivalents of €228.7 million. For the full year, net cash generated from operating activities was €103.3 million, reflecting increased working capital to support growth and higher inventories to mitigate supply chain risk. Meanwhile, cash used for investing, totalled €243 million to support our expansion plans. This resulted in negative free cash flow of €137 million for fiscal 2022. In February of 2023, we secured two loans totaling €130 million for our ongoing investments in growth platforms. The first five-year loan was financed through BNP Paribas for €70 million. The second loan for €60 million was financed through Cassa Depositi e Prestiti. Both loans have a two-year draw down so we can access the capital when needed. The loans shore up our balance sheet, and provide us added flexibility for capital deployment. Our balance sheet is healthy, and we believe we have adequate liquidity to fund future growth. Turning to CapEx, on slide 16. In 2022, capital expenditures were €302.6 million as we continued to invest in our strategic global expansion. As Franco noted, we are focusing our efforts in the U.S. and Italy, to capitalize on rising demand. Consequently, we are forecasting capital expenditures of 35% to 40% of revenue in 2023, of which approximately €70 million is carry-over from fiscal 2022. For 2023, approximately 90% of our expected CapEx is tied to growth, and the remaining balance for all other activities including R&D. Let’s review guidance on page 17. For fiscal 2023, we expect Revenue in the range of €1.085 billion to €1.115 billion. This implies growth between 10% and 13%; Excluding COVID, growth is estimated to be greater than 20%, Adjusted diluted EPS in the range of 58 cents to 62 cents, Adjusted EBITDA in the range of €290.5 million to €302.5 million, Our 2023 guidance assumes headwinds and tailwinds, and considers the following: First, we expect that our second half results will be stronger than the first half, and growth will be linear throughout the year. Our model assumes double-digit growth in the BDS Segment and high-single-digit growth in Engineering. Consistent with prior years, we expect a step down in revenue in the first quarter, compared with Q4 2022. We have assumed that high value solutions will represent approximately 32% to 34% of 2023 forecasted revenue. Revenue from COVID-19 is expected to decrease by approximately €80 million in 2023 versus 2022. We estimate that it will represent about 2% to 3% of revenue. And lastly, we are estimating a currency headwind of approximately €13 million to €14 million. Thank you, I will hand the call to Franco for closing comments.

Thanks Marco. Our strong financial results in 2022, demonstrate that we have the right strategy in place. We are operating in an environment of strong demand, growing end-markets, and multi-year secular drivers. With a favorable demand landscape, our capital allocation priorities are designed to meet current and future customer demand trends. The timing of customer demand requires us to invest several years in advance of commercial production to seize the opportunities in front of us. We have strong momentum entering 2023. With our unique integrated capabilities and market-leading portfolio, we are well positioned to drive durable organic growth, and in turn increase shareholder value. And with that, let’s open it up for questions.

[Operator Instructions] The first question is from Paul Knight of KeyBanc. Please go ahead.

Hi, Franco Moro. The growth in biologics you just mentioned, would it be the GLP1s that stand out or what therapeutics would you note in this increase in your CapEx?

Hi, Paul. Yeah, you know that we are targeting more technological area than a single therapeutic area because our solution addresses specifically the need for biologics. But you are right, we are targeting some area that are fast growing and more than expected really. One is GLP1 that is a strong driver for our demand and also I want to mention mRNA application that during the pandemic to be a real answer for treatment effective treatments for diseases. So this is the main area, but we have a good pipeline of opportunity also in other therapeutic areas.

And regarding Fisher expansion, will that occur in terms of revenue generation over 2024 or will it go take time to build that up into 2025 onward or so what would be the steps of revenue generation at Fisher? Thank you.

I can confirm for that we see their completion of the first steps for validation end of this year and we expect to have the ramp up of revenues during 2024. Obviously, we are talking about a modular investment that is multiyear investment. It’s not just for a single year. So we expect that to develop our revenues not only 2024 but even later as that project progress.

Thank you.

Thanks, Paul. So bring the next question please.

The next question is from Patrick Donnelly of Citi. Please go ahead.

Hey guys. Thanks for taking the questions. Maybe another one just on the capacity expansions there. Just shifting the resources towards like areas like Fisher. Is it just that the demand is so strong here in the U.S. versus China that you wanted to accelerate that process? Is there a way to kind of think about revenue being committed or ahead of time as you guys build this out or is it going to be kind of as you build it out you’ll fill it? Just trying to get a sense for the shift here obviously you guys are excited about the opportunity. Just want to feel out what the demand looks like versus the China piece.

