Good day and welcome to the Carl Zeiss Meditec Analyst Conference 9M2021/22 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Sebastian, Head of Investor Relations. Please go ahead, sir.
Yeah. Welcome everybody to our nine-month call and Q3 call. With me, as usual, are our CEO, Dr. Markus Weber, and our CFO, Justus Wehmer. Before I hand over to these gentlemen, let me just explain the procedure. We'll do some prepared remarks, with an introduction to our financial statements, and afterwards, as always, we are open to take your questions. With that, I pass it on to Markus. Please go ahead.
Yeah. Thank you so much, Sebastian, and also a very wonderful good morning from my side, and welcome to the nine months 2021/2022 analyst conference of Carl Zeiss Meditec. Let's go first to the agenda. The slide shows what we are going to present in today's conference call. I will start with an overview of the results. As usual, our CFO, Justus Wehmer, will give you more details on the financials in the next section of the presentation.
Afterwards, I would like to share some highlights, and finally I will talk about our outlook. Let's go to the next slide and the results. Q3 was again a very successful quarter despite very difficult macroeconomic conditions.
Above all, this is Shanghai lockdown, the war in Ukraine, and supply chain constraints. The Shanghai lockdown brought us a weak start into the Q3. In June, China business recovered sharply. Supply chain constraints affected us in our equipment business throughout the quarter. Still, we are quite pleased with the results we achieved thanks to a strong team effort, which did really a great job.
Revenues reached more than EUR 1.3 billion, an 11% increase compared to prior year, also helped by positive currency effects. The order intake was again very strong, up to 36% over last year. This is yet another record quarterly order intake, and it underlines that demand continues to be very strong for our products. Both SPUs contributed significantly to these results. You will hear about the contributions and contributors from Justus more in detail.
The supply chain situation, as I already mentioned before, is tense and requires high operational focus of the entire team. We have taken various measures to increase the safety stocks and improve lead times. With all of these measures and the results, their EBIT margin decreased to 27% versus 23.6% in prior year due to increases in OpEx.
The continuously growing share of recurring revenue had a favorable impact, while on the opposite, the OpEx was primarily due to new product launches, return to physical trade shows and ongoing research and development projects that we actually have already reported to you in the last quarterly call.
Please keep in mind that last year's margin levels have had been really outstanding due to an extraordinary low level of OpEx in the context of the COVID-19 pandemic, as we had clearly flagged at the time. Some special effects also included in our earnings. OpEx included an additional EUR 5 million investment costs incurred in the third quarter due to the implementation of our new SAP system.
Please keep in mind, last year had benefit from a property sale worth of EUR 2.5 million. If adjusting for both these effects, EBIT actually would have stayed flat on the year. Our net income reached EUR 191 million, which corresponds to an earnings per share of EUR 2.14 versus prior year of EUR 2.04.
This is the overview of the financials. Overall, we are very happy with results which we achieved under these what I already mentioned briefly under these very difficult conditions. My colleague, Justus, will discuss the figures now in more detail and will give you more background. Justus, the stage is yours.
Yeah. Thank you, Markus, and good morning and welcome also here from my side. Yes, let me say this right away, I do share Markus' satisfaction with the figures, especially if we look at the increased level of global economic and political tensions negatively affecting the conduct of our business. I'm now going to give you a more detailed overview of our financials, and as usual, I start with the performance of our strategic business unit, Ophthalmic Devices.
Revenue came in for OPT with EUR 1,027 million. Compared to prior year, the reported increase was 11.2%, and at constant currency, 10%. Especially in our refractive business, we continue to see very strong development with, again, a strong performance in Asia Pacific.
While the third quarter started in China slow due to the lockdowns, we saw a powerful rebound in June. As expected, the EBIT margin decreased to 20% compared to last year. Let's remind that last year's margin strongly benefited from the broad recovery of revenues while expenses were still held back by the pandemic containment measures.
Gross margin, though, remained at an excellent level due to the once again strong product mix, with high share of recurring revenue as well as positive exchange effects. As guided earlier this year, we clearly see the resumption in sales and marketing activities to the range of pre-COVID levels.
Trade shows take place physically, and travel is picking up again. This is in line with what we had been expecting and forecasting. On top of it, we invest in the sales and applications teams for our global Phaco rollout and other marketing initiatives.
There's also an increase in R&D expenses to support our strategic initiatives, like our digital healthcare data platform, the so-called ZEISS Medical Ecosystem. Last but not least, the previous year had benefited, as Markus already mentioned, from a special effect with a property sale, which was worth around EUR 2.5 million. Yeah, with that, let's go to MCS. MCS, again, delivered a strong performance with revenue of EUR 306 million, versus EUR 275 million in the previous year.
