Stratec SE (SBS) Earnings Call Transcript & Summary

Good morning in the United States, and good afternoon in Europe, ladies and gentlemen. Welcome to our 9 months financial results disclosure conference. Before we start, please allow me to get you some housekeeping stuff. Actually, you can download that presentation either from the tool you can see in the webcast or from our home page. And I think I don't need to read you through the safe harbor statement. Today's presentation, as always, is split into like 3 blocks of presentation and a Q&A block. First of all, I would like to get you an overview of what happened in the first 9 months of this year, then certainly the financial performance. And then I would like to get you like a short summary, outlook, focus of the next month and the things on going in the next couple of quarters. And then after that, we can directly dive into the Q&A session. In the first 9 months, like in an almost planned manner, we are about 10% short of last year on a constant currency perspective, which is very much driven by the high comps and unfortunately, an unexpectedly high back-order situation, which is actually very frustrating from a variety of perspectives. First of all, we actually believed that we could work that down already beginning in Q3, unfortunately, to the contrary the back order situation got worse. We have a very tense supply chain situation. I'll dive into details what's actually happening and ongoing there. And then certainly, and I need to get that across. So certainly, we -- during corona, we had a variety of instruments, which saw some nice tailwinds. And obviously, the majority of these instruments are certainly the demands are not as high as they used to be during corona, but we were very positive that we can offset or compensate that with a number of new instruments, which were either launched prior to COVID or during COVID or right after COVID so very young instruments in the product portfolio. What we definitely see is that it is -- from a supply chain perspective, it is way easier for us to kind of stay on supply track with those instruments where we have like sustainable run rates where we have very well-established and burned in supplier network and that it is way, way, way more difficult to ramp up new instruments. And particularly for those new instruments, the demand is nicely high, actually way higher than we can satisfy. And that's why it is so frustrating that we cannot deliver those younger instruments, which would actually cause us this nice and expected tailwind even like after corona when we were certainly -- when we are certainly motivated to offset the slightly declining demand of those instruments, which saw higher demand during corona now with newer instruments and that didn't play out very well. We gave a new sales outlook, which was adjusted in October this year. And it's very much driven by the delivery back order that working that down takes longer than expected. That was the main reason for the adjusted sales outlook. EBIT outlook still very promising and okay and in line with what has already forecasted, which is mainly driven by nice revenue recognition and therefore, earnings, which are associated for development activities. Adjusted EBIT margin with 18.3%, at the upper end of the full year guided target corridor. We had this foreseen successful market launch of a next-generation molecular system, which is for one of the market leaders in molecular and that happened at the very beginning of Q3 2022 and that certainly plays a meaningful role in how the sales outlook of the remainder of 2022 will develop and certainly, the sales outlook, which will be given in the first quarter of next year for full year 2023. We have -- and that didn't change, and it's actually on the other side, that very frustrating situation that certainly one of the main objectives of my position is pushing things over the finish line. And certainly, that's why I'm talking a lot to customers regarding new development projects. And that's like on the other side, so frustrating that particularly getting new things on board, performing feasibility were pushing contract over the finish line, that's actually really on the one hand side, promising on the other side, very satisfying. And on the other side, this operational gap in between actual demand of the customer and that unsatisfying back order situation that's driving my frustration as well. So certainly, we have increased activities in order to satisfy customers' needs. On the other side, it's certainly that we have the very same problem. Carmakers are telling you all those companies, manufacturing, dishwater or washing machines, all the same problem that particularly for those microcontrollers, which are called microcontrollers of the previous generation. So every company, which is using a modular or component design approach to use the very same microcontroller like over generations and keeping the software young. So design going back 5, 6, 7, 8 years, that's actually what's hitting us hard. And particularly, if we learn that the supply situation with microcontrollers improved over the last, like, 3 months we cannot confirm that for those microcontrollers we need, we call those the microcontrollers of the previous generations. And like I said before, I think the carmakers and other companies using a modular design approach they are. They have the exact same issue like we do. Number of employees, up by 3.1%. Again, we have a lot of open positions. It would certainly be higher. The majority of those new positions and those hiring is actually in development, which is actually reflecting particularly what I just mentioned before. A very well stock development pipeline. Let me summarize our financial performance. So after 9 months, sales down by about 8% coming from EUR 225 million after 9 months in 2021 and now EUR 207 million. Q3 on an isolated basis, up by 1%, again, fairly satisfying, particularly taking the basis effect into consideration. I think that's actually a good result. However, it could be