Yes, you got it right that our decision of where we allocate the CapEx is market-driven, it’s demand driven. So we see an acceleration in demand both in U.S. and Europe. So we decide to accelerate the investment in both areas and in Fisher, obviously, but also in our [Indiscernible] EZ-fill And we are still investing in EZ-fill platform and high value solutions. About the China, second half of your question, we decided only to analyze to – to take some time to analyze the situation and in time to optimize our capital allocation. So, we remain strategically focused on the potential expansion in China, the market for the future will provide very interesting opportunity with the site adjusted for this year as I put in my prepared comments is to tap the brakes and we expect now to have the future off the brakes some time during 2024. But the strategic meaning of the investment in China, we will remain the same that we mentioned at the very beginning.

Okay. That’s helpful. And maybe one for Marco on the margin piece. Can you just talk about your expectations for 2023 how this will progress this year and then also as some of this capacity comes online how we should think about the margin profile of that revenue just kind of thinking longer term as these things came online with those nice margin opportunities. Maybe talk 2023 and then a little longer term as Fisher come online. Thank you guys.

Thanks, Patrick. So, for 2023, our plan is to expand further the margin in both segments in engineering and BDS. Without BDS we’ll begin the main driver will be the shift into our high value solution. Now we are guiding between 32% to 44% of high value solutions on total revenues. On the other side, you are right, the margin expansion in BDS will be temporarily tampered by the startup cost in Fisher and in – because to secure the success of the project we need to put people and cost in place that will be for 2023 more than proportional compared to the grow of the revenue. What we expect for the future is obviously the investment in high value solution is to further expand it soon as the revenue generation will be normalized compared to the infrastructure and the costs.

Okay. Thank you guys.

Thanks, Patrick. The next question please.

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

Hi, good morning. Thanks for taking the questions. Just expand a little bit on what Patrick just asked. Specifically on the gross margin, how should we think about that going from Q1 to Q4? Just is it that any sort of like color on just like – you expect to Q1 to be up from the prior year level in 2022 and then to grow up about, just some color on the pacing just kind of the moving parts?

Yes we mentioned during the commentary remarks that we plan to grow the top-line quarter-after-quarter and we expect also to expand the margin going quarter-after-quarter because of the better leverage of our expansions and because of the greater in-store capacity in these high value solutions collecting the sample in the second half of the year.

Okay. Great.

And we actually we plan to expand our margin compared to 2022, so.

Okay. Is that €80 million in COVID-19, is that a de-risk number for 2023? Basically it’s like what’s the conservatism in that. You came in a little bit stronger in the fourth quarter on COVID than we had thought. So wanting to know if that’s - that €80 million number, how to think about that?

The 2% to 3% revenue generation from COVID is what we can see today. Obviously, it’s not easy to predict future revolution, but what we can see today is that level of revenues. Importantly, I think it’s excluding COVID growth that is expected to be north of 20%.

Got it. And just one final one. You mentioned GLPs and mRNAs, can you give some color on what – how to sort of think about unit dynamics and incremental rvenue from that? I mean, basically if you are thinking about a GLP1, what would be a average sort of like revenue contribution from a typical components just selling into it. How should we think about this in terms of revenues stepping out of from a unit cost basis?

I cannot disclose any specific prospect with a single customer. What I can say is that, if you look at the new FDA approval, in terms of potential – and we have data about the four main blockbusters for the next year. I can confirm that we are in three of these projects among four. So, we expect to have certain contribution but at the same time the high diversification of our portfolio in terms of customer, in terms of therapeutic areas, we remain a factor to make our business resilient.

Yeah, I just want to confirm, clarify your question, it seems like your question he was asking related to things like GLP1, the average revenue per component. So, basically what type of products would we be selling into those.

In this tunnel of the format we are talking about biological molecules, the molecules, the first option is to deliver bio-syringes. So we expect to have impact in this kind of product line. But that we are sure is to high value solution syringes because that we are directing the needs of molecules that are highly sensitive. And so, we have good prospects including our next add of syringes in that space.

Thank you.

Thank you. The next question please.

The next question is from Tim Daley of Wells Fargo. Please go ahead.