This represents a revenue increase of around 11%, at constant currency, 9%, so despite a high base last year. Supply chain constraints were more pronounced at MCS. Lead time of some core devices extended to more than six months. We had to significantly increase our safety stocks for some critical components.
Revenue could well have been higher without the problems in component supplies. EBIT margin is still very strong and even further improved despite increased procurement costs and expenses in sales and marketing. Positive foreign exchange effects also supported the EBIT margin, as most of the cost base in microsurgery is in euro, which is quite a significant difference from OPT. Let's look at the regional performance.
All regions, again, contributed to growth with, yet again, the strongest momentum in Asia Pacific. Americas achieved sales of EUR 330 million, which is an increase of 8%, at constant currency, 1.1%. We see there the U.S. with a growth of 7%. The Latin America, especially Brazil and Mexico, rebounded, however, strongly with an increase of 19%.
Please keep in mind that you know that in the U.S. market we are mainly dependent on our device business. We do not yet have a really significant consumable business, so that is already a comment on the growth figure that I just shared with you. In EMEA, we noted revenues of EUR 334 million. Overall, an increase as reported of 5.3%, at constant currency, 6.5%.
It's a rather heterogeneous development, almost like always in Europe. We see some markets like Germany, U.K. with small single-digit growth. Others in Southern Europe, like Spain, with a much more robust growth in the double-digit region and other markets, a little bit more sluggish.
Once again, we saw the strongest growth in Asia Pacific, yielding EUR 668 million of revenues, which is 16.2% growth, and the same at constant currency. Here, please, I wanna remind you that sales in Asia Pacific is mainly calculated on euro base, therefore the much lower impact here on the currency. China, including Hong Kong, again, seen outstanding growth with above 20%.
We also have enjoyed very good growth out of India. Again, in India last year, we saw the deepest corona crisis at this point, and therefore we now see the growth rates above 50%. Japan is also growing again, Southeast Asia, same.
In other countries, it's a more mixed picture in Asia Pacific, but overall, we are very satisfied with the performance. Let's have a look at the P&L. The increased gross margin was 58.9% compared to previous year, supported by some positive foreign exchange effects and mixed effects. The OpEx increase is mainly impacted by the fading COVID-19 development in most countries on the one hand, and strategic investments on the other.
R&D increased due to continuous investment in strategic development projects, mainly in the field of digitalization and our IOL development. Data and marketing expenses are noticeably up, especially for advertising and trade shows, and as we all remember, last year was an unsustainably low level due to the corona restrictions.
It's noticeable that due to heavy inflation, all costs are rising, material, labor, et cetera. Apart from the support of product mix, we need to consider adjusting prices in some categories with good pricing power. In prior year, we had seen a one-time effect in other results that we already mentioned, that was due to a transaction of a property sale here in Jena.
The EBIT reached EUR 275.9 million. That is slightly below prior year's level of EUR 282.8 million, representing an EBIT margin of 20.7% versus 23.6% last year.
On the next slide, a quick look at our adjusted EBIT margin, which reached 21.2%, which is below its previous year's level of 23.9%. Rather small effects related to purchase price allocation related to depreciation in both periods. We adjusted for the one-time effect that I had already mentioned. Finally, a short look at the cash flow statement. Operating cash flow was at EUR 89 million versus previous year's EUR 228 million.
That is significantly below previous year, but mainly for two reasons. On the one hand, the working capital development, and on the other hand, higher tax payments. On the working capital, there is of course an increase in inventories. We are building higher safety stocks because of the tense supply chain situation.
At the same time, we also have higher demo stocks supporting our global launches of our new VisuMax and QUATERA. We also have considerably higher level of receivables. Due to the Shanghai lockdown, we had a very high concentration of sales in the month of June towards the last weeks of the quarter. Cash flow from investing activities are mainly payments for property, plant, and equipment.
Here, I wanna mention again our investments in our global IOL production network and production investments related to our ramp up for our refractive lasers and the treatment packs. We also had additions in intangible assets mainly due to capitalization of R&D.
Then, not to forget our acquisitions of Preceyes as one target and Kogent and Katalyst as the other one, which in total is representing another roughly EUR 65 million. Cash flow from financing activities is mainly influenced by changes in receivables and payables in our treasury accounts and higher dividend payments. Net liquidity continues at a level well above EUR 800 million.
Yeah. Thank you for your attention. With that, I hand it back to Markus. Markus, you have to unmute yourself in case you still muted.
