Earnings Call: Q1 2021

May 7, 2021

Good morning in the United States. Welcome to our Q1 Financial results disclosure Q1 2021. Actually, we have pre announced our figures a couple of weeks ago. So and actually we confirmed what we preannounced. Before we dive into the details, please allow me for just some housekeeping statements. First of all, I think I don't need to read you through our safe harbor statement in our GAAP, non GAAP non adjustment figures disclosure. So we have all mentioned those data in the presentation and in the relevant releases as well. Actually, you can download that presentation either in your webcasting tool or from our website. So as always, I would like to split the presentation into 3 segments in the presentation and then certainly Q and A. So first, I would like to give you an overview of what happened in Q1, highlighting certain elements, then the financial review of the quarter, then some outlook. And then after that, certainly, if possible I would like to answer your questions, which could be raised then. Then at the end of the presentation, we provided some supplementary data, which actually, well, the presentation is too dense to cover those aspects as well. So please feel free to look into that section as well in the downloaded presentation. At a glance. Top line up by 32.5% on constant currency level to €72,000,000 which is a nominal growth of 27.4%. We are showing double digit growth rates in all segments, instrument, diaphragm and smart consumables, night recovery and more consumables, and I'll dive into details of those elements as well. Adjusted EBIT, more than doubled to €16,000,000 coming from €7,700,000 after Q1 2020. And adjusted EBIT margin is up by or the adjusted EBIT margin is up by 8 70 basis points year over year to an adjusted EBIT margin of 22.3 percent after 13.6% in Q1 2020. We got through a number of important milestones to include 1 of the projects, which certainly have the potential to allow Strathclyde to continue to stay on that growth track in particular. One, and I would like to highlight one just because of the size. So all of those milestones are certainly important. We had some prototype shipments for certain products. But the product I would like to highlight here is a molecular product for one of the market leaders where we got through a milestone. The actual name doesn't matter that much, but it's something like a design freeze, which means the customer is now starting with all the regulatory work, our regulatory work is actually already prepared. And certainly, shelf life testing is something which is ahead of us and our customers. So actually, that gives us a certain degree of confidence that the product will hit the market within the 'fourteen time frame, and current planning is actually like the beginning of next year. We see continuous high demand and positive customer feedback for our 3 year platform, which is one of the very few proprietary random access immunoassay platform named CLIA. The first partner is about to launch the product, and we have a certain number already of contract negotiations, actually some already contracted feasibility agreements, supply agreements and other agreements, which are actually showing very positive signals that our goal to introduce 1 of the very few immunoassay, chemiluminescent immunoassay random access analyzers to the market, which are actually kind of and it's really hard to describe. It's an open and closed at the same time platform. So open between us and our partner where they can actually run their chemilumines immunoassays on a proprietary platform and then close towards the customer, which means our customer can then, based upon Neojoy, use this instrument as an open or closed system solution, which means This is actually allowing something which happened in the ELISA field 20, 30 years ago. And I think this platform offers something which allows smaller customers with innovative, more echocerical menus to use this technology, which offers a higher degree of sensitivity and sensitivity than a laser test as well. So like I said, great feedback. It's really like a technological platform for Strata on the one hand side and certainly something which offers new perspective to customers transferring their menu and their business away from Eliza more into Camelot business in USA. Now getting to the financial review in detail. As already mentioned, sales nominally up by 20 7.4 percent EBITDA from €10,000,000 to €18,000,000 up by more than 80%. EBITDA margin up by 8 30 basis points, clearly showing the scalability of the business from about 18% to more than 26%. Adjusted EBIT up by 109% from roughly €7,500,000 to €60,000,000 all on a year over year basis. Adjusted EBIT margin from 30.6% to 22.3%, leading to a consolidated net income of €13,000,000 after about €6,000,000 in 2020 after Q1. EPS from €0.52 to now €109 and the basic earnings per share after IFRS from 37% to 95%. This is results from continuing operations, so we actually adjusted the previous year's figures of the adjustments we made after we sold our Data Solutions business unit in after Q1 last year. So as already mentioned, Q1 twenty twenty one sales up by 32.5% in constant currency, positive contributors certainly that continued high demand for our Molecular and Immunoassay platform and a very strong business with the system certainly. But here we actually see that something we slightly missed last year. And probably you remember that we discussed that already, that certainly our customers, we are focusing with all