Stevanato Group SpA (STVN) 2022 Q4 法說會逐字稿

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining Stevanato Group's Fourth Quarter and Fiscal Year 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 and Investor Relations of Stevanato. Please go ahead, madam.

Good morning, and thank you for joining us. With me today is Franco Stevanato, Executive Chairman; Franco Moro, Chief Executive Officer; and Marco Dal Lago, Chief Financial Officer. A presentation illustrating today's results can be found on the IR section of our website. Some statements being made today will be forward-looking in nature. Such statements 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 filed on Form 20-F with the SEC. We encourage you to review the information contained in our earnings release in conjunction with our SEC filings and our latest Form 20-F. 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 analysis 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'll hand the call over to Franco Stevanato for opening remarks.

Thank you for joining us. As we close out another year of strong financial results, the collective efforts of our employees worldwide led to outstanding (inaudible) in 2022. We are building a track record of consistent delivery on our financial and operational objectives. We are well positioned against a backdrop of favorable demand and the fundamentals of our business remains strong. As we end 2023, we expect to benefit from the secular tailwind in high-growth end markets such as biological. We currently see important opportunity from (inaudible) to support customers across a broad range of therapeutic areas such as CD1, monoclonal antibody and mRNA application.

We currently see trends towards sustained robust demand for high-performance drug containment and we have modified our investment plan to maximize this opportunity. Notably, this opportunity are enabling us to exploit our unique value proposition of end-to-end integrated capability. We're gaining more traction in supporting customer needs in multiple product category across both segments. Lastly, our management team and Board of Directors are fully aligned on capitalizing on future growth prospects. We are laser focused on fulfilling the need of our customers and cementing our leadership position as a key partner in the pharmaceutical supply chain worldwide. We're investing in the business, our people, our product, our community and scientific innovation, which we believe, in turn, should deliver durable organic growth to drive long-term shareholder value.

I will now hand the call over to Franco.

Thank you, Franco. Starting on Slide 7, our fourth quarter results led to a strong finish in 2022, with double-digit growth, expanding margins and a growing mix of high-value solutions. We finished the year with a record revenue from high-value solutions, which represented approximately 30% of the revenue for fiscal 2022. For the fourth quarter, new order intake totaled EUR 237 million, and we ended 2022 with backlog increasing 9% to EUR 957 million. As expected, growth in backlog was partially offset by a lower level of orders to support COVID-19. Excluding COVID, our backlog increased 21% compared with last year, reflecting favorable demand for new customer programs.

On Slide 8, our first-rate execution in 2022 enables meaningful progress against our 4 strategic pillars. First, we advanced the build-out of our industrial footprint to add capacity in premium products to meet demand and drive growth. We also signed an agreement with BARDA to further expand biocapacity in Fishers. Second, we continue to grow our mix of high-value solutions in 2022. The shift to high-performance, high-value products has been led by pharmaceutical innovation. New classes of treatments require specialized drug containment to ensure the highest integrity of the treatment, and we remain ideally positioned to capitalize on this trend.

Third, we continue to fuel innovation by investing in R&D at partnering with best-in-class players to fortify our market-leading position. In 2022, we launched our next-generation EZ-fill Smart platform and advance our portfolio of drug delivery systems. Most recently, we entered into a partnership with Transcoject to expand our portfolio with the COC and COP syringes. This allows us to offer the broadest available suite of market-leading glass and plastic syringes. And lastly, we continue to build a pipeline of multiyear opportunities in high-growth end markets like biologics. As we further advance these strategic imperatives in 2023, we expect that our efforts will yield sustainable organic growth in the years to come.

