Stevanato Group SpA

NYSE:STVN

Earnings Call Analysis

Stevanato Group Posts Strong 2023 Performance

2023 was a robust year for Stevanato Group, with a solid close at 10% growth, or 11% on a constant currency basis, despite facing inflation and supply chain challenges. They have grown their high-value solutions and expanded capacity to leverage opportunities, especially in high-growth biologics markets. Looking forward, a 9% to 12% growth is expected for fiscal 2024. Midterm targets predict low double-digit growth starting in 2025, with high-value solutions expected to comprise 40-45% of their offering and an adjusted EBITDA margin target set around 30%. Financials show EUR 69.6 million in cash and EUR 324.4 million in net debt, with a negative free cash flow of EUR 76 million after EUR 453.3 million in capital expenditures for the year.

Closing a Solid Financial Year and Eyeing Future Growth

The company concluded 2023 on a positive note, marking a solid year of 10% growth or 11% on a constant currency basis. This performance underpins a firm commitment to expand capacity and offer high-value solutions, while addressing macroeconomic challenges. Management maintains optimism, drawing from customer validation of the company's value proposition and integrated solutions. The strategic focus stands clear: to tap the growing demand for the self-administration of medicine, driving long-term value for stakeholders.

Adjusting to Market Dynamics and Charting the Path Forward

Despite facing supply and demand imbalances due to customers working down pandemic-related inventories, the company anticipates a rebound. They are cautiously predicting a 9% to 12% growth rate for fiscal 2024, with expectations of low double-digit growth resuming in 2025. The long-term vision targets an adjusted EBITDA margin of approximately 30%, with high-value solutions representing 40-45% of revenue.

Financial Highlights and Setbacks

While the fourth quarter yielded a 10% revenue increase, reaching EUR 320.6 million, gross margin fell to 31.8%, reflecting both extraordinary gains in the prior year and the impacts of currency translations and new facility start-ups. The company’s net profit for the fourth quarter stood at EUR 45.2 million, generating an EPS of $0.17. Adjusted net profit was marginally higher at EUR 47.1 million or $0.18 per share. The balance sheet showed signs of investment with a net debt position of EUR 324.4 million.

Anticipated Financial Trends and Capital Allocation for 2024

Revenue for the upcoming year is projected to range between EUR 1.180 billion and EUR 1.21 billion, with an adjusted EBITDA estimate of EUR 314.1 million to EUR 329.5 million and an EPS projected between $0.62 and $0.66. The company plans substantial capital expenditures, reflective of their continuing investments in capacity expansion for high-value solutions, amounting to 25-28% of total revenue. The guidance does, however, factor in a decrease in first-quarter revenue compared to Q4 2023, as well as a currency headwind between EUR 7 to 9 million.

Multiyear Investments and Future Commercial Prospects

The company is actively investing in multiyear capital projects, one of which is the commercial production of syringes, expected to gain momentum in the years ahead. These efforts also extend to the installation of ready-to-use catheter lines with an eye on the market expansion in 2026. Another facility in Fishers is projected to begin generating revenues in 2025, with full productivity by 2028. These strategic moves cater to the company’s goal to enhance early-stage drug development support, aligning with its execution priorities and medium-term expectations for revenue growth from 2025 through 2027.

A Strong Foundation Backed by a Robust Backlog

Entering 2024, the company boasts a backlog valued at approximately EUR 945 million, affirming the growing interest in its biologics-focused portfolio. Fiscal 2023 saw an impressive 44% increase in new order intake, amassing around EUR 342 million in the final quarter. Furthermore, the company plans to adjust its reporting practice to an annual basis to provide a more accurate representation of demand trends, marking a strategic shift to streamline investor insights.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Stevanato Group Fourth Quarter and Year-End 2023 Financial Results Earnings Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator's Instructions]I would like to turn the conference over to Ms. Lisa Miles, Senior Vice President and IR. Please go ahead, madam.

