Stevanato Group S.p.A. Q4 FY2023 Earnings Call

Good morning and thank you for joining us. With me today is Franco Stevanato, Executive Chairman; Frank Moro, CEO; and Marco Dal 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 20-F 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 a reconciliation of the non-GAAP measures, please see the company's most recent earnings press release. And with that, I will now hand the call over to Franco Stevanato for opening remarks.

Thank you, Lisa. 2023 was very positive for us. We closed 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 growth. 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 adjustments from favorable secular 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 the market demand. We expect that these investments will drive organic growth in the midterm 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-growth end 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 that 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 lower recovery in vial demand, resulting in a growth rate of 9% to 12% for fiscal 2024. Looking beyond 2024, we are maintaining our midterm targets of low double-digit growth starting in 2025. In 2027, we still anticipate high-value solutions in the range of 40% to 45% and an adjusted EBITDA margin target of approximately 30%. Let's turn our attention to fourth quarter results on Slide 8 which will be a focus of my comments. Fourth quarter revenue was a little bit below our internal expectations by about €5 million 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 Solutions 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 decline in 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, the 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. The gross profit margin was also unfavorably impacted by currency translation and continues to be tempered by short-term inefficiencies tied to the startup 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 headwinds. The 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 a 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 9. The biopharmaceutical and Diagnostic Solutions segment delivered strong growth in the quarter despite a steep decline in COVID-19 revenue and industry-wide inventory destocking. For the fourth quarter of 2023, BDS segment revenue grew 12% and 14% on a constant 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. The gross profit margin decreased to 33.6% in the fourth quarter of 2023, mainly due to lower easy fill vial 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 31, 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 midterm loans totaling €110 million and that drew 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 billion and €1.21 billion, 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 2024 guidance will be stronger than the first half, while engineering will remain flat as we focus on executing on our current work in progress. High-value solutions are expected to represent 35% to 37% of total revenue. And lastly, we are estimating a currency headwind of approximately €7 million 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 that 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 a dynamic environment with the ongoing inventory normalization. Despite this, we believe that 2024 will still be a year of growth and our midterm 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% 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 upsized 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 attractive 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 destocking, 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 vial demand is temporary. We currently expect that the path to normalization will continue throughout 2024. And we are cautiously optimistic that order flow will begin to pick up in the second half of the year. Longer term, we see many opportunities in the adoption of our 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 our 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 vials and cartridges is estimated to have increased 32% in 2023. We also believe that 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 higher demand has been lagging, demand for other glass 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 in the fourth quarter. And as a result, we exited the year with a backlog of approximately €945 million, 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 multiyear investments that have multiyear 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 catheter lines as part of a long-term project to support a customer transition from bulk to stabilized cartridges. And these lines are expected to supply commercial volume beginning in 2026. In Fishers, 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 supporting them throughout the entire drug life cycle. 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, we expect 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 position. 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 are ready to open up. Thank you.

Maybe a couple on stocking to start. Just can you talk about the concentration you're seeing in terms of products and customers? Is it pretty broad-based? Or is it more concentrated with 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.

Yes. Thank you. It's a very good point and taking part of the statement in Marco's commentary, the impact of this situation is not only about the main players that had good shares of the market in COVID but by consequence and due to the risk on the supply chain, many others built up stock. So in general, we see as a situation with some high points but it's not highly concentrated in a few players. In terms of the visibility, as we stated, it's now not easy to state which will be the inflection point, but we are receiving information from interaction with customers that support our idea to have some improvement in the second half of this year and with the situation normalizing in the next period.

That's helpful. Could you discuss the margin outlook? This year seems to be impacted a bit, with 2024 also affected apparently by some inventory issues. Can you explain the factors at play this year and what the challenges look like? You have reiterated the midterm targets, and it appears there will be significant expansion in the future. There's a potential improvement in margins when inventory issues settle down. Can you clarify the challenges in that area and break down the factors affecting margins this year?

Thank you. For 2024, we anticipate the adjusted EBITDA margin to remain at this year's level. We expect a slight decrease in the overall gross profit margin compared to 2023, although we foresee a minor improvement in profitability within the Engineering segment. Conversely, the BDS segment is projected to experience a slight decline, primarily due to underutilization on the bias line and the ramp-up costs associated with our two new facilities that we will still be developing in 2024.