On Page 9, we have refined our capital standing plan to optimize our global footprint and a rising demand. In the U.S. and Europe, future demand has outpaced our expectation since our IPO and our modular pros gives us the flexibility to adjust our plans accordingly. Over the last 18 months, we have worked alongside customers to better address their needs. We did end of visibility, we are accelerating investments in fishers to capitalize on the elevated demand outlook, led by expected growth in biologics. Concurrently, we are tapping the brakes on the feeding of our China expansion so that we can prioritize projects in the U.S. and Italy. Our assigned CapEx plan for Fisher focuses investment in the U.S. market, where demand has been climbing for high-performance drug containment to meet the need to sensitive drug classes such as GLP1s, monoclonal antibodies and mRNA applications.

We have updated our investor plan to adapt to these favorable market plans. First, we continue to see surge in demand for syringes. To capitalize on this, we are adding approximately 60% more syringe capacity in Fisher compared with our initial plan. This includes Alba syringes, which are focus built for biologics. Turning to vials, we expect to double the capacity in the U.S. for ready-to-use vials as we prepare the commercial launch of our next-generation EZ-fill Smart platform.

Let me cross work the changes to our expected CapEx for Fishers, starting with our initial planned investments. At the time of the IPO, we assumed CapEx for Fisher of approximately EUR 150 million. In March of 2022, we entered into an agreement with BARDA to expand via capacity for both EZ-fill and bulk buyers. This is estimated at approximately EUR 175 million.

Most recently, we decided to invest an additional EUR 175 million to further expand much needed capacity for Nexa and Alba syringes. When you add these all up, the total CapEx for Fishers is approximately EUR 500 million. This includes the push of CapEx that is supported by BARDA. We remain on track to launch a validation activities in Fishers in the fourth quarter of 2023. And we expect that the revenue will begin to ramp in a meaningful way in 2024.

Moving to Slide 10. In Piombino Dese the new business is complete, validation activities are well underway, and we started our commercial batch production. In Latina, we completed the largest site of CapEx. The site is on track for validation activities over the summer with commercial production beginning in the fall. We anticipate temporary inefficiency through the natural progression of stock activities as volumes and revenue grow over time. With the favorable demand in the U.S. and Europe, we are slowing down our expansion in China. China is strategically important, but our existing operations are currently sufficient. We are prioritizing our CapEx projects in the U.S. and Europe where our customers have the most pressing needs and we can provide the greatest value.

With that, I now hand the call over to Marco.

Thanks, Franco. On Slide 12, we ended 2022 with strong financial results. For the fourth quarter, revenue increased 26% to EUR 292.1 million or 23% on a constant currency basis, driven by growth in both segments, the shift to high-value solutions and currency. Our top line results for the fourth quarter were better than expected due to the recognition of revenue that was previously forecasted in Q1 2023. This includes revenue from certain engineering projects in COVID-19. As a result, revenue from COVID-19 was higher than our forecast and represented 12% of total revenue. We are making relevant progress growing our mix of high-value solutions, which increased 31% to EUR 87.2 million for the fourth quarter.

For the fourth quarter, gross profit margin increased by 290 basis points to 34.3% due to higher revenue, a favorable mix, a better leverage of fixed costs and the recovery of inflationary costs. Operating profit margin in the quarter increased to 21.6% and included a benefit of EUR 3 million in other income related to a joint development project. Excluding start-up costs on the new plant, adjusted operating profit margin was 22.2% compared with 18.8% in the same period last year. On the bottom line, this resulted in a better-than-expected net profit of EUR 48.3 million or $0.18 of diluted earnings per share, adjusted net profit of EUR 49.6 million or adjusted diluted EPS of $0.19 and adjusted EBITDA totaling EUR 81.9 million, reflecting an adjusted EBITDA margin of 28%, which was up 270 basis points over last year.

Turning to Slide 13. On a full year basis, revenue increased 17% to $983.7 million, driven by growth in both segments, the mix shift to high-value solutions and currency. On a constant currency basis, revenue grew 13% over last year. As expected, full year revenue growth was partially offset by lower revenue from COVID19, which represents 11% of total revenue in 2022 compared to 15% in 2021. As revenue from COVID19 rolls off, we have been successfully backfilling the decrease with new projects across the broad range of therapeutic areas. For 2022, High Value Solutions grew 41% to a record of EUR 293.2 million represented approximately 30% of revenue. Our solid growth, several mix shift and operational efficiencies led to expanding margins for the full year. As a result, gross profit margin for 2022 increased 110 basis points to 32.5%, despite inflation.

