Stevanato Group SpA

NYSE:STVN

Earnings Call Analysis

Stevanato Reports Growth, Despite Engineering Delays

For Q3 2023, Stevanato Group announced an 11% revenue increase to EUR 271.4 million, slightly below expectations due to Engineering Segment delays—yet, they anticipate meeting full-year guidance. Confident in their leadership in biologics, the company's revenue rise came alongside an adjusted EBITDA margin growth to 27.5%. The Biopharmaceutical and Diagnostic Solutions (BDS) segment grew 6% (23% excluding COVID-19 impacts), while Engineering surged 37%, with deferred earnings expected in Q4. Amid strong demand and supply chain volatility, operating margins stood at 18.8%, with adjusted figures at 20%. Net profit rose 4% to EUR 37.9 million; adjusted net profit saw a 6% uptick to EUR 40.1 million. Challenges led to a reduced gross profit margin by 110 basis points to 30.5%, and negative free cash flow of EUR 97.8 million. Full-year 2023 guidance remains, projecting revenues between EUR 1,085 million and EUR 1,115 million with adjusted EBITDA between EUR 291.8 million and EUR 303.2 million.

Strong Revenue Growth with Shift in Project Recognition

The company reported an 11% increase in revenue, amounting to EUR271.4 million. This rise was driven by growth across different segments, although the actual figure fell short of prior expectations due to delays in recognizing revenue from specific engineering contracts, anticipated to shift into the next quarter. The reason for this shift was primarily due to operational pressures from strong demand outpacing earlier estimates and disruptions caused by lingering supply chain volatility, particularly in the manufacturing lines segment amid a backdrop of ongoing recovery from electronic component shortages.

Segment Performance and Financials

The Biopharmaceutical and Diagnostic Solutions (BDS) segment grew by 6% to EUR218.9 million, while revenue from high-value solutions in this segment saw a significant 16% increase. The Engineering segment, however, exhibited a remarkable 37% growth to EUR52.5 million, although this was lower than the expectations set due to timing issues on project revenues. This quarter also saw a reduction in COVID-19 related revenue and an increase in demand for non-COVID projects which softened the impact. Profits were pressured by the ramping of new manufacturing plants and higher depreciation, leading to a net profit increase of only 4% to EUR37.9 million. Despite these challenges, adjusted EBITDA climbed by 13% to EUR74.7 million, enhancing the company's financial robustness.

Guidance and Outlook

Looking ahead, the company reaffirms its full year 2023 guidance, which includes an expected revenue in the range of EUR1,085 million to EUR1,115 million. Adjusted EBITDA is projected to be between EUR291.8 million to EUR303.8 million, with an adjusted diluted EPS range of EUR0.58 to EUR0.62. These reaffirmed projections indicate a stable trajectory for the company's performance amid continuing operational challenges.

Managing Costs and Investment in Growth

The firm successfully managed SG&A expenses while strategically investing in R&D, which is in alignment with expected levels. The company continues its vigilant cost management in sales, marketing, and G&A, opting not for cost deferrals but for efficiency improvements aimed at maintaining a solid profit and loss structure. This disciplined approach allows the firm to focus on expanding high-value solutions and capacity to meet the rising demand in biologics and ready-to-use drug containment solutions.

The Future of Demand and Customer Engagement

Despite slight uncertainties such as a slower recovery in the in vitro diagnostics business post-COVID, the company's long-term growth prospects remain unimpaired. Acting as an essential player in the biologics field where secure supply chains are paramount, the company's strategy to fulfill long-term commitments with significant customers shines through. This aligns with broader industry trends towards biologics and self-medication, warranting a focused expansion of the company's engineering capacity to support this demand while entrenching its role as a comprehensive solution provider.

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Stevanato Group Third Quarter 2020 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Lisa Miles, Senior Vice President, Investor Relations. Please go ahead, Madam.

[Lisa Miles, executive]

Good morning, and thank you for joining us. 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 take a moment to read our safe harbor statement, included in the front of today's presentation. We encourage you to review the information contained in our most recent SEC filings, including our latest Form 20-F filed on March 2, 2023. 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. I will now hand the call over to Franco Stevanato for opening remarks.