[Lisa Miles, executive]

Good morning, and thank you for joining us. With me today is Franco Stevanato, Executive Chairman; Frank Moro, CEO; and Marco Dal Lago, CFO. You can find a presentation to accompany today's results on the Investor Relations page of our website, which can be found under the Financial Results tab. As a reminder, some statements being made today will be forward-looking in nature and are only predictions. Actual events and results may differ materially as a result of risks we face, including those discussed in Item 3D entitled Risk Factors in the company's most recent annual report on Form 20-F filed with the SEC. Please also take a moment to read our safe harbor statement included in the front of today's presentation. The company does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances, except as required by law. Today's presentation may contain non-GAAP financial information. Management uses this information in its internal analyses of results and believes this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period-to-period comparisons. For a reconciliation of the non-GAAP measures, please see the company's most recent earnings press release. And with that, I will now hand the call over to Franco Stevanato for opening remarks.

[Franco Stevanato, executive]

Thank you, Lisa. 2023 was very positive for us. We closed out another solid year with 10% growth or 11% on a constant currency basis. We continued to successfully execute our near-term objectives of advancing our capacity expansion projects and growing our mix of high-value solutions, while still delivering double-digit growth. At the same time, during 2023, we navigated some macro challenges in a dynamic environment of inflation uncertainty, ongoing supply chain issues and industry-wide curity ongoing supply chain issues and industry white cast fit from favorable secular tailwinds, which we expect will continue to drive demand for our high-value solutions. While at the same time, we have been investing heavily in expanding capacity to meet the market demand. We expect that these investments will drive organic growth in the midterm as we efficiently leverage our invested capital to exploit the opportunities in front of us. The fundamentals of our business remain strong. We operate in high-growth end markets like biologics, where we see a broad range of opportunities. As the global leader in pen cartridges and with an enviable market position in prefillable syringes, we are well positioned to capitalize on the growth in biologics and the trend towards the set administration of medicine. My recent visits with several of our largest customers, game continued optimism that we are on the right path, customers favor our unique value proposition of integrated end-to-end solutions, our global footprint, our one quality standard and our differentiated product set. We are focusing on driving future growth through solid execution, and we believe we have the right strategy, the right product portfolio and the right team to succeed as we work toward creating and driving long-term shareholder value. Thank you. I will now hand the call over to Marco.

[Marco Dal Lago, executive]

