Stevanato Group Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2025

There are 14 speakers on the call.

Operator

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Stefano Group First Quarter twenty twenty five Results Conference Call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions.

Operator

At this time, I would like to turn the conference over to Ms. Lisa Miles, Senior Vice President, Investor Relations. Please go ahead, madam.

Speaker 1

Good morning, and thank you for joining us. With me today are Franco Stevanato, Chief Executive Officer and Marco De Lago, Chief Financial Officer. A presentation to accompany today's results is available on the Investor Relations page of our website under the Financial Results tab. As a reminder, some statements being made today are forward looking and based on current expectations. Actual results may differ materially due to risks outlined in Item three d, Risk Factors, of our most recent annual report on Form 20 F filed with the SEC.

Speaker 1

Please review the Safe Harbor statement included at the beginning of today's presentation and in our press release. The company undertakes no obligation to revise or update these forward looking statements except as required by law. Today's presentation may include non GAAP financial information. Management uses these measures internally to assess performance and believe they may be helpful for investors in evaluating the quality of our financial results, identifying trends in our performance, and providing meaningful period to period comparisons. For a reconciliation of these non GAAP measures, please refer to the company's most recent earnings press release.

Speaker 1

And with that, I'll hand the call over to Franco Stevanato for his opening remarks.

Speaker 2

Thank you, Lisa, and thanks for joining us. Today, we review our first quarter performance, share an update on our investment projects and discuss the current environment. We started fiscal twenty twenty five with strong momentum in the first quarter, highlighted by 9% revenue growth and a step up in gross profit margin compared to last year. Our first quarter financial results exceeded our expectations, driven by strong operational delivery in the biopharmaceutical and diagnostic solutions segment. This helped offset the anticipated softer performance in the engineering segment, as we continue to execute our business optimisation plan.

Speaker 2

This solid performance in the BDS segment was driven by the expected improvements at our Latino and Fisher facilities, as our capacity expansion projects started to scale volumes and revenue, and a favourable mix of high value solutions, including a modest recovery in the easy fill bias. Revenue from high value solutions accounted for 43% of the total revenue in the first quarter of twenty twenty five, as we continue to expand capacity for high value syringes to meet robust demand. We also see ongoing signs of stabilisation in vial demand as the effects of destocking gradually subside. As anticipated, the revenue and margin decline in the engineering segment were primarily related to the legacy projects in Denmark. This unfavorably impacted the portfolio mix in the first quarter.

Speaker 2

As part of our optimisation plan, we prioritised the execution of these projects and have made significant operational progress. We remain on track to complete all of them in 2025, with the majority expected to be completed mid year. While these improvements may not be fully reflected in our financial results, they led to meaningful gains across key operational performance indicators. This reinforces our confidence that we are on the right path. For example, in the first quarter, acceptance testing rates continued to improve for both final factory acceptance and site acceptance testings.

Speaker 2

This reflects the tangible progress we are making in bringing this project to completion and strengthening the segment's operational delivery. Looking ahead, we see strong demand for our engineering manufacturing lines, where long term growth is underpinned by favourable secular trends. For example, rising patient adoption of drug delivery devices is fueling demand for complex device assembly and packaging lines. We are supporting a new wave of customers, as they rapidly expand their device programs, helping customers deliver therapies and treatments to patients safely and efficiently. Let's turn to an update on our capital investment projects in Fishers and Latina.

Speaker 2

In the first quarter, we saw continued financial improvement in margins from our expansion projects as we began to scale volumes, utilisation and revenue. Both facilities were ramping up syringes to satisfy strong market demand. Our hub in Fischers brings together our drug containment solutions and device manufacturing capabilities to offer customers an integrated offering with localised production in The US. I recently returned from Fischers, where activities are in high gear. Today, we are in the early phase of scaling commercial syringes production.

Speaker 2

In parallel, we are on track with ongoing installations of additional manufacturing lines. We have a full schedule of customer validation and audit activities booked for the second quarter as more capacity comes online. We also started construction on our device manufacturing area to support customer device programmes for biologic treatments. As a reminder, we keep a selective and strategic approach to contract manufacturing These projects integrate our glass products and most of the time our engineering technology for assembly. This demonstrates the value customers see in our diversified and complementary portfolio of integrated solutions.