[Franco Stevanato, executive]

Thank you, Lisa. This morning, we reported our third quarter results with double-digit revenue growth and an adjusted EBITDA margin of 27.5% in line with our near-term financial targets. While third quarter revenue in the Engineering Segment fell short of our expectations, largely due to timing of revenue, we remain confident that we can achieve our full year guidance. As we highlighted at our Capital Markets Day, the fundamentals of our business remain strong. For the last 50 years, our focus has been on delivering the highest quality products to pharmaceutical customers worldwide. Our unique value proposition of integrated end-to-end solutions has helped us become a leading partner of choice. We support customers through the entire drug life cycle from early-stage track development through commercialization. Our differentiated products, embed science and technology to meet the most stringent standards that customers demand. We are currently benefiting from macro trends such as aging populations, the rise in biologics and biosimilars, and the shift towards self-administration of medicine. We operate in growing end markets, particularly biologics, where we have built a leadership position in treatment areas such as GLP1s, monoclonal antibodies and mRNA applications. As previously disclosed, of the 2022 FDA approvals, we are present in 3 out of 4 of the potential blockbusters, all of which are biologics. Biologics, which are mostly administered through injections, are delivering breakthrough results in patient care, but they tend to be costly and more challenging to manufacture due to their sensitive nature. These factors are driving demand for high-performing drug containment to ensure the integrity and stability of treatments delivery to patients. Moreover, the global pipeline of drugs in development is at record levels with more than 60% in injectable formats. In summary, we believe that these positive trends position us well to capitalize on the many favorable secular tailwinds. We are focused on executing against our strategic priorities to deliver sustainable organic growth and build shareholder value. Thank you. I will now hand the call over to Marco.

[Marco Dal Lago, executive]

Thanks, Franco. Before I begin, I want to clarify that all comparisons refer to the third quarter of 2022, unless otherwise specified. Starting on Page 7. For the third quarter of 2023, revenue increased 11% to EUR 271.4 million, and 13% on a constant currency basis, driven by growth in both segments. While we achieved double-digit growth, this is below what we expected for third quarter sales at the time of our Capital Markets Day. Since then, revenue tied to specific Engineering contracts has shifted to the right, and we expect to recognize the revenue in the fourth quarter. As a reminder, the Engineering business is project-based with revenue recognized on a cost-to-cost percent of completion basis, and it can vary from quarter-to-quarter. The Engineering business is comprised of large, complex projects that have long life cycles from start to finish, typically 12 to 24 months, depending on the nature of the project. In the third quarter, there were a couple of dynamics at play. First, we have been experiencing strong demand for manufacturing lines, and this demand has outpaced our expectation from a year ago. This is certainly positive for us, but at the same time, it is increasing the pressure on operations for timely delivery. Secondly, the pandemic created volatility in supply chains, and we are still working through a bottleneck of work in progress that resulted from the electronic component shortages last year. This combination of strong demand and supply chain volatility plays stress on our resources, resulting in certain projects experiencing delays and lower-than-expected marginality. We believe we are on the right path to better balance resources with demand, and Franco will discuss the initiatives we are taking under our efficiency plan. The BDS segment performed in line with the assumptions embedded in our guidance. We continue to gain traction with our customers with the adoption of high-value solutions. In the third quarter, high-value solutions represented 32% of revenue compared with 30% for the same period last year. In the third quarter, revenue from COVID-19 decreased 84% and accounted for approximately 2% of revenue. Excluding revenue from COVID-19, third quarter revenue increased approximately 25%. With our diversified portfolio, we have been successfully managing the roll-off and backfilling the revenue with new and expanding projects. For the third quarter, gross profit margin was impacted by the lower marginality in the Engineering segment, the ongoing start-up of the new manufacturing plants and higher depreciation. As a result, gross profit margin decreased 110 basis points to 30.5%. As we continue to execute our strategic priorities, we are also closely managing our SG&A expenses as we grow the business. In the third quarter of 2023, operating profit margin was 18.8%, and adjusted operating profit margin was 20%. On the bottom line for the third quarter of 2023, net profit increased 4% to EUR 37.9 million, and we delivered diluted earnings per share of EUR 0.14. Adjusted net profit increased 6% to EUR 40.1 million, and adjusted diluted earnings per share were EUR 0.15. Adjusted EBITDA increased 13% to EUR 74.7 million, and adjusted EBITDA margin was up 70 basis points to 27.5%. Let's review new orders intake, which increased 4% to approximately EUR 256 million in the third quarter of 2023. We ended the quarter with the backlog of committed orders of approximately EUR 924 million. Moving to segment results on Page 8. For the third quarter, revenue from the Biopharmaceutical and Diagnostic Solutions segment increased 6% to EUR 218.9 million and 8% on a constant currency basis. Excluding revenue related to COVID-19, the BDS Segment grew approximately 23%. Revenue from high-value solutions increased 16% to EUR 86.2 million, and revenue from other containment and delivery solutions was EUR 132.8 million, consistent with the same period last year. As expected, in the third quarter of 2023, margins in the BDS Segment were tempered by a rising start-up costs and higher depreciation. This was partially offset by higher mix of high-value solutions. As a result, the Segment delivered a gross profit margin of 32.7% and operating profit margin of 21.2%. Revenue in the third quarter of 2023 from the Engineering Segment increased 37% to EUR 52.5 million, driven by growth in all business lines. This was lower than expected due to the timing of revenue on certain engineering projects, and we expect to recognize the revenue in the fourth quarter. For the third quarter of 2023, gross profit margin was 18.5%, and operating profit margin was 11.2%. The decrease in margins was mainly driven by lower marginality on specific projects in progress and, to a lesser extent, a lower mix of after-sales activity. On Page 9, at the end of the third quarter, we had net debt of EUR 227.5 million and cash and cash equivalents of EUR 64.8 million. As expected, capital expenditures were EUR 107.2 million in the third quarter, and we remain on track with the capacity expansion in high-value solutions to meet customer demand for ready-to-use drug containment. For the third quarter of 2023, cash flow from operating activities was EUR 33.5 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 EUR 132.3 million which resulted in negative free cash flow of EUR 97.8 million. Lastly, on Page 10, we are reiterating our full year 2023 guidance. We continue to expect revenue in the range of EUR 1.085 billion to EUR 1.115 billion, adjusted EBITDA in the range of EUR 291.8 million to EUR 303.8 million and adjusted diluted EPS in the range of EUR 0.58 to EUR 0.62.Thank you. I will hand the call to Franco.