way better if we wouldn't have that really unsatisfying supply situation. And I just want to like -- I think it's worth trying to get this across. I know this is a little bit complicated when I'm talking about back order and volume of back order situation. At this point, we have a back order situation of, let me put it that way, higher single-digit million euro amount. However, it would be way higher. The process, how we work with our customer is as follows: so the actual back order situation, we are reporting, like I just mentioned, higher single million digit -- million euros amount back order is actually confirmed orders versus not fulfilled confirmed orders. The situation is actually a little bit worse if we see that typically, our forecasting process works as follows. The customer gives in a forecast, which is reflecting the actual demand of the customer. And our supply chain is actually trying to find out like in a shotgun approach, whether or not we would be able to fulfill that supply plan. Like if the customer wants 10 or something, and in that snapshot approach, we find out that we can only ship like 8. We get that informal number back to the customer, let's say, 8. The customer then puts 8 in the actual forecast. We put that forecast in our system, like and if we only ship, let's say, 5, the delta of the back order would be only 3, whereas the customer would actually want 5 more. So that's why I'm trying to get across that the actual back order situation is higher than what we actually see on paper because the customer would actually want more, but orders less because we already at the forefront are confirming less as compared to what the customer actually wants. EBITDA on a full year basis back by 16% on a quarterly basis on the -- like after Q -- in Q3, 16% up EBITDA margin in Q3, really very satisfying with 28%, as mentioned already, very much driven by, first of all, an overall high recognition of earning heavy development activities performed or recognized in Q3. But on top, certainly that we had some delays in revenue recognition of margin heavy development activities in Q3, which were pushed into -- sorry, in Q2 which we got pushed into Q3. So I think this is actually something which cannot be perceived as entirely sustainable because there was a lot of revenue and therefore, earnings which we are planned for Q2, and we already mentioned that in our Q2 call, that a lot has been pushed into Q3. And there, it was recognized. That's why certainly, the recognized revenues and therefore, the associated margin on development milestone was higher than initially planned for Q3. Adjusted EBIT, the exact same thing. Negative planned negative on a full year basis in Q3, very promising, again, very much driven by high contribution of development and, therefore, earnings heavy development milestones and same thing pushed from Q3 into Q3. Adjusted consolidated net income, the exact same thing, leading us to basic EPS, about 23% down on a full year basis and about 10% up on a Q3 basis. If we see that on a 9-month basis, 11% down on a constant currency basis, driven by the high comps. So pandemic-related high comps coming from 2021 after 9 months, this is actually more or less on a planned level, but on the other side, certainly, and I don't want to reiterate my statement regarding our supply chain issues. And then a very strong growth with development and service activities or service part sales. Same thing on an adjusted EBIT and adjusted EBIT margin. Negative economies of scale, certainly driving that particularly those instruments, which saw a nice tailwinds during corona are now seeing slightly lower demand, complex analysis systems mainly on a molecular basis with good margin profile then certainly, we have a normalized product mix. This doesn't only mean normalized product mix. If we see instrument sales on an isolated basis like let's compare molecular instruments on the one hand side, to immunoassays and immune hematological and hematological instruments. On the other hand side, certainly, we see a normalization there. But even taking into consideration service and maintenance parts versus instruments and molecular instruments, in particular or the contribution of development activities or more on a normalized basis. That's why we are getting back into a more normalized margin profile. Then certainly, on the headwind side as well, certainly increased input costs and supply chain in activities. So higher cost for raw materials, certainly on top broker costs that we have to go through channels, which we certainly normally wouldn't use which are causing extra costs. Again, it's partly offset by the nice and margin heavy development milestones, but that's what I like to get across is that our margin profile we showed in Q3 is certainly only partly sustainable. And that's the important thing if we see Q3 on an isolated basis. Cash flow, again, not very satisfying, but still okay. If we see that certainly, the cash flow from operating activities is affected by working capital and here mainly inventories. We are unfortunately in a situation that we can only confirm orders with our customers as soon as we have the inventory on board, which makes plannings very difficult. That's why we are trying to pull in more and more, and that's actually reflected in the operating cash flow activities. Like from an investment perspective and financing activities, we are like literally unchanged, which is leading to an unsatisfying but still okay free cash flow situation. I think -- and that's really more or less gut feeling that we should not assume that we have to pump more cash flow into operating activities in the future. I think we peaked out from an inventory level here. More is not necessary to kind of take the situation on the one hand side with supplies and the other side with customer demand. Cash position after 9 months and equity ratio, all in line with expectations and actually just derivative of the free cash flow situation. Let me get to the outlook situation. Actually, we have given guidance on a