Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Stevanato Group's First Quarter 2023 Financial Results Conference Call. As a reminder all participants are in listen-only mode. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Lisa Miles, Senior Vice President, Investor Relations. Please go ahead, madam.

Good morning, and thank you for joining us. With me today is Franco Stevanato, 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. 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 20-F filed with the Securities and Exchange Commission. 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 analysis 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, Lisa, and thanks for joining us today. Our solid first quarter results confirm the positive momentum exiting 2022. They illustrate the strength in the fundamentals of our business. As we advance our multi-year strategic plan to capitalize on rising demand and to drive durable growth. Our experience in delivering high-quality, high-performing products makes us a partner of choice with customers. Our long history of embedding science, technology and industry expertise to drive continuous advancements 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 ample opportunities in treatment classes such as GLP1s, monoclonal antibodies, mRNA applications and biosimilars over the next several years. Our presence in GLP1s dates back to 2010. We believe that we are well positioned to further support customers in the coming ways of new indication for GLP1s. While this presents a significant opportunity for us, it is just one of the many favorable tailwinds 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 seven. 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 EZ-fill products has driven the shift in 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 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 stabilize. At the end of the first quarter, our backlog of committed orders totaled approximately €955 million. Turning to Page eight. 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 are ready to use EZ-fill cartridges in our assembly lines, while Thermo Fisher will provide fill and finish and final assembly services. The collaboration offers pharma customers have proven end-to-end supply chain to support clients from drug development to commercialization. We also signed an agreement to develop and manufacture Alba pre-fillable syringes for Recipharm's soft mist inhaler. The combination of our Alba syringes and Recipharm'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 GLP1s and biosimilars will drive durable organic growth over the long term. While…

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 constant 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 from 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 start-up costs on the new plants, 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 €0.11. This included an unfavorable impact to diluted EPS of approximately €0.01 recorded in finance expense due to the unexpected strengthening of the Mexican peso against the euro and the U.S. dollar. Excluding start-up costs, adjusted net profit was €30.4 million and adjusted diluted EPS of €0.11. Adjusted EBITDA increased 15% to €61.9 million, and…

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 format and move up the product value chain. Invest in R&D to maintain and accelerate our market-leading position, and build a multiyear 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 27 in New York City. So stay tuned for updates over the next few months. And with that, let's open it up for questions.

[Operator Instructions] The first question comes from Derik De Bruin of Bank of America.

Good morning. And thanks for taking my question. So I appreciate the incremental color on the GLP1. I think one of the questions that we've gotten from investors is, obviously, these have been built around for a while, and you've been building capacity and providing for this market for a while. How should we think about what potential incremental 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 should demand go a little bit higher? Just trying to understand what's embedded in your guide for the GLP1.

Derik, it's from -- 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 GLP1s. Is your question tied to the types of products that we're implementing as it relates to the capacity? Or could you clarify that?

Yes. Basically, I was asking the capacity you're bringing on, what is -- is the capacity you're currently bringing on? Aligned mostly, is it already filled? Or is there some incremental -- or is there room for the growth? Maybe I'm just trying to figure out what is it. I mean, the GLP1 has been around for what, I'm just trying to figure out what is already embedded in your guide versus what could be incremental to the business given this class of drug seems to be doing a little bit better?

Thank you, Derik, for your question. To start saying that all the growth opportunity we have in front of us are not at least specifically to any single therapeutic area. And we are investing in high-value solution because we see in the biologics space, the most important opportunity that not only for the GLP1, but includes also other area of technologies like monoclonal antibodies, mRNA application. And then we look also to an expansion in the biosimilar space for biologics. That said, obviously, also GLP1 opportunities are embedded in our plan for the year and in our CapEx 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 below sort of like where the consensus estimates were and we were -- can we sort of talk about pacing of revenues on the back of the quarter? I mean you have a really tough comp in the fourth quarter. Do you -- so I mean just the way the guide review it's a little bit more back-end loaded. Can you just talk about how we should think about pacing for the rest of the year in revenue?

Yes. Derik, Good morning. In the second half of the year, we expect higher revenue than in the first half similarly to what we have done last year. This year, in particular, we can see strong 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 we've been generating further rather than in the second part of the year. So this is what we can see today. We reiterate our guidance for the full 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.

The next question is from Paul Knight of KeyBanc Capital Markets.

Yes. This would probably be for Marco Dal 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. The main format used for COVID treatment are buyers, both in marking this reconfiguration. As expected, we can see a slowdown in COVID as anybody has. And we reiterate our guidance to have between 2% and 3% of revenue from COVID in 2023.

Okay. So high-value solutions was where most COVID would go -- 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 this form of COVID will not affect our business.

Okay, got it. And then regarding the outlook on GLP1s. Franco, what -- is there any estimate that you believe you have in terms of market share for this developing market of GLP1s?