they had in terms of sales and service forces in new instrument placement and now certainly at the tail end of the pandemic, we see a very nice service parts and spare parts and certainly to a certain degree consumables business. Probably know that within that product group, certainly consumables, does not yet play such a major role as in companies which are focused on consumables or test kits for us. It means plastics to a certain degree are not we are not providing all the plastics for all our instruments, which is still partly in the hands of our customers. So again, very strong in terms of maintenance parts and not only spare parts. Special highlight I would like to mention. The chemistry sales in our diaphragm business unit, and we already discussed that in detail that in certain diagnostics market segment. And it's quite common that certain parts of the chemistry is supplied by the OEM supplier like us. In other areas like immunoassays and in molecular, it's quite commented. This is in the hands of our customer because it's obviously their core competency to offer this kind of technology is owning not just the market access and the brand, but certainly owning the technology behind the actual test providing. A fairly positive contributor is certainly the single digit growth coming from our development and service sales. Again, just to remind you, typically slightly margin weak business. So if the capitalization of development milestones is not extraordinarily high like we had in 20 'nineteen. So certainly a rate between healthy 8% to, let me say, 15% is contributing quantitatively to the margin and certainly contributing positively to the sales figures. And certainly, we have this ramp up curve, which is a negative contributor to sales ramp of newly launched products, where certainly our customers and this is absolutely not our choice, this is our customer's choice. But I think it is obvious that particularly at the beginning of last year leading our customers into autumn and certainly partly into the end of the year 2020, that certainly they allocated all their resources available into instruments or sales or consumables or whatever was their relevant business, which has an exposure to COVID-nineteen. And now we definitely see that our customers are reallocating the resources into other area for them, clearly, with the goal to continue to stay on their growth track for us. It means a focused reallocation on instruments which have been launched in 2017, 2018 2019, which we're kind of defocused in the course of last year. But again, it's certainly easy to understand. Let me just give you an easy example. So obviously, our customers were trying to place new instruments only into accounts where there was already an instrument because this could take them some time, let's say, in process qualification, in and output qualification, service training, user training, the on-site validation and so on. Because if the customer already had an instrument, it was certainly the choice of our partners to prioritize those because these like to an earlier utilization of the equipment place, which again, on the other side and then deprioritization of those newly launched instruments and now we clearly see that the focus is shifting back to those instruments. Adjusted EBIT and EBIT margin, Q1 2021, adjusted EBIT margin up by 100 and 9% year over year €16,000,000 adjusted EBIT margin up by 870 basis points to 22.3%. Here we see quite uniquely only positive contributor, certainly the operational leverage, which helps us a lot than certainly the product mix. And again, I would regulatory. It is not just a product mix of, let me say, margin heavy instrument versus margin weak instrument. It's actually a variety of different positive contributors to the sales and product mix. On the one hand side, it's, as I just mentioned, the shift towards more complex instrument or more margin heavy instruments. Then certainly, the second aspect is the product mix weaker capitalization of development milestones, which has nothing to do with the performance in development. It's just the timing thing here. And certainly, it's the product mix of between the relevant contribution to sales of instruments versus service powered maintenance and consumables, so that actually improved as well. And then certainly, just one further highlight, and I already mentioned that is the chemistry sales coming from our hydro business unit, particularly for hematological applications, which is developing very nicely. And then certainly efficiency enhancements. Probably can recall that we had an unexpectedly weak year of 2018. During that time, we made it very transparent that we don't want to over save during that year, but certainly it was important to understand that or it still is important to understand that during that year. We have established certain measures like we cleaned up our project pipeline, we looked into the assembly and manufacturing of margin heavy sub assemblies and ramp up our low level manufacturing side under the umbrella of our Diaper business unit, which is now contributing positively as we are particularly in this business unit, we are assembling products with a, high run rate and or b, a degree of complexity, where it actually helps us a lot to at least partly participate in the gross margin or the gross margin side coming from that angle of the business. Getting to our cash flow, again, very positive development, operating activities, cash flows from €3,200,000 to €40,000,000 up by 300%. And again, although we still