Marco Dal Lago: 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.
Matt Larew: 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: 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: 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: I’m sorry if I missed it but what’s your embedded expectation for COVID-related revenues this year?
Marco Dal Lago: 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: 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: 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: 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: 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: So basically, Derek, it’s a different pace of recovery within the vial market.
Derik De Bruin: 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: The answer is yes.
Lisa Miles: 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.
Larry Solow: 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: 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 pandemic. 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: 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.
Larry Solow: 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: 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.