Speaker 2

In Latina, we are scaling commercial production for high value syringes and manufacturing line installations are ongoing. Customer validation activities will continue into 2026 as planned. We are also preparing for the next phase of ready to use cartridges production, with commercial production still expected to launch at the end of twenty twenty six. Before I hand the call over to Marco, I'd like to briefly share some thoughts on global trade and tariffs. We have a task force that's practically working to mitigate the potential exposure to tariffs through a combination of actions including customer surcharges, supply chain, procurement and other initiatives.

Speaker 2

Based on recent discussions with customers, alongside thorough analysis and broader industry commentary, we expect that most of the tariff related costs will be absorbed by customers. As a reminder, we experienced a similar situation when gas prices spiked a few years ago. These cost increases were passed through. That said, we are continuing to leverage our global manufacturing network to support localised As we ramp up operations in Fissures, this will further support our customers with a robust market supply chain. As more pharma and biotech companies increase their manufacturing footprint in The US, We do not expect that tariffs will affect our competitive positioning.

Speaker 2

On the contrary, we believe our ongoing investments in The US will further reinforce our position in this important market. With that, I'll turn the call over to Marco. Thanks, Franco. Before I begin, I'd like to clarify that all comparisons refer to the first quarter of twenty twenty four, unless otherwise specified. Let's start on page nine.

Speaker 3

In the first quarter of twenty twenty five, revenue increased by 9% or 8% on a constant currency basis to 2 and 56,600,000.0. This was driven by 11% growth in the BDS segment, which offset a 4% revenue decline in the engineering segment. Revenue from high value solutions grew 25% in the first quarter to 1 and 10,300,000.0 and accounted for 43% of total revenue. This was driven by continuous strong demand in high value syringes, increasing capacity in Latin and fishes and a partial recovery in easy fill vias as destocking subsides. The strong performance in the BDS segment led to an 80 basis point increase in consolidated gross profit margin of 27.2% in the first quarter of twenty twenty five.

Speaker 3

This was driven by the expected improvements at our Latina and Fishers facilities as we scale our multi year investment plan, including device countermanufacturing activities in Fishers. While the two sites remain margin dilutive, we are gaining operating leverage as we scale volumes, utilisation and revenue. Second, a higher mix of more accretive high value solutions, including a modest improvement in EZV. These favourable trends were offset by the expected lower gross profit from the Engineering segment. In the first quarter of twenty twenty five, operating profit margin increased two eighty basis points to 13.5% and on an adjusted basis, operating profit margin was 14.3%.

Speaker 3

This was driven by an increase in gross profit and continued benefits from the initiative launched last year to curtail costs, without compromising future growth. For the first quarter of twenty twenty five, net profit totalled 26,500,000.0 and diluted earnings per share were 10¢. On an adjusted basis, net profit was 28,100,000.0 and adjusted diluted EPS were also 10¢. Adjusted EBITDA was 57,400,000.0 and adjusted EBITDA margin increased 100 basis points to 22.4%. Moving to segment results on page 10.

Speaker 3

In the first quarter of twenty twenty five, revenue from the BDS segment increased 11% to 2 and 20,800,000.0 on both a reported and constant currency basis, driven by strong growth in high value syringes and, to elixir stand, other product categories. During the quarter, we also saw continued stabilisation in vial demand, as the effects of destocking began to gradually ease. High value solutions grew 25% to 110,300,000.0, representing approximately 50% of segment revenue. Revenue from other containment delivery solutions totaled 110,500,000.0, which was consistent with the same period last year. In the first quarter of twenty twenty five, gross profit margin increased four twenty basis points to 31.3%.

Speaker 3

Margin expansion was driven by the improvements in Latina and Fishers as we scale operations. This includes activities related to our contract manufacturing projects in Fishers and the higher mix of more accretive high value solutions, including modest growth in easy fill buyers. As a result, the operating profit margin for the BDS segment rose to 18.8%, up from 14.1% in the same period last year. In the first quarter of twenty twenty five, revenue from the engineering segment decreased 4% to €35,700,000 primarily due to lower sales from pharmaceutical visual inspection and glass conversion lines. This was partially offset by growth in assembly and packaging lines as well as after sales activities.