have heavy investments, very nice development here as well on the investment activities and financing activities, all in all, very positive development, leading to a generation of free cash flows of about €10,000,000 in Q1 as compared to minus €4,000,000 in Q1 2020, leading to cash and cash equivalents at the end of the period of about CHF 45,000,000 compared to about CHF 35,000,000 in 2020, equity ratio continues to be the exact same and that debt obviously could be reduced, giving us all the relevant fire powder for everything we have or might have in the pipeline in the future. Now getting you an outlook guidance. Financial guidance on a constant currency basis, we guided for a sales growth of at least, and I would like to reiterate this is an at least guidance, high single digit percentage range. And again, allow me to really read you through the disclaimer of that data. Then an adjusted EBIT margin of around 17.5% to 18.5% after 16.7% in 2020 and the investments, intangible and intangible assets combined of around 6% to 8% of sales after the previous year guidance is where we always guided for about 10% to 12%, and please bear with me. This was actually related to the real estate activities we had over the past 5 years. Now I think we are good on that side as well. So both top and bottom line guidances are actually on the basis of that we still see high volatilities in our customers' order behavior and in their forecast behavior. That's why certainly, let me say, within the bandwidth of Q2 and Q3, where the already locked in, in Iron Manufacturing. Certainly, we were a bit more cautious as far as Q4 was concerned. And based upon that, additional forecast received and additional orders received based upon those uncertainties I've just mentioned, we actually applied a higher degree of cautiousness as far as Q4 is concerned. So which means some parts of those additional orders have not been incorporated into the guidance of Q4 of 2021 just to be on the safe side. Our focus for 2021 and beyond, certainly, we want to try forward the development program for our next generation molecular solution for 1 of the actual dominant players in the market. And again, It's not that this is the one and only program and Strathik is over focused into that program. We have a lot of things ongoing in development and in the deal pipeline, products slide. Let me pick out one for Grifols or for Instrumentation Laboratories and some others of the market players of the bigger players. So very nice business ongoing there. But certainly, if we see the idea of further diversification, certainly this molecular program has the potential to become one of the bigger projects and bigger products for Swartvik. Then certainly, a focus on potential M and A activities. We have several things ongoing. I think and I just want to make that very clear. After the acquisition of Diatron and the Sonya D. A. C. Bioscience business back in 2016, we didn't actually stop M and A activities. Just that we are very selective, we are very cautious, led to the point that we didn't acquire anything during that time frame, but we kept our eyes open. We performed several due diligence as we looked into opportunities for the one or the other reason we didn't execute. And that's why we continuously have that on our list. We look into M and A. Now we have a couple of things ongoing, which used to be the case in the past as well. At this point, nothing is so concrete that we might have an execution in the next week. But again, we are active here and there. We have a team sitting on that for M and A and for the PMA post merger integration as well. Then certainly, the high number of let me call it, pre contractual activities with our customers like performing feasibility studies performing the discussions about product specifications and product design requirements discussion and so on. And we want to transfer all those activities into development and supply agreements. And I would actually say that we have 2 bigger ones in a final stage. And I don't want to overpromise, but I think this is a matter of months. So I'm very positive that we can actually execute 2 of those things by the end of the year. We've actually executed 1 over the past months. Then certainly, and I'm not saying that the pandemic is over. So still, We have a lot of our customers, which are still very demanding. However, we know we have a very solid deal pipeline as far as new projects are concerned. We know that we have a very solid launch pipeline of products, which will be launched in the market in months quarters to come. And we have actually something which is or which became less transparent during the pandemic that we launched a number of products in 2017, 2018 2019, which are only at the very beginning of the product life cycle. So it's very important for us to manage that transition to post pandemic priorities. And it's not only managing our product, it's actually managing the expectations our customers and fulfilling the expectations in terms of quality, in terms of reliability, in terms of our help for them to form their regulatory obligations in terms of our manufacturing validation, in terms of providing the relevant contributor to their success in time. That's certainly something where it doesn't only mean reprioritization of the activities within our customers, but even in manufacturing and in the development department of Stratek. This already gets me to the end of the presentation, and I would like to hand back to Stuart, our operator, who'll explain it how