While we recover nearly all of the inflationary costs through price adjustment, it had a dilutive effect to gross profit margin in 2022. For the full year, operating profit margin for fiscal 2022 was up 40 basis points to 19.6%. Excluding start-up costs on the new plant, adjusted operating profit margin increased to 20.2% compared to 19.2% last year. This led to solid delivery on the bottom line with net profit of EUR 143 million or diluted earning per share of $0.54 for 2022. On an adjusted basis, diluted EPS increased 17% to $0.56. For 2022, adjusted EBITDA increased 21% to EUR 263.6 million resulting in an adjusted EBITDA margin of 26.8%.

Let's move to segment results on Slide 14. The Biopharmaceutical and Diagnostic Solutions segment once again delivered strong results for the fourth quarter and full year. For the fourth quarter, revenue increased 25% to EUR 241.5 million and 21% on a constant currency basis over the prior year. Revenue growth was mainly driven by a 31% increase in high-value solutions and the 21% increase from other containment and delivery solutions. In Q4, gross profit margin increased to 37.3% due to strong revenue generation, that (inaudible) better leverage of fixed costs and the recovery of inflationary costs. Operating profit margin for the segment was 23.7% in the quarter. For the full year, revenue grew 15% to EUR 799.7 million and 11% on a constant currency basis compared with fiscal 2021. Revenue from High Value Solutions grew 41%, while other containment Delivery Solutions were up 4% over the prior year.

For the full year, gross profit margin for the BDS segment increased 120 basis points to 34.3%, and operating profit margin improved to 22.8% despite inflationary headwinds. Financial results for the engineering segment were better than expected in the fourth quarter and revenue increased 30% to EUR 60.6 million, mostly due to the timing and progression of projects. For the full year, revenue increased 23% to EUR 184 million, driven by growth in all business lines. For the fourth quarter of 2022, gross profit margin decreased 50 basis points to 21.2%, mostly due to project mix and operating profit margin was 12.2%. For the full year, gross profit margin improved 130 basis points to 21.6%, mainly driven by contribution for more accretive business lines as well as ongoing business optimization for -- as a result, operating profit margin improved to 13.8%.

On Slide 15. As of end of December 2022, we had a positive net financial position of EUR 46 million and cash and cash equivalents of EUR 228.7 million. For the full year, net cash generated from operating activities was EUR 103.3 million, reflecting increased working capital to support growth and higher inventory to mitigate supply chain risk. Meanwhile, cash for investing totaled EUR 243 million to support our expansion plans. This resulted in a negative free cash flow of EUR 137 million for fiscal 2022. In February 2023, we secured 2 loans totaling EUR 130 million for our ongoing investment in growth platforms. The first 5-year loan was financed through BNP Paribas for EUR 70 million. The second loan for EUR 60 million was financed through Cassa Depositi e Prestiti. Both loans had a 2-year drawdown, so we can access the capital when needed. The loans showed up our balance sheet can provide us other flexibility for capital deployment. Our balance sheet is healthy, and we believe we have undergrad liquidity to fund future growth.

Turning to CapEx on Slide 16. In 2022, capital expenditure were $302.6 million as we continue to invest in our strategic global expansion. As Franco noted, we are focusing our fourth in the U.S. and Italy to capitalize on rising demand. Consequently, we are forecasting capital expenditure of 35% to 40% of revenue in 2023, of which approximately EUR 70 million carryover from fiscal 2022. For 2023, approximately 90% of our expected CapEx is tied to growth and the remaining banners for all other activities, including R&D. Let's review guidance on Page 17. For fiscal 2023, we expect Revenue in the range of EUR 1.08 billion to EUR 1.15 billion. This implies growth between 10% and 13%. Excluding COVID, growth is estimated to be greater than 20%. Adjusted diluted EPS in the range of $0.58 to $0.62. Adjusted EBITDA in the range of EUR 290.5 million to EUR 302.5 million. Our 2023 guidance assumes headwinds and tailwinds and consider the following: First, we expect that our second half results will be stronger than the first half, and growth will be linear throughout the year.