Hey, thanks. So, just wanted to touch on the kind of broader biosimilar tailwinds as this becomes a bigger dynamic in the United States. Just thinking about the value curve here, of the components that you sell, how would your biosimilar assets compare to the original assets like, what biosimilars be using next and all the syringes? Would there be a step down to more commoditized type of solution when it comes to biosimilar just, any help would be appreciated.

The first comment is about the suitability of our product to biosimilar. We are in a very strong position because as we serve the originator that serves then a biosimilar component like to de-risk their business using the same solution that’s approved to be the right one for the originator. Second point is that also for biosimilar, the cost of the container remains a minor part compared to the total cost of treatment. So there is no expected significant impacts in the competitiveness of our solution because of a different competition on the treatment side. This is the two comments that are also based on our experience along the years.

Okay. I appreciate that. And then, secondly, thinking about raw material pricing and the security supply on the glass front, I believe you guys in November every year started new master supply agreement, new suppliers on glass tubes. How did that go? Was there any changes on the price fronts, cost fronts, supplier duration anything, anything changing I guess on that side of the things as we look forward into 2023?

I just can’t clarify your question, Tim. I think you are asking specifically about glass tubings and as we are going into 2023, if there is any changes in the pricing, is that?

Right. Price costs in terms of your supply of blast tubing, correct.

Yes, in the last part of the year, we are normally in the renewal process of a commercial agreement with a supplier. We see some impact of inflation even if there is a come down of cost of energy that is much less than the hotter period in the middle of 2022. But we look at these increasing cost and we are back to the – to recalculate the cost and pricing accordingly including the marginality in this case that is something we can’t – could not do 100% during 2022.

All Right. Great. Thank you for the time. Appreciate it.

Thanks, Tim. Bring the next question.

The next question is from John Sourbeer from UBS. Please go ahead.

Hi, thanks for taking the question. So, the HVS growth was pretty solid in the quarter. I guess, just can you talk about what products attracting – to name us lots of customers there and the company is approaching that mid-30% revenue target this year. Any thoughts on just where this to go over the long term as a percent of revenues?

We remain confident to confirm that in the next few years, we will develop this share in the high range of 30%. So, we are in the good trajectory. For sure we are investing to support these opportunities. But our strategy and our view of the future is not changed from what we communicated in this past. We are pretty confident that we can achieve it.

Got it. And then, I guess, just a follow-up clarification on China. Are you providing a timeline on when do you expect this capacity actually to come online? It sounds like decision be made in 2024, but just any additional color that you can provide around that as well.

As of 2024, we are still analyzing the situation to take a decision about the – to restart the project. I confirm that it will be some time in 2024 start of this project. In terms of revenue, we could be more precise in – because now we are still in the analysis of the situation.

Got it. Thanks for taking the question.

John, I just want to follow-up as of your first question on high value solution. Well, yes, our target in 2026 is now high 30%. I want to be clear that is now capped and that we’ll anticipate that that will be well beyond to add capacity when high value solutions continues come online.

Got it. I appreciate the clarification there. Thanks, John. Bring our next question please.

The next question is from Dave Windley of Jefferies. Please go ahead.

Hi, thanks for taking my questions. Good afternoon. The pull forwards of revenue into the fourth quarter, I am wondering if you do want to quantify those and did they influence the percent of revenue from high value solutions at all, I am assuming certainly the engineering is not high value solutions I wouldn’t think and maybe the COVID is not particularly rich on high value solutions. So just wondered if it’s the amount and if it impacted the HVS percentage metrics at all.

Yes, you are right, David, this is almost 57% on high value solution on total BDS revenues. So we are pretty happy with the progresses and it’s in line with our previous guidance for 2022. 2023 expect to further expand the share of high value solutions from 32% to 44% and that as I was mentioning, we are rising a little bit our mid-term expectation and be now high 30% by 2026. So we are active with the speed of the shifting.

And David, I just want to clarify the guidance for high value solutions is 32% to 34% for next year. And you should anticipate quarterly fluctuations here and there.

Okay. Thank you. The next question is around the capacity expansion change in plans. In the earliest iteration of that Fishers plan and you’ve confirmed this sense, it was about €150 million – excuse euro investment that was expected to produce about €150 million in revenue when fully ramped. Can we now expect that this Fishers plant could ramp the €500 million as the revenue, is that’s still kind of the proportion of capacity productivity?

Yes, I can confirm that it is a reasonable proportion. The nature of the investments is still for high value solutions including more EZ-fill vials, including more syringes, Alba syringes. But the internal rate of return and the success of – financial success of the investment is, for us, very important and at the end, yes, you are right that we expect to have the same ratio in between €1 in CapEx, €1 in revenue. These are obviously thumb of rule but this is what we expect.