Maybe just first on the Engineering segment. You mentioned outsized demand there but you're pointing to a flattish year. Certainly understand the supply chain 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? Just we've seen a number of fill-finish capacity announcements recently. So I'm just curious if that's improved even further more recently.

Yes. Thanks for the question. The slight answer is that we see demand in line with the expectation we delivered at our Capital Markets Day. We meet the single-digit growth as a broad overview. Obviously, we are talking about a business based on projects. So we are used to seeing some fluctuation in quarters and years. But I want also to draw your attention to the fact that comparing the last two years, '23 to '22, we enjoyed very healthy growth in the segment in the range of 26%. So the partially changing growth rate for the next year is part of a journey that is really positive and is the success of our solution in the market to serve our main attention in serving the customer at their best.

Got it. And then I guess just my follow-up. One of your competitors on their call a couple of weeks ago mentioned the opportunity from this NX-1 regulation in Europe. I think in your deck, you mentioned an increased shift to ready-to-use vials and cartridges due to the regulatory landscape. So I guess I'm kind of curious about your view on NX1 and what that could mean for Stevanato.

It's a very, very good point because if we refer to our innovation, our products, one of our main innovations in the easy fill in the sterile market for cartridges quality in relation to the new technology targets the risk of particle contamination in filling lines because we significantly reduced the possible impact with our new secondary packaging, which is also applicable to the syringe market. So the increasing expectations in terms of quality are one of the main barriers to entry for our market and the fact that we are innovating within this market is one of the reasons we maintain confidence in the future with new products.

I just wanted to ask about 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 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 the 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 bias 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 in the second half of the year. In terms of the visibility, I have also 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 the ramping up of the new facility, specifically Latina in 2024. That will become more prevalent during the year, obviously.

About our model, we see a 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. So first of all, we plan to keep expanding our high-value products. In our model, we have high-value products between 35% to 37% 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 any price decline in our model.

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 of those price adjustments as more pass-through in nature. We have since returned to our more annualized pricing adjustments.

I'm sorry if I missed it, but what's your embedded expectation for COVID-related revenues this year?

We don't model any more the COVID-related revenues 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 grew 24% in Q4, excluding COVID. For 2024, we are not modeling revenues from COVID.

Great. That's what I was expecting. Can you talk about gross margin pacing throughout the year, especially considering the capacity overhead?

Yes. As mentioned, we see expansion in the Engineering segment, more in the second part of the year. For the reasons I mentioned before, we expect to recover the situation in the second half of the year but we had some headwind during the first part of the year because of the reasons I mentioned. Nevertheless, we see that as a temporary effect, obviously, as the market is expecting.

Got it. The midpoint of your revenue guide is around 10.5%, while analysts were anticipating 11%. It's quite in line with expectations. However, could you clarify the difference between your guidance of 9 and 12 in terms of revenue? What is the difference?

Yes. The difference is due to our backlog, which is covered between 55% and 60%. We also have additional forecasts from customers to support this. The uncertainty mainly stems from the market's reactivation and the inflation linked to destocking.

So basically, Derek, it's a different pace of recovery within the vial 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?

The answer is yes.

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

You mentioned that the annual backlog figure is more significant. While there has been impressive year-over-year growth this quarter, it appears that the backlog is fairly stable compared to last year. Moving forward, is the supply chain and order backlog mostly back to normal? Should we anticipate orders aligning closely with market demand in the future, with some fluctuations?

Compared to the prepandemic situation, our backlog is much higher. And the peak in the pandemic was mainly related to order patterns from our customers to secure their supply chain. So we believe the backlog and the order pattern is moving 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 given fluctuation.

On top of that, you have to consider that it's only one of the indicators for the demand because we have a backlog; we just put only committed orders with those commercial details but we have also forecasts. We have material agreements. So as we delivered in the past, we consider backlog and the order intake. It's 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 idea or at least maybe on full year, how much that higher D&A is going to impact margin, at least operating margin on a year-over-year basis?

Yes, sure. 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. Just to clarify about the Engineering segment; it seems there's some growth challenges there, so growth is taking a slight step back as you focus on improving manufacturing and execution. However, you also mentioned that you still expect some margin expansion in 2024 for that segment. Did I hear that correctly?

Yes, this is 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 yes, about the growth, you are right but we need also to underline the fact that we are growing significantly. In engineering, we had a compound annual growth rate of 26% if we compare to 2019. So in this project business, we believe it is normal to have some fluctuation but the trajectory is still there.