constant currency basis of a decrease of about 5% to 8%. So again, this is the beginning of the quarter. I already mentioned that at the beginning of the last quarter that at this point, the supply situation seems to be a little bit better. Unfortunately, the development of Q3, very much to the end of Q3, made the situation worse again, and I hope this is not going to happen here. We have given a fairly wide corridor here, which is mainly driven by the supply chain situation, not by the demand position. I think we understand the demand from our customers very well, particularly our U.S. customers -- you probably learned that from other companies, which have already reported their Q3, particularly in the United States and in Europe, we see very much driven by corona and upswing over the past 3, 4 weeks with corona-related demand. And that's why we believe that if we can satisfy the demands that we are in a good shape to actually to deliver more towards the upper edge of that guidance. Adjusted EBIT margin between 16.5% and 18.5% comparing 2021 with 18.9%, so not a huge delta. I think the guidance given for our full year already implies that the EBIT margin of Q4 will certainly not keep action with the EBIT margin we showed in and after Q3. Investment in tangible and intangible assets combined of around 6% to 8% comparing 2021 with 7%. And again, it looks like that we can keep that under control. And end up with, I would like for planning purposes, I would actually assume like between the lower end and mid corridor guidance. Focus in 2022 and for the first quarter of 2023. Certainly, we need to get the supply chain situation under control. It's still very bumpy and lumpy, it's coming down to only a few commodities. So our challenge at this point is mainly microcontrollers. I think everything else like raw materials and plastic or other commodities in production are fairly well under control and fairly well understood. Unfortunately, we get hits regarding microcontrollers from really unexpected angles. So the last hit we got was actually like in September, when an entire month production of Infineon hit us very hard that we didn't get the microcontrollers in and that's why in certain instrumentation lines, we couldn't actually supply our customers with products which have already been confirmed from an order perspective. I already mentioned that we have a nice development pipeline, which needs to be properly addressed in terms of delivering milestones and phase-gate on time. But certainly, our product launch lineup is very good as well. Execute on the deal pipeline, a lot of promising things at the very end of the -- what we call pipeline regarding new development activities. So I would assume that towards the end of the year or in Q1 next year that we can execute another 2 to 3 meaningful deals, which then certainly means, first of all, nice growth rates in the years after the development activities. This is not trying to push out things. We have a nice development pipeline as well. So actually, our growth should be sustainably in the area of high single digit, low double-digit as already forecasted in the last call and in the years before. That's what we actually planned for. But it means growth from a hiring perspective, from a headcount perspective, from an inventory perspective in other areas, all in a planned manner. Then certainly, we definitely see that we can realize on tailwinds from stricter EU regulations. So in everybody's mind it's actually IVDR. So we definitely see a selection process between the different suppliers, and we are certainly on that side, delivering IVDR compliant products or that our customers, which is actually probably more important perspective that they cleared their products under IVDR, which is actually giving them a push versus those market participants, which don't have IVDR compliant products. It is very much driven that in certain areas of IVDR, grandfather renewals are no longer applicable, which means it means a lot of actually reregistration and retesting work for our customers and for us. But as mentioned, I think we are here on the side of those companies participating from those more stricter or stringent EU regulations. It's actually leading to changed sequence of product launch and probably may remember that like 5 years ago, it was quite common that even for U.S. companies, products were launched in the first instance in Europe and then after a year in most of the cases in the United States and then only in Asia, and that's actually like a change of sequence here that what we definitely see that our customers are trying to launch the products first in the United States, second in Europe and then in Asia, which is actually uncommon in our mindset. Then we want to implement -- certainly they implement measures to limit the input cost inflation. This is not that if we learn about inflation and we learn about like 10%, 15% in certain commodities, this only affects certain commodities of Stratec like electronics, whereas like other materials are fairly well under control. Definitely, M&A remains a part of the company's growth and diversification strategy. We have a couple of ongoing things, nothing super concrete, but I think it's again worth mentioning that we have ongoing activities here. And I think from gut feeling and personal perspective, the situation for companies on the M&A side like Stratec as a participant -- as an active participant on the M&A front is getting better as prices are slightly coming back because certainly, expectations for the next 2 to 3 years of some companies, which had some tailwinds during corona are now getting more into a realistic set up. That's why we -- our perception is that prices are getting more realistic now. Then certainly, another challenge is definitely manage the additional personnel requirements -- in particular in few of The Wellfield Project pipeline. So it means very active hiring activities. This gets me to the end of the presentation. Stuart, can you please take over again, explain us how to work through the Q&A?