Speaker 3

Gross profit margins were slightly below our expectations by approximately 50 basis points and decreased to 10.7%. For the first quarter, margins were unfavorably impacted by project mix, as we prioritized the completion of the legacy projects in Denmark. As a result, operating profit margin declined to 4.7%. Please turn to the next slide for a review of balance sheet and cash flow. We ended the quarter with cash and cash equivalents of 90,700,000.0 and net debt of 300,200,000.0.

Speaker 3

We believe we have adequate liquidity to fund our strategic priorities through a combination of cash on hand, available credit lines, cash generated from operations and the ability to access additional financing. For the first quarter of twenty twenty five, capital expenditures totaled 69,700,000.0, with more than 90% tied to growth investments to advance our ongoing capacity expansion for high value solutions in Fishers and Latinas. We continue to carefully manage trade working capital to support the growth of our business. In the first quarter, we benefited from strong collection of receivables, which drove cash generation. As expected, our inventory levels increased in the first quarter as we replenished inventories that fell in the fourth quarter driven by strong sales.

Speaker 3

In the first quarter of twenty twenty five, net cash from operating activities increased to €99,800,000 Cash used in the purchase of property, plant and equipment and intangible assets was €71,800,000 As a result, we generated free cash flow of €29,700,000 in the first quarter of twenty twenty five. Please turn to the next slide for an update of our assessment of tariffs and our revised guidance. As Franco noted, our task force analysed both regional sales and our network of global suppliers. These efforts are ongoing as the situation evolves and the team is closely monitoring any further developments. Our current guidance assumes a 10% tariff rate for goods shipping from The EU to The US, the absorption of price increases from suppliers and no change in The US policy.

Speaker 3

Based on these assumptions, we estimate a tariff related impact of approximately 4,500,000.0 to operating profit, or approximately 1¢ of diluted earnings per share in 2025. It is important to note that this is based on what we know today. We have implemented mitigation strategies in an effort to further reduce our exposure, and this effort will continue. Discussions with customers have been constructive and are ongoing. Aside from the expected impact from tariffs, all other elements of our guidance remain fully on track with what we shared in March.

Speaker 3

As a result, we continue to expect revenue in the range of 1,160,000,000 to 1,190,000,000 and we now expect adjusted EBITDA between two and eighty eight point five million and 301,800,000.0 and adjusted diluted EPS between $0.50 to $0.54 Our updated guidance assumes the following factors: Revenue will be stronger in the second half of fiscal twenty twenty five versus the first half. The BDS segment is still expected to grow mid single digit to high single digits and the engineering segment is expected to be neutral to low single digit growth. High value solutions of 39% to 41% of total revenue. On foreign currency, we now assume a modest headwind that has been fully absorbed in the model. Our hedging strategies have limited our exposure and we assume a eurodollar average rate of 1.13 for the period from April to December.

Speaker 3

With the inclusion of tariffs, we now assume a gross profit margin improvement of approximately 100 basis points at the central point of our guidance. And lastly, the in favourable impact from tariffs of 4,500,000.0 Euro of operating profit or approximately 1¢ of diluted earnings per share. Thank you. I will hand the call back to Franco. Thank you, Marco.

Speaker 3

In closing, we had a solid start to fiscal twenty twenty five, with strong momentum in the BDS segment as we advance progress at our Latino and official sites and increase our mix

Speaker 2

of high value solutions. We are also encouraged by the continued stabilisation in the market demand as destocking fades. The team remains laser focused on executing against our key priorities and delivering our long term objectives. Ongoing capacity expansion in high value solutions is critical to meeting elevated end market demand, driven primarily by the rise in biologics. We operate in growing markets and our capital investments are aligned with demand driven needs.

Speaker 2

We continue to see a robust pipeline of long term opportunities supported by favourable secular tailwinds, from aging populations with increasingly complex health needs to pharma innovation and the shift towards self administration of medicines. These trends align closely with our core strengths. We remain committed to meeting strong customer demand for our high value solutions. Longer term, we believe the ongoing shift towards these solutions will support a return to our target of low double digit revenue growth and drive margin expansion. Our strong business fundamentals and disciplined financial strategy provide us with the flexibility to fund our growth and create long term value for shareholders.