Thanks, Franco. Before I begin, I want to clarify that all comparisons refer to year-over-year changes unless otherwise specified. Starting on Page 7, we delivered double-digit growth in the fourth quarter, which was slightly below our expectations and put us at the low end of our 2023 guidance range. However, the differences in fiscal 2023 actual results and our 2023 guidance were mostly due to lower vial volumes as customers work down inventories, they stockpile during the pandemic. The higher inventories are not limited to COV-19-related customers, but also customers with non-COVID-19 applications who built up stock to mitigate supply chain uncertainty and manage long lead times at the high of the pandemic. We believe this is a temporary imbalance of supply and demand across the industry. We are starting to see some early indications of market improvement, but our 2024 guidance assumes a lower recovery in vial demand, resulting in a growth rate of 9% to 12% for fiscal 2024. Looking beyond 2024, we are maintaining our midterm targets of low double-digit growth starting in 2025. In 2027, we still anticipate high-value solutions in the range of 40%, 45% and an adjusted EBITDA margin target of approximately 30%. Let's turn our attention to fourth quarter results on Slide 8, which will be a focus of my comments. Fourth quarter revenue was a little bit below our internal expectations by about EUR 5 million, which was evenly split across the segments. Nevertheless, total revenue increased 10% to EUR 320.6 million or 11% on a constant currency basis, driven by growth in the biopharmaceutical and Diagnostic Solutions segment. tied to higher volumes and increasing mix of high-value solutions. Growth was offset by a decline of approximately EUR 33.8 million related to COVID-19. Excluding COVID-19, revenue growth in the fourth quarter would have been 24%. We have been managing their offer revenue related to COVID-19 while at the same time, growing our mix of high-value solutions. In the fourth quarter of 2023, we generated record sales from high-value products, which represented 37% of total revenue. As expected, gross profit margin for the fourth quarter of 2023 decreased to 31.8% As a reminder, the fourth quarter of 2022 was an exceptionally strong quarter and included 2 benefits that did not repeat. First, we recognized higher revenue and profit from easy field virals, which led to a more favorable mix within high-value solutions. And second, we instituted some additional price adjustments to recover inflationary costs from prior periods, predominantly in the BDS segment. These 2 effects were the largest contributors to the step down. This was partially offset by the increase in high-value solutions. Gross profit margin was also unfavorably impacted by the currency translation and continues to be tempered by short-term inefficiencies tied to the start-up of new facilities. -- including higher industrial costs, depreciation and naturally lower utilization during the ramp-up phase. For the fourth quarter of 2023, SG&A and R&D expenses were lower compared with the prior year, mainly due to a lower accrual for our performance-based management bonus program. In addition, we have prudent short-term cost management initiatives to counterbalance the temporary headwinds. Operating profit margin decreased 160 basis points to 20%, mainly due to lower gross profit and the decrease in other income. On the bottom line, for the fourth quarter of 2023, we generated net profit of EUR 45.2 million or $0.17 of diluted earnings per share. adjusted net profit of EUR 47.1 million or adjusted diluted EPS of $0.18 and adjusted EBITDA totaling $86.7 million, reflecting an adjusted EBITDA margin of 27%. Let's review segment results on Page 9. The biopharmaceutical and Diagnostic Solutions segment delivered strong growth in the quarter despite a steep decline in Covid-19 revenue and industry-wide inventory destocking. For the fourth quarter of 2023, BDS segment revenue grew 12% and 14% on a constant currency basis to EUR 260.6 million, driven by growth in our core drug containment solutions business. In the fourth quarter of 2023, revenue from high-value solutions grew 37% to EUR 119.4 million, representing 46% of segment revenue. This was offset by a 3% decline in revenue due to other containment and delivery solutions. Gross profit margin decreased to 33.6% in the fourth quarter of 2023, mainly due to lower easy field vials volumes, currency translation and short-term inefficiencies tied to the start-up of new plants. Additionally, lower vial volumes have led to short-term underutilization on some lines. For the fourth quarter of 2023, Engineering segment revenue totaled EUR 60.6 million, which was consistent with the same period last year. For the fourth quarter of 2023, gross profit margin for the Engineering segment decreased 10 basis points to 21.1% compared with the same period last year. We are managing through a large volume of work in progress. Our main priority in 2024 is executing on these projects and shortening our lead times. On Page 10, as of December 31, 2023, we had cash and cash equivalents of EUR 69.6 million and net debt of EUR 324.4 million. Capital expenditures were $94.7 million in the fourth quarter and EUR 453.3 million for the full year, which was in line with our expectations. Our investments in expanding capacity in high-value solutions are essential to meet expected market demand. For the fourth quarter of 2023, cash flow from operating activities was EUR 10.2 million, which reflects our current working capital needs to support organic growth. Cash used for the purchase of property, plant and equipment and intangible assets was EUR 87.1 million, which resulted in negative free cash flow of EUR 76 million. Over the past few months, we strengthened our balance sheet with 3 new midterm loans totaling EUR 110 million, and that drew down approximately EUR 60 million. We believe we have adequate liquidity to fund the needs of the business, and we will continue to explore additional financing options to support future growth. Lastly, on Page 11, we are introducing our full year 2024 guidance. We currently expect revenue in the range of EUR 1.180 billion and EUR 1.21 billion, adjusted EBITDA in the range of EUR 314.1 million to EUR 329.5 million and adjusted diluted EPS in the range of $0.62 to $0.66. In 2024, we estimate that CapEx will range between 25% and 28% of total revenue based on the midpoint of our revenue guidance. Our full year 2024 guidance assumes the following: the second half of 2024 will be stronger than the first half. The 2024 will be stronger than the first half, while engineering will remain flat as we focus on executing on our current work in progress. High-value solutions in the range of 35% to 37% on total revenue. And lastly, we are estimating a currency headwind of approximately EUR 7 million to EUR 9 million. Also, consistent with prior years, we expect a step down in revenue in the first quarter compared with Q4 2023. We currently expect the revenue in the first quarter of 2024 will be flat to slightly down compared with the same period last year. In Q1, this assumes mid-single-digit growth for the BDS segment and the revenue decline in the engineering segment compared with the first quarter of 2023. Overall, as the pandemic continues to wane, we are still operating in a dynamic environment with the ongoing inventory normalization. Despite this, we believe that 2024 will still be a year of growth, and our midterm outlook remains unchanged. Thank you. I will hand the call to Franco.

