Stevanato Group S.p.A. (STVN) Earnings Call Transcript & Summary

I'm on the Bank of America Life Science Tools and Diagnostics team based out of New York. And we're excited to host for our next session, Stevanato Group. We're joined by Marco Dal Lago, CFO. Marco, thanks so much for being here.

Thanks to you for having me.

We'll start with a quick presentation, and then we'll go into a fireside chat and Q&A. Marco?

Thank you. So Stevanato Group. We have a global footprint and really integrated value proposition. We report our numbers in 2 segments: the Biopharmaceutical and Diagnostic Solutions segment, which is representing approximately 85% of our revenue; and the Engineering segment that is representing about 15% of our revenue. About Biopharmaceutical and Diagnostic Solutions, we have a large set of products in our portfolio. Main business, core business is in drug containment solutions that we're providing 3 main formats, pre-filled syringes, vials and cartridges. Vials and cartridge, we can offer both in bulk and sterile configuration. We have different type of quality, but we are moving more and more towards high value products in Nexa and Alba configuration. Moving to the right, we started investing in drug delivery system 5 years ago. We are pretty happy about the progresses we have been doing, particularly in proprietary products in pen injectors, auto-injector and on-body delivery system. We have also in-vitro diagnostic business. Moving to the right to the Engineering segment. We can provide visual inspection machines, mainly for the pharma industry; packaging and assembly lines, mainly dedicated to drug delivery systems; and we have a very good technology in glass forming. What is very important to underline is the integration between the 2 segments where Engineering is very important internally to enhance the quality and the efficiency of our products. We work daily among the 2 teams in increasing the process and improve the quality of the products. Most of the success we achieved in high value product is driven by the process, by our ability to manage the process and keep on improving the efficiency and the quality of our products. We have also synergies, obviously, about the 2 segments when we talk about customers because we can provide to customers in pharma space both visual inspection machines and assembly and packaging line. Another piece of the picture is about analytical services. We have tech center, both in Boston in U.S. and in Padua, where we work with pharma -- with customers in general to work with them early stage in the development phase of the drug in order to develop the best container and drug delivery system in order to comply with their needs. In the bottom here, you can see we are #1 in the market in ready-to-use vials. We are #1 in cartridges, and we believe we have the best technology in glass forming machines. Our, let's say, strategic pillars for our multiyear business plan, we are executing global expansion. You will see in a while where we are as a manufacturing footprint. Particularly, we are investing significantly in increased capacity high value products and gain customer proximity. With this purpose, we increase -- we are working to ramp up Fishers, Indiana, the plant in Fishers, Indiana, where are producing mainly syringes, high value syringes and high value vials. Same we are doing in Latina. This is after the IPO, we invested heavily in expanding capacity, again, in high value products. That is the second driver of our growth. It's -- we are talking here about products really suitable for the high requirements coming from the biologics space. So the container must be more and more sophisticated to comply to the -- with the drugs in biologics, and this is where we have been investing and where we can see high demand for the present and for the future. We have been able basically to shift the company to our high value solution as we will see in the following slides. R&D, another pillar of our innovation of our plan. We are dedicating investment and spending to R&D, particularly in glass containment solutions for high value solutions like Alba and Nexa. And in the recent year, we have been investing significantly also in proprietary solution for drug delivery system. Very important, we have multiyear pipeline with our big customers. We are partnering with them for many years. We are growing and expanding our capacity in line with their plan in order to satisfy their need. In doing that, we believe we are well sustained by secular tailwind, particularly the increase in the aging population. And also the trend in pharma companies to outsource the noncore capabilities. And this is where we can help the pharma companies to grow more rapidly, taking care of part of their activity like the ready-to-use transition and all the activities we are doing. I was mentioning, our footprint is global. You must imagine that in 2010, we were just an Italian company. In 15 years, we have been able to expand in 9 countries. We are now in different countries now with 13 plants. We underline the 2 new sites I mentioned before. We decided to invest after the IPO in 2021, more than $0.5 billion in Fishers to increase capacity in syringes, high value vials and also a part dedicated to the CMO business for truck delivery system. And following customer demand, we decided also to expand the Latina in Italy, that is close to Rome to expand capacity for syringes. And in the first step and the second step, the very important one is related to the expansion in capacity of ready-to-fill cartridges in line with an agreement we have with our -- one of our big customers in order to switch the production from bulk configuration to EZ-fill configuration. Today, the cartridges market is predominantly in bulk configuration. So we see it as a big step to convert the market toward ready-to-fill configuration. As you can see, we are basically all over the world in Asia, South America, U.S., Mexico, and obviously, in Europe, where the headquarter is today. Looking at our financial performances. We started 2025 in a good way. You can see here the numbers of the second quarter where we have been able to grow 10% at a constant currency rate, 8% as reported numbers. High value solutions keep on growing. We are up 13% compared to last year. And probably most importantly, we have been able to expand the margin for more than 200 basis points at gross profit margin level, but also the EBIT and EBITDA level. So this is driven mainly by the progress we have been doing in Latina and Fishers where obviously, the ramp-up is -- cost is dilutive compared with the average of the group because of the fixed expenses we have there while we are ramping up, but we are doing progress quarter after quarter. Another driver of margin expansion is the mix shift to our high value products and the stabilization we can see in vials demand compared to 2024, where basically, the drop was significant for us in the range of 30%. So we are recovering also there. All the 3 factors are helping us to grow the top line and expand profitability. On the right part, you can see instead the multiyear evolution. From 2019, we have not only been able to more than double the size of the company. We were at EUR 537 million in 2019. So we more than doubled. The mix shift is relevant. We were at 17% of high value solution as a percentage of revenue. We are now about 40%. And this is the main driver that help us to expand the profitability and adjusted EBITDA margin level for more than 500 basis points, but we consider it just an intermediate target because we have more, much more ambitious targets for the years to come, offsetting the temporary headwinds of the expansion of the 2 new greenfields and the recovery of the vials market. So we expect to keep on growing the profitability while we are increasing the size of the company. So we believe we are very well positioned to leverage the opportunities in front of us especially with the growing biologics and the transition toward high value products. Thank you.