Oh, okay. Here we go.
Yeah.
It's the normal, let's say, mistake. It happens always twice. Good. Thank you so much, Justus. As usual, I would like to share with you some focus topics. As Justus has now reported, the results are quite satisfying, so we are quite happy with the results so far under the given circumstances. However, there are a lot of concerns about a possible global recession and how it would impact our business.
We would like to share the following two slides with you to look into the underlying market trends for our consumable business to understand better what is driving the business. First, let's look at the IOL market. In 2021, all cataract surgeries accounted for around 25 million globally, still slightly under the pre-COVID level, still in a recovery path.
According to the estimates by recent MarketScope report, there are two clear trends in the IOL market. First, cataract surgery is an inelastic demand. People beyond a certain age can hardly avoid IOL surgery. Also, the existing infrastructure continues to be developed. The total IOL sales unit will further grow at a mid-single digit pace. In five years, over 35 million cataract surgery are expected, just driven by an aging society.
Secondly, premium IOLs are becoming more and more popular. People have clearly higher expectations for their quality of vision. In terms of units, premium IOLs now have 12% market share, which is expected to increase to 15% in five years at a CAGR of around 10%. Today, 40% revenue comes from premium IOL.
By 2027, projected nearly half of the revenue will come from premium IOLs, and this is also the reason that we have a very strong and focused strategy on them. Our portfolio is benefiting from this trend even more than our competitors. Several factors are driving the trend. Above all, the new technology development, new innovations are the key factors. Patients can find the best suitable product among various choices, improving awareness.
Private health insurance provisions are also providing tailored. Overall, a trend which is very supportive to our strategies and also to our business model. Going to the next slide, the myopia prevalence. This slide is actually, from our point of view, a very good meta study of myopia prevalence, done by the American Academy of Ophthalmology.
It demonstrates the development of myopia and high myopia in the next decades. At the moment, about a third of the world population has myopia, and a twentieth is high myopia. In 30 years, the myopia population will broaden to half of the world population. Growth of high myopia develops even faster, so high myopia groups are potential patients for refractive procedures. The myopia prevalence in different regions and ethnic groups is heterogeneous.
Generally, in Asia and in high income regions, the trend is more accelerating, most likely also driven by the intense work with computers and laptop on the desk. Particularly, the growth in the high myopia population provides an attractive outlook for our refractive business.
Importantly to know, whereas Asia Pacific is ahead in myopia prevalence today, the relative growth in the myopia population in North America and Western Europe will be even steeper in the decades to come, and it's catching up. These long-term trends for our markets will continue to support strong growth in our consumable business.
They also require ongoing investments and capacities, which is what we are doing currently, and for example, with the IOL factory in Guangzhou, and the expansion of our effective treatment pack manufacturing line, which will be also more and more automated and will be a robot line. That was the things what we wanted to share with you concerning the focus topics. Now let's move on to the outlook, and to comment the fiscal year as it is today.
First of all, what we see as a long-term demand driver. Although our industry is still impacted by the global supply chain difficulties and regional lockdowns, we believe that it will continue to benefit from highly favorable long-term growth trends. Besides those topics of market trends, this increasing prevalence of cataract and accelerating myopia that I just shared with you, others are, first, the aging of the population. Second, foreseen growth in the large parts of the world.
Thirdly, rising access to healthcare in the rapidly developing economies, RDEs. Lastly, increasing information access. These trends altogether lead to a growing number of patients and thus a higher load to the healthcare system.
Lastly, digital solutions, telemedicine and AI-driven features are becoming more and more relevant for the healthcare sector, and this is also the reason we are investing heavily in these technologies. Also ZEISS, as well as the entire industry, is impacted by the current situation of the global supply chains and political and macroeconomic uncertainties. Our outlook is positive in spite of the difficulties we are facing in the short term.
We expect our revenue to be at least around EUR 1.8 billion for fiscal year 2021-2022. As we have already pointed out, and as Justus has pointed out, we are having a substantial order backlog, and it is very hard to say how long the situation will last concerning the tight and tense supply chain.
We estimate our EBIT margin for fiscal year 2021-2022 to be in the upper area of the previously reported range of 19%-21%. In forecasting revenue and EBIT, we assume that the COVID situation in China and the global supply chain situation will not further worsen in Q4, otherwise we have a different scenario. We have since taken this into account. As we have seen already in the current quarter, the operating expenses, particularly in sales and marketing, will continue being on a very high level.
This applies even more so in the context of our product launches. The midterm. Let's move on to midterm.
