Stratec SE (SBS) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Thank you for standing by. I am [ Francie ], your Chorus Call operator. Welcome, and thank you for joining the Stratec conference call regarding today's announcement for the full year 2022 financial results. [Operator Instructions] It's my pleasure, and I would now like to turn the conference over to Marcus Wolfinger, CEO of Stratec. Please go ahead, sir.

Thank you, [ Francie ]. Good morning in the United States, and good afternoon, Europe, ladies and gentlemen. Welcome to our 2022 financial results disclosure conference. Actually, before we start, I would like to mention some housekeeping stuff. So first of all, I don't think that I need to walk you through the safe harbor statement, and you can actually download that presentation either from the web tool or you can download it from our website. We split this presentation as always into actually four major blocks. First of all, I would like to get you an overview of the fiscal year 2022, followed by a review of the financial results. And then I would like to get you an outlook. And after that, we directly dive into Q&A if there are any questions. We have given supplementary information in the appendix, which is available in the downloaded presentation. One of the core element is definitely the strengthening of the management team with the appointment of George Bauer through the Board member and Chief Commercial Officer, effective January 1, 2022 through with his knowledge about the industry and the sales trends in particular. And there's an outstanding expert of this industry, George, certainly one of the core assets of Stratec in the future. As expected, sales declined actually declined slightly more than we expected with 8% in constant currency, down to EUR 274 million, which is actually mainly based upon the really tough comp and delivery backlog to a super tend supply chain situation, particularly for electronic components. Adjusted EBIT margin with 16.4% in line with the initially set corridor Actually, this is at the lower edge of what we foresee. Unfortunately, the end of the year didn't develop as we expected. However, it's still in line with the targeted corridor. We had the successful launch of a variety of molecular systems, particularly on in Q3, which is a digital PCR system, but other instruments have been launched as well. And even in the light of the outlook for 2023, which is not really satisfying, we believe that particularly towards the end of the year 2023 the newly launched systems will be in a position to offset the negative contribution of those instruments, which are seeing lower demand and the lower demand are actually mainly seen because we see the super tough comps coming from the period after corona. We have a really well stock development pipeline, a high number of ongoing negotiations. But even those instruments, which will hit the market in the next years or actually quarter are very promising. That's why we are not really super disappointed about the current development, particularly as we see that operational development, unfortunately, decoupled slightly from the development with our new projects. But we are really, I think, very well positioned that those new launches and the projects within pipeline and foreseen upswing of those products, which are now seeing headwinds after corona that altogether, we will soon get back on that nice growth rate, which we have seen over the past years. Number of employees, up by 5.9%. And actually, even in the like of our earnings improvement program and in the light of the negative operational development. We still see a growing number of employees, which is mainly related to our growing development activities. The Board of Management and the Supervisory Board will suggest the AGM dividend growth, which actually shows our positive momentum and -- which actually shows our confidence in the future of the company that the current, let me call it dividend if it's still a nice top line growth let me call it dip, It that even this dip is from our end short term. And that's why we continue to work on our dividend track record and has -- and will suggest the AGM small growth rate on the dividend adjusted. Now getting to the financial review. As mentioned before, here the financials. So sales of EUR 287 million in 2021, sales of EUR 234 million, which is a decline of 4.4%. Q4 growth rate of about 8% from about EUR 62 million to about EUR 67 million. Adjusted EBITDA, a decline of 12% coming from EUR 66.6 million in 2021 to EUR 58.6 million in 2022. Fourth quarter growth of 17.3%, which is actually a nice achievement actually shows the progress we made in the product portfolio over the year. Adjusted EBITDA margin on a full year basis for 2022 with 21% after 23% in 2021. All subsequent earnings figures are actually nicely in line with EBIT and EBITDA and [ EBIT ] and EPS. So there is nothing special in between, which gets us to an adjusted basic earnings per share of EUR 2.86 after 3 years EUR 3.73 in 2021. And as mentioned, a comparable progress with EPS as we saw in EBITDA and EBIT. In this slide, you can see the sales over year after the nice growth rates we showed in 2019. We saw a more normalized year in 2020, first year of corona and the nice growth rate for 2021. And then like the last super strong