[Franco Moro, executive]

Thanks, Marco. For fiscal 2023, we achieved double-digit top line growth and increased our mix of high-value solutions to 34% of total revenue, up from 30% last year. During the year, we made meaningful progress in our capacity expansion and enhanced our integrated value proposition. Nevertheless, we also faced the challenges that we continue to manage. On Slide 14, as previously disclosed, we see a convergence of factors impacting the engineering segment. Over the last 24 months, we benefited from strong demand for engineering machinery, but we have been challenged with timely execution mostly due to the long lead times for electronic components and the time needed to shore up the resources to deliver on the upsized demand. As we discussed last quarter, we believe that we are on the right path to better balance resources with demand, but it will take some time. We believe the most attractive path is to prioritize execution and bring these projects to completion. This may negatively impact segment growth in the short term, but we believe this action will better position the business for long-term success. Turning to the BDS segment on Slide 15. Despite the headwinds from destocking, the underlying demand for biologics continues to rise. In our BDS segment, revenue from Biologics, excluding COVID-19, represented approximately 28% of the segment revenue, up from 19% last year. We believe the slower recovery in vial demand is temporary. We currently expect that the path to normalization will continue throughout 2024. And we are cautiously optimistic that order flow will begin to pick up in the second half of the year. Longer term, we see many opportunities in the adoption of our ready-to-use buyers and cartridges. Today, less than 5% of the vial and cartridge market has converted to a ready-to-use format. -- compared with 95% of the syringe market. Customers increasingly see the advantages of leveraging our ready-to-use configurations to reduce supply chain risk, enhance quality and expand flexibility. In fact, based on market data, the number of fill and finish lines capable of processing sterilized buyers and cartridges is estimated to have increased 32% in 2023. We also believe that changing regulatory landscape will galvanize adoption over the next decade. The diversity in our product portfolio is helping us navigate the lingering impacts from COVID-19. So why short-term higher demand has been lagging, demand for other glass products, particularly syringes, continues to be robust. In fact, in 2023, biologics drove a record year in sales of high-value syringes such as Nexa. Turning now to backlog and new order intake on Page 16. New order intake increased 44% to approximately EUR 342 million in the fourth quarter. And as a result, we exited the year with backlog of approximately EUR 945 million, heavily weighted towards biologics. -- because we often experience quarterly fluctuation in backlog and order intake, we believe that annual analysis of these metrics provides a more accurate view of demand trends. So beginning in fiscal 2024, we will provide backlog and order intake on an annual basis rather than quarterly. On Page 17. Our capital projects are multiyear investments that have a multiyear volume and revenue ramps. In Latina, we launched commercial syringe production in the fourth quarter, and we expect a steady ramp over the coming years. In addition, we will be installing a ready-to-use catheter lines as part of a long-term project to support a customer transition from back to stabilized cartridges. And these lines are expected to supply commercial volume beginning in 2026. In Fishers, customer validation activities will continue into 2026 as planned. We remain on track to begin commercial production later this year, but do not anticipate a meaningful revenue contribution until 2025 when we'll begin ramping up production for GLP-1s and other biologics. The Fisher facility is currently expected to hit full productivity by the end of 2028. On Slide 18, we continue to refine our integrated offerings to enhance our value proposition. Our technology excellence centers in Boston and Italy serve as the front line in supporting early-stage drug development. We recently launched non-GMP Fill-and-finish services for small batch operations. These services allow customers to identify any possible interaction between the drug and the container system during and after the fill-and-finish process. Our centers foster early customer engagement, which helps us gain a strategic foothold supporting them throughout the entire drug life cycle. In closing, on Slide 19, our #1 priority in 2024 is flawless execution of our operational priorities. As we consider 2025 and beyond, we remain bullish on our medium-term targets. We still expect to achieve low double-digit revenue growth in 2025 through 2027. And in 2027, high-value solutions in the range of 40% to 45% and an adjusted EBITDA margin of approximately 30%. Our confidence is underpinned by what we are seeing around us, including strong secular tailwinds, continued growth in biologics and an increasingly strong competitive mode, we believe we are well positioned to fully capitalize on our investments to drive durable organic growth, expand margins and deliver long-term shareholder value. Operator, let's open it up for questions.