[Operator Instructions] First question is from the line of Oliver Metzger from ODDO BHF.

The first one is on the guidance implications for '23. So basically, with the whole back order situation persist for quite a while. Could you elaborate us about the kind -- have you experienced that some back orders are even go lost because your clients move to other alternatives. And so this information would be quite helpful. Also in this context, the -- at some point in time, [ back ] also will go down. Do you expect really -- it's hard to say, but would you assume that you see even a higher pent-up demand already next year? Or do you think -- or until the whole microcontroller issue is solved. It's more like even a 2, 3-year time horizon, and we see some improvement. That's the first part of my question. The second one is also about the slower growth, which you have unfortunately experienced. Does this have any implication on your CapEx plan for '23 or the next years. So basically to your initial bigger investment in Birkenfeld, I think you said it's somewhere last 3 to 4 years when a further capacity expansion. Has anything changed there? And my last question is on your M&A strategy. So is that no imminent target I think the field is big, but we talk about raising interest rates. So which leverage ratio would you still regard as prudent for you to execute a deal?

Oliver, thanks very much for your question. This is actually things for bringing up all those different topics, although it's a real challenge to give you like a black and white or a straightforward answer to some of the questions. So at this point, certainly, I would say that our customers have the situation fairly well under control. So moving on and getting into alternative supplies is definitely not something which might work for them. The majority certainly only have that solution. They have not the choice between picking supplies from supplier ABC because this is their one and only solution they have, and they need to place that situation. Certainly, the majority of our customers have like a 2 to 3 months run rate on stock. Certainly, some of them are, in the meantime, running dry. I heard some comments of some of our customers when analysts brought that up in their relevant conference calls that they are still doing fine. And I think, like I mentioned before, the first trading situation is that on the one hand side, certainly, we are able to supply the majority of our customers with fairly steady run rates of instruments which have been launched years ago. The difficulty and actual challenge is the ramp-up situation, and that's the frustrating thing because we know that there are super high demand coming from the market and our customers simply cannot satisfy that demand, which is causing frustration not only on our lines, but certainly on our customers and which means that they actually have to step on the brake in terms of how they do the supply their relevant customers with new products and have to push out supplies. That's certainly a very unsatisfying situation. But like from an overall perspective, I would, at this point, say that only the majority of the actual end customers are looking into alternative supply. Certainly, our customers don't do and can do because there are from their perspective, no alternative supplier. From an end customer suppliers like the lab or the reference lab or in some cases, a research lab, they might have alternative supplies, which means -- and again, this only adds to my frustration level is that certainly, in this situation, it's a missed opportunity, but in the majority of all cases, it's postponing revenues. Then I would say, now getting into the supply chain issue and microcontrollers here mainly. So I'm assuming that part -- allow me to reiterate, but I already was trying to get across in the presentation is that the majority of companies like Stratec, not only in the field of med tech, we're certainly regulatory and changes in perspective of regulatory confirmation is a hard one. But I mentioned that the majority of the carmakers are actually using the very same microcontrollers. So certainly, we saw pickup demand from a variety of companies using those microcontrollers, and you may have learned about stupid stories where actually, like markets have been bought empty by certain participants in the market, which is leading to an additional shortage of supply, and we all have the same issue that the investments currently taking place in manufacturing lines for microcontrollers are actually only reflecting the situation for the current and next generation of microcontrollers. Unfortunately, the carmakers as those ones manufacturing dishwashers and washing machines, we unfortunately need the microcontroller of the current or last generation, the previous generation microcontrollers. And that's where actually the supply is not picking up because there are no material or meaningful investments. That's why we will continue to live with a shortage of supply probably taking us even into 2023. On the other side, everybody is hoping -- don't get me wrong when saying that for the recession, we are a company working in a cyclical market as being a supplier in the med tech industry, and the project life cycles are so long that we are not affected by recessions, but I was actually hoping that the demand is slightly declining next year coming from that angle and that we are able to work down the back order and the back order situation. And that's why I was hoping, and I'm still very positive that we can work that down. CapEx plans are certainly very much a derivative of the projects we get on board. So we will certainly not stop to invest. I think we are good with capacities like in particular, like working space for prototyping developers. We are actually good. No investments required and the investments in manufacturing capacities are still like 2 to 3 years ago. So I think that short-term top line, lower growth expectations are actually not affecting our CapEx plan at all. M&A, again, we -- I think it's -- there are a couple of perspectives on M&A from our perspective. We were always talking about that we are trying to find a Stratec 2 or Stratec 3 like we showed in Diatron acquisition back in 2016 or something which is now really, really starting to pay dividends, the investment in an early investment we made in the Sony DADC BioSciences business, now Stratec smart consumables, where we invested in technology. I think our perspective on M&A has changed gears and angles here. So certainly, with the way better situation in the United States in terms of raw material supply and certainly, our customers have expectations that we invest in the United States. Certainly, our angle would be investment in the United States and probably increasing manufacturing gaps still in the United States. It's a new perspective we brought in, and that's actually on our M&A level. I think we like with increasing interest rates, our perspective on the level of leverage didn't change at all. We always -- we tried -- we always were intending to stay on the conservative side, particularly for our customers which need a stable and reliable partner. We certainly didn't look into a 3 to 4x leverage perspective, we always said we want to stay very conservative on that level as well. So I hope that answers your question. I think from a long-term perspective, nothing materially changed. And I think we -- actually, those headwinds we are facing today are unsure or are actually short term.