corona quarter in 2022, Q1. And then more normalized quarter gets us back to where we are at this point. So as mentioned, fiscal year 2022 sales of a reduction of 4.4% to EUR 274 million, which represents 8.3% decline in constant currency. So we have to see that we see some headwinds here. One is the strong pandemic sales with MDx products, which are now coming back. Actually, we had this discussion during the entire corona pandemic that are we selling more instruments than foreseen, will we have a saturation in the demand. Actually, we embedded not only us. This is actually the industry as well. So some stronger decline rate as initially expected, and I would like to dive into some details. And I think this is really important to understand what's going on here. is that when we were attending JPMorgan conference at the very beginning of the year, we certainly had a variety of customer meetings, where the world still seems to be an order like we saw some nice demand forecasts were okay. Actually, we have brought the budgeting cycle behind us, went through everything. And actually, we saw that particularly our newer projects were actually strong enough to offset those slight declines, which were foreseen in some of our molecular products between now and between them, so the beginning of January 2023. And now we definitely saw that the expectations of the leading diagnostics companies changed materially. So actually, 8 out of 10 of the top diagnostics companies disappointed with their projections for 2023. We know that the majority of this 8 out of 10 programs have actually established cost reductions themselves already in order to tackle that situation where the decline rate is actually way steeper than everybody expected. And we were actually surprised that we received a variety of weaker-than-expected forecast update. Actually, something which didn't happen in the history of the company that we had some extraordinary forecast adjustments coming through our customers. And that actually led us to unplanned review of our 2023 forecast, which actually led at the end to this Ad hoc announcement that mandatory stock announcement, we have released a couple of weeks ago. I personally believe that we actually took a snapshot at a very negative moment in time. Talking to our customers, we already see some improvements here and there. However, we have given that new guidance. And from here, I believe we have at least mainly bottomed out. We see good progress here and there. We will establish that cost reduction and earnings improvement program where we will give details in our Q1 disclosure call. And from here, we start into that year of 2023. And I would like to already mention it, and I'll dive into details later on. that we actually plan to get back into the area of plus 16% EBIT margin on a full year 2024 basis. So December 30, 2024, we definitely are planning for plus 16% EBIT margin. On the negative side, and again, still providing some headwinds, but the major improvement here is that strong is that delivery backlog, which is based upon the availability of certain components again, like in other industries, we can report that the situation has mainly improved that prices are starting to normalize, which again makes the positive about the development of 2023. On the positive side, we have a strong growth with development and services, and we have positive growth rates in all our others. So let me say, don't particular those product lines, which haven't seen extraordinary high tailwinds during COVID-19, and we see positive growth rates in the immunoassay, mainly immune hematology. And for some of -- this is actually a minor business line clinical chemistry, we see some nice growth rate. Now breaking down sales by operating divisions, systems, CR at minus 20% after minus 15% in 2021, then CR in service parts and consumables from 2021 to 2022 coming from minus 6% to minus 10% constant on a constant exchange rate and development, we saw that nice growth rate, which we already discussed in the course of 2023 with plus 73% after plus 7% in 2021. If we break that down like between our main sales stream, which means service parts and consumables like steady development from 32% in 2021 to -- from 33% in 2021, excuse me, to 32% in 2022. Certainly, with systems coming back from 58% 2021 to 51% now half of revenues in 2022. And as already mentioned, very strong growth rates and the contribution of development and service activities, which actually shows which development pipelines have been pushed over the finish line in 2022. Again, this is the moment in time where I'm typically complaining about IFRS 16. And with the duration of our development project of 3, 4, in some cases, including approval, it might aim in last 5 years until we get something to the market from the first idea. So the first moment in time where capitalization activities are starting until we can really recognize revenues. It might take us those for years. So this is a very volatile figure. I can only mention again that the performance of the development department of Stratec and the revenue recognition after IFRS 16 are not going in line. 2022 was one of those years where a lot of things have been finished. It doesn't mean that in 2021 or in 2022, those activities have been materially lower. Again, it's just mentioning that a lot