Our model assumes double-digit growth in the BDS segment and high single-digit growth in engineering. Consistent with prior years, we expect a step down in revenue in the first quarter compared to Q4 2022. We have assumed that high-value solutions will represent approximately 32% to 34% of 2023 forecasted revenue. Revenue from COVID-19 is expected to decrease by approximately EUR 80 million in 2023 versus 2022. We estimate that if we represent about 2% to 3% of revenue. And lastly, we are estimating a currency headwind of approximately EUR 13 million to EUR 14 million. Thank you.

I will hand the call back to Franco for closing comments.

Thanks, Marco. Our strong financial results in 2022 demonstrated that we have the right strategy in place. We are operating in an environment of strong demand, growing end markets and multiyear secular drivers with a favorable demand landscape, our capital allocation priorities are designed to meet current and future customer demand trends. The timing of customer demand requires us to invest several years in advance of commercial production to seize the opportunities in front of us. We have strong momentum entering 2023 with our unique integrated capabilities and market-leading portfolio, we are well positioned to drive durable organic growth and, in turn, increased shareholder value.

And with that, let's open it up for questions.

(Operator Instructions) The first question is from Paul Knight of KeyBanc.

On the growth in Biologics you mentioned, would it be the GLP-1s that stand out or what therapeutics would you note in this increase in your CapEx?

Yes. You know that we are targeting a more technological area than a single therapeutic area because our solution addresses specifically the need for biologics. But you are right, we are targeting some area that are fast growing and more than expected really. One is the GLP-1s that has a strong drive for our demand. And also, I want to mention mRNA application that during the pandemic proved to be a real answer for treatment, effective treatment for the diseases. So this is the main area, but we have a good pipeline of opportunity also in other therapeutic areas.

And regarding Fisher expansion, will that occur in terms of revenue generation over 2024? Or will it go take time to build that up into 25 and onward. So what would be the steps of revenue generation at Fisher?

I can confirm, Paul, that we see the completion of the first steps for validation end of this year, and we expect to have the ramp-up of revenues during '24. Obviously, we are talking about a modular investment that is a multiyear investment, it's not just for a single year. So we expect to develop our revenues, not only '24 but even later as the project that progresses.

The next question is from Patrick Donnelly of CT.

Maybe another one just on the capacity expansion there, just shifting the resources towards areas like Fishers. Is it just that the demand is so strong here in the U.S. versus China that you wanted to kind of accelerate that process? Is there a way to kind of think about revenue being committed ahead of time as you guys build this out? Or is it going to be kind of as you build it out, you'll fill it? Just trying to get a sense for the shift here. Obviously, you guys are excited about the opportunities. I just want to feel out what that demand looks like versus the China piece.

Yes, you got it right. Our decision in term of where we allocate CapEx is market-driven, it's demand driven. So we see an acceleration in demand both in U.S. and Europe. So we decided to accelerate investment both areas and in future, obviously, but also in our Italian side for EZ-fill. And we are still investing in EZ-fill platform and high-value solutions. About the China second half of your question, we decided only to analyze -- to take some time to analyze the situation and in the meantime to optimize our capital allocation. So we remain strategically focused on the potential expansion in China. The market for the future will provide very interesting opportunities with the site just for this year, as I put in my prepared comments to step the brakes, and we expect them now to have the foot of the breaks sometime during '24. But the strategic meaning of the investment in China will remain the same that we mentioned at the very beginning.