to work it out with Q and A. Thank you, Markus. First question is from the line of Oliver Metzger from Commerzbank. Please go ahead. Hi, good afternoon, Markus and Jan. I have some questions on the increased guidance. First is on a clarification. So I clearly appreciate the increase. It's about the orders, my question, so Which you have not incorporated into your guidance. So just for clarification, in a normal year, you would factor in orders also for the Q4 To 100%. And now you just disregard them to have a safety question. Is this summary correct? Yes, Oliver, thanks very much for that question. And actually, thanks for bringing that up. And I think it's a good comparison to compare like how we would act in a regular year and how we are acting now. So certainly all our activities and our guidance and all our plannings and forecasts and budget is based upon information, which is a derivative of either contractual data in the agreement like minimum run rate or minimum purchase obligation from our customers in an early stage. And so always based upon we call this a rolling cost system is that between our sales department and the actual procurement department. And certainly, at the back end of that, certainly, the sales department of our customers as well, and they provide us with a forecast. And this is very customer dependent. So some customers are actually giving us a monthly update, and they have a rolling forecast of a year up to 15 months. Others are only updating once a quarter, and they only have a year or 6 months. So it's really very customer dependent, and it actually depends very much to their logistical processes. So it's not that one size fits all solution. It's that we get the information on a different scale from different customers. What we then do is we particularly for of those customers where we are working with for years or have a longer experience, we certainly sets, the quality of the forecast compared to the actual number of instruments and service parts then of service parts then taken later on. So we compare the forecasting quality to the actual data then achieved later on at actual data. And based upon that, we are doing a certain offset. So we know that some of our customers are forecasting too conservatively. And for our manufacturing planning, then we certainly are then planning a bit more aggressively just to make sure that if they have higher demand, very back end loaded that we are able to supply. The same thing is that we have some customers who are typically a bit overoptimistic where we are doing the same offset in a different direction. That's what we typically do. And certainly, we provide the market then with a still a risk offsetted guidance based upon that data. In this particular case, we have made no material change to the level of risk adjustment. We have already incorporated as compared to our earlier guidance. So at the beginning of the year or actually the data which has been provided at the end of last year. So the increased order forecast for Q4, which I've mentioned in the initial guidance framework, are still not included in the updated guidance, given that high volatility and uncertainty on the back of the pandemic. So the reason for our guidance upgrades are actually slightly better than expected top line performance in the 1st month of 2020 and particularly in our service parts and consumables business. And certainly, we got a bit more optimistic as far as our capacity constraints, worked out in the 1st month or actually at the end of last year, which means we'll probably be able to ship a bit more in H1 compared to our initial planning. And on the margin side, certainly, the higher share of high margin service parts and consumables is certainly affecting that slightly as well. I hope that answers your question. So I wouldn't say we have been over cautious. It's just that the degree of uncertainty and unpredictability led us to, let me say, an adjustment there where we said we don't want to incorporate that in our guidance at this point. Yes, yes, great. That was quite a comprehensive answer. That's basically answered also my second question. I just want to follow-up also Regarding the orders because you reported an increase in the order forecast for second half, Basically, Q3 and Q4. And you said you reported that in the Q1, as basically we talked last time, please, I think it 5 weeks ago at the end of the Q1. So was the increased orders for the Q3 Also already part of the initial guidance? Or have you factored that in now? Yes, no, certainly, it's actually both, Oliver. So we got further increases forecast for Q4 and actually higher demand for as initially planned for Q2 and Q3, but Q2 and Q3 were already factored in on that higher demand level. I hope that answers the question as well. Yes, absolutely. Thank you very much. You're very welcome. Next question is from the line of Jan Koch from Deutsche Bank. Please go ahead. Hi, Markus. Thanks for taking my questions. I've got 3, please. Firstly, coming back to your raised sales guidance for 2021. Can you help us with the expected phasing of the sales growth and the many moving parts, especially for the Q2? Last year, you already recorded some COVID related sales in the Q2. But at the same time, you posted a significant decline in development revenues. What can we expect here for the current quarter? And then if we follow-up on this topic, have you seen any changes in the order behavior of your customers in the last tweaks. So the largest customer reported its results last week and