of products hit the market in 2022, which gives us that confidence of a established growth rate in 2023 and 2024. Talking about EBIT and EBIT margin on an adjusted level, fiscal year 2022 adjusted EBIT margin at EUR 45 million, which is a decline of 17% year-over-year. Adjusted EBIT margin with 16.4%, roughly in line with the expectations, which have been set out at the beginning of 2022. And again, here, a variety of headwinds position, like particularly a product mix which was super strong, and we already discussed that during COVID-19 that particularly margin heavy products saw some nice tailwinds during corona and now with a more normalized product mix. EBIT and EBIT margin had to come back. Same thing applies with economies of scale. We were actually driving manufacturing to the edge of capacity level where certainly economies of scale are coming along in a positive sense now with a more normalized utilization of capacities certainly, after that stressing period where we have driven capacity level to the age of the capabilities of the organization, we have this negative economies of scale. And certainly, input costs, which are actually a real challenge and actually putting those inflation and cost increase forward to our customers is another challenge we are facing these days, but we bring that forward. I would like to mention that already, which will continue to help us to improve that situation with our EBIT margin. On the other side, we see higher earnings contribution from realized development sales. Talking about the performance of the segment. Again, a very positive development with our smart consumable, in line with expectation for 2023. We actually see the same progress here in smart consumables very well positioned in the industry and a nice development pipeline, which gets to that point where those projects, which were brought on board after the acquisition are now starting to pay dividend and in within those huge investment cycles, are actually showing nice traction as far as EBIT margin is concerned, but top line growth certainly as well. On an instrumentation side, with a lower decline, some of the molecular instruments were actually manufactured in Diatron, which showed some nice progress in Diatron during COVID, and now these revenues are coming back for one of our veterinary instruments that we are in the middle of a generation change or generation shift to the next generation where we have to go through the learning curve with that new generation, which is a material component to top line and certainly bottom line as well. And that, again, is leading to that negative scaling effect. We hope that we -- actually part of our earnings improvement program is actually part of bringing the EBIT margin of Diatron forward in the quarters to come. Cash flow and net debt. Cashflow overall, declining cashflows decline again after that, super strong phase of corona and now very much driven. And again, I would like to mention that we are still facing tough comps. So this is actually another representative figure. I think we will actually level out the kind of half the way in between cash flow on an operating level with minus 80% to EUR 10 million as you see investment activities and financing activities and in-line development, which is leading to a stable equity ratio. Cash at the end of the period reduced by 50%, which is actually mainly working capital. Part of our earnings improvement program, which doesn't have like a material contribution to earnings improvement, but certainly meaningful improvement to the cash flow is that now as the procurement side is starting to normalize more than we can materially reduce working capital and therefore, improve the cash position. So we had to go into inventory in that painful situation in 2022 and with normalized procurement levels, we are very positive that we can get back to a more normalized banking capital position as well. On the outlook side, sales expected to grow between 8% and 10% on a constant currency basis. I think this is in line with expectations, certainly adjusted EBIT margin of around 12% to 14% is everything but within the expected levels. Again, I would like to mention that I believe that we made that snapshot at a very let me say, unrepresentative moment in time of the forecast adjustments of some of our customers. I mentioned that 8 out of 10 of the diagnostics companies disappointed with the margin expectations for some for 2023, I believe, I personally believe that some of them did some actually kitchen thinking in order to adjust expectations. We had to act accordingly. We got this very unsatisfying forecast. We took that snapshot at the moment in time. I think from here on, it can only become better. However, we had to adjust expectations accordingly. This is mainly driven by product mix and input cost inflation. I think both things are improving these days, which makes me very confident and the conversion to a new system, particularly in our Diatron business unit is actually in progress, and we hope that we can show improvements there as well. Also, you might have seen in our press release that we have given an early indication for Q1 2023 as we certainly want to make sure that you are all aware of those tough comps for Q1 2023, which will be that last quarter, where we are comparing to a super strong first