Okay. That's helpful. And maybe one for Marco on the margin piece. Can you just talk about expectations for '23, how those will progress this year? And then also, as some of this capacity comes online, how we should think about the margin profile of that revenue? Just kind of thinking longer term, I know as these things came online, that was always a nice margin opportunity. So maybe talk to 23 and then a little longer term as things like Fisher come online.

Thanks, Patrick. So for 2023, our plan is to expand further the margin in both segments in Engineering and BDS. About BDS, we believe the main driver will be the shift to our high-value solution. Now we are guiding between 32% to 34% of high-value solutions on total revenues. On the other side, you are right, the margin expansion in BDS will be temporarily tendered by the start-up cost in Fisher in Bingatina because to secure the success of the project, we need to put people and cost in place that will be for 2023 more than proportional compared to the growth of the revenue. What we expect for the future is obviously the investing higher solution is to further expand as soon as the revenue generation will be normalized compared to the infrastructure and the costs.

The next question is from Derik De Bruin of Bank of America.

Just to expand a little bit on what Patrick just asked, specifically on the gross margin, how should we think about that going from Q1 to Q4? Just at any sort of like color on just sort of like how avails, do you expect Q1 to be up from the prior year level in '22 and then sort of grow off of that? Just a color -- just some color on specific pacing, just given the moving parts.

Yes. We mentioned during the commentary remarks that we plan to grow the top line quarter after quarter -- and matter of fact, we expect also to expand the margin growing quarter after quarter because of the better leverage of our Fisher expenses and because of the greater in-store capacity in EZ-fill in high value solutions for Latin an example in the second half of the year. We plan to keep on expanding our margin compared to 2022.

Okay. Is that EUR 80 million in COVID-19, is that a derisked number for 2023? Basically, it's like what's the conservatism in that? You came in a little bit stronger in the fourth quarter on COVID than we had thought. So just wanted to know if that's that $8 million, just sort of like how to think about that?

The 2% to 3% revenue generation from COVID is what we can see today. Obviously, it's not easy to predict future evolution. But what we can see today is that level of revenue. Importantly, I think it's excluding COVID growth that is expected to be north of 20%.

Got it. And just one final one. On -- I mean, you mentioned the GLPs and mRNAs. Can you give us some color on what -- how to sort of think about unit dynamics and incremental revenue from that? I mean basically, if you're thinking about a GLP-1, what would be an average sort of like revenue contribution from a typical components that you're selling into it? I mean what -- how should we think about this in terms of revenues Stevanato from a unit cost basis?

I cannot disclose any specific prospect with a single customer. What I can say is that if you look at the new FDA approval in terms of potential blockbuster, we have data about the 4 main blockbuster for the next year. I can confirm that we are at stage 3 of this project among 4. So we expect to have certain distribution, but at the same time, the high diversification of our portfolio in terms of customer, in terms of therapeutic areas, we remain a factor to make our business resilient.

Derik, I just want to confirm and clarify your question. It seems that your question was asking related to things like GLP-1, the average revenue per component. So it's basically what type of product would we be selling into those?

Okay. In this timing tunnel of the format, we are talking about biological molecules, acetic market -- the first option is to deliver by syringes. So we expect to have impact in this kind of product line. But for sure, is linked to high-value solutions syringes because we are addressing the needs of molecules that are highly sensitive. And so we have good prospects, including our next Alba syringes in that space.

The next question is from Tim Daley of Wells Fargo.

Great. So I just wanted to touch on the kind of broader biosimilar tailwinds as this becomes a bigger dynamic in the United States. Just in thinking about the value curve here on the components that you sell, how do biosimilar assets compare to the original assets? Like would biosimilars be using Nexa and all the syringes, would there be a step down to a more commoditized type of solution when it goes biosimilar? Just any help here would be appreciated.

First comment is about the suitability of our product for biosimilar. We are in a very strong position because as we serve the originator, let's first then biosimilar company like to derisk their business using the same solution that proved to be the right one for the originator. Second point is that also for biosimilar, the cost of the container remains a minor -- very minor part compared to the total cost of treatment. So there is no expected significant impact in the competitiveness of our solution because of a different competition on the treatment side. This is the 2 comments that are also based on our experience along the years.