Thank you so much. Let's jump into the fireside chat. And if anyone's got questions, raise your hand and we can incorporate those as well. I think, Marco, maybe let's just start on the points you touched on in terms of what's driving the progress in 2025. You talked about stabilization of vial demand, the progress in Fishers and Latina. On the vials dynamics, could you walk us through sort of where you are as of the end of 2Q, what you've seen most recently and how you see that returning to normal over the next couple of quarters?

So first half of the year, we grew single digit compared to the same period last year. But the other important data point is order intake. We are growing in orders for more than 10%. We are growing double digit, robust double digit. So this is consistent with our view of the market where we expect this year to grow mid- to high single digits compared with last year. I mean we started the recovery from 2024 that we expected the most difficult year with respect to vials destocking. We expect a normalization in 2026. With normalization, we mean growing compared to the pre-pandemic situation, we're growing in a steady growth of low single digit. This is what we expect to be the market in 2026, allowing us to recover also on that side.

And you mentioned the faster orders versus revenues mid-single, high single for the year. Could you break that up between bulk vials and ready-to-use or sort of the pacing of those 2 subsegments?

They are both growing. Similarly, beginning of the year, we were expecting more rapid recovery in bulk. Second quarter, we experienced a good order intake in ready-to-fill. So there are quarterly fluctuation. Overall, we see the market recovering quarter-after-quarter with similar volumes coming.

Okay. And that growth relative to pre-pandemic, that's just primarily a factor of the normalization, the destocking having played out. Is that sort of the similar cadence you expect going forward?

Again, we expect the normalization will be completed in '26. So we see '25 growing, but not fully recovering compared to the pre-pandemic situation. We are still below that level. It's a good opportunity for the next quarter to keep on growing.

Okay. And then the other big topic of discussion this year in terms of how the year has played out relative to the expectations in the Engineering segment. Can you just talk a little bit about where you were entering this year and some of the challenges you've seen this year in Engineering and how you're making progress resolving that?

Well, we are executing the optimization plan aggressively in line with our expectation. We are redesigning our footprint, moving the inspection machine technology from them. I think we are becoming this way more efficient and more respectful with the deadline. We believe we have better project management this way. We see good demand in Engineering driven by special machines, but also assembly and packaging lines for drug delivery system where we have a very good technology. It's a project business where we can have some quarterly fluctuation because, obviously, it's a project by project, and sometimes the speed of decision about the CapEx on our customer side can be shift from 1 quarter to the other. But overall, we see good demand also in Engineering. So the combination of improving efficiency, good demand is giving us confidence to recover quickly and go back at least to the profitability we have on until 2023.

Okay. And you talked about some of the shifting projects. You saw some of that this year with some projects shift that resulted an update to the guide. Are you able to recapture those revenues, sort of get back on track? Could you talk to us about the pace of recovery? I think you talked about down low double digits as a new guide. What's the pace of recovery coming off of that?