[Lisa Miles, executive]

Operator, before we jump into questions, I have one clarification regarding this morning's press release. I would like to correct an error as it relates to backlog for fiscal 2022. It should be $957 million, not $944 million as stated in this morning's press release. We apologize.Okay, we are ready to open up, Thank you.

[Operator]

This is conference call operator. Operator, we will now begin the question-and-answer session. [Operator's Instructions]The first question is from Patrick Donnelly with Citi.

[Patrick Donnelly, analyst]

Maybe a couple on stocking to start. Just can you talk about the concentration you're seeing in terms of products and customers? Is it pretty broad-based? Or is it more concentrated with a few of the higher end customers? And then just the visibility that you have into when this is going to end and kind of the recovery path there.

[Franco Moro, executive]

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

[Patrick Donnelly, analyst]

That's helpful. And then maybe just on the margin outlook. This year obviously weighed down a little bit, '24 weighed down a little bit seemingly by some of the stocking piece. Can you just talk about the moving pieces this year, what the headwinds look like? Because again, you reiterated the midterm targets. Obviously, the out-year expansion should be pretty strong. So is it -- there's a nice inflection in margins when the destocking piece eases and there's an inflection higher. Can you just talk about the headwinds there and then maybe break out the moving pieces on margins this year?

[Marco Dal Lago, executive]

Okay. Yes. Thank you. For 2024, we see adjusted EBITDA margin at the same level of this year at our center point about gross profit margin, we can see overall a slight reduction compared to 2023 with -- we expect to slightly improve the profitability in Engineering segment. And on the other side, we see a slight decline in BDS segment, mainly due to underutilization on the bias line or some lines in bios. And basically, our ramp-up cost in the 2 new facilities that we are still ramping up in 2024.

[Operator]

The next question is from Jacob Johnson with Stephens.

[Jacob Johnson, analyst]

Maybe just first on the Engineering segment. You mentioned outsized demand there, but you're pointing to a flattish year. Certainly understand kind of the supply chain challenges in that segment. But I guess I'm curious kind of on the demand environment there, how do your expectations for that engineering segment and the demand you're seeing today compared to maybe your Investor Day last year or whatever point you want to point to? Just we've seen a number of fill-finish capacity announcements recently. So I'm just curious if that's improved even further more recently.

[Franco Moro, executive]

Yes. Thanks for the question. The slight answer is that we see demand in line with the expectation we delivered at our Capital Markets Day. In the meet the single-digit growth as aborad. Obviously, we are talking about a business that's based on projects. So we are used to see some fluctuation in quarters and years. But I want also to drive your attention to the fact that comparing the 2 last year '23 to '22, we enjoyed a very healthy growth of the segment in the range of 26%. So the partially changing in the growth rate for the next year is part of a journey that is really positive and the success of our solution in the market to serve our main attention in serving the customer at the best.

[Jacob Johnson, analyst]

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

[Franco Moro, executive]

It's a very, very good point because if we refer to our innovation, our products, one of our main innovation in the easy fill in the sterile market for cartage and Videra's linked to our new technology, the Isis that is addressing the risk of a particle contamination in filling lines because we reduced a lot the possible impact with our new secondary packaging, innovative and secondary packaging that is possible applicable also to the syringe market. So the increasing expectation term of quality are one of the main barrier to entry for our market and the fact that we are playing on innovation inside this market is one of the reasons we are confident in the future while new products.

[Operator]

The next question is from Matt Larew of William Blair.

[Matthew Larew, analyst]

I just wanted to ask on destocking again. So with the first quarter guided flat to down year-over-year to reach the full year guidance even if it's back half loaded, it does require a step right back up in the second quarter, I would think. Others in this space, as you alluded to, has sort of talked about stocking ending by the midpoint of the year as well. So just curious what level of visibility do you have to that rebound after the first quarter? And is the guidance supported by actual orders that are in schedule for production or more based on customer conversations around when inventory might get worked down?

[Franco Moro, executive]

Yes, for sure, it's a mix. I start giving you an angle on the market. And referring to bias that is only a portion of our business. Yes, we see some forecast improving for the next quarters, but not immediately. And as I said before, we expect to have more in -- after the year-end. In terms of the visibility, I have also to stress that our visibility is also linked to the needs for other product lines and linked to this expectation from customers, we are also relying on the ramping up of the new facility, specifically Latina in 2024. That will be more and more during the year, obviously.