Speaker 2

Operator, we are ready for questions. Thank you.

Operator

Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. The first question is from Matt Larew, William Blair. Please go ahead.

Speaker 4

Hi, thank you for taking my questions. The first one would just be a follow-up on tariffs. I just want to clarify that what is incorporated in guidance is the gross impact from tariffs and that the number of medications you're pursuing are not included in guidance and thus, in theory, are upside. And That's kind of the first part of it. The second part of the tariff question is, can you just help us understand what percentage of U.

Speaker 4

S. Demand is serviced by U. S.-based manufacturing today? And how much of that U. S.

Speaker 4

Demand you'll be able to satisfy from Fisher's perhaps both by the end of this year and then over the long term?

Speaker 5

Thanks for the question. Marco speaking. As Franco noted, we have been working with the task force internally for a couple of months. This includes sales people, procurement people, legal, finance, and supply chain. Play different scenario, obviously.

Speaker 5

Our our guidance is embedding tariffs to our customers, also impact on supply chain and procurement, and it's including finished product, raw material, and semi finished products. We are planning to transfer in higher price to most of the customer the impact. Nevertheless, we see some impact in supply chain either in production or in procurement, in purchasing. And so this is the estimation about the 4,500,000.0 operating profit level we we mentioned in the remarks. Basically, we are we are playing different scenarios, we believe this is the current best estimation we can provide while we are working on further mitigation actions in order to minimize the the impact.

Speaker 5

About your question about The US footprint, we want to remind we have also a factory in California and Ontario. So the combination of Ontario and Fischer are partially offsetting the impact already. And as you know, with the ramp up of of Fischer, we estimate that we will further mitigate in the future. Correct. And Fisher in 2025 is going to partially absorb this tariff impact because the focus on 2025 of Fisher is to ramp up capacity with our customer with in order to execute the actual contract that we have.

Speaker 5

But we are still in the phase that we are installing high speed line particular for syringes. In the medium term, features, it will be a nice tool for Sanatro Group in order to compensate this tariff.

Speaker 4

Okay. Very good. And then maybe just a follow-up on on vials. It sounds like the stock in there progressing in, I think as anticipated. You've given an outlook for mid to high single digit growth in vials for the year.

Speaker 4

Based on what you saw in the quarter and I assume increasing visibility, is that still kind of

Speaker 6

the outlook for the year?

Speaker 5

Thanks. We continue to see positive signal in the market practically all our customer both the regional customers or spreading all the region, my particular the global key account, we are starting to increase their order. If you compare 2024 with the 2025, our order intake is growing double digit both for bulk buyer and ready to fill buyer. And in fact, we are restarting to activate the Via lines practically in all our plants worldwide. So from our viewpoint, this recovery is really moving in the right direction for all the 2025 in order to go to a normalization in 2026.

Speaker 5

So we are happy for this. And we are reiterating our guidance with respect to buyers. So we expect mid single digit to high single digit growth in 2025 compared to 2024 with sequential improvement throughout the year. Okay. Thank you.

Speaker 5

You're welcome.

Operator

Next question is from Paul Knight, KeyBanc. Please go ahead.

Speaker 6

Congratulations on the quarter. The ultimately Indianapolis and Latina, what's the revenue, potential going to be from those sites, whether it's five years from now, three years? I'm assuming it's just starting early days of revenue now, but what's the potential of those two sites?

Speaker 5

So Paul, Franco speaking. Today, one of the major contributor of our growth in 2025 is thanks to the greenfield plants in Latina and particularly also on fishers. We always share with you that that in features, we have plan to invest half a billion euro to be fully ramp up by the end of twenty twenty eight. Our goal is to generate half a billion euro revenue thanks to this investment that we are doing in Fisher. We always want to remind you that our ratio is for high value product, €1 CapEx had to correspond to €1 revenue.

Speaker 6

And are you how do you feel about Latina?