So the new situation is embedded in the guidance. We commonly say, we see a decline in that part of the business that as we have seen is representing about 15% of our total revenue. So we expect the decline there. We expect a sequential improvement in Q3 and Q4 in terms of revenue and gross profit margin. Again, based on demand, we are confident for the future to recover quickly.

Okay. And you've taken some -- you also touched on some operational steps you've taken internally in terms of moving head count around and expertise around. Does that give you confidence you'll be able to manage Engineering a little better in the future?

Yes. We are in the space for many years. We -- I think we provide a lot of colors on why we are in this situation. Just to recap, we double the size of the business from '20 and more than double the size of the business from 2019 to 2023. The pandemic, the jeopardizing of the supply chain in electronic components. So I'm going to say with a big workload and the supply chain not in a good shape. This caused some delays, but we believe it's really a temporary effect that we are managing. I didn't mention, but it's very important. We are very happy, not necessarily from the financial point of view, but about the fact that we have been able in the first half of the year to deliver most of the machines we had delay in. So we are executing according to our operational plan and exiting progressively from the problem.

Okay. And remind me, longer term, what is your outlook for the Engineering segment once you work through these issues?

Engineering based on the long-term demand, we can see it's -- we still reiterate the growth of high single digit in that segment towards 2027.

Let's shift to GLP-1s Obviously, there's a lot of focus there. Could you walk us through where you have exposure to GLP-1s? How you've participated in that market over the last couple of years? And so what are the current trends you're seeing?

Let me say that we are in the GLP-1 space since many years in diabetes care. So we are currently providing syringes, bypass syringes, cartridges or pen injectors but also sterile cartridges, some vials to bridge the capacity our customer need also vials. We are providing some assembly and packaging lines for auto-injector, pen injector. So most of our products are involved in GLP-1. We are very well positioned. We have the capacity in place. We created capacity also in the recent years. So we are very well positioned to play an important role. Nevertheless, we want to underline the fact that we are present in many therapeutic areas. We are not concentrating in a single therapeutic area. We are growing biologics, but not only in GLP-1s, but also in monocular antibodies, biosimilars. So that is driving the growth of our high value products.

Okay.Recently, there's been obviously...

Sorry, another opportunity we see is more for the future in GLP-1 is in drug delivery system, proprietary solution where the biologics will take part of the market. Typically the pharma company have their own IP solution for drug delivery system, but it's not the case most of the time for biosimilars. And this is where we can play a role with our proprietary products with pen injector and auto injector that we have been developing for the last 20 years.

Okay. And in terms of oral GLPs, has that come up in conversation with your existing customers? Are they making any changes to their future plans? Or sort of how do you incorporate that into your long-term outlook?

Generally speaking, we -- in our plan towards 2029, we are relying more on contractual visibility we have with our key customers rather than speculating on the share of oral. Nevertheless, we believe the market is an important one, and we expect that there will be space will be space both for oral and injectables with a predominant share in injectables.

So the majority of the market will stay with injectables longer term?

This is our view in our multiyear vision. We are talking 2030 and beyond, but it's the way we can see the market today.

Okay. You mentioned some of these long-term contracts, the contractual visibility you have. Can you talk to that a little bit more in terms of your major customers? Sort of how do you contract, how do you budget, how that feeds into your CapEx plans, just sort of what confidence do you have in those plans once they're set?

Obviously, we cannot disclose the name of the partner and the detail of the agreements we have in place. What I can tell you is that we have multiyear visibility for the capacity we are installing both in Latina and Fishers. We are covered by anchor customers where we have protection in place in the agreement in case volumes are going down. We are very well protected in the investment we have been doing both in Fishers and Latina. We are talking about high value products. So it has been also the mix shift to high value solutions. So they are very, very great opportunity for us to grow rapidly and expand the capacity and drive the mix shift to high value solutions.

Okay. And the protection and the contract that you talk about, what form does that take? Is that sort of a minimum volume commitment? Is that a revenue dollar? Can they make amendments to that over time? So what happens if they breach it?

It depends on the single agreement. Generally speaking, we have a minimal level of procurement. We have a price increase in case of lower quantities. We have penalties. We can have significant customer advance to be paid back with the delivery of the goods. So we are very linked with the customer. This is the key message. Obviously, it's not exclusive. The line is not exclusively dedicated to the customer. So basically, we rely on anchor customers. In the meantime, we are keeping on developing the market to work with all our key customers, not only with one specifically. So this is the way we approach with a lot of protection and anchor customer and the ability to further develop the market and leverage the same capacity.