mentioned that it is expecting a significant decline in COVID revenue in the current quarter. Just curious if this is already reflected in your order book. And finally, on M and A, The M and A activities of your largest customers have picked up strongly recently. Do you see this as a risk because your customers could increase their in house manufacturing capabilities and focus more on point of care market? Or do you see this as an opportunity as test menus could get expanded or you might benefit from new outsourced systems? Would be great if Could share your thoughts on this topic? Absolutely. So, Jan, thanks very much for those questions. So And if I'm answering the wrong questions, please let me know. I'm just answering it as I understood just got me if I'm actually misleading you. So what do we expect for Q2? So order and demand level are still extraordinarily high. So what we definitely observe, and I think this is something very generic that particularly for those customers, and it's a bit difficult dimension name that I don't want to again mislead you. That's why I'm picking just out the example of 1 of our of a market player, which is not actually a customer for instruments, our instruments business unit, just picking out Kadel. So you probably saw that they came out very early with a very pessimistic forecast. And I think this is an observation what we clearly see. On the one hand side, at the tail end of the pandemic, we see a higher degree of centralization, which means the higher volumes are getting back into the more centralized environments like the bigger labs, the Quest, the LabCorp of the world, which is actually very beneficial to us that we clearly see a focus. And actually, companies like Roche or like Hologic and like a segment have actually reported the same thing that they see a and I don't want to say renaissance because it sounds a bit like it was already over. But what we clearly see is that centralization continues to accelerate. On the other side, we see that those super expensive formats, like if you run on a very important point of care instrument, cartridge based test where the test cartridge on a standalone basis already costs like $10, dollars 15 you clearly see that those tests are cannibalized by those lateral flow, self testing devices, like in the COVID case, by all those anti gene based lateral flow test, and you clearly see that. On the other side, we still see nice demand for instruments, which are not the lower edge of point of care testing, where you know we have several of those instruments, like instruments with 10, 15, 20, 25 tests an hour. Where we still see a nice demand here, what we clearly observe is that Those analyzers and those cartridge based instruments, which are providing like one test every 30 minutes or like one result after 30 minutes or 2 results within an hour, that those are clearly cannibalized by the lateral floaters. So like I said, it is the orders and the demand levels are still extraordinarily high. We still have a huge backorder situation. It's obvious that our customers, and I think I mentioned that in the presentation, is that during the pandemic, it was obvious that our customers focused on those of their customers, which already had a number of their instruments because this helped them in user training, in service training, in qualification, in validation on-site and all those regulatory processes as compared to a new customer where they would have to go through all that relevant regulatory hassle and their service technicians and their sales forces simply haven't had the time. That's why they focus on, let me say, those customers already used their technologies, their instruments and their assay kits. Now it's certainly time to drill 1 step further down. And That's why the instruments are now going into the bigger hospitals and so on, which offers them like a nice potential. And it's obvious that after the fact that all instruments which could run COVID test independent of if this means antigen test or molecular test or genetic test, all those instruments we are running at capacity level. So which means typically the instruments are designed to run like probably 5 days a week, probably 1 or 1.5 leg shift of 6 to 8 hours. All those instruments now ran 20 fourseven, which clearly means that now getting back to a more common utilization level means that at the back end of the pandemic, when already the testing volume for our decentralization, I just want to show you. So from today's perspective, I think it is absolutely too barely to talk about revenue number for Q2, but they certainly will be higher as compared that's what we foresee compared to Q1. Still in Q2, we haven't had those high comps as we were only at the very beginning of that ramp up phase with instrument supplies. We still have the high demand, so we are actually expecting an Q2 as well. And actually, I think that answer already answered part of your second question regarding that some of our customers are already reporting declining COVID-nineteen testing, but taking into consideration that we are now going back into a more normalized utilization level, getting back into a phase where instruments which have only been sold in 2019 2020 because of the high degree of utilization are already aged and at the end of their life cycle because they were running 20 fourseven. So we already see a nice demand coming from instruments replacing instruments, which were only sold in 'nineteen and 'twenty. We all see that. And actually, what we clearly see is that our customers