Speaker 5

Latina is really progressing extremely well because like I mentioned to you last year we already delivered in quarter a positive gross margin. In 2025 we are continuing to increase commercial production, increasing the capacity for prefilled syringes, in particular for Nexa syringes. We are continuing to install high speed line. And also we are in this program of validation for our international customer. On the top of this, we are starting to prepare a next phase for the large capacity for cartridges ready to fill with one big customer that will be launched at the end of twenty twenty six, beginning of '20 '20 '7 in commercial production revenue.

Speaker 6

And Marco, what will CapEx be in 2025? Thank you.

Speaker 5

We are not modifying our guidance. We have a net of contribution from customers from 250 to 280 millions CapEx in 2025, mainly dedicated, as you can imagine, to the ramp up in Latina and Fishers. Thank you. Welcome.

Operator

Next question is from Michael Ryskin, Bank of America. Please go ahead.

Speaker 7

Thanks, guys. Maybe I'll tie up a couple of previous ones. On the tariff front, your comments in terms of the hit this year, $4,500,000 operating profit, dollars $0.01 of EPS, that's for the partial year. Any early signs of how to think about that for 2026? I guess what I'm saying is you'll have a full year of impact, but you also have more revenue shifted to Fisher's over time, right?

Speaker 7

So should when should you be able to fully offset the tariff?

Speaker 5

Yes. Think fully got the point, Marco speaking. First of all, we are assuming our guidance this year based on the current situation of tariffs with 10% current tariff from EU to The US. You know, there are different scenarios in front of us with respect of that. Nevertheless, the the number one mitigating factor will be the ramp up in in in fishes.

Speaker 5

We we are generating currently about 25% of our revenue to in The US. But we expect with Fishers and Ontario to to mitigate a lot in the future.

Speaker 7

Okay. Okay. Thanks. And then on the engineering segment, you called out that the gross profit margin was lower and the operating profit was lower this quarter because of the unfavorable mix, the legacy projects. Can you give an update on how those legacy projects are moving through?

Speaker 7

Are you almost done with that? I guess just sort of asking what should we expect gross profit margin for engineering in the second quarter, in the second half? When will it sort of bounce back to more historical levels in engineering? Thanks.

Speaker 5

I can start from business point of view and execution point of view. So today the organization is fully focused to execute and deliver this complex program for our biggest customers that we are producing and delivering from the plants in in Denmark. We are on track to complete within all the twenty twenty five, but the majority of this complex program, we we are target to deliver in media. This is where the organization is working hard. In parallel, we are working on what we call this operational optimization plan where we want to balance the production in order to mitigate the risk between Denmark and in Italy.

Speaker 5

We are adding more and more capacity for assembly inspection machine with from our plant in Italy in order really to make more center of excellence. Also, this plan is on track. Today, the organization like we shared last quarter is fully focused in order really to reinforce our leadership team, our project management, and to have two big hub in Denmark in in Italy in order to be equivalent to serve this line. Yeah. About the sequential margin, well, first of all, the gross profit margin in Q1 was close to our expectations because we knew we had to dedicate a big effort and workload to accelerate the completion of the legacy projects in that market.

Speaker 5

And so basically, we worked on less profitable projects than the new ones. Expect this part will be sequentially improved throughout the year. And as guidance, we expect sequential improvement quarter after quarter with the overall 2025 still better than 2024 with respect of gross profit margin. If also as another color from a customer point of view, if you look ahead, we see a strong demand today from our engineering division because the pharmaceutical industry is heavily investing in new capacity for their bio product where this assembly technology in order to serve their growing demand for drug delivery system is exactly where in the direction that we are we are going with with our engineering division. Once this line are installed to our customers, they really is going to make the customer happy in order to reiterate other order in the future.

Speaker 7

Great. Thank you.

Operator

Next question is from David Windley, Jefferies. Please go ahead.

Speaker 8

Hi. Hopefully, I don't create an echo here if I dialed in wrong. But thank you for taking my questions. I wanted to ask around the vial recovery, but kind of packaged within the HVS margin drivers. So certainly, you're highlighting HVS vials, EZ Fill vials improving.

Speaker 8

We were under the impression that maybe standard vials were going to come back first or bulk followed by EZ Fill. So am I hearing that EZ Fill is recovering earlier than your expectation? Part B of that would be, do you expect that to be sustainable over the balance of the year and beyond? So I'll stop there and then I'll follow-up.