Okay. And you touched on Fishers and Latina a number of times, so let's go there next. You recently started generating revenue from these sites in 3Q '24. You talked about the ramp out to 2028. Can you talk us through what that progression looks like, both from a revenue perspective and a margin perspective?

Sure. Let's start from Latina. Latina is 2 steps investment. We started with a decision to invest in syringes after -- in 2022, basically. We are pretty happy about the progress. As you said, we reached the breakeven gross profit margin level in Q3 2024. We are keeping on improving the top line and the profitability about syringes in Latina. It is still dilutive compared to the average of the group. But again, we are happy about the progresses and the fact that we're ramping up the top line and keeping under control the fixed expenses quarter after quarter, we can sequentially improve the profitability at the top line besides the capacity. The second step, I mentioned probably this before is following agreement we had with an important customer to establish capacity in EZ-fill cartridges. So it's following the decision we took together with the customer to switch from bulk to tray configuration cartridges, hopefully accelerating the conversion of the market. And about the cartridges part, we started building and building the machines. We plan to generate the first commercial revenue end of '26, beginning of '27. And it will be a ramp up till 2028, increase in capacity and the revenue. Fishers is a big plant in Indiana. We started generating commercial revenue in Q3 2024. We are still not positive at gross margin level. But also in Fishers, we can see quarter after quarter fixed expenses under control, growing on the top line and increased contribution margin with respect to generally positive gross margin by the end of '25. Also here, the ramp-up is expected to be completed by 2028. We anticipate the ratio between CapEx and revenue 1:1 with Fishers and generally speaking when we talk about high value products. And in Fishers, we share that we are investing north of $500 million. So it's a big ramp-up we expect from Fishers and Latina in the years to come, both in terms of capacity but also revenue margin.

Okay. The improvements in margin you expect to see over time at both sites, is that largely from scale in terms of volume? Or are they also going to be accretive eventually to overall margins because of mix and what you're going to be biased towards?

When we ramp up, we expect higher profitability in Fishers and Latina compared to the average of the group today, mainly because we are working largely in high value products. Almost everything, I would say, everything in Latina is related to high value product. In Fishers, very high percentages of installed base is related to high value products with Nexa syringes, Alba syringes, EZ-fill vials. We have an area for bulk vials following the bulk agreement. And we also decided to invest in DDS for CMO, we have a very selective approach for CMO. But in this case, we decided to partner with an important customer. We are working with for syringes and cartridges. So we decided to take advantage of the opportunity to produce their IP products that is also helping us to grow rapidly in drug delivery system and the manufacturing of the bulk system.

You talked during your prepared remarks in terms of the evolution of the company and the move out of just being in Italy to become more global, Fishers being a part of that. Obviously, you've been working on these sites for a number of years. The plan to invest there has taken a while ago. In terms of what's happened in the last 3, 6 months in the market, this shift to maybe reshoring, localization, pharma responding to tariffs. Has any of the conversations with your customers changed in terms of maybe localizing even further? Or is it still kind of too early? What are your customers telling in terms of where you're located going forward?

If you look more medium term, I mean the decision to be local in U.S. has been taken by Stevanato in 2021, so much before we were starting talking about tariffs. The reason that time was to gain customer proximity, it's an important market for us, North America. It's mainly for customer proximity in a growing market for biologics like U.S. Obviously, this is helping us in the discussion with customers because more and more, we will become a local producing from Fishers to the U.S. companies. So it's helping from this point of view. Temporarily, we have obviously, like anybody, has some negative effect due to tariffs because today, the ramp up is not completed that we still are importing some goods from Europe to North America. In our recent guidance, we mentioned that we expect about EUR 4 million impact at a profit level due to the tariffs because all the supply chain has to be under control, and we expect to mitigate the effect with respect of customers. But overall, we expect an impact of EUR 4 million. The good thing is, again, the fact that we are more and more local with respect of our markets, and we decide to invest in advance compared with other peers.

Well, let's shift gears a little bit and talk about Europe. Annex 1, you've been discussing this for a while now. Could you give us an update on sort of how Annex 1 has evolved and what you're seeing from your customers? How it's being adopted and how that benefits your portfolio and the mix shift?