[Marco Dal Lago, executive]

About our model, we see a stronger second half of the year compared to the first half. So a growing business quarter after quarter, also leveraging the installed capacity we are putting in place in Latina and also the start of the commercial production in Fishers.

[Matthew Larew, analyst]

Okay. And then something you called out in the prepared remarks was the challenge from a comp perspective on the pricing side that the last couple of years, you were able to take outsized pricing related to raw material inflation. So just curious what we should be thinking about from a pricing perspective here... Looking forward?

[Marco Dal Lago, executive]

So first of all, we plan to keep on expanding our high-value products. In our model, we have high-value products between 35% to 37% for 2024. We are keeping on pricing as in the past, let's say, frequently readjusting our cost calculation and price accordingly, we don't see in our model a price decline.

[Lisa Miles, executive]

Matt, just to address your question on the pricing, which I think you're reading through the materials. Those cost recoveries that we referred to in the fourth quarter of last year were really to secure some price adjustments for the spike, particularly in natural gas and other raw materials. But you should think as those price adjustments is more pass-through in nature, and we have since returned to our more annualized pricing adjustments.

[Operator]

Next question is from Derik De Bruin, Bank of America.

[Derik De Bruin, analyst]

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

[Marco Dal Lago, executive]

We don't model any more the core because we consider it negligible in our revenues for the year. As you can see in Q4 2023, the amount related to old was very, very small. I think the good news is that our ability to shift to our therapeutic areas growing 24% in Q4, excluding Covid. -- for 2024, we don't having a model revenues from Covid.

[Derik De Bruin, analyst]

Great. That's what I was spiking. And on -- going back on some of the margin commentary. So can you sort of talk about gross margin pacing throughout the year just given the dynamics going on, particularly as you've got some capacity overhead coming through?

[Marco Dal Lago, executive]

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

[Derik De Bruin, analyst]

Got it. And your -- I mean, the midpoint of your revenue guide is like 10.5% and the Street was 11% looking for it. So it's so much in line. But I guess the difference between your 9 or 12 in your revenue guide, what's the delta?

[Marco Dal Lago, executive]

Yes. The delta is based on the -- we are covered with our backlog between 55% to 60%. We have other 4 from customers to complement. The uncertainty is mainly related to the restart of the market. And so the inflation point associated to destocking.

[Lisa Miles, executive]

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

[Derik De Bruin, analyst]

Got you. So it goes to the point if the market just sort of stays where it is right now, and it doesn't really see recovery, are you still confident in that 9% at the end? Is that still there? Or do you have to see some recovery to get it?

[Marco Dal Lago, executive]

The answer is yes.

[Lisa Miles, executive]

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

[Operator]

The next question is from Larry Solow, CJS Securities.

[Lawrence Solow, analyst]

I guess just first question, just you mentioned backlog annual number is more important. Obviously, you had some nice growth this quarter year-over-year. But how should we look now, backlog is kind of flattish year-over-year? Are we now -- going forward, has the sort of the supply chain and order backlog kind of that mostly normalized and should we expect orders to kind of be in line with plus or minus kind of end market demand on a go-forward basis?

[Marco Dal Lago, executive]

So compared to the prepandemic situation, our backlog is much higher. And the peak in the pandemic was, in our opinion, mainly related to order partners from our customer to secure their supply chain. So we believe the backlog and the order pattern is going toward a normalization after the fundamic. This is how we see the situation. And as mentioned by Franco, during the commentary, we believe it's more reliable figures to provide the number on a yearly basis rather than on a quarterly basis with the fluctuation that can have a number.

[Franco Moro, executive]

And on top of that, you have to consider that it's only one of the indicators for the demand because we have a backlog, we just put only committed order with those commercial details, but we have also forecast. We have a material agreement. So as we delivered in the past, we consider backlog and the order intake. It's just a couple of useful indicators but they cannot represent the real landscape in demand that we are able to look at without -- with our customers.

[Lawrence Solow, analyst]

Okay. And in terms of just the cadence depreciation rising, can you just give us some idea or at least maybe on full year, how much that higher D&A is going to impact margin, at least operating margin on a year-over-year basis?