Speaker 5

Well, I'll start with the numbers, David, Marco speaking. So first of all, we are happy in Q1. We got double digit growth in orders intake compared with the same period last year, both in bulk and sterile buyers. In Q1, the revenue increase was modest. Nevertheless, we generated better profitability in Q1, mainly for two reasons.

Speaker 5

One is the good margin we generated in in easy fill. And very important also, we are starting reactivating many lines around the world and is helping us with the coverage of fixed expenses also in bulk. So the combination of the two is making us more more happy, obviously, than one year ago. But we don't see any change in the trajectory throughout the year. It's confirmed what we said a couple of months ago.

Speaker 5

David, if you can also give us some angle from a customer point of view. Bulk virus is a market size of many billions of containers per year with different therapeutic drugs all the region and several hundreds of customers. When they're starting to recover is a big wave. For what is related to easy fill via, they're more in the range of few hundred million with more small, medium sized customer, in particular customers that are launching new product on the market. So both are growing, we see positive synergy but there are two different type of ligand.

Speaker 8

Okay. I can't remember if you've disclosed in the past or if you'd be willing to tell us about your GLP-one specific exposure in the revenue base? I think for you, it would be almost exclusively BDS, but how much of your recovery here is driven by specifically GLP-one demand?

Speaker 5

So we disclose biologics that is growing rapidly. I mean, we reached 42 as a percentage of BBS revenue compared to 34% last year, and GLP one is is part of our biologics disclosure. It's an important leg for us at GLP one, but it's not the only driver of growth. But maybe Franco can can give you more more color about the market and the Correct. We already shared with you that we have already signed multi year contract with our historical insulin customer that we already have established very good relationship since practically twenty years ago.

Speaker 5

And this customer have engaged us few years ago through our tech center in order to start to validate our products in the molecule. Today, the contract and where we are building capacity through our plant in Europe, United States are for bulk cartridges, Nexa syringes Nexa syringes that would bypass also Viad. Also, we have a program, a big program for cartridges ready to fill. On the top of this also, signed a big program for device and this is why that in Feeshirt, we are going also to add capacity for our drug delivery system. We will be able to serve Nexa syringes and also these devices.

Speaker 5

From an engineering point of view, our customer are engaging us on high speed machine for assembling those inspection machine. So practically all our product portfolio is involved in this new tailwinds.

Speaker 8

I'll leave it at that. Thank you.

Speaker 5

Welcome.

Operator

Next question is from Doug Schenkel, Wolfe Research. Please go ahead. Doug Research, we've lost the line. Next question is with Tejas Sevan, Morgan Stanley. Please go ahead.

Speaker 9

Hey guys, good morning and appreciate the time here. Franco or perhaps Marco, just a point of clarification to an earlier question. To what extent are you baking in mitigation benefit in that EUR 4,500,000.0 impact? It sounds like there's partial credit in there for surcharges, but you hope to do more on supply chain and procurement in the back half of the year. Is that the right interpretation that there is some mitigation benefit baked into the net impact of 4.5?

Speaker 5

Yes. It's a good interpretation. For example, we have a global footprint. We are producing finished products for many from many location around the world. We can have some logistic optimization in order to minimize the the tariff.

Speaker 5

But this is just an example. The the task force is really active in detecting further initiative in order to minimize the impact of tariff. This is the key message behind our forecast.

Speaker 9

Got it. That's helpful. And then my second follow-up, more of a longer term question really. You know, look, I mean, acknowledging that pharma doesn't want to cut sort of cost as it relates to CDMO vendors, do you see an opportunity for sort of more vendor consolidation here as they try to protect their margin? And given your sort of complementary solutions, which you called out, is there an opportunity for Sevenano to gain wallet share, specifically because of what's going on with tariffs and the push for pharma for some of their U.

Speaker 9

S. Reshoring efforts and so on?

Speaker 10

I'm sorry, Tejas. Can you clarify the first portion of your question? I'm not sure we fully understood what you were getting at there.