quarter 2022, which was the Omicron quarter, as you may recall. And you might recall that this was where we had some super strong sales in some regions of the world and where our customers, we are still expecting a nice outflow of instruments for the remainder of the year. Thus, our 2023 outlook implies a significant revenue decline for the first quarter. In addition, sales contribution from newly launched instruments and related efficiency gains in production should continuously increase in the course of the year and should show some progress in the course thus also profitability in Q1 should be expected to be initially lower as compared to the second half of the year 2023. However, this is nothing new and is already fully incorporated in our full year's guidance for 2023. Segment reporting is going to change as well. So George Bauer has assumed responsibility for sales and business development activities of all the previous business units in a centralized and growth product manner, which will definitely be super supportive to the long-term growth of the company like particularly activities and our market target markets of the 3 business units. Previously, instrument marketing was in Diatron have converge significantly over the last year, and that's why we are changing from Q1 2023 that reporting will take place in form of a 1 segment company. So the previous market -- the previous segment reporting, instrumentation in Diatron and smart consumables will be the new 1 segment company. Group sales, however, will be reported in those 4 operating areas, so systems and components, which becomes more and more important, certainly, service parts, maintenance parts and consumables and certainly the development and service activities in a separate reporting for one of those operating areas. I think this helps us very much. We -- some of you may recall that we often enough had discussions about why we are reporting some of our consumables in instruments, some of our consumables in Diatron and other consumables in the smart consumables line why we are reporting some of the instruments which have actually been developed through instruments but are manufactured through Diatron we are reporting that under Diatron, although the originator is instruments and so on and so forth. I think with the way how we are integrating the different segments we call more destruction and more confusion in the reporting scheme rather than illuminating some of the details, and that's why we, together with our Supervisory Board came to the conclusion that with the higher degree of integration and particularly George's role as an overlapping road between the segments that 1 segment company reporting is actually showing a higher degree of transparency than the reporting we had so far with instrument Diatron and smart consumables. Focus for 2023 and beyond is definitely the initiative and implementation of the efficiency enhancement program, an increase of the company-wide efficiency to the pandemic level. I think what we can expect from our earnings improvement, which is certainly part of that is that we have not yet entirely concluded the assessment. Thus, I'm thus I'm not really able to share many details of that today. As already communicated, details will most likely be provided in our Q1 earnings call at the end of April. However, what I can say is that we certainly have the ambition to get our margin back to a more satisfying level already in 2024. And if you would ask me, I would consider an initial improvement towards an adjusted EBIT margin, let's say, in the area of 16%. I already mentioned that in 2024, to be set as our goal of business not all of this margin progress will come from the efficiency program I've mentioned, also other drivers like the learning curve for some of our new products like portfolio mix effect and better scalability with new programs, price increases and so on, tackling price increases on the input side, getting back to prepandemic levels in some areas might help us. And as mentioned, I think the snapshot we took was really a poor choice in terms of timing, and that makes me very confident about the progress of this year already, but more towards full year reporting 2024. Certainly, the focus for 2023 and beyond is to negotiate further price adjustments, which is part of the initiative I already mentioned and product portfolio adjustments in light of the continuing input cost inflation. We want to manage and actually process our well-filled M&A pipeline. We have a couple of things in the pipeline. Things are getting more concrete and we hope that we can talk about details of that already in the next 2 to 3 months. We have coordinated parallel ramp-up of the newly launched instruments and to fix to issues within a common time frame. We want to execute our deal pipeline regarding new development and supply agreements a nice lineup here as well. We need to push things over the finish line. But again, I think just if we see the number and apply statistics we can look into a super well field development pipeline over the years to come. And we certainly want to utilize the new corporate structure to continue to join forces across sites. This gets me to the commencement of the Q&A session. And I would like to hand back to our host [ Francie ], who will explain how to work us through the Q&A.