We continue to have significant investment needs, as I already have now reported, also in terms of things that we want to do, as we want to further broaden our global presence and want to continue to drive our innovation strategy with a high level of R&D investments. However, on the other hand, we consider the high level of recurring business as mostly sustainable. Profitability will clearly benefit from this trend.
As a result of higher costs, but more also a high level of recurring business, we are confident that we can achieve in midterm EBIT margins sustainably above 20%. With that, we have to come to the end of our prepared remarks on the financials. Let me pass back to Sebastian, to our moderator, to move into our Q&A session. Thank you so much.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypads. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star one to ask a question. We will take our first question from Patrick Wood from Bank of America. Please go ahead.
Perfect. Thank you very much. I'll keep it to two questions, please. I guess the first one, really curious if you could give a little bit more detail, on the recent performance within the sort of subdivisions a little bit more. For you, let's say IOL relative to refractive, just a little bit of color around, you know, the growth rates you're seeing and how you're seeing the environment, split a little bit more by those divisions for the quarter.
That'd be really helpful. The second one, just curious when it comes to pricing, you know, obviously quite an inflationary environment, you know, moving into next, I guess, fiscal year. You know, you've got some wage inflation in Germany and things like that.
You know, how should we think about pricing for you guys and the ability to offset some of that inflation, which, I mean, seems to have been fine so far, but just curious how we think about that as we move into 2023. Thanks.
Yeah. Thanks, Patrick. It's Justus. I can give a few information on the pricing inflation and then, maybe Markus can make a few comments on IOL and refractive, if that's okay. Pricing and inflation.
You should look at it in the following. Of course, we are assessing basically segment by segment our market positioning, our product differentiation and, you know, we are less talking right now about price increase, but more actually actively managing to give less discounts, yeah. That has the same impact on the bottom line, but you kind of do not expose yourself to that discussion of increased prices.
If we see over the course of, you know, the coming months and quarters, that this will not suffice, we certainly will also have to look into price increases.
We feel that we have in some of our products, let's say, a position differentiation that would probably certainly allow us to drive such a price increase in the market and to pass it on. With that, we are hoping that we can offset the inflation and cost pressure and overall stabilize our margins. On top of it, we obviously, through our recurring revenue business, which we presumably will further grow, we obviously also have a bit of a positively diluting factor. That is maybe my comment on pricing inflation.
Yeah.
Markus, do you want to take that on IOL? Yeah.
Sure. Yeah. Happy to answer this question. First of all, Patrick, good morning from my side also. Yeah. Actually both are doing well. There's different, let's say dynamics and also different market trends pushing it. In Refractive, we still see a very strong demand in Asia, especially in China and also Korea. This is really very strong. But we see also effects now coming in. In Europe, we're seeing that the demand, especially for these procedures, is increasing and the acceptance in population is increasing.
This is really something where we are also pushing, and this is also one of the reasons that Refractive was one of the main contributors, also for the last quarter, apart from MCS and the devices here. IOL is different in that way that we see also a great demand and actually interest in IOL. We see that especially also coming in this, the QUATERA.
The QUATERA is helping also now opening the U.S. market in this regard. We see also now in our pilots for digital that the cataract workflow that we see actually first in good interest in adapting the digital.
Still a way to go, to be honest here, but we see that we are on a good track. Overall, IOL is also doing well, but Refractive was especially in the last quarter the star and also helping us actually to come to these results.
Helpful color. Thank you so much.
We will now take our next question from Oliver Reinberg from Kepler Cheuvreux. Please go ahead.
Oh, yeah, thanks very much. Three questions from my side. Firstly, on the order intake, obviously that was quite impressive, 36% increase in 9 months, even 45% in Q3.
Can you just talk to has there been any kind of special effects being involved, like pulled forward or base effects, anything that we should be aware of? And if so, what is your best guess for the kind of underlying growth in the order intake and any color in terms of is there any kind of gearing towards any kind of special product categories?
Yes.
Secondly, on VisuMax, can you just provide an update on just the VisuMax machine orders in key markets like China, South Korea and other regions? I assume what you just said, that so far there's no concern on the kind of consumer slowdown. Is that basically already some kind of indication of the new VisuMax finding attraction? The third question please, on OpEx. Obviously, this has increased by 31% in Q3.
Partly it's the base effect you have pointed out some kind of one-timers, but what is a reasonable assumption for OpEx growth next year? I understand you will still want to build structures and you have some kind of inflation support. Any kind of color you could provide would be great. Thank you.