Speaker 9

Yeah. So the question is basically around, you know, pharmaceutical companies generally don't view their CDMO vendors as a bucket where they want to squeeze out cost because they'd rather work with better vendors with a long track record of delivering on time and without any quality issues, right? So my question is, just given the moving parts here with customers trying to preserve their margins as well, I mean, is there a possibility here for you to opportunistically gain share from some of the smaller vendors that perhaps your pharma customers are working with today because of the noise around tariffs and US reshoring?

Speaker 5

Practically, if I fully understand your question today, Tariff is going to give to Stevanato a small pain in 2025 that we already captured to this 4,500,000.0 of Marco share. Just it's also true that the fact that we have already proactively decided to invest in 2021 with this big campus in United States that will be able to serve The US market for syringes, for Nexa syringes, for Alba, for bypass, via to fillet today also with a big program device. It have further rise interest for our American customer that's the right global partner in particular because of this US plant that The scope of this U. S. Plant is only to serve the full U.

Speaker 5

S. Biotech market, all the international customers. So at the end of the game short term and the longer term we see much more benefit.

Speaker 9

Okay, I'll leave it there. Thanks guys.

Operator

Next question is from Mark Etok, Stephens Inc. Please go ahead.

Speaker 11

Good morning. Thank you for taking my questions. Maybe just to quickly touch on the performance within the BDS segment. During the quarter, did you see any shift in customer ordering patterns or timing there or behavior within the company as they prepare for the impact of tariffs?

Speaker 5

Franco speaking. The way that our customer are passing the forecast to Stefano Group is in line with the past. Usually, our customer, okay, we have the long term contract, then they move with the twelve months forecast and then have the one or two quarter confirm order usually depending if it's bulk product or easy fill product, whether with easy fill the order intake is a little bit longer. So we don't see any difference from the way that they're placing order. For what we see on Bayer, we, like I mentioned, we already started to see in Q3, Q4 last year an increase in their forecast they're increasing the order intake but this is only due to the destocking effect in the past.

Speaker 5

But they are in line with the past.

Speaker 11

Thanks for that. And can you break out just about how much of an improvement you saw from each of the respective buckets for margin impact that you saw for easy fill and also the ramp in the new facilities? As in what percentage of the year over year improvement relates to the improvements in the vial docking?

Speaker 5

So I can tell you that the number one improvement is related to Latino fishers. We mentioned many times last year that obviously with the ramp up, generated more cost the revenue due to validations, training, and all the ramp up activities. We are we are very happy about the progresses in Latina, and also features is starting generating better result than last year, generating more revenues and gross margin. The the margin is still still dilutive compared to the overall segment, but we expect sequential improvement as we mentioned last March.

Speaker 11

Thank you

Speaker 12

for taking the questions.

Speaker 5

Yeah. And then, obviously, the number two factor as underlined in the remark is the fact that with 43% high value solution on total revenue, obviously, mix is favorable and better than last year.

Speaker 13

Appreciate the color.

Operator

Next question is from Patrick Donnelli, Citi. Please go ahead.

Speaker 12

Hey, guys. Thanks for taking the questions. Marco, maybe one for you. I know you talked about the second half being stronger than the first half. Can you just help us think about just the progression throughout the year, particularly 2Q, just a little context around both revs and then margins, how we would think about this 2Q and then flowing into the second half would be helpful.

Speaker 5

Yes. We still expect like two months ago sequential growth throughout the year. We expect overall 44% of revenues generated in first half of the year and the remaining 56 in the second half with sequential improvement throughout the year. As last time we mentioned, we also expect margin improvement throughout the year with the Latino fishes ramping up, with engineering improving in the second half of the year. And also on Vias destocking, we expect sequential improvement quarter after quarter.

Speaker 5

So our assumption has not changed. We have some confirmation as mentioned for Vias and the ramp up that is the second one is under our control. Mhmm. Matter of fact, we are reiterating our guidance. Beside, obviously, the the Okay.

Speaker 5

Of tariffs that is a net impact Okay,

Speaker 12

that's helpful. And then Franco, maybe one for you, just in terms of the facilities on the China piece, has the current situation, whether it's tariffs, the overall pensions, has that changed the way you're thinking about expanding into China? I know you guys pushed the facility out a bit, but we're still committed. How are you thinking about your presence in China as we move forward here?