[Operator Instructions] We have the first question from Odysseas Manesiotis from Berenberg.

I have 2, please. First one on your sales guidance for full year '23. Given that some of your key customers have announced some product launch delays after you published your preliminary results, I want to ask whether that guidance includes this product launch delays. And secondly, on the EBIT margin since compared to Q4. I think your full year guidance for [indiscernible] does imply a bit of an expansion. Could you guide us through the bridge. Does that have to do with the learning curve of your new product launches that you mentioned. Could you just give us a bit more color on that expansion?

Absolutely. Actually, the clear answer is yes. So we were aware of some of the delays, which have been later on announced by some of our customers, and I want to talk about details some of our customers announced he not all but some. And this were already incorporated in the guidance update. So obviously, this is like was something which was particularly as far as development activities are concerned a known fact in the course of a development program and it's part of regular project management. Bridging the learning curve certainly, as mentioned, like with high levels of inventories with some of the molecular instruments within some of our customers generation changes ongoing the generation change obviously switch from a new -- from an old generation to a new generation in our veterinary business some ramp-up curves like with the [indiscernible] program, like with our CLIA. We have actually done a bottom-up planning full year 2023 and 2020 -- the beginning of 2024 already, and the bridge actually confirms the guidance given, as mentioned, I can only reiterate myself when saying that the snapshot, which has been taken was probably a bad timing. However, we received those forecasts our customers are bound to a certain duration of the forecast and the way how forecasts have to be transferred into orders. And that's -- at this point, we had to report in a way how we did. However, if we see the progress, and you'll see that in our Q1 report, I mentioned that already that Q1 of 2023 health is still tough comps to Q1 2022, and that we will see top line and bottom line progression. And again, all based upon actual forecast, actual bridge, actual bottom-up on a detailed product level basis that we will show that progress in the course of the year 2023.

The next question comes from Oliver Reinberg from Kepler.

Three if I may. Firstly, any kind of chance you can give some more color on this kind of bridge how to move back to towards this kind of 16%. So if we just ran the topics, I mean what is important of taking costs out, what is important of pricing? What is the importance of volume leverage and probably mix with smart cost just to get a kind of feeling which of these kind of aspects is most important. Secondly, on pricing, obviously, you try to push some kind of more pricing through, which is fair enough. I guess this was also part of the agenda in 2022. So I was wondering if you can share some kind of impression what the reception and feedback from clients were when you're now knocking at the door a year later, which is fair enough, but obviously, it's still something that needs some kind of conviction. And then thirdly, just for Q1 to get it out of the way, can you just give us any kind of framework how to think about it? So is it kind of sales decline in the magnitude of minus 15% or worse? And will the margin at least be still double digit, just get a feeling and the negative use out?

Yes. Thanks, Oliver, for the questions. Actually, like, if we look into the details, what are the price of the priorities of topics we are working on. So certainly, let's say, product mix. is not the most important topic, but -- which is something which is more or less coming along automatically. Like you know, we are in an early stage of sales of some of the projects. And over the year, those newer projects and actually, we discussed that during corona that we have a nice lineup of projects. And actually, we expected that the ramp-up curve of those new products might be capable of offsetting the expected decline with some of our products, which had nice tailwinds during corona. It didn't work out. The ramp down curve of the corona exposed product towards way faster than expected from everybody. So if you look into the industry, this actually surprised everybody. So we actually got surprised as well. And particularly, if you're looking into the point-of-care applications, it's a disaster if you're really looking at the details. It doesn't affect us that much, but we are partly affected. So definitely, the product mix. So at this point, certainly, sales of some of the molecular products has bottomed out because towards the end of COVID-19. Some of our customers actually still has high inventory levels. They are now working down those inventory levels. And as soon as inventory levels are getting down to a more normalized monthly run rate, they will continue to buy more products from us. We see that already in some of our forecast, the first element. But that's more or less an automatic measure, right? The thing we need to merge most on is the combination of price increases as well as tackling the input side. some of our customers, particularly on the electronical side, they actually cleared their product portfolio, which makes some of the electronic components particularly those ones which are used in our instruments for years, which is part of our -- of a modular development approach that you might have some legacy electronic components, which are now tough to take. As mentioned already last year, we are doing redesign and so on in order to get the situation under control. So which means, on the one hand side, tackling any price increase on the input side and in some cases, even bringing input prices back to a pre pandemic level. That's something where we have really put a lot of effort in and our development teams are really working on that level. On the same and this actually partly already gets me to your second question, is we need to understand that it is super difficult to establish price increases. The reason is particularly in Diagnostics, but in all the other markets as well we are where we are seeing multiplier is that these are highly regulated markets. So at the end of that chain, we have payers like government or insurance companies, which have established contracts for the performance of tests with laboratory. So there are predefined prices, which means the laboratories have predefined contracts and the pricing set up with the majority of our customers, which means if company X sell test to laboratory why, they have a 3-year pricing contract where they establish a price that performance of test A costs Y euros or dollars, which makes it super difficult for our customers to increase prices, which means a lot of the efficiency as far as pricing is concerned lies in the negotiation between Stratec and its customers. We have to take that situation very serious about the value contribution we are offering to our customers. So in some cases, we can only increase margin by efficiency gains. In some cases, we can actually establish price increases. Obviously, it's not super well perceived by our customers. If we manage to get through a price increase cycle last, you're now coming up again However, the majority of our contracts allow us to increase prices. It is the only contract individual, but most of the contracts are actually reflecting inflation rates. We still have high inflation rate. That's why there is nothing bad about asking for price increases. However, it's the outcome of negotiation. It's not ease Certainly, some of our customers are trying to sit on an established pricing scheme. However, this is part of my sales department and part of George's role to make sure that we are achieving a new price level, which actually represents the support and the services we are providing to our customers. Regarding your third question, Q1 and again, it's way too early to talk about the outcome of Q1, although it's over, I think it wouldn't be super serious to try to actually lead some of the details here. As mentioned, we see tough comps. So we will see meaningful top line decline, and therefore, and again, meaningful pressure very much coming through negative scaling effects. that's why we already brought it up. Certainly, it will not be a disaster, but we will have to live with decline in top line and the declining bottom line. And from there on, we see some nice progression in top line as well as bottom line. I hope that answers your question and ready to take next question.