are actually defending the market. We see that they are supplementing their menu available. It's no longer exclusively COVID. It's respiratory panels. It's multiplexing panels where it's respiratory and some other organ diseases coming along collaterally with COVID and so on and so forth. So we see our customers being very, very active in putting the right menu together to work out their niche in a post pandemic scenario. And again, I want to top that up with our very attractive launch pipeline for the next periods to come. But I think particularly of high importance is the launches we had in 2017, 2018 and 2019 to include instruments like the Liaison HS for DiaSorin or like the FACTURED instrument for Becton and Dickenson along with some others, which actually lost a little bit of focus during that time, but I think taking the growth prospect of the business coming along with the launch of those instruments. I'm not worried about the coming quarter. And now getting to Diasorin with their acquisition or announced acquisition of Luminex. I think this was the background of your last question. So it's a bit complicated that certainly I want to make clear that we are not in a position to comment on the potential strategies of our customers in great detail, particularly as far as their M and A activities are concerned. So please allow me to make here more general statements. And certainly, all those statements are only being based on our internal assessment. So at the first glance, there might be some overlapping from the menu side between DiaSorin and Luminex, particularly on the molecular side and particularly on the point of care side. So based upon my understanding, the solutions are a huge difference as far as throughput is concern. So the Liaison MDX can actually run more than 20 tests per hour. And the consumables are actually cost wise at the lower end don't play a major role for the cost for the consumables. Therefore, I think that the product panel and product portfolio coming from Luminex differs a lot to the currently existing product portfolio from DiaSorin, which on the Liaison MDX side is provided by our manufacturing capabilities. And thus, we think that there is not much of and overlap on cannibalization. And certainly, DiaSorin has actually so if we see where DiaSorin is coming from, it's really a great achievement that they have also achieved and have generated a great molecular diagnostics franchise after the FOCUS acquisition, which was the diastore and molecular business almost exclusively. So over the last couple of years, and they have considerably expanded the installed base throughout the pandemic. So that it would be probably not make a ton of sense to deprioritize this franchise. And certainly, the next generation of the Alias on MDx will, from our perspective, be key to secure their current customer base. On the other side, I think if you see our capabilities in terms of automated equipment, certainly Luminex only provides what we would call readers, which are only a part of our product offering. This only in the life science research arena, so we don't see any overlap at all. And I think it's just worth mentioning that Stradeck offers equipment and fully integrated equipment using Luminex devices AS readers and just picking out one known example. We have a couple of examples here, but one of the known examples is actually an instrument we provide for thermal. And again, this is an instrument where we are offering fully automated equipment and technology is using a Luminex reader. And the Luminex reader is actually an integral part of our instrument. From the outside, you don't feedback, the Luminex reader is integrated. From the outside, it looks like an integrated thermos solution because this is actually something where we feel actually comfortable and we don't have a noninvasive syndrome. So we're actually looking forward into that solutions as well. So we are definitely monitoring the situation, but it's definitely our focus to always continues to demonstrate to our partners the high quality and performance of our solutions, of our capabilities to innovate of our technologies and the services we are offering. That's our actually our focus. Okay, great. Thanks a lot. You're very welcome. Next question is from the line of Michael Healy from Berenberg. Please go ahead. Just a couple of questions. Mr. Healey, your line is breaking up. We can't really hear you. Hello? Hello? Can you hear me? Hello? Hello, Mr. Healy? Yes. Can you hear me? Yes. Can you repeat your question, please? Thank you. Yes. Hi there. Hi there, Yes, apologies for that. I'm not sure what happened. Again, just a quick question on Q4. The types of orders you're receiving, you share if it's more still high demand for instruments? Or is maybe it shifted more towards materials and spare parts? And just to clarify on one You brought up earlier, Markus, on the development revenue side. And are you interested in where we should expect the development revenue just for the full year To sort of land, obviously, we had 2019, which is exceptionally high. Should we just be modeling growth over the last questions. I only got fragments of it. So I'll have to I'm actually making kind of derivatives from the fragments I got. So I think your first question was about our adjustments in Q4, whether or not this effect instrument exclusively or if we adjusted the service and spare parts demand as well. So clear answer. The only adjustments we made is to our instruments business. We are only partly receiving forecasts