[Franco Stevanato, executive]

Thanks, Marco. Since we provided a full business update at our recent Capital Markets Day, I thought it might be helpful to spend some time focusing on a couple of demand dynamics we currently see within the Segments. Let's start with Engineering. The Engineering Segment provides us with an important advantage and point of differentiation with our customers. As Marco noted, demand has picked up over the last year, particularly for visual inspection and assembly lines, mostly driven by the growth in biologics. To satisfy demand, we are adding resources, enhancing technical capabilities to help drive digitalization and implementing a continuous process improvements to increase efficiency and cost optimization. Nevertheless, we expect that it will take some time to work through the current bottlenecks. Turning to the BDS Segment, which benefited from COVID-19 in 2021 and 2022. Coming into fiscal 2023, we faced a year-over-year revenue headwind of about EUR 80 million. Despite this, the BDS Segment is on track for double-digit growth in 2023. However, I would like to point out some differences within 2 of the business lines in our BDS Segment as COVID-19 revenue winds down. First, our core drug container solutions, or DCS business, has more than overcome the COVID-19 headwind. Demand remains robust, driven by the need for high-performance drug containment and the adoption of ready-to-use solutions. In the third quarter, our core DCS business grew about 10% compared with the same period last year. Excluding COVID-19, our drug container business grew more than 25% in Q3. The data underpins the clear secular tailwinds that we discussed at our capital markets day. Our investments in capacity expansion are designed to meet this demand. Second, and as expected, our In-Vitro Diagnostics business has been much slower to recover coming out of COVID-19. We assumed this in our guidance at the beginning of the year. While we are starting to see some recovery with certain customers, we currently anticipate that the business will normalize over the next couple of quarters. Nevertheless, the In-vitro diagnostic business is a strategic foothold that we are leveraging to diversify and extend our core competencies into Drug Delivery System activities. With our unique value proposition of integrated end-to-end solutions, we are bringing the full power of our capabilities to bear, and we are winning new business in the DDS space, both CDMO and proprietary. We currently expect that the revenue will begin to materialize from these new business opportunities sometime in the back half of 2025. We also see a strong pipeline of future projects complemented by opportunities on the Engineering side for assembly lines. With the growth in biologics and the trends towards the self-administration medicine, this is a natural stepping stone to supporting customers with integrated platforms, combining both drug containment and delivery solutions down the road. In closing, we are maintaining our full year 2023 guidance, and we currently see positive long-term trends. We are operating in an environment of favorable demand, growing end market and multi-year secular drivers. We are working with our customers every day to support their needs across the entire drug life cycle. We remain focused on operational excellence and the successful execution of our near-term strategic and operational priorities as we aim to complete our capacity expansion projects in the U.S. and Italy, grow the mix of high-value solutions, invest in R&D to advance our premium primary packaging and drug delivery systems, and build a multi-year pipeline of new opportunities by supporting our customers through scientific innovation to meet their evolving needs. These priorities are specifically designed to capitalize on market trends, to drive long-term sustainable organic growth and build shareholder value. And with that, let's open it up for questions.