Next question comes from [ Fin Schatell ] from Deutsche Bank.

This is in [indiscernible] from Deutsche Bank. On behalf of Jan Koch. I have 2 questions, please. So first, could you provide some detail on the expected magnitude of the earnings shortfall in the veterinary business for the group? And what makes you confident you can improve the margin again going forward? And how long does this take? And then secondly, can you provide some detail on the magnitude of the counter measures you expect. I understand you will give some details on the cost savings in 2Q. But could you provide a ballpark range today? Are we speaking of around 20 basis points? Or is this north of 100 basis points.

Yes. Thanks, in for bringing that up. Actually, I mentioned that some of the margin decline of our previous Diatron business unit, now being part of the 1 segment reporting scheme, is related to a next-generation product for our veterinary business. We were facing a situation where technological expectations of the market made it necessary to go into a new product. . Certainly, there is ongoing competition. First of all, in the end market, but certainly as a provider to instrumentation in hematological chemistry to that customer in order to really save that business, we were forced to start the development of the next-generation system and to accept certain margin concession. We worked that down to -- certainly, in the first instance, it was super important to get that new technology to the market. Certainly, we -- there is a phase of declining revenues with the previous generation product and growing revenues with the new projects. or the new product for that customer, which makes the margin declining like in an assessment of the customer with 1 product with strong margins, 1 product with lower margin ramping down the product with the higher margin ramping up the product with a lower margin debt for that particular customer, the margin might erode slightly away. Now there is already some amendments on its way in terms of development activities to tackle cost of goods on the one hand side, certainly, part of the price concessions we had to enter into initially are actually eroding away. So this allows for some price increases and certainly going through the learning curve in terms of manufacturing time and additionally increasing volumes, which gets us into economies of scale with the new product are all a positive contributor to the margin. At this point, we believe that we might get back to previous margin levels at the end of a 24-month period after the market launch, which means at the end of 2024, all those measures are actually already on its way. So that's why, at this point, certainly, the margin for Diatron will continue to get into the areas end of the fourth, [ quarter ] but we are very positive that we might bottom out as soon as the first of those measures mentioned are starting to show effectiveness. Countermeasures -- and actually, we talked about an earnings improvement program which are actually the majority, and I already mentioned that the biggest order of magnitude is actually to be seen as a combination of output prices as compared to input prices. But certainly, as mentioned, accelerating the transition of the product portfolio from those products, which made nice progress during COVID-19 with a nice margin profile to the new product with a nice margin profile which took us a little bit longer. And again, this is not something which should happen as a surprise. I mentioned we already talked about our product pipeline and the contributors of the product pipeline towards the margin profile and margin progress over the course of 2023 and 2024 as well as the steeper-than-expected declining rates we saw with some of our molecular products after COVID-19. However, and again, I would like to mention that [indiscernible] decoupling of operational development with forecast and demand coming from the market at this moment in time as compared to a strong development pipeline, which will help us to bring those new products, and I'm really talking about development pipeline. So those things already contracted, which will have either been brought with the market recently or will be brought to the market in the next quarter as well as we call that deal pipeline. So those projects, we are in an advanced level of contract negotiations or where we perform consulting work or feasibility work or specification work or work on product requirements together with our customers, which have to be pushed over the finish line, certainly, we pushed over the finish line, but which will help to continue to fill our development pipeline as well. I hope that answers your question.