for consumables. That's actually one of the priority tasks of our sales department to derive potential demand for maintenance kits and service parts and consumables from the actual installed base reported by our customers and the and the actual degree of utilization. So we do that on ourselves. But like I mentioned before, the quote unquote of adjustments being made to the very cautious approach to include those increased demands into our items regarding Q4 is exclusively related to instruments. Then on a normalized level regarding and I hope I got your second question properly regarding breaking down development activities coming along, margin weaker than instruments and consumables sales. So at this point and you know this is matter of one of the regulations of International Financial Reporting Standards, when and how to capitalize development milestones. And again, I'm more than complaining that the degree of capitalization has nothing to do with the actual performance of the company. We have never in the company's history spent so many hours on development activities and have brought so many development projects and products in the pipeline forward. However, the degree of capitalization is a little bit lower, which is linked to a milestone. I wouldn't expect any material change for the remainder of the year. So 2021 will be a year of lower degree of capitalization of development milestones. We believe looking into milestone and development planning for 2022 that this will slightly shift, but not on that order of magnitude we had back in 2019, when certainly that huge milestone has diluted our margin of Q1 and to a certain degree of the entire year then as a consequence of that. I hope that answers your question. Yes. Thanks, Markus. You're very welcome. Next question is from the line of Oliver Reinberg from Kepler Cheuvreux. Please go ahead. Yes. Hi, good afternoon. Markus, three questions, if I may. Firstly, can I just come back on Hologic? Obviously, as ask before there was this kind of change in the message that the expectations for COVID have been lowered. So can you just confirm, so the most recent order forecast from this account, Have these not adversely changed following this announcement or basically over the last few weeks? And do you have any visibility in terms of forecast from Hologic for 2022? That will be the first question. Secondly, just clarifying, have you actually said that the sales growth in the second quarter will be higher the Q1? And third question, obviously, we always focus on this kind of big new account that is coming up. But can you provide any kind of color in terms of the additional new contracts or launches that are coming up? When are these actually going to occur? Thank you. Yes, thanks, Alira, excellent question. Let me say before, I obviously messed it up again. I was trying to get across that sales, not sales, growth, sales in Q2 is expected to be higher than Q1 sales. So sorry for that if I didn't express myself in a proper manner. Forecasting, so it's certainly not upon me to comment forecast given by our customers. What I can say is that our forecast adjustment has nothing to do with our customers. Obviously, our customers have a longer planning side as what as they are obviously communicating that to external sources. So it's not a point for me to comment that. For us, we are treating every customers in the same manner. We are not commenting on the quality of the forecast of those customers. But again, if our customers are talking about COVID-nineteen testing demand, what they clearly are trying to get across is it means that they are selling less tests, which doesn't necessarily mean that they are selling less or more instruments. Those figures are influenced by means and measures I've just mentioned before, just picking out obvious examples, but there are actually dozens of different contributors just picking out too, which are so obvious. Matter of fact, all instruments with COVID-nineteen exposure were running 20 fourseven. Now they want to get it back into more a normalized solution, which means that they are utilized between 30% 70%, which means even if the demand of COVID-nineteen has toughens, we are still north of the normalized utilization level, which means they are still placing more and more instruments to get back to that normalized level. Then certainly, the majority of our customers actually cannibalize their own fleet. They have like in their own incubator labs where they are developing new tests, they have a number of some of our customers even have hundreds of instruments in those labs. And they all in order to supply their customers, they shipped those instruments to their customers. And now they are getting those instruments back into their own incubator lab, but they have so they have to replace the instruments in the field now with new instruments coming from us. So I just want to make that point. It's important to understand if our customers are talking about declining testing volume. This doesn't necessarily mean that it means a lower or even higher demand for us as a contributor to the actual placement of instruments differ a lot from the actual demand of demand as a derivative of the testing volume. I hope that answers your question. Did I miss 1? I think I missed the third one. Can you please repeat? Yes. I was actually just wondering in terms of the new upcoming launches. I mean, we always talk about the kind of big one. Can you provide any kind of visibility beyond this kind of big one, what kind of other