So for sure, we can help our customers to be compliant with Annex 1, limiting the contamination is also a tailwind for us to accelerate the switch to ready-to-use configuration. So it's in the discussion with our customers. We see Annex 1 as a soft tailwind, it's not changing overnight, but it's helping to go to the right direction in adopting our ready-to-fill solution. So we see positively, obviously. It's not easy to measure the impact because it's not the single reason why the customer is deciding to switch to high value products, but for sure, the conversation with customers is helping.

Is there a way for you to sort of measure or quantify how many of your customers have made the switch? How many are discussing it? How many are still sort of debating whether to do it? Or just sort of how far are we in Annex 1 adoption across the industry?

In our opinion, it's hard to measure because, again, there are many advantages in adopting the ready-to-use configuration, the total cost of ownership, the better quality, the reliability of supply and so on and so forth, not only driven by regulatory. So it's not easy to allocate one order for one single specific reason. But for sure, it's helping in taking the right direction.

Okay. In terms of the components of the guide, both this year and longer term, just talk about price outside of the mix shift. Sort of what do you take on an apples-to-apples for price basis? And how do you see that going forward?

Now for high value solutions, there is not a big pressure. We believe and we think the #1 priority for our customers is quality and reliability of supply. We are talking about a small cost of the container compared with total -- the overall cost of treatment. So they are more sensitive on quality, global footprint and reliability of supply. That is exactly what we are doing in our plant. So we don't experience big price pressure on that. But there is a very long-term fair relationship with our customers. So we know each other very well. It's not -- we don't experience a strange situation, let's put it this way. Of course, we experienced more pressure in the last 18 months in vials, for example, where there is today, more capacity than demand due to the destocking. But also there, we see the situation normalizing as the overall demand is normalizing. So it's something, obviously, we keep on control, both the prices and the costs, but we didn't experience any strange situation or dynamics.

Okay. And as you think about longer term, you talked about your exposure to biologics as biosimilars become a bigger part of the market. Can you talk about the process that happens when a biosimilar emerges if you've been stepped in and you're in use with the branded drug?

So first of all, we are covering the market both with the originators but also with biosimilars. What typically happens is that the biosimilar is replicating the solution of the originator in terms of container. So in the time-to-market critical, they tend not to do experiments on the container. So most of the time, the container used for the originator is used also when a biosimilar is entering. So for us, it's an opportunity. It's an opportunity, as I was mentioning before, also for the drug delivery systems where typically, the biosimilars, they don't have their own IP product and the pharma company is not giving to the biosimilar device. So it's an opportunity for us, and we will take advantage of it in the coming years.

I mean you just talked about price. There's no major margin difference or profitability difference?

No. If we are talking about a high-performance syringe, the price is the same. Price, unit price is mainly driven by quantities. I mean we can discount the unit price if a customer is somehow allowing us to underline 24/7 for the entire year. I mean big quantities involved. In this case, there can be some price adjustment, but it's not margin dilutive for us for the efficiency we can bring in our operation. On the opposite, when we talk about the small quantities. Sometimes, with biosimilar, the price is higher. But apple-with-apple, we are keeping consistent profitability with both.

Okay. Any questions from the audience? And you were just talking about apples-to-apples in products. What about when you managed to upsell or move someone up to a high value solution. Can you talk about the margin benefit there?

Overall, high value solutions are much more accretive than standard solutions in containers. The range of gross profit margin in high value solution is between 40% to 70%, probably 70% is in the niche, in the large quantities, more close to 40%. While on standard, probably, the gross profit margin is between 15% and 35%. So high value products are much more accretive for us. We've seen before the margin expansion of 500 basis points from '19 to '25 in spite of Latina, in spite of Fishers, in spite of destocking. The main driver of the margin expansion is the mix shift to high value products. So for us in going to that direction is for sure accretive for us.

Okay. In just the last couple of minutes we have left, maybe any closing remarks or anything else we should keep in mind as we get closer to 2026? Anything you want to make sure is top of mind? And then our usual standard closing question is sort of, what do you feel is most misunderstood or underappreciated about Stevanato?

Starting from '26 and beyond, we believe we are very well positioned to take advantage of the growing of biologics. We invested, we believe, in the right products at the right time. We are ready to take advantage of the important investments we have made in recent years. So we are very positive about that. But also about the vials recovery, we see as a temporary headwinds. But overall, the demand is there for the future. So we are taking it very positively. After almost 4 years as a public company, I think the story is very well known. I can see from analysts a lot of preparation, much more than obviously than at the beginning. So I think there is a well understanding of the business and our opportunities and capabilities we have for the future.

Okay. Great. With that, thank you so much, Marco. Thank you.

Thank you. Thank you, everyone.

Appreciate it.