Yeah, Oliver, Justus here. I can start answering and then I think Markus can kick in or add wherever he wants. The first question, order intake. A special effect, yes, there is a special effect and that is obvious, has to do with the lockdowns in China. We saw an over proportionally high amount of orders that basically then came in late in the quarter. Therefore basically couldn't be transferred into revenue anymore. As you know, the significance of that market is big for us.
From that perspective, we would not guide here, by no means, you know, that this level of order intake increase is sustainable. There is a good portion of the special effect in it. I mean, on the other side, you were asking for categories. We do, however, clearly see that there is a good demand also for our machines. You were asking about the orders for VisuMax, and maybe with that I can already move to answering that question.
Yeah, overall, we both see for the newly launched VisuMax, but also for the, so to speak, for the predecessor, for both actually, a very good and solid demand.
We do not disclose here exact numbers of units that have been ordered. I can clearly assure you that the perspective for continuing to grow our installed base of lasers at a pace of the past or more likely even accelerated, that this is clearly built into that order book. There's also other products that if I look here at my detailed notes that also enjoy good and high demand if I look at our devices, so that is true for the Ophthalmic Devices, that is true for the KINEVO.
Therefore, we are overall really quite pleased to see that so far, we do not see actually a softening in demand.
We also anticipate potentially other questions, and we also see that this is an order book of high quality. We don't think that there are any kind of tactical orders that are just basically placed there to kind of reserve a delivery slot or anything of that nature. Yeah. Last comment on the OpEx, I mean, Oliver, the increase is accentuated and it's over accentuated, of course, by the inflationary pressure.
My best guess at this point is you will see us continuing to invest, as we have just explained. We'll have to see how inflation is going to fare.
My personal expectation is that we probably will have to live for a while with the inflation rates that we see right now, if not even more elevated. I think you may have read this between the lines of the guidance that Markus just gave. We obviously anticipate that we have to cope and deal with more pressure on our OpEx, which obviously, you know, will mean that we have to work hard on short term EBIT margin improvements.
Yeah. Especially in this high level of uncertainty with the supply chain constraints and the like. Yeah. I think this is the best I can tell you right now.
We certainly do not wanna cut back on our strategic growth initiatives, as long as inflation is not going into crazy levels, and therefore OpEx develops completely out of control. Yeah. We stay firm. Yeah. Sorry.
Maybe, yeah, maybe to add a point on that, so Oliver, I think, as you so said, we are heavily investing also in our strategic initiatives, for this predicted midterm, actually activities and also earnings and growth. This goes especially then also in technologies like robotics. This goes in data marketing activities where we see, especially U.S. markets, actually a big opportunity for us, also to grow.
These things are really on our list, and this is also for sure driving OpEx. There are negative effects like inflation, we have to work on, and we have to work with efficiency programs against it.
Nevertheless, I think OpEx will be on a high level, but a high level which is creating also added value to the company, to Meditec. As Justus already said before, the gross margin overall, maybe this is just for the entire P&L, the gross margin overall is also something we keep very focused, actually, in that way that we want to keep it stable, as Justus said, or even want actually to realize then also, let's say, value proposition and added value of our solutions and products in the market.
Very helpful. Thank you very much.
We will now take our next question from Graham Doyle from UBS. Please go ahead.
Morning. Thanks for taking my questions. Just two for me, one sort of short term, one longer term. Sort of a similar question to what I asked the last conference call. When you look at what you've delivered for the nine months to date, and you think about the consumables order that you flagged in China in particular, it feels like you're probably off to a reasonably decent Q4 start.
Could you give us some context on that? 'Cause it looks to me the guidance for the full year, you probably only need to deliver something like 6% organic revenue growth in Q4. It feels a little bit conservative. Maybe just give us a sort of push and pull on that'd be great.
Longer term, I know we're all kind of excited looking towards the U.S. and the expansion there in IOLs. I suppose one of your peers is super excited by the EDOF lenses where you already play, probably haven't spoken so much about that. It'd be good to get your sort of sense on the opportunity there, where you stand today in Europe and APAC, and maybe what you can do beyond the trifocal in the U.S. by also having an EDOF. Thank you.
Yeah. Good morning, Graham. Maybe to start first is the Q4 and why this is more conservative. Now the reason is actually you see currently these super high dynamics in in let's say uncertainties coming up. The VUCA world is really increasing significantly. What we see is that we have seen very dynamic quarters now especially last week quarters in terms of the supply chain but also in terms of the market access.
China is the best example here Graham because the COVID lockdown to be honest this was very on short notice for us. Actually we are very proud of the team because team really handled that uncertainty and the dynamic then what has been created in this.