Next question is from the line of Oliver Reinberg from Kepler Cheuvreux.

Marcus, can you just share with us how you think about next year in terms of top line growth. I guess on the one side, you have support from a kind of a strong order backlog, at least I would assume that this does not get worse on a year-on-year comparison, and you also talked about the kind of strong pipeline of development yield. So is it fair to assume that next year we're going to see at least kind of sales growth in line with your midterm objectives?

Oliver, it's actually a tough one. Like I'm just kidding now when I'm saying that if you give me the answer regarding recession and regarding corona hotspots, I'll get you my answer on that. I think particularly like corona getting -- the thing is just trying to get you an example. You know there is this ongoing discussion that corona now got more endemic and corona is over from our industry. However, talking to our customers, they really saw an upswing in demand, not only for tests, but for instruments as well over the past 3 weeks. That's what we actually predicted very much that towards the end of the year in like late autumn, early winter season that we might see some corona hotspots. We have that in Germany. We have that in the United States with a very steep ramp-up curve on demand. Obviously, we are expecting very short duration. And then again, a very steep and down, however, additional demands we didn't foresee. So like on a going concern basis, no additional demand coming from corona, a better supply chain situation. I would actually expect that we normalize growth levels more back into the situation we saw over the past years. And we'll see in the future what we said is that long-term goal of high single-digit growth. Again, for 2023, it's a super tough one. I think it is way too early. And actually, the volatility is coming from those sources and additional sources I just mentioned before, supply chain, corona, ramp-up. Digital BCR testing in the world, how fast are our customers, our new customers getting their menu comprehensive. If we answer all those questions, it will be way easier to get you that question. Actually, I don't see any reason why we shouldn't get back on that growth rate. On the other side, like the overlapping effect and the set of from -- coming from those effects are unplannable, that's why getting you a concrete answer on that subject already at this point, it's literally impossible. So I think going forward, like talking about -- that may sound weird when saying that, but I think it's easier to talk about 2024 and 2025 for us at this point rather than talking about 2023.

Understood. Makes sense. And I just squeeze you on the margin side for next year. I'm just trying to understand the different drivers. I mean, on the positive side, you continue to work on pricing, maybe currency will also provide some support after the benefit was delayed by hedging this year. Then there's a ramp up for consumers. So all this will probably help. And then on the contrast, you have the base effect from this unusual high margin development sales and obviously, the pressure from inflation. So is the risk on a margin perspective year-on-year for next year, more to the upside or more to the downside if you assume the 17% that you guided for, for this year?

I can't get you more than my gut feeling. I would actually assume like more flattish development here. You brought up the right point. So assuming some tailwinds from currencies, assuming a lower inflation, assuming more availabilities from driven by recession, I would actually -- and therefore, no additional broker costs more in line demand with planning lower inventories that we managed to get down inventories again. I would assume actually like a robust margin development slightly on a positive side. But again, it's way too early because the assumptions are at this point, not steady enough. That's my takeaway at this point. But I see no reason -- like if I'm -- if the market will deliver on my assumptions, just made, I would actually assume an okay development here.