Got it. Okay. Lastly, concerning the in vitro diagnostics segment, I understand there are several factors affecting vial demand. Specifically regarding in vitro diagnostics, it seems to have contributed to a slight decrease in vial demand in 2023. Do you anticipate this to return to normal, or will it continue into 2024?

Yes, the situation is not exactly the same in vials. 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 anticipate that the situation will normalize later. But this kind of expectation is completely embedded in our guidance upside.

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 management say that you're kind of tamping down the sales activity in that business in favor of focusing on current projects and bringing them to fruition. Am I understanding that correctly that you are not adding to orders or backlog and engineering right now?

No, basically, we are really focused to deliver to our customers in this period of time. So please remember that the revenue recognition is based on a cost-to-cost approach. So we are mainly focused on completing our projects and we expect a near-flat in terms of third parties revenue compared to the prior year. The overall segment is growing, also leveraging the fact that we are growing our capacity for Fishers and Latina. So this is our expectation for 2024.

David, we are still focused on the future growth of the engineering segment by allocating more resources and optimizing our supply chain and industrial setup. Our intent is not to lower our expectations for the future; rather, we want to be mindful of acquiring new business based on our ability to deliver.

Understood. Second question, second topic is around margin. So I want to understand more specifically, particularly in BDS, with the vials as a headwind. I understand that and understand high-value vials or ready-to-use vials are more higher 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 margins. So the question is why with 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 in 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. And this is one reason. The other one, as I mentioned, is more in bulk and underutilization, a temporary underutilization of our lines. And obviously, the cost and efficiency that temporary underutilization can bring to our P&L. So those are the two main reasons together with the already anticipated startup cost and validation cost for the ramp-up in Fishers and Latina have also in our model, just to complete the picture in the model, some currency headwind; we expect euro to get stronger with respect to the U.S. dollar. And as you know very well, today, we have more manufacturing footprint in Europe and partially in Mexico compared with the U.S., where we are, on the other side, growing our sales with a growing sales in U.S. dollars. So this is another effect we have in our model to explain the slight decline we expect in BDS, partially offset, obviously, by the mix shift to high-value products.

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 was for one specific customer that we deliver those for and it was highly accretive.

Last question is about committed orders. Marco, you touched on this earlier regarding the low end of the range. Looking at the flat committed orders year-over-year and considering you won’t be providing that figure quarterly, tracking it will be more challenging. You mentioned in your prepared remarks that you anticipate orders to increase in the second half, which suggests that this increase won’t significantly affect second half revenue but may instead benefit 2025. I would appreciate it if you could explain further how a flat order book would lead to revenue contributions from Fishers starting mainly in early 2025 rather than mid-2024, and how an overall order situation that doesn’t improve until later in the year can still result in 10% revenue growth.

Well, again, this is not the only tool of visibility we have; we also have forecasts from our customers 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 customers used to order much further 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 '22. We got €1.73 billion in '23 compared to €1.16 billion in '22. But the reality, the €1.16 billion in '22 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 orders for 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 lead time on the order book is shortening. So it reflects faster than during pandemic in actual revenues.

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

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 large complex assembly line that may take up to two years for the full completion of the project and we have more simple vision inspection systems that may require some months in terms of delivery time. So in terms of the mix, now we are considering lead times that are longer than in the past because of the situation in terms of electronic components availability is now more reliable but the delivery times are longer than before the pandemic. So we are considering something longer 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 that 28% of ADS is within biologic products. Just a point of clarification. Are you including GLP-1 under biologics? And just any thoughts on the outlook for those products and what's included in guidance in '24?

No, you are right. GLP-1s are biologics, and they are included both in our share of impact of biologics on our readiness and also in our guidance.

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

In terms of the share, we are in the process of understanding what the final number could be. Obviously, we can update you in the next call. But we see a more material impact in '25 and beyond. As I stated in my commentary about Fishers where our high-value solution capacity is overweighted in biologics but we expect to have a 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 some Biologics revenue for the BDS segment excluding COVID.

Franco, you may have encountered similar situations in the past with acquisitions like Novo and Catalent. Do you believe Novo's ownership of a fill/finish group of businesses enhances your visibility? Additionally, since they have more cash for investments, and considering what Catalent has done, does this positively influence your perspective on how quickly your business might accelerate? Does this shift your view on whether there's now greater visibility for your business with Novo, a company better capitalized in the field?

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

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 Stevanato Group's fourth quarter and year-end fiscal '23 earnings call. 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.