[Marco Dal Lago, executive]

Yes, sure. 2023 compared to 2022, we increased depreciation as a percentage of revenue by about 60 basis points. In 2024, we expect a similar level of depreciation as a percentage of revenue. So it means about 10% more in euro amount compared to 2023.

[Lawrence Solow, analyst]

And just to clarify, on the Engineering segment. It sounds like there's some growing pains there. So growth taking a little bit of a step back and just shoring up manufacturing and execution. But you also mentioned you still do expect a little bit of -- I think that's correct, but you also mentioned a little bit of still margin expansion in '24 in that segment. Did I hear that right?

[Marco Dal Lago, executive]

Yes, yes. This is what we expect. We expect to improve the overall situation in our projects and on top of it to push more on after sales activities. And yes, about the growth, you are right, but we need also to underline the fact that we are growing significantly. In engineering, we had a compound annual growth rate of 26% if we compare to 2019. So in this project business, we believe is normal to have some fluctuation, but the trajectory is still there.

[Lawrence Solow, analyst]

Got it. Okay. And just lastly, just on the in vitro diagnostics piece, is that -- I know there's a bunch of moving parts on the vials or the less vial demand. Has the -- just specifically on the in vitro diagnostics, I think that also was a driver, a little bit of down demand in vials in '23. Do you expect that to normalize? Or is that also lingering into '24?

[Franco Moro, executive]

Yes, the situation is not exactly the same in virus. We have already seen some positive signals in recovery in the last part of last year, but we still expect to have a business that will not be at the normal situation in 2024, and we expect that the situation will normalize later. But this kind of expectation are completely embedded in our guidance upside.

[Operator]

The next question is from Dave Windley at Jefferies.

[David Windley, analyst]

I have a few. I want to start as a follow-up to Larry's question on engineering, on the particularly, Marco, on the sales part. I believe I'm hearing management say that you're kind of tamping down the sales activity in there in that business in favor of focusing on current projects and bringing them to fruition. Am I understanding that correctly that are you not adding to orders or adding to backlog and engineering right now?

[Marco Dal Lago, executive]

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

[Franco Moro, executive]

David, it doesn't mean that we are not focused on the future growth of the engineering segment because we are putting more resources. We are optimizing our supply chain. We are -- and also the industrial setup. So it's not because we are stepping down from expectation for the future is just that we want to be very conscious about having new business according to the possibility to deliver.

[David Windley, analyst]

Understood. Second question, second topic is around margin. So I want to understand more specifically, particularly -- I mean, overall, but particularly in BDS, with the vials are a headwind. I understand that and understand high-value vials or ready-to-use vials are more "high value than ready-to-use syringes but you also called out in the deck ready to use Nexa syringes, which I would think would be higher value, higher margins. So the question is why with high-value percentage in the highest you've ever recorded, did you actually see margin pressure in BDS given the mix?

[Marco Dal Lago, executive]

Yes, David, you are right. As mentioned many times, the range of gross profit margin in value products is between 40% to 70%. So we have, how can I say, a quite a big range. The mix within the mix can impact. And this is one reason. The other one, as mentioned, is more in bulk and underutilization, a temporary underutilization of our lines. And obviously, the cost and efficiency that is temporary underutilization can bring to our P&L. So those are the 2 main reasons together to the already anticipated startup cost and validation cost for the ramp-up in fishes and Latina have also in our model, just to complete the picture in the model, some currency headwind, we expect euro to get stronger with respect of the U.S. dollar. And as you know very well, today, we have more manufacturing footprint in Europe and partially in Mexico compared with the U.S., where we are, on the other side, growing our sales with a growing sales in U.S. dollars. So this is another effect we have in the in our model to explain the slight decline we expect in BDS, partially offset obviously by the mix shift to a high value products.

[Lisa Miles, executive]

And Dave, one other piece of color as it relates to Q4 of last year and the extraordinary margin performance out of BDS. I just want to point out that as it relates to those easy fill vials, that, that was for one specific customer that we deliver those for, and it was highly accretive.

[David Windley, analyst]

Okay. Okay. Last question is around kind of committed orders and Marco, you also addressed this a little bit earlier on the low end of the range. But if I look at flattish committed orders year-over-year and because you're not going to provide that number quarterly, it will be obviously harder to track -- and I heard you say in the prepared remarks, you expect orders to pick up in the second half, which implies to me that that pickup doesn't really impact the second half revenue, but rather probably helps 2025. I'd love for you to elaborate a little bit more on how a flat order book picture, a revenue contribution from Fishers kind of starting in earnest in early '25 instead of mid-'24 and an overall order picture that doesn't pick up until later in the year, gets you to 10% revenue growth.