Speaker 5

Today, we sell this market from the existing plant that we have in Shanghai and also for what is related to easy fill product we produce in Europe and we ship it to China. Today, it is true that in 2025 or so in 2026, our our big focus is in ramping up Latina even more fishes because if you remember, originally, in 2021, there was also the program to build production for the easy fill product of high value product also in China. But then some of our big customers have decided to put in standby and they ask us to to their capacity from Europe and United States to sell from these two locations. So in order to summarize, Asia is really remain strategic for Stefano because also there is a big growth on biosimilars. But today the big focus to execute these two huge greenfield plants in order to execute all the contracts that we have with our customers.

Speaker 5

One example is the big program from Cartagena to feed. This is a huge program. We need to be laser focused to execute with big success because there is a big contract behind.

Operator

Next question is from Dov Shenko, Wolfe Research. Please go ahead.

Speaker 13

Hey, thank you for taking my questions and sorry for the technical challenges before. So two topics. First, on guidance. It seems like your updated full year guidance reflects first quarter upside, both at the revenue line and the margin line, but you're not really changing the outlook for the balance of the year beyond that other than to reflect the tariff impact that you've discussed. Do I have that right?

Speaker 13

And if so, keeping in mind that orders remain strong, you don't feel like there was any pull forward of revenue or abnormal behavior in the midst of the current policy uncertainty. And, again, margins are ahead of plan. Is this just prudent conservatism as a philosophy given the current environment?

Speaker 5

Marco speaking. First of all, we are reiterating our revenue guidance. We see there two opposite effects. On one side, we see some headwinds related to the exchange rate. You know, euro went stronger compared to a couple of months ago, and this is this is an headwind.

Speaker 5

The other side, one of the mitigation effect tool we have for tariff is increasing price or transfer some extra cost to our customer, and this is basically offsetting the the currency headwinds in the top line. The the guidance, obviously, we are providing is is obviously the best estimation we have today, and this is reflecting the the trajectory we designed two months ago. And from market point of view, the demand from our customers is robust, well spread practically in all the product. We also took to be considered that we are in in the middle of the construction and ramping up this huge greenfield plant where the demand is driven by the capacity that we are putting in place. So the there are some technical timing that we are going to install this high speed line.

Speaker 5

We are doing the validation. We have the green light from the customer and then we're going to deliver it. So it's difficult to further accelerate this rampart because of the quality is the priority number one for our these international customers.

Speaker 13

Okay. Understood. Thank you for that. And then for my second question, just high level on free cash flow. This was a really strong quarter.

Speaker 13

I presume some of that is timing of projects, but also the benefit of mix. Could you just comment on that a little bit more? And maybe more importantly, how should we think about durability from here in terms of free cash flow improvement over the coming quarters?

Speaker 5

Sure. So first of all, we still expect 40,000,000 to 60,000,000 negative free cash flow for the year. We are happy about the performance in Q1, driven by strong collection from customers after the revenues we generated in Q4 last year. Nevertheless, it's we will see some fluctuation quarter after quarter depending on CapEx, also the fact that we are, for example, paying taxes in the second half of the year. So we are very focused on keeping under control the free cash flow, but we are reiterating our guidance of 40,000,000 to 60,000,000 negative free cash flow in the year.

Speaker 13

Okay. Thank you again.

Operator

Ms. Myles, gentlemen, there are no more questions registered at this time.

Speaker 5

Maybe if I can just summarize the sentiment that we have in Stornado Group. We have a solid start in 2025. We have a robust demand for 20 for all the 2025 practically in all our product category. We see a strong momentum in the BDS segment and we see a high interest in our high value products because the biological demand of this product from our customer is very strong. With our Greenfield plants we are on track both with installation of line and the validation with our customers.

Speaker 5

We see visible improvement from an engineering point of view and also we are happy that finally on Vial we see a recovery. So we are fully committed to deliver the result and also even more we are confident in our long term trajectory of double digit growth target of 30% of EBITDA and to move to 40% to 45% of high value products in our product. So thank you very much.

Speaker 10

Thank you everyone for joining us today and we look forward to speaking with you in the future.

Operator

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.

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Earnings Conference Call
Stevanato Group Q1 2025
00:00 / 00:00