Stevanato Group SpA Q3 FY2024 earnings call

• Engineering: Launched a business optimization plan to address challenges, focusing on optimizing the engineering footprint, rightsizing the operational structure, and harmonizing industrial processes. Completed several complex projects for key customers in Q3. Believes the demand landscape for Engineering remains favorable with tailwinds like biologics growth, drug delivery device adoption, and Annex One standards. • Vial Destocking: Anticipates vial orders to pick up by the end of 2024 with a gradual recovery in 2025. Continues to see strong demand for high-value solutions, which grew 18% year-to-date. • Capacity Expansions: Fishers achieved commercial production launch, installed a second high-speed manufacturing line, and started validation with key customers. Latina scaled production and became profitable at the gross profit level in Q3. • Alliance for RTU: Launched an initiative to educate the industry on transitioning to sterilized vials and cartridges. Won a supply agreement for premium micro vials used in a needle-free epinephrine nasal spray approved by the FDA.

For the third quarter of 2024, revenue was €277.9 million, growing 2% and 3% on a constant currency basis. The Biopharmaceutical and Diagnostic Solutions (BDS) Segment saw revenue increase 6% and 7% on a constant currency basis to €233 million, driven primarily by 17% growth in high-value solutions, which accounted for approximately 36% of total revenue in the quarter (versus 32% last year). Revenue from the Engineering Segment declined 15% to €44.8 million. Gross profit margin for the BDS segment was 28% and for the Engineering segment was 15.6% in the third quarter of 2024. High-value solutions revenue grew to €100.4 million in Q3, and for the full year 2024, high-value solutions are expected to represent 37%-39% of total revenue, up from the prior estimate of 36%-39%.

• Maintained revenue guidance for 2024 at €1.090 billion to €1.110 billion. Lowered adjusted EBITDA guidance to €257 million to €263 million and adjusted diluted EPS guidance to €0.47 to €0.49 due to higher costs in Engineering and increased validation activities in the U.S. • Expect continued cautious near-term in 2025, with recovery in bulk and EZ-fill vials being the key swing factor. Anticipate improvement in the Engineering Segment with the implementation of the optimization plan. Intends to provide formal guidance in March 2025.

• Uncertainty in the timing and pace of vial destocking recovery. • Challenges in the engineering optimization plan taking longer than expected to yield profitability. • Temporary inefficiencies and higher costs during the start-up phases of new manufacturing sites in Fishers and Latina.

Q: About visibility to destocking easing and customer group conversations.

A: Franco Stevanato stated the market is normalizing, with gradual improvements in vial orders in the second half of 2024 and customer forecasts indicating increased demand in 2025.

Q: On engineering turnaround and margin expectations.

A: Marco Dal Lago mentioned engineering faced challenges with complex projects but is taking action to optimize, expecting 2-3 quarters to normalize profitability.

Q: On Fishers ramp and margin.

A: Marco Dal Lago said Fishers started commercial production and expects quarter-over-quarter improvement in financial performances.

Q: On margin expansion in Q4.

A: Marco Dal Lago explained Q4 gross margin improvement is driven by better mix, volumes, and performances in Latina and Fishers.

Q: On vial demand recovery.

A: Franco Stevanato noted vial demand will return to pre-pandemic levels, with positive signals from customers.