Okay. No, I appreciate that. And then secondly, thinking about raw material pricing and the security of supply on the glass front, I believe you guys in November every year started a new master supply agreement with suppliers on glass tubes. How did that go? Was there any changes on the price front, cost front, suppliers duration, anything changing, I guess, on that side of the things as you look forward into '23?

I just want to clarify your question, Tim. I think you're asking specifically about glass tubing as we're going into '23, if there's any changes as we see in the pricing landscape there.

Yes, like price costs in terms of your supply of glass tubing, correct.

Yes. Obviously, in the last part of the year, we are normally in the renewal process of a commercial agreement with the supplier. We see some impact of inflation, even if there is, let's say, come down of cost of energy that is much less than the hot period in the middle of '22. But we look at this increase in costs, and we are back to the regular tapes to calculate the cost and pricing accordingly, including the marginality. In this case, that is something that we could not do 100% during '22. All right.

The next question is from John Sourbeer from UBS.

So the HVS growth was pretty solid in the quarter. I guess just can you talk about what products attraction you're getting with most of customers there. And the company is approaching that mid-30% revenue target this year. Any thoughts on just where this could go over the long term as a percent of revenues?

Yes. We remain confident to confirm that in the next few years, we will develop this share in the high end of 30%. So we are in a good trajectory. For sure, we are investing to support these opportunities. But our strategy and our view of about the future is not changed in the form of what we communicated in the past. We are very confident that we can achieve it.

Got it. And then I guess just a follow-up clarification on China. Are you providing a time line on when you expect this capacity actually to come online? It sounds like decision being made to '24, but just any additional color that you can provide around that as well.

Yes. As I told you before, we are still analyzing the situation to take a decision about the -- to restart the project. I confirm that it will be some time in 2024, the start of this project. In terms of revenue, we could be more precise in the following calls because now we are still in the analysis of the situation.

I just follow up with your first question on High Value Solutions. While we have our target in 2026 is now high 30%. I want to be clear that, that is not a cap, and that we anticipate that, that we can go well beyond that as capacity or high value, continue to come online.

I appreciate the clarification there.

The next question is from Dave Windley of Jefferies.

The pull forward of revenue into the fourth quarter, I'm wondering if you'd be willing to quantify those? And did they influence the percent of revenue from high-value solutions at all? I'm assuming certainly, the engineering is not high-value solutions, I wouldn't think and maybe the COVID is not particularly rich on high-value solutions. So just wondered if it the amount and if it impacted the HVS percentage metrics at all.

Yes, you are right. David, that we at almost 37% of high-value solution on total BDS revenue. So we are pretty happy with the progresses and it's, let's say, in line with our previous guidance for 2022. 2023, we expect to further expand the share of High Value Solutions from 32% to 44%. And as this was mentioning, we are rising a little bit our midterm expectation having now high 30% by 2026. So we are happy with the speed of the shifting.

And David, I just want to clarify the guidance for High Value Solutions is 32% to 34% for next year, and you should anticipate quarterly fluctuations here and there.

The next question is around the capacity expansion, change in plans in the earliest iteration of that Fishers plan and you've confirmed this since it was about EUR 150 million investment that was expected to produce about EUR 150 million in revenue when fully ramped. Can we now expect that this Fishers plant could ramp to EUR 500 million as the -- in revenue? Is that still kind of the proportion of capacity productivity?

Yes, I can confirm that is a reasonable proportion. The nature of the investments is still for a high-value solution including more EZ-fill buyers, including more syringes over syringes. But the internal rate of return and the success -- financial success of the investment is for us very important. And at the end, yes, you are right, we expect to have the same ratio in between EUR 1 in caps EUR 1 in revenue. It's obviously on the rule, but is what we expect.