[Operator]

We will now begin the question-and-answer session.[Operator Instructions]The first question is from Derik De Bruin of Bank of America.

[Derik De Bruin, analyst]

I appreciate that the Engineering Segment was below your expectations, but, basically, it was a little bit ahead of what the consensus estimates are looking for while it was BDS that was below. Could you just talk a little bit about this in terms of just some of the seasonality that might have been going on and the ramp in BDS from 3Q to 4Q? And also how much ES revenue got pushed into from 3Q to 4Q?

[Franco Stevanato, executive]

Very nice question Derik. I start saying something about the situation, then Marco may comment about the figures. Obviously, we have some ordinary partner for customers that normally drives some overweight in business in the second part of the year, but there's also the new capacity coming into play that is delivering more in a high-value solution. And about your question on BDS, yes, we have some impact from the In-vitro diagnostic that is lower in recovery after COVID, but it's something that we embedded in our guidance early in the beginning of the year, but also to reinform the view about the DCS where we are enjoying the very strong growth. If you look at the numbers out of COVID, we are having 25% more in the CS business. So in terms of seasonality, again, there is something that is repetitive, but it's not completely new.

[Marco Dal Lago, executive]

Yes. And about the guidance, we are reiterating our guidance also by Segment. We still expect double-digit organic growth in both Segments and the expansion of high-value solution with a percentage between 32% to 34% on total revenue. So for the year, we are in line with our expectations.

[Derik De Bruin, analyst]

Got it. And expectation on what got pushed from 3Q to 4Q on the ES side?

[Marco Dal Lago, executive]

Yes. As commented, it's mainly related to the engineering side where some revenue shifts from Q3 to Q4. You probably remember our long-term contracts from 12 to 24 months are treated with the percent of completion method for revenue recognition, and they are based on a cost-to-cost progress. So, matter of fact, we have been able to progress less in Q3 due to lower cost than expected, and this is something that will be recovered in Q4 with the cost of covers.

[Derik De Bruin, analyst]

Got it. And then just one final follow-up on the backlog. What was the net new orders? The book-to-bill has been trending a little bit less than 1 and I just want to know initial thoughts on how that will flow into 2024. There's a double-digit revenue growth expectation for the business for next year. Just want to know how the backlog is looking to net new orders and any initial thoughts on how this will flow into revenues for 2024?

[Marco Dal Lago, executive]

What I can tell you about the backlog, Franco will comment about 2024, is that we have confidence in our guidance for 2023 because we are covered for about 97% of the center point of our guidance. And though the remaining first portion of our EUR 924 million backlog is associated to revenue, that will be recognized in 2024. So this is the starting point, and I just reiterate the message that this is not the only KPI we have for visibility of the future growth. And about the future growth, we are reiterating also the message we delivered during our Capital Markets Day, where we see, on average, low double-digit growth towards 2027.

[Operator]

The next question is from Paul Knight of KeyBanc.

[Paul Knight, analyst]

Franco, could you talk about capacity expansions? I know Latina has opened status of Indianapolis. And then does the Engineering Segment need to expand capacity as well?