launches are coming up? So it's a bit difficult for me as always to comment on details where our customers have not yet provided data. So I think the most important ones are actually our clear derivatives for the time being and for the next 6 to 9 months. In parallel, we are launching some 2nd generation instruments to include and this is something actually that I have already announced and the next generation of the Liaison MDX. Then we have another product launch, which is not yet announced by our partners where we actually even didn't disclose the name of the partner. And then certainly the molecular program, and I think this was the one you just referred to in Q1 of 2022. But again, I can only reiterate myself. It is so important to understand that product launch and product launch doesn't necessarily mean the same thing. So if our customers are launching a product officially, it means that they are launching instruments in certain territories where they got regulatory approval. And certainly, they didn't submit their filings and their clinical trial data and the submission data in all regulatory systems of the world at the same time, which means At this point, it's quite common to launch instruments in the 1st place in Europe with the new individual diagnostic rules called IVDR. This has already changed to a prioritized U. S. Launch, which means instruments will then be from 2023 on, will be launched in the United States first and probably Europe second, Asia third, with a time shift of almost a year in between each of those launches. And then we have to see that Typically, our partners are starting the sales of new platforms with a partly crippled menu, so they don't have all their tests available at the same time under the launch. It typically takes them a few quarters until they get to a comprehensive menu, which means at the beginning after the launch of such a new product, they can only go into certain markets. And even in those markets, they can only go to certain customers using their, by then already approved menu. So long story short, it means that if we say we are together with our partners launching an instrument early 2022, it doesn't mean that you will see a huge upswing in our sales figures already in Q1, Q2 of that year. Those growth which will come in 2021 2022 is actually based instruments, which have already been launched in 2017, 2018, 2019 2020. So important to understand that. That's perfectly helpful. Thanks so much, Markus. Can I just lastly, we phrased this kind of earlier question I had? I mean, if we look at the instruments that you have in your portfolio, which are used for COVID-nineteen testing, So not talking about a specific line. So overall in this kind of portfolio, have you in the recent weeks experienced or seen any kind of adverse shift in terms of Order patterns are not really a change. So in order again, it's a bit and then I already mentioned that I cannot answer that question right away. So certainly, my the priorities in my personal, my market working as communication to the decision makers in our customers is that we are continuously communicating about order pattern coming from and let me say quoting them, the first statement they say is our customers even don't know. And they are telling us and we don't know. So what should I tell you? So it's actually a sequence of estimates and predictions. That's the first thing I want to get across. Secondly, is that I would say that we are probably, I don't know, 2 or 3 months ahead as far as we can make predictions because we are trying to consolidate all the data from our customers and now trying to find out the parameters in the prediction of all of our relevant customers. So straightforward answer to your question is that we certainly saw a change in the behavior and in the order pattern of our customer already in Q4 and in Q1. But let's say most recently, with all those announcements being made and with a more pessimistic outlook of some players in the industry, the pattern didn't even change. So if you just look into it and I just can't comment on statements being made officially made in the earnings call of Roche, where we don't have an active sales business of instrument with Roche is that they clearly said they definitely see trend towards centralization. So you know they have a point of care offering as well, which obviously doesn't perform that well, but the centralized business performed very, very well that they clearly stated that they see they still see ongoing high demand, which again is a derivative of the utilization of the equipment, that their growth is actually high that they are growing or expected to grow with their business in Q1, obviously, Q2 and Q3. And in Q4, they see high comps. And I think this is an observation which mimics the expectations of the majority of the diagnostic players at this point. Perfect. Thanks so much, Markus. Very welcome. There are no more questions at this time. And I would like to turn the conference back to Markus Wolfinger for any closing comments. Please go ahead. Again, Stuart, thank you very much for hosting this conference. Ladies and gentlemen, this actually concludes our Q1 2021 call. If you have any further questions, do not hesitate to call our Investor Relations department or just drop us an e mail. Thanks very much for your interest. And even if you just want to discuss aspects the industry, do not hesitate to call us. Thanks very much. Have a good day and a good afternoon. Please stay safe and stay healthy. Again, thanks very much. Bye bye.