Perfect. That is helpful. And last question, can you just provide a bit of more color how the launch of this kind of new instrument that you launched in Q3 is ramping up? Also, any kind of color how quickly do we see the kind of pull-through for smart consumers coming through? And is there any kind of potential stocking effects? I mean, I think in the past, there were some kind of situations when you have a new instrument that hits the market that the client has some kind of channel stuffing first also on consumers, just trying to get a feeling how quickly this could become meaningful also from a from a margin perspective?

Yes, it would be meaningful if we would be able to satisfy customers need. So that's like one of those elements where we have a severe back order situation, which is, again, very unsatisfying. So it would be actually way higher than what we see at this point. We are actually hoping that from Q1 on that we could really satisfy customers' needs. That's our -- not only our hope. We are actually -- we have undertaken severe activities in order to manage that situation.

Okay. And the smart consumer, is there any kind of stocking happening related to this instrument?

It's not really, actually. So it's -- I don't know if I managed to get that across, certainly, with the complexity of the bill of maturity and instrumentation, the situation is waivered back order situation. On the instrumentation side as compared to smart consumables, where the bill of material is actually like only 15, 20 positions where there's tens of thousands of position for an instrument. And there are -- certainly the raw material situation is better and better under control. And therefore, certainly, the back order situation is not as bad as on the instrumentation side. So that's why we can satisfy customers' needs. But obviously, selling less instruments that certainly, they don't need that many consumables. So if instruments would approve, an automatic at the tail end effect would actually be higher demand on the consumables as well, obviously.

Okay. But this specific client has an understanding for the situation.

Certainly, the customer is not satisfied, and I understand that.

Next question is from the line of Jan Koch from Deutsche Bank.

Marcus, I would also like to come back to the many moving parts, which are expected to impact your top line next year, starting with COVID. If we assume that you don't get any COVID-related orders next year, how much of a headwind would that be on your top line? I understand that it's difficult to differentiate between COVID and non-COVID, but any comments here would be helpful. And then you just mentioned in your presentation that you have a lot of open position. If you can't close these job openings, could that hamper your sales growth over the next 2 years? And then, finally, is it fair to assume that on top of your normal growth, your top line next year should benefit from some price increases. Any update here would be great as well.

Let me answer the second question first. So certainly, we are trying to motivate our customers to go forward with us with increased prices and that only happened like between let me say, Q2 and Q3, which means the price increases didn't affect the full year 2022 on the sales side. But certainly, price increases on the input side is affected almost full year. That's why that will certainly get us some, let me say, some tailwinds on the earnings side. And that's actually important in our planning as well. Again, I would assume like is still high, but lower than '22. Inflation rates going forward on the other side, we certainly cannot guarantee -- we couldn't guarantee our customers that we will not come back with a further price increase in 2023 and the same thing applies on the input side. Like there are certain situations where you only have the choice between [indiscernible] either not getting supplied or paying higher prices, and certainly, we need to find that narrow balance and discussion with our customer is it like -- is it better to sell less on a higher price? Or how do we tackle the situation? COVID offset I think it's well understood and well under control. We already saw lower demand, unplanned lower demand in 2022. We shouldn't expect that the demands are going further back certainly. And I think we discussed that already in the last call that there is a very high replacement demand from our customer because they placed a lot of instruments, which are now worn down or life cycle after COVID. So that's actually something where we see replacement potential. And therefore, instrument potential. Certainly, the majority of our customers increase the menu. We have a generation change with -- like with DiaSorin from the MDx instrument to the MDx Plus instrument, which means, certainly, particularly for the MDx DiaSorin place less instrument because they know that there will be a next generation in order to penetrate the market with generation, which will be obsolete next year. That's why they were like -- if they had the choice, probably relaunching an existing contract with the MDx and then only replacing the MDx with an MDx Plus next year, that's certainly something which they will do. That's why we are actually not only from that perspective of demand for replacement instrument, but generation change in between high wear and tear, we would actually -- I would actually assume that we have dipped out regarding demand for molecular instruments. Open positions in terms of -- like new contracts, I think we are doing okay, really well-filled pipeline. We shouldn't expect like a 100% hit rate. But we have a variety of projects and feasibility activities in a situation where it is very, very likely that our customers will go forward with us and execute the contract. So I don't see a material change that something will be pushed out from -- coming from that perspective. I hope that answers your question.

Next question is from the line of Alexander Galitsa from HAIB.