[Franco Stevanato, executive]

Yes, I'll go through your questions starting from saying that we are on track on our capital execution moving from Latina. Latina is going to generate the first commercial revenues in line with our expectations. I'm glad to say that we positively received the first audit from certification bodies and customers. So we are very glad about the start-up of Latina. We are in the same trajectory in Fisher where we expect to have a commercial revenue generation middle of next year, but also in this case, we are supporting the start-up both with local resources and also the staff moving from Italy to Fisher to have our new colleagues there. So we are very positive in the view about these bigger investments. And you are right. We are also supporting our growth and our customer needs in Engineering, having resources not only to overcome the temporary challenges we are facing, as Marco noted in his comments, but also to prepare the stage for the next step of growth because the success of our technology in the market is higher than expected at IPO. And we are scaling up the rating as a supplier of high-end technology in visual inspection and assembly.

[Paul Knight, analyst]

On the Engineering segment, is this demand largely monoclonal antibody? Or is there some GLP-1 demand out there?

[Marco Dal Lago, executive]

It's biologics. Biologics is growing fast and biologics is an area where auto-injector plans play a major role, that is a good driver. Not only for assembly line devices, but also because in each of these devices there is a high-value containment solution that meets the visual inspection after filling, and most importantly, more production of high-value solution in cartages and syringes. So overall, it's a very interesting area of our business and biologics is the most important driver.

[Lisa Miles, executive]

And Paul, just as a reminder, during our Capital Markets Day, we did outline that we are serving GLP-1s with engineering lines as well.

[Operator]

The next question is from David Windley of Jefferies.

[David Windley, analyst]

I wanted to come back to a couple of Derik's good questions. One on the Engineering revenue pushout. The straightforward question is, could you please quantify the revenue amount you talked about cost-to-cost? But, if you would, please quantify the revenue amount that got pushed out.

[Marco Dal Lago, executive]

You mean the shifting from Q3 to Q4?

[David Windley, analyst]

Yes, please.

[Marco Dal Lago, executive]

Yes, it's about EUR 5 million to EUR 6 million.

[David Windley, analyst]

Got it. And then, Marco, you said in your prepared remarks, you made a comment about managing SG&A costs closely. Both the sales and marketing and G&A lines were lower both in dollar and in ratio percentage than we were looking for. I wonder, on the point of managing those costs closely, do some of those costs need to come back? Was there some delay in spending given the lower revenue? Or are you managing to a more efficient level of operation where you can sustain the lower levels that we're seeing in the third quarter?

[Marco Dal Lago, executive]

We are carefully managing, not postponing cost, obviously. So it's the second one. You can see we are well in line with our R&D expenditure. We are between 3.3% to 3.4% in the 9 months, so in line with our expectation. We are taking some cost in sales and marketing and G&A to manage efficiently our P&L.

[David Windley, analyst]

Okay. And then last question for me. On the order book question, say, closer to your IPO period, we were still in the pandemic. Lots of players were receiving orders. Clients were looking further out into the future, willing to do that because of supply chain challenges, managing inventory, higher levels of demand, a lot of different reasons. And as a result of that, some of your backlog at that time would have lapped not only into the following year but into the year after that. So if I bring that forward to current, that would be out into fiscal '25. Does your current committed order book include '25 orders? Or has that kind of compressed from a forward visibility time frame standpoint in customers' eyes?

[Marco Dal Lago, executive]

You're right. The order partner, we experienced a change from the pandemic period to the now and that is more similar to the pre-pandemic pattern. We have only small piece of contract related to Engineering that is going beyond the end of 2024, but is related more to the nature of the contracts rather than the fact that customers are ordering 18 months in advanced. It happened during the pandemic.

[Franco Stevanato, executive]

But also to say that it doesn't mean that our visibility in the future demand is shorter than in the past, because, in the meantime, we are developing forecasts and multi-year agreements with customers that maintain or enhance our visibility for the future. It's the phase II flow, the committed order, the forecasting to the order book that is changing, but the visibility is still big and also higher and deeper than in the past.

[Operator]

The next question is from Patrick Donelly of Citi.

[Patrick Donnelly, analyst]

Franco, maybe one for you. As the quarter progressed, did you see any change in behavior from biopharma customers? And just give a broad peer commentary around more cautious spend, maybe tighter inventory management from that customer base. Just curious what you saw and if things changed at all as the quarter went, September, October, whatever it may be, it would be helpful just to kind of talk through the progression there.