[Marco Dal Lago, executive]

Well, again, this is not the only tool of visibility we have, we have also forecast from our customer that will be translated into orders in line with our model. I also want to reiterate the fact that we see a different order partner from our customers compared to the pandemic. During the pandemic, our customers used to order much in advance in advance compared to the lead time of the delivery to secure the supply chain. This is the main reason you see the orders flat in '23 compared to '22. We got EUR 1.73 billion in '23 compared to EUR 1.16 '22. But the reality, the EUR 1.16 in '22 was much higher than our revenue. So the book-to-bill was high due to the habit of our customer to secure the supply chain. So it's not a one-to-one equation.

[Franco Moro, executive]

Then we have also the possibility to have more order for is in the second half of the year compared to the first half of the year. But as Marco was saying, the lead time is in terms of the average lead time on the order book is shortening. So it reflect faster than during pandemic in actual revenues.

[Lisa Miles, executive]

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

[David Windley, analyst]

Sorry for all the questions. But on Fishers, your prepared remarks say later in the year and more material ramp in Fishers revenue in 2025. Is that basically the same as you were thinking before? Or is that a later start to Fisher's activity than what kind of the midyear '24 comments that you had provided before?

[Franco Moro, executive]

No, no. We are in line with the previous expectations. Obviously, we are talking about a complex project with validation activities with many variables in place, but we are in line with our projects and expectation in terms of revenues.

[Operator]

The next question is from John Sourbeer UBS.

[John Sourbeer, analyst]

First one here, just on the Engineering segment specifically, any color on just what the lead times there look like today for installing equipment? And how would you expect that to be normalized throughout the year? Or what would be a normal range there?

[Franco Moro, executive]

Obviously, John, we are looking at a segment that is not only one single product. So we have a very huge complex assembly line that they serve at even 2 years for the full completion of the project, and we have the more simple vision inspection system that may ask for some months in terms of delivery time. So in terms of the mix, now we are considering early time that is longer than in the past because of the situation in terms of electronic components availability is now reliable, but the delivery time are longer than before the pandemic. So we are considering something more than in the past at the end. But the situation is much more under control now compared to 2 years ago.

[John Sourbeer, analyst]

Appreciate that. And on your prepared remarks, I think you mentioned 28% of ADS is within biologic products. Just a point of clarification. Are you including GLP-1 under biologics? And just any thoughts on outlook for those products and what's included in guidance in '24?

[Franco Moro, executive]

No, you are right. GLP-1s are biologics tale the driver we are looking at. So they are included both in our share of impact of biologics on our readiness and also in our guidance.

[John Sourbeer, analyst]

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

[Franco Moro, executive]

In terms of the share, we are in the process to understand which could be the final number. Obviously, we can update you in the next call. But we see more material impact in '25 and beyond. As I stated in my commentary about fishers where our high-value solution capacity is overweighted in biologics, but we expect to have a material impact in revenues mostly in 2025 and beyond.

[Lisa Miles, executive]

And John, that's not a KPI that we guide to. And one other clarification on the numbers embedded in the press release. Please note that, that's some Biologics revenue for the BDS segment, excluding COVID.

[Operator]

Our last question comes from Paul Knight, KeyBanc.

[Paul Knight, analyst]

Franco, I think you may have seen something like this in the past where an acquisition like Novo and Catalent occur. Do you think the presence of Novo owning a fill/finish group of businesses in the world. Is that help your visibility? And also they have more cash to spend on investment and sure I know what Catalent did. Does that help it as well in terms of how you think about how quickly your business accelerates. Does it change your thinking on -- is there more visibility now for your business with Novo better capitalization company in the field?

[Franco Moro, executive]

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

[Operator]

There are no more questions registered at this time. I turn the conference back to you for any closing remarks.

[Lisa Miles, executive]

Thank you for joining us today for Stevanato Group's Fourth Quarter and Year-end Fiscal '23 Earnings Call, and we look forward to further engagement in the future.

[Operator]

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