I have a couple. So maybe the first one is on the backlog. So you have explained how you basically quantify your backlog, which obviously underrepresents the underlying demand. I was wondering if you could provide us with an idea how much more than the high single-digit million amount is the real underlying backlog, number one? And then whether it is fair to view this sort of as the miss in revenue that you should be able to easily realize next year?

Yes, Alex, thanks for the question. Actually, I thought I mentioned that it's really tough to tackle it because you never know what's rolled over in the next relevant quarter then, but I would actually say that it's another EUR 5 million on top to really the real -- like addressing the real underlying back order situation. Our underlying demand is that high single-digit million euro amount. And then on top of another 5 million coming from something where we didn't put in our system because the customer already ordered less based upon our information, missed revenue. Like I mentioned before, I -- we certainly cannot tackle that. If we are talking about the back order we have reported that's actually confirmed orders -- that was confirmed orders between January 1 this year -- in [ September 30th ] in the back order situation on confirmed orders as a derivative. So it's actually missed revenues, nothing else. So the revenue should be like in the area of 10 million [indiscernible], we could have actually addressed that back order situation. It's not the regular back order, which typically you take from quarter to quarter. It's actually confirmed for the quarter. I hope that helps.

That's helpful. And then maybe on the development revenue. Could you tell us how much roughly this extraordinary earnings effect from the development revenues was that we should not necessarily expect to reoccur next year?

Yes. Yes, as you know, and given the confidential nature of our agreements with our customers, we are always kind of reluctant to comment then on details on the financial implications of certain and specific products. So like in this case we certainly cannot and don't want to disclose the margin on the development project because, as mentioned, it's like more or less a political decision and the outcome of negotiations between us and our customers if we want to roll over the margin in the actual product supply after the development of our customers have -- if the relevant customers have a certain development budget to already roll in the margin and a development product -- in the development activities. That's why it's literally impossible for us to first of all mention that and then certainly, we would disclose data which should only be disclosed by our customers. So I can't give you information.

And then maybe another question on the Panther related spare parts and maintenance business. We have seen obviously that the Hologic grew the installed base substantially between the pre-COVID times and to what they have today. Could you help us kind of understand the revenue opportunity this much increased installed base represents for you maybe in terms of average annual revenue that you were able to pull through with services and spare parts from the installed base prior to the pandemic? And then maybe how you expect this to develop maybe in the nowadays considering that also, I think Hologic is very upbeat on the number of assays they are able to offer on this equipment. So any color comments on that would be helpful.

Yes, absolutely. So certainly, again, Alex, and please allow me to say that, again, certainly, some of the data you asked me to provide you with is something which I cannot disclose simply because either I don't know it or there is confidential nature associated to that. So certainly something which is important to understand certainly the installed base of Hologic nightly grew during corona, that's one thing which is important to understand. Then certainly, like getting more into -- back into regular workflows in a laboratory. So certainly, you cannot just say that the average capacity of Panther of a Fusion instrument is, let's say, 5,000 a day, if you're getting back into more regular workflows, you are switching from a 2- or 3-shift model -- working model into a more 1 shift working model, which then automatically increases the demand here. So you cannot simply say they launched so many Panther. We have to actually assess the situation from a utilization perspective regarding their SA sales. And you said the right thing is that Hologic is nicely increasing their menu, certainly for the higher throughput assays on the Panther TMA side. And certainly for PCR-based assays on the Fusion side, all really very well under control. The numbers reported by Hologic is actually showing still a nice increase of the installed base, whereas at this point, certainly, the majority of Panther and Fusion placements are going into replacement of Panther and Fusion not of the previous generation Panther and Fusion, but of those ones which were won down during corona because of the super high utilization. And that's actually like a very nice situation. And it's again worth mentioning that was always part of our planning, and I was, for the last 2 or 3 years trying to get this across that this phase, which is only starting now with that increased installed base that certainly the percentage of sales with maintenance parts and spare parts and service parts into a very small position even the consumables on the Panther that this is only starting now because this installed base grow so nicely. I think certainly, like if the Panther spare on a high degree of utilization that some parts had to replace extremely often because of, again, high wear and tear, which is now coming back. But still, we are in that situation that maintenance parts and service parts have to be replaced frequently on a way higher cadence and as compared to like in the automotive industry like oil or filters, which have only to be replaced like once a year in molecular instrument or even in an immuno instrument, everything which gets in touch with biological material needs to be replaced on a frequent basis like once a week, once a quarter, once a month, whatever and that volume is actually very stable. That's why in our forecast, which is not only driving top line but bottom line in 2022. But ongoing in 2023 and 2024, we actually consider a nice growth rate on service parts and maintenance part. And certainly, the tailwinds we see from smart consumables are adding up to that demand, and that's certainly something which is a margin driver for Stratec in the years to come. However, it's super hard to already tackle that at this point. I've mentioned before, taking inflation rates, utilization rates, recession into consideration makes it literally impossible to get you a precise answer for 2023 on that topic. But again, from an overall perspective, I would expect rather tailwinds than headwinds.