[Franco Stevanato, executive]

I happen to have well understood your question, and please correct me if I'm not giving the right answer, but in terms of the behavior of customers about orders, in biologics, we see the tendency to secure the supply chain, not only for the short term, but also for the long run. So we are engaged with the customers, important customers, in planning our capacity according to their future needs. So the impact on biologics, because of the inventory built during the pandemic is very minor because you may recall that COVID-19 situation was overweighted in bias and biologics is mostly looking at the cartridges and syringes, because also of the utilization of the drug delivery devices. So the situation is normal in terms of the behavior of customers to commit to orders, but we see really high attention to secure the supply chain for the long run.

[Patrick Donnelly, analyst]

Okay. So you didn't really see a change as the quarter progressed with biopharma, customers maybe being a little more cautious? It was kind of status quo each month in the quarter?

[Franco Stevanato, executive]

I don't see big changes in this direction. The only message I can deliver is that they need to get ready to meet the customer demands in the coming years. It's a good reason to work together with customers, and they are very keen to have an agreement with us for not only the short term but also the much longer run.

[Patrick Donnelly, analyst]

Okay. And then Marco, maybe just as we think about both the ramp-up of plant, that engineering revenue that you talked about, the push out coming back in 4Q, maybe just how do we think about the margin profile in 4Q and the right jumping off point for '24 just given the moving pieces here?

[Marco Dal Lago, executive]

Well, we are, let's say, confirming our margin for the BDS Segment. We see a robust shifting to our high-value solution happening. And we expect to increase our gross profit margin compared to last year in the BDS Segment on an adjusted basis, excluding the non-recurring costs associated to the start-up. In Engineering, we see a slight decline in the year compared to the previous one in gross profit margin. But as discussed with David, the other action we are putting in place is the cost management, especially in sales and market in G&A that display favorably for the end of the year. So that's the reason why we are reiterating our guidance for 2023. We expect also to adjusted EBITDA and EBITDA for the year.

[Operator]

The next question is from Larry Solow of CJS Securities.

[Larry Solow, analyst]

First question, you guys mentioned a nice improvement or seeing a good increase in demand in the visual inspection assembly lines. And just talking through and coming out of the Capital Markets Day, your ability to leverage this Engineering Segment, are a lot of these customers where you're seeing that demand for the machinery? Are they customers as well on the BDS Segment? Can you kind of just talk about that dynamic?

[Franco Stevanato, executive]

Yes, you are right. There are many customers that use our visual inspection system, our assembly line that has also our customer for containment solutions and mostly high-value containment solution. So the share of customers that that we serve more dense with a single product line is increasing and is in line with our strategy to be a solution provider because we believe that the integrated offering, leveraging on Engineering provide benefit to customer in terms of a short-term time to market. More simple supply chain for them, better management of our project and at the end, a reduction of their total cost of ownership. And the increased number of customers that use more than one single product on MSG is increasing.

[Larry Solow, analyst]

Got it. And just to clarify, I know you don't guide to the quarter, and you certainly don't guide, particularly through the quarter for the Segment. So just some follow-up to a couple of questions asked earlier. I think by Derik, just on the BDS Segment. So it sounds like those numbers were essentially in line with your expectations. But the EUR 5 million or so shortfall at least relative to the Street and internally was all on the Engineering piece, correct?

[Marco Dal Lago, executive]

Yes, that's correct. We are, on our side, reiterating the double-digit organic growth in BDS Segment. And this is how we can see the picture for the entire fiscal year with a strong growth in high-value solutions that are expected to represent between 32% to 34% of total revenue. So we are reiterating this. And as you said, we generally don't provide quarter-after-quarter guidance, quarterly guidance. Our picture is still the same.

[Larry Solow, analyst]

Got you. And that guidance obviously implies a pretty nice pickup in Q4. And I guess, seasonally, the BDS Segment normally does pick up significantly in Q4. I assume that dynamic comes into play this year as well, but that supply chain, that supply and your ramping capacity, I guess that's helping that trend even more. Any thoughts to that?

[Franco Stevanato, executive]

You already cover your question with the appropriate answer yourself, because yes, it's a combination of new capacity coming online, specifically for high-value solution that is more affected in terms of revenues. At the same time, there is some repetitive partner in terms of ordering by customers and driving this distribution of revenues along the year, but the increase in capacity is the most important driver because we are having more capacity in high-value solutions.