Yes, Franco, thank you. So that segues into the follow-up question on that, which is, roughly, how long would you expect it to take to get to full utilization on that facility thinking both from a revenue standpoint, but then also to the extent that your commentary today suggest that the build to full utilization does have some margin drag to it. How should we think about the time to get to normal margin? So kind of two-parter on that, please.

The target is that- is multi-year and that we pursue that module-by-moduling in the installation. So we expect it to complete this phase of the investment €500 million by the end of 2026 including the last validation. And then to ramp up we could expect to have at least two years more to have the full utilization of the capacity because that we have to spend time to validate different products and different customers. So, this is the time frame for the full utilization now, but as always our modular approach will allow us some flexibility in terms of possible acceleration or different tuning of the CapEx.

Okay. That’s very helpful. Thank you and good luck.

Thanks, Dave. Bring the next question please.

The next question is from Matt Larew of William Blair. Please go ahead.

Hi, this is Madeline Mollman on for Matt Larew. I just want to talk a little bit on the pricing on the supply side, but I just wanted to see how you are thinking about pricing from your perspective in 2023 and as COVID start to roll off, you have opportunities to take price to maybe you are discounting bulk orders, is something like that do you think there is a room for pricing to improve in 2023?

Madeline, I apologize. We were unable to hear the beginning of your question and can you please repeat the question and perhaps speak a little for us?

Yes, sorry about that. I was just wondering how you were thinking about pricing in 2023 as COVID begins to roll off if there is going to be opportunities for you to replace large COVID bulk orders that maybe more attractively priced smaller orders, something like that, how you are thinking about pricing in 2023 versus 2022?

So many time we are – we do expect inflation as anybody else in 2023. We are pricing accordingly including in the margin into our pricing. So, we – in shifting to our high value solution, this is the products we are keeping with respect to pricing.

On top of that you also remember that COVID business was mostly related to vials. So, we have a much broader range of products and the situation about vials is only part of the true picture for us.

Great. Thank you.

Thanks, Madeline. Bring on we have the next question please.

The next question is from Drew Ranieri of Morgan Stanley. Please go ahead.

Hi. Thanks for taking the questions. Just to start, I think it was David’s question, but can you just talk about the pull forward in engineering revenue in the fourth quarter? And is it possible if you could quantify what the pull forward was in terms of revenue?

Yeah, we have acceleration in our progress in some projects in Q4 more than expected to accommodate some customer request. So, we are accelerating our revenues in Q4 for about €7 million to €8 million in engineering. As mentioned in my commentary, we – something similar happened to COVID. We have been able to delivery - some products expected to be delivered in Q1, again to accommodate customers requests.

Got it. And then, just as we were thinking about guidance for the year, the commentary on a step down from fourth quarter into first quarter, understandably there is a few dynamics here, one is COVID, two is engineering pull forward that we were just discussing. So can you help frame what maybe 8% decline would be sequentially from the fourth quarter to the first quarter, so we are kind of all on the same page about the full year progression?

What we can tell you today is that, we expect stronger second half of the year and the evolution on quarter-after-quarter will be growing in 2023 similarly to what we have done in 2022.

Okay. And then, maybe just lastly on the backlog. With COVID revenue falling off, can you discuss how you are thinking about backlog for the year and potentially order intake, maybe what’s embedded in your 2023 guidance in terms of book-to-bill or anything that we should be thinking about there and in the past you’ve quantified, maybe what your backlog was for the current year and following year? So just wondering what your current backlog implies for 2023 and 2024. Thank you for taking the questions.

It’s something about the meaning of the backlog for us that is obviously an important indicator of the demand but it doesn’t represent the full picture. Full picture about the demand landscape and also the demand trends is also different forecast that we regularly discuss with our customers to look in there into their future needs in the short and the long run. So, now we are back to something that is more similar to what was the situation before the pandemic. During the pandemic, the orders coming from customers changes as we took and has became longer. Now we are back to a situation that is normalized and very similar to the year before the pandemic. So, in many cases, that we have some backlog from any other interaction with customers support our – in the year.

Thanks, Drew. Can we have the next question please?

[Operator Instructions] Ms. Miles, gentlemen, there are no more questions. At this time, this concludes our conference call. Thank you for joining. You may disconnect your telephones. Thank you.