This is something what we see. We actually cannot see or we cannot foresee what will happen now in the next few weeks and months with all their uncertainties also coming up in the geopolitical way. Also in terms of the supply chain, you know, seeing also that the supply chain is actually the geopolitical or the global supply chain is actually unstable.
We have to make sure that actually our deliveries are going out of the factory. This is also something which keeps us more on the conservative side. Maybe to explain why we are more conservative for the Q4 in this regard.
In terms of the EDOF lenses, indeed, EDOF is something which is, and as you already said, something which is on our R&D and one of the reasons that we are also investing highly in R&D, because definitely we want also to invest in EDOF. I hope for your understanding that I cannot speak now about dates when the EDOF comes to the U.S. market or then to the other markets in the world.
What I can definitely tell you and actually report to you is that we are working hard on this EDOF lens concept and making sure that we will stay on top of the things.
Brilliant. Thank you very much for your answers.
We will now take our next question from Alexander Galitsa from HSBC. Please go ahead.
Yes. Good morning. Thank you for taking the question. Can you put the stellar growth you're seeing in order intake into the context of various product franchises, maybe with a little bit more granularity? Then maybe also put it in the context of customer behavior in the sense whether there may have been a situation where your customers would pull forward some planned investments expecting that you might re-increase prices the longer they wait with the orders.
Or is that completely not the situation you're seeing?
Hi, Alex. Justus here. I had thought I have given already a bit of a qualification on the order intake, so I try my best. If I'm not hitting your question then just you know help me afterwards. I think I'm speaking to sales basically you know on a basically weekly daily basis to the sales directors in the regions. I do not get as an explanation that we have now basically advanced or forefetched so to speak order placement in order to avoid any later price increases. At least I do not see or hear this as a guiding pattern.
I'd say overall, I repeat myself. I mean, we have launched products especially with the VisuMax on the one hand side, but even still the KINEVO enjoy really globally still a good demand.
We are enjoying also the fact that with the new VisuMax, we now basically have still the existing predecessor selling model in the market that also drives some additional demand for people who say, "Well, you know, I choose the existing model as being good and how should I say more economic, potentially more economic choice for my investment." And that both is driving the order book right now among other products. Yeah.
I wouldn't really put it in the context of any you know inflation associated decision making. That can now become increasingly an issue. At least so far I haven't heard this as an argument. I don't know whether that answers your question appropriately, but yeah, I hope it helps.
No, thank you. That, that's helpful.
Yeah.
Just a little bit of an idea. Looking into 2023, would you expect the revenue to be mostly carried by the accumulated sort of excess backlog from this year? Or are you similarly sort of optimistic on the ongoing demand dynamics that you're seeing currently given the rejuvenated portfolio you have?
Well, you see, I mean, that is probably the key question right now, how is 2023 really going to turn out? Again, the project pipeline is not softening. That is what I can tell you. Yeah. The demand is there, and apparently the robustness of the demand for our customers.
So the patients, and as Markus shared in his slides, on the myopia and the IOL or cataract market, let's say, the customer profile, or the market that we are serving there seems to be also rather robust or resilient to these economic, you know, concerns or crises, that we see right now.
That may explain why there is still the interest in investing into those devices, and. Therefore, overall, we look with confidence into the next fiscal year. I can clearly say that we rely on our very competitive product portfolio in terms of its technology, its innovation. I think with the workflow solutions that we offer, we clearly hit a market trend or a market demand.
You know, it may be somewhat, how should I say, unpleasant outside with inflation and wars and crises and so on, but we remain pretty confident that we will see another good year again, provided the world is not going to go completely crazy.
Excellent. Thank you very much.
We will now take the next question from Falko Friedrichs from Deutsche Bank. Please go ahead.
Thank you very much. My first question is, can you provide an update on the Phaco rollout and provide us with the latest timelines for the IOL launch in the U.S.?
Secondly, on China, where you magically managed to show some growth in the third quarter despite the lockdowns, can you share how Q4 is trending in the country, and whether the strong growth that you must have seen in late Q3 continues into Q4 now? Thirdly, in terms of the supply chains, which parts of it are really creating the most headaches for you at the moment? Do you see some of it easing already? Thank you.
If you're, I'd say I get going and take it from the back and then Markus can add wherever he wants. Supply chain, honestly, it is a pretty big variety of issues, you know. That goes from, of course, the electronic components through to any kind of components that we are sourcing, you know, whether it's small mechanical parts or pieces.
No, I cannot really give you here a, how should I say? Kind of guide you in a way that we see now that there's only one particular component family also that is causing concern.