[Larry Solow, analyst]

Right. And then just last question, just on price. Any color there? I imagine you've been getting a little bit more price this year. You probably, increasingly over the last couple of years as inflation has obviously gotten significantly more material. Your expectations as we go forward, do you continue to expect to get price more in line with, I guess, what the inflationary pressures are?

[Marco Dal Lago, executive]

Our approach about pricing is basically depending on value with respect of the high-value solutions not just based on cost, first of all. Without inflationary pressure we mentioned, last year we discussed many times the sudden increase in cost of utilities and other specific items, but the approach is the same, we are frequently recalculating our cost basis, including inflation and price accordingly.

[Operator]

The next question is from Jacob Johnson of Stephens.

[Jacob Johnson, analyst]

This is Mac on for Jacob. Just a couple of quick ones for me. You highlighted at your Investor Day that you're tied to roughly 70% biopharma companies. With new capacity and new product launches, is there an opportunity for your runway to be higher on new molecules coming to market? I know you mentioned the 3 out of 4 potential blockbusters, but just going forward, I'd like to get a potential mark there.

[Franco Stevanato, executive]

Yes, you're right in terms of what we delivered during Market Day, and yes, we are engaged with important blockbusters coming to the market in the short term and to have a bigger volume in the future. There is no changes in this perspective, I want to stress the fact that we are talking about biologics in terms of kind of molecules that come in to the market, and the need for biologics are perfectly matching our value proposition in high-value solutions and high-value containment solution, but nothing different from what we delivered during the Capital Market Day.

[Jacob Johnson, analyst]

And also, you talked a little bit about contracting in your Capital Markets Day as well. Just quickly, what did you learn from contracting during COVID when it comes to large demand projects? And how does this impact GLP-1 contracts?

[Marco Dal Lago, executive]

I cannot talk about any specific therapeutic area, but generally speaking, when we discuss with customers the opportunities in the long run, we have a complex agreement that may apply different engagement of the customer, including some support to CapEx sometime. So it's case-by-case negotiation obviously, but the good starting point is the stronger relationship we have and the fact that we can leverage on a long-lasting experience with this customer.

[Operator]

The next question is from Matt Larew of William Blair.

[Lisa Miles, executive]

[Technical Difficulty] Sam, this is Lisa. I don't believe you've dialed in on the web phone this morning so we are having difficulty hearing you. [Technical Difficulty]

[Operator]

The next question is from John Sourbeer of UBS.

[John Sourbeer, analyst]

I appreciate the color on some of the subsegment level on BDS. And just maybe on IVD, would you be willing to quantify what the sizing of this is or what you're actually seeing on the non-COVID growth there?

[Marco Dal Lago, executive]

John, we don't split in these details, the revenue. I can infer the method that is in terms of value in the total revenue representing a small part of revenues also in the Segment and the message about our interest in vitro diagnostics linked to the strategic view because we can leverage them on expertise and know-how that we apply for molecular diagnostic also in the delivery device space. So this level of synergies that drive the strategic attention in terms of revenues, it represents a minor part of the business.

[John Sourbeer, analyst]

Got it. And just to clarify, I guess, the comments on ordering patterns and backlog demand, are there any areas where you're seeing destocking or restocking within customers in BDS?

[Marco Dal Lago, executive]

I can repeat what we delivered in the past about situation in buyers and in consumables for diagnostic services, but it is something that represents one part of a highly differentiated portfolio in our revenue. So we are impacted in a very limited way. And, as you know, we have been able to compensate with the expansion in other therapeutic areas or product lines overweighting the space for high-value solution for biologics.

[John Sourbeer, analyst]

I got it. So just to clarify on that, I guess in Drug Containment Solutions, there's not areas where you're seeing any customers destocking coming down?

[Marco Dal Lago, executive]

City expansion plans to meet their strong demand. In the opposite, there is no kind of situation you are referring to in the high-value solution.

[Operator]

[Operator Instructions]Gentlemen, there are no more questions registered at this time.

[Lisa Miles, executive]

Thank you, everyone, for joining us today for the Stevanato Group Third Quarter 2023 Earnings Call. We look forward to speaking with you in the future. Thank you.

[Operator]

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