The next question comes from Alexander Galitsa from HAIB.

I'd like to first maybe put the Q1 into sort of broader context and then to understand how much visibility you really have on the rest of the year. So to my understanding, Q1 should be also the quarter where you benefit from spillover from Q4. I think you were expecting to reach the upper end of the guidance. We came out at the lower end. So there was a quite a decent chunk of revenue that you should be realizing in Q1. Yes, you expect sales to decline significantly. Understandably, your customers have provided you with lower customer -- lower forecast. I'm just wondering how far so that this low forecast affecting mostly than Q1? And maybe you could talk to the visibility you then have for the rest of the year to really grow, I guess, in excess of 15% year-on-year.

Yes, Well, actually, first of all, some of the order backlog we have seen in 2022 was already worked down and was part of the development in the last quarter of 2. Certainly, some of our customers already took advantage of the situation to reduce their inventory levels. And certainly, as a company living from manufacturing, it is important for us to kind of level manufacturing activities just for the sake of generating revenues in the Q4 or in a particular Q1 and then dropping from the demand to 0 just because some of our customers would have been obliged to take a number of instruments in a particular quarter. We certainly are in continuous discussions with our customers in order to make sure that we are able to level manufacturing across quarters. And if the demand is declining and our customers have already inventory levels. We are certainly not trying to push instruments into the warehouses of our customers, but rather trying to level manufacturing over the quarter. Then certainly, we had some new product launches where it is quite natural to like ship 20 units in the quarter of the launch and then ship 50 units in the subsequent quarter and 100 units in that quarter thereafter. And that's actually all on track. And that's actually -- and I mentioned, we have collected updated forecasts from our customers. with a degree of binding. We have transferred some of our customers, particularly as a learning experience into a more order-based system rather than a forecast based system for 2023 or are about to establish those measures. So we went through our full budget and actually literally did a new, let me call it, forecasting cycle, although the means and measures to establish that was more or less a renewed budgeting cycle, and we fully went through that with updated information. On the other side, I believe that the forecast, which have been provided by our customers in the last 2 quarters, of 2022, we're certainly still heavy from expectations at the tail end of corona and market behavior expectations. We definitely see that some of the laboratories are actually reducing capacity levels and trying to return instruments to our customers, which is leading to declining demand for new customers, obviously, and that has been covered in our new forecast. So again, declining demand, in some cases, actually very small demands. On the other side, progress with some of the instruments, which hit the market or are about to hit the market. So I think the guidance we have given. And again, on a bottom-up basis, is a very realistic 1 in terms of bottoming out the current market. And from here, we might see nice progress for the remainder of the year, particularly for 2024. I cannot get you further detail because this would actually mean reporting on a forecast level on an instrument basis, which is certainly the role of our customers and on our role.

Fair enough. And then briefly on the selling price increases. You mentioned the kitchen thinking on the part of your customers. Do you think this could indicate that they are sort of expecting and planning for the situation where they would be more inclined to share the burden of higher input costs with you? Or you wouldn't read it like that?

Yes. Obviously, and I mentioned the equation before that they certainly have agreements with their customers as well. They will certainly try to establish price increases were in running contracts with their customers as well, which is like the same degree of complexity we are facing with our customers. This is not super well perceived. I must admit. Like on the other side, this is a situation where we have to undertake this shared burden approach, that like we can certainly not cover all price increases where as we are not expecting our customers to cover all price increases. And that's why -- this will certainly end up at compromise. I mean I'm 100% convinced that our customers already factored in that compromise.

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

Yes. Thank you very much, [ Francie ], and thanks, everybody. In the line. This actually concludes our fiscal year 2022 conference call. Thank you very much for participating, and thanks very much for those excellent questions. If there are any follow-up questions, do not hesitate to call or e-mail our IR department. Thank you very much for your contribution and have a good day. Thank you. .

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you very much for joining and have a pleasant day. Goodbye.