It still remains all very fragile, let's put it this way, and we can just hope that things will smoothen or ease up a little bit. Too early to tell, I'm afraid. Q4 expectation, I think, it starts good. That's the good news. I think, and this is somewhat the message of the Q3 numbers, it's not so much about the market. As you have seen, the market is strong, the demand is there.
The Q4 performance is ultimately more a function of what will we be able to ship, and that is the tough part to be answered, yeah. We literally have now basically a lot of unfinished goods sitting in our assembly facilities.
You know, we are waiting then for the last component that is missing. You know, if that comes in on time, you know, we can ship a whole bulk of systems. If it doesn't come in, we won't. Yeah. That makes it so difficult. You know, we have to differentiate between what the market kind of would like to absorb and what is what we can really then match in terms of the demand.
So that's, I think, the kind of differentiation one has to make once we're talking about Q4. In terms
Yeah.
In terms of the market healthiness at this point, at least, we still see that there's good activity and good demand. I don't know. Maximilian, did you wanna add or?
Yeah. Maybe just to add on the first question, concerning the Phaco and the VisuMax. Overall, we see for the Phaco good feedback in the U.S. market, especially now starting with the demo systems, and now coming the first orders in. The issue here is actually still our supply chain, as Justus already reported, and as we now pointed out several times.
We need to make sure that we can ship these systems. This is currently the big, let's say, roadblock for us we have to overcome. Overall, there's a good request and actually also good acceptance, and on the customer side.
On the VisuMax, we see also super high demand, and this is also resulting in high lead times, just driven also by supply chain shortages. We see, for instance, currently in Europe, the VisuMax, so order entry only for Europe here from 80 units for the 800, so this is quite nice. We see also that overall there's a great acceptance for the new system.
Overall this is quite positive, and we see the positive trend here. As you know, in terms of when it comes to the U.S., still a way to go, and as you saw, the regulatory also having now these new things coming in, MDR and so on, which are actually limiting or actually delaying regulatory.
It's really hard to predict when it will be done on the market. Also important to know is that the LUCIA, which will come next fiscal year, on the U.S. market, this will be again an additional push in bundled deals and bundled sales than with the [CLARUS], especially in U.S. This is also the reason that we are preparing our sales team actually to handle that. Overall, I think we are doing well there. Again, as we already reported, I think there's still a way to go, but the overall trend is positive.
Okay, thank you. When do you expect the LUCIA to launch in the next fiscal year, Markus Weber?
Again, it's really tough to say because please forgive me, yeah. Because we have seen now so many variances and delays coming in through the COVID lockdowns, and we don't know what will happen in autumn, in fall time. This is really something that's hard for us to say. Currently, we expect it to have it in the first half year of next year. Again, it's hard to say and hard to predict.
Okay, thank you.
Yeah.
As a reminder to ask a question, press star one. We will now take our next question from [Dylan van Haaften] from [Stifel]. Please go ahead.
Yes, good morning and thanks for taking my questions. Two for me, please. The first one is, can you talk in general a bit about the performance in North America? What is driving the market there? What is running really good? What is potentially not running so good? My second question would be on the recurring revenue stream.
How is that developing according to the different regions you're reporting about? Any particular differences, as it goes hand in hand, region by region? Any more color you could provide here, I would appreciate. Thank you.
Yeah. I take the first question and Justus is then stepping in the second. Overall, the performance in U.S. is indeed driven by device business. I think Justus has already mentioned that, Dylan. I think especially the KINEVO is doing super well in the U.S. market and we see there a great performance. This is really the core market also for microsurgery. This is really good.
We see also in ophthalmology when it comes to LUMERA, so the OPMI's device is also a strong demand and which is only limited by our supply chain and the shortage in supply chain. Overall, this is doing very well.
In [CLARUS], I already mentioned. This is a good start, but we see a high resonance, high feedback there. This is then also pulling our IOL business. Nevertheless, this is also something what we have reported to the audience here already. IOL is still a way to go because we have not closed the entire hydrophobic portfolio in U.S., and this is still a way to go where we've seen. Overall, we are preparing that in all aspects, so that's not only on digital, it's a full workflow solution.
We see, as I reported in some pilot markets, and this is also in the U.S., we see good resonance on that from the ophthalmologists and also from the patients. Overall, this is good. Especially now when it comes to performance, device performance is crucial here, and this is actually what is driving the performance. In terms of recurring revenue stream, maybe Justus you can answer this question.