Yes. And Franco, thank you because that takes us into the follow-up question on that, which is roughly how long would you expect it to take to get to full utilization on that facility thinking both from a revenue standpoint, but then also to the extent that your commentary today suggests that the build to full utilization does have some margin drag to it? How should we think about the time to get to normal margin. So kind of a 2-parter on that, please?

Yes. The project is over and we proceed module-by-module in the installation. So we expect to complete this phase of the investment, the EUR 500 million by the end of '26, including the last validation and then to ramp up to the full ramp up, we could expect to have at least 2 years more to have the full utilization of the capacity because we have to spend time to validate the different products and different customers. So this is the time frame for the full utilization now. But as always, our modular approach will allow us some flexibility in terms of a possible acceleration or different tuning of the CapEx.

The next question is from Matt Larew of William Blair.

This is Madeline Mollman on for Matt Larew. I just want to -- we talked a little bit about pricing on the supply side, but I just wanted to see how you were thinking about pricing from your perspective in 2023. And as COVID starts to roll off, do you have opportunities to take price from maybe your discounting bulk orders or something like that? Do you think there's room for pricing to improve in 2023?

Madeline, I apologize. We were unable to hear the beginning of your question. Can you please repeat the question and perhaps speak a little slower?

Yes. Sorry about that. I was just wondering how you were thinking about pricing in 2023 as COVID begins to roll off if there's going to be opportunities for you to replace large COVID bulk orders with maybe more attractively priced smaller orders, something like that, how you're thinking about pricing in 2023 versus 2022?

And as mentioned many times, we are -- we do expect inflation as anybody else in 2023. We are pricing accordingly, including in the margin into our pricing. So we shift into a right value solution, this is the approach we are keeping with respect to pricing.

On top of that, you can also remember that COVID business was mostly related to vias. So we have a much broader range of products. And the situation about vias is only a part of the true picture for us.

The next question is from Drew Ranieri of Morgan Stanley.

Just to start to go back to, I think it was David's question. But can you just talk about the pull forward in engineering revenue in the fourth quarter? Is it possible if you could quantify what the pull forward was in terms of revenue?

Yes, we had an acceleration in our progress on projects in Q4 more than expected to accommodate some customer request. So we are accelerating our revenues in Q4 for about EUR 7 million to EUR 8 million in engineer. As mentioned in my comments, we -- something similar happened to COVID, but we have been able to deliver some products expected to be delivered in Q1, again, to accommodate customers' request.

And then just as we were thinking about guidance for the year, the commentary on a step down from fourth quarter into first quarter. Understandably, there's a few dynamics here. One is COVID, two is the engineering pool forward that we were just discussing. So can you help frame what maybe 8% decline would be sequentially from the fourth quarter to the first quarter, so we're kind of all on the same page about the full year progression.

What we can tell you today is that we expect a stronger second half of the year and the evolution quarter-after-quarter will be growing in 2023, similarly to what we have done in 2022.

Okay. And then maybe just lastly on the backlog. -- with COVID revenue falling off. Can you discuss how you're thinking about backlog for the year and potentially order intake, maybe what's embedded in your '23 guidance in terms of book-to-bill or anything that we should be thinking about there? And in the past, you've quantified maybe what your backlog was for the current year and the following year. So just wondering what your current backlog implies for '23 and '24.

Yes. Something about the meaning of the backlog for us that is obviously an important indicator of the demand, but it doesn't represent the full picture -- full picture about the demand landscape and also the demand trend. You link also different forecasts that we regularly discuss with our customers to look into their future needs in the short and the long brand. So now we are back to something that is more similar to what was the situation before the pandemic. During the pandemic, the pattern for orders coming from customer changes a little and it became longer. Now we are back to a situation that is normalized and very similar to the year before the pandemic. So in many cases, the view that we have from backlog from forecast from any other interaction with customer support our view about the year.

Thanks, Drew. Can we have the next question, please?

(Operator Instructions). Ms. Miles, gentlemen, there are no more questions. At this time, this concludes our conference call. Thank you for joining, you may disconnect your telephones. Thank you.