Yes, you know that all the estimates for this business line in GLP1 talked about multibillion 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 EZ-fill configuration and also syringes that are needed for the auto-injector. The current situation is over weighted in term of cartridges and by cartridges because it is more driven than in the past. And GLP1 is something that is commercial since many years, it's not completely new. We expect the evolution of this market going in the direction of high-value solutions, both for EZ-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 syringes 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. And so we expect to have a commercial sales from Latina in the last quarter of this year. And validation activity in Fishers, Indiana under completion in the last part of the year to have a first revenue generation in the first half of '24.

Next question is from Patrick Donnelly from Citi.

Hi, good morning. You have Lizi [ph] 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 mix we have been in Q1. We are -- our guidance is between 42% to 44% of high-value solutions. We will have 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 start-up cost of the new facilities in Indiana and the Latina in Italy. But overall, we plan to expand our margin in the second part of the year.

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 GLP1s? And that's it for me. Thanks.

We confirm that what we said also during the last call, we are allocating our capital where we see the best opportunity and closer need of our customers. So we decided to accelerate investment in Italy and in Fishers in Indiana because there is the opportunity to leverage on the strong demand there. In China, we remain a strategic target for us in terms of market, and we decided to pause the investment for a while, and we still expect to take a decision for a new start of the initiative some time in '24.

The next question is from Tim Daley of Wells Fargo.

Thank you. So I did want to dig a bit on the market dynamics on self-injectable. So I appreciate the color and the commentary around Stevanato’s number one position in pen cartridges. And I think you mentioned you're number 2 in auto-injectors. I believe Lego [ph] and Ozempic are single shot injectors, so kind of that auto-injector number 2 position. Just given the attitudes around waste, environmental, plastics, et cetera, does this market like allow itself or does the drug allow itself to be utilized in a pen cartridge approach to a multi-dose injector? Or just any color there around, this is a very attractive market, just happens for the year, that's your number 2 position with your number 1. And any potential for this dynamic to change in terms of the delivery mechanism? Thanks.

Yes. First of all, I have to reiterate that GLP1 is something that is commercial since a while the introduction of the GLP1 and was approved by FDA in 2005, and we are in the business from 2010 for GLP1. So there is a current situation that is more linked to the format for delivery adopted at the beginning where the only format for cartridges was the bulk one. And the pen injector has been the first delivery system adopted globally. As it's still the dominant one, it doesn't mean that the new treatment are not a targeted different delivery format, trying to adjust to the patient needs and [indiscernible] and for us, it's very important to be able to serve both formats, pen injector with the cartridges and half EZ-fill 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 the special performances in terms of mechanical resistance and also the line in force to let the auto-injector works well. And our strength, it will be present both formats. And there is the reason why we are not targeting one single opportunity, but we are ready to serve our customers in 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 color. Thank you so much for all that. And then just curious on the order intake in the quarter. Just curious, is there -- can you give us a net new business growth rate on ex COVID basis to help us understand kind of the book-to-bill dynamics, when we take COVID out of the revenues and take COVID out of the quarters? Thank you.

Was your question, new order intake ex COVID. Tim, sorry, it was a little...

Just trying to get to the book-to-bill on a clean kind of non-COVID basis.

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

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 €9-ish, €9.5 million, €10 million this year. I'm guessing that the order of 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 regions 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.

Yes. Thanks, Dave, for the question. Marco speaking. You are right. 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 million this year. That is normal for us and in quarterly situation is keeping eye. 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? Either in the committed orders around the...

Yes, considering the Q1 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 fresh order and to convert them into revenues for reaching our guidance.

But maybe we can confirm that the very normal situation at this time of the year. 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, you highlighted some additions in SG&A costs in BDS, I suspect those are higher 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 leverage in the second part of the year. We are -- increase in SG&A expenses, mainly driven by -- of the past 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 there. Thank you.

Next question is from John Sourbeer of UBS.

Hello. This is [indiscernible] calling in for John. So very good HVS growth in this quarter. Can you talk a little bit more about the traction with HVS ph? What is the typical planning on both of these products? And what are the drivers to get to this long-term mid-30 percentage target?

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 time you take for introducing new products in HVS?

Yes, the main driver for the growth of higher-value solutions is the fast-growing area of biologics, where we have very strong demand related not only to GLP1s, as I mentioned before, but also in monoclonal antibodies, mRNA application. And this is the evidence that our strategy to invest in high-value solution is really something that matches the needs of our customers. And the fact that we decided to accelerate our investment both in Europe and Italy and in the U.S. is because we have active programs with our customers. The timing direction of the adoption of EZ-fill cartridges buyers 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 biologic molecules.

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

May ask you to repeat the question one last time?

Yes, sure. So can you talk a little bit more on pricing? What kind of inflationary sort of like pressure are you experiencing in the quarter? And are you receiving push back from customers on the pricing dynamics?

Yes, we can see inflation as anybody else, there are different level of inflation depending on the items. For example, we had a bit a light of relief in energy cost and gas price in the first quarter. But on the other hand, 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.

This ends the Q&A session. Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.