Yeah, sure. I can do that. Yeah, you wanted some regional flavor. Asia-Pacific, as you know, that is strong and most dynamic. However, we see in EMEA actually, since COVID, quite a dynamic development, both in installation of lasers as well as in procedures being conducted. That is true for Germany, but also some other European countries where we see clearly a pickup in the trend of laser vision correction.
I think that is certainly something positive. We should also not forget that also in the U.S., we keep on growing with our recurring revenue.
It is, as I said earlier, it is for the U.S. not yet on a size that you know is making or pushing the needle, so to speak, because we have the high device dependency. Even though we continue to grow there faster than the market with SMILE and are growing the installed base of lasers. Therefore, we are also quite pleased with the U.S.. However, at a smaller scale of course. Hopefully that answers your question.
Yeah, very good. Thank you.
We'll take our next question from [ Maximilian Foerst] from [Stifel ]. Please go ahead.
Great, thanks, and good morning. My first question is a follow-up on Falko's question to better understand your ability to process your order book. Compared to the previous quarter, has your ability, or has the availability of components as well your internal supply chain to process these components improved sequentially? Or is the pressure at the same level as in the quarters before?
Related to this and based on your current visibility, how long do you expect that growth and order intake will surpass sales growth? My second question is on capital allocation, given the current inflationary environment is a bit more painful for investors if you carry around EUR 800 million in cash.
Are there some plans to accelerate the deployment of these funds, for example, by meaningfully increasing the amount of R&D spending or from M&A?
Is there maybe some threshold on the cash side where you would feel the need to increase your dividend payout ratio? Finally, a follow-up on the refractive laser and VisuMax in the U.S. Can you maybe share with us what percentage of your installed base is now located in the U.S.? Have you noted any weakness on the refractive laser procedures in the country given the recent economic slowdown? Thank you.
Okay. Maximilian, I kick it off. The first question was on the order book, the outlook, whether we will be able to basically turn around the orders faster. I would be reluctant at this point to see a big improvement in our reducing our lead times, given the factors that we have all discussed.
You were asking about improvements. I'd say, I'll answer it the other way around. At least overall, the situation did not get worse, but it's far away from being what we would like it to be, yeah. That's, I think, the best way to answer it.
I think, again, hoping that markets will continue to remain stable, I would think, yeah, for a while to come, you probably will see the order entry exceeding the revenue that we can generate. That covers question one. Question two, on our balance sheet or on our basically funds.
I mean, first of all, as you know, we have just made two more technology acquisitions, and I think we commented that previously we clearly see an organic growth as part of our strategic roadmap and, you know, technology acquisitions in the sense of, you know, kind of a string of pearls where we add technologies that we feel either enhance our offerings or can enrich basically meaningfully technologies and innovations in our current offering will always be on our radar screen and will be acquired and then integrated as we go.
From that perspective, I think we still see that this balance sheet is providing us the opportunity to move fast and move also on bigger targets or on various smaller targets at the same time. I think that is an asset that we would like to maintain. You asked about R&D. Yes, of course, we are increasing also prospectively our R&D investments and digitalization is one topic that we keep on mentioning here, but that is not the only one where we invest.
I mean, our IOL portfolio, our hydrophobic portfolio is one thing. The other thing that I would like to mention here explicitly is the investment into our regulatory global competence and coverage.
I mean, the question of getting products registered or reregistered is a strategic factor, and we also see there clearly an area of additional investment in the future. No, we don't have a threshold defined at what point we would start considering a higher dividend policy. It's in the end, the supervisory board's decision, but right now I can tell you, no, there's no such thing in place.
Last question was refractive. The installed base for lasers, I mean, for competitive reasons, honestly, we are not really disclosing here percentages per country of our entire installed base.
I think as you know, we have more than 100 lasers installed in the U.S. and the number keeps growing. I would leave it there. Yeah.
Great. On the refractive laser procedures in the U.S., have you noticed some slowdown in this economic environment or not yet so far?
Oh, no. Oh, no. Sorry. No, sorry, Markus, I missed that one. No, we actually have not seen a slowdown. The last ones that I saw still indicate a growth. I think we had some maybe two or three months ago, we had a bit of a sideways development, but that already now has turned again into growth.
That's great. Thank you.
Yeah.
There are no further questions at this time, so I would like to turn the conference back to our speakers for any additional or closing remarks.
Yeah. With this, we are at the end of Q3 conference call. Thank you so much for attending the call and also great question, the discussion that we had. We are looking very forward to welcome you then the next time again in December for the yearly results and hopefully then having a wonderful Q4, even with these circumstances. We wish you all the best for the summertime now. Stay healthy and see you then again in December. Thank you so much. Take care. Bye-bye.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.