Next question is from the line of Michael Heider from Warburg Research.

I know you have already talked a little bit about it, but I was -- I would like to come back to your newly launched molecular instrument with this leading diagnostic player. Can you maybe elaborate a little bit more because I think it's the first time that this company is really using third-party suppliers here. So who are the end customers? I mean, what is the exact plan with this instrument? How do they increase the menu? I mean, have they -- what is your policy here? Is this -- do they start with the full menu already? Or is it -- as you have seen with other clients of yours that they only increasing the menu over time. And hence, you expect here a steady ramp up? And then maybe also on the consumables. But -- so you -- I mean are you delivering the consumables? Or have you developed the consumable and the consumable is being produced by your customer itself? Or are you -- is this like a regularly supply agreements you have also for consumer bids?

Michael, again, same topic, there is certain inherent information. I simply can't disclose. On the other side, I certainly would like to get you an answer. So from a menu perspective, I think that's a fairly easy one. The company is actually developing content. It will supply diagnostic content over time. As always, starting with a fairly small menu demands only picking up in this particular application which will certainly go into like specialized oncological setups, newborn screening setups and so on. Certainly, there are a lot of -- like -- don't get me wrong when I'm saying home brews, but tests which are developed as always, in the PCR and DPCR segment by the labs and certainly, this instrument goes into research setups as well. I think the beauty in this particular setup that you shouldn't expect that typical slow at the very beginning, slow ramp-up curve like in a typical diagnostic setup as this goes into research as well, menu partly developed by the end users, partly by the company. One should expect a higher or a faster and steeper ramp-up curve. And again, it's really super frustrating and unsatisfying that we cannot yet fulfill the customer demand. It would be way easier. I would be way easier even in that call if that unfruitful supply chain situation wouldn't be the case in this particular case. Talking about the consumable and you know this is always discussion what is consumable. Some of our customers are not only calling the plastic consumable -- the consumable but some are actually even calling the content they are providing as the consumable. So with that very clear split in between Stratec providing the instrument and the smart consumables, we supply the customers and the end customers. Therefore, with the plastic consumable as well certainly, our customers then are supplying the plastic consumable with some content, the combination will be called consumable as well, and that makes that perspective fairly complex. However, I want to get that across. Plastics is coming from us in this particular case. I hope that answers your question.

We've a follow-up question from the line of Oliver Reinberg from Kepler Cheuvreux.

Marcus, so for asking, just to be aware, is there any risk of penalties if this kind of delayed ramp-up would take much longer? And secondly, I mean there's various topics when it comes to the midterms in the U.S. One side topic is also the infrastructure for dealing with potential further pandemics. Is there any kind of opportunity for your industry?

Yes. Yes and no. So first of all, penalties, we have a contractual setup. There are no foreseen penalties for delayed supplies. But obviously, we are upsetting our customer and I understand that. And certainly we have to talk about compensation that's certainly something which will not hit us hard. But actually, that's not the focus. The focus is to supply our customers with the products they need in time. That's the real goal. So I wouldn't overfocus the risk or anything associated with penalties. First thing, midterm, actually, the beauty in the economies related to corona in the United States was that a lot of money was pulled in the system, but the actual decision was taken by the players in the market. And certainly, some of our customers and other participants like developing tests and menu and instruments saw some nice governmental grants, which were used in order to widen their installed base, which is now helping them that if they bring up new menu that they can widely spread that menu because the installed base grow so nicely. So we definitely see that second derivative effect, but I wouldn't expect any first derivative effect coming from [indiscernible]. But still that second derivative effect is something we should actually consider and which is considered in our planning.

There are no further questions at this time, and I would like to hand back to Marcus Wolfinger for closing comments.

Again, thanks, Stuart, and ladies and gentlemen, this gets us to the end of our Q3 and 9 months call. If you have any follow-up questions, please do not hesitate to call us. Thanks for your time. Have a good day.