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Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome, and thank you for joining the STRATEC Conference Call regarding today's announcement for the Q1 2022 Financial Results Conference Call. [Operator Instructions] Now I'd like to turn the conference over to Marcus Wolfinger, CEO of STRATEC. Please go ahead.
Thanks, Stuart. And good morning in the United States and good afternoon in Europe. Before we start, allow me to just mention some housekeeping things. First of all, I think there is no need to read you through our safe harbor statement. And you can actually download the presentation, either from this presentation tool or from our website, it's already on. As always, I would like to split this presentation into 3 major segments. First of all, I would like to get you an overview of our Q1 in 2022, then followed by some financial data, and then certainly I would like to get you an outlook and the area to focus on and so on. And then after that, certainly, we'll have the opportunity to ask questions, and in this presentation, if you download it, you will find some supplementary data. Q1 was actually an uneventful quarter in the positive sense. So except the almost daily hits of supply chain, nothing super special has happened. We have executed a couple of nice things and brought other things on the development pipeline. Let me walk through that. Actually, [ group ] sales was up by about 4% representing about 1.8% in constant currency. The adjusted EBITDA is in the area of 15 million which is slightly below the super strong prior year which, let me say, is like an unfair comp. I would say actually, Q1 22' is more in line with our overall long-term expectation rather than as compared to the super strong Q1 of 2021, but still, it's slightly ahead of budget. We made really significant progress within our development pipeline. Again, we are typically differentiating between deal pipeline and development pipeline, new things are on what we call deal pipeline and development pipeline, means projects which are already contracted, and on both ends, we actually have a couple of things ongoing. One thing to be mentioned is actually a new customer which came on board for a risk assessment project. Now for our smart consumables division, actually, the company is [ Cytovale ] a lot of noise about that company. It has really the potential to become a kind of game-changer over time if really things are happening as planned. On the other side, we have a super high number of incoming customer requests regarding new projects on the one hand side for instruments certainly, but on the other side for our consumables and other activities as well. So really, we definitely see a super healthy recovery effect. We already saw that over the past year after, particularly at the beginning of the pandemic, where things cooled down slightly, but really, for the last year, and especially over the past, let me say 6 months and in the beginning of this year, we see super healthy and nice recovery effect, not only technical interesting projects but projects with volume as well. Then we have several products in the ramp-up phase by means of products which are already launched which will contribute in the next 24 months to the growth of the company. And more launches to come over the next 12 months which includes a molecular program family for one of the market leaders which is scheduled for mid this year where STRATEC doesn't only provide instrumentation, but certainly complex consumables for these companies, again, being one of the market leaders for this company's next-generation molecular program with super high sensitivities and digital readout. Let me get you to the financial review now, and I think it's worth mentioning that all our earnings KPIs are actually in line or slightly above expectations. So EBITDA is 2% lower after this super-strong first quarter of 2022. Same thing applies for adjusted EBIT linear down-break, and certainly the income EPS, slightly above expectation which is mainly related to the overall tech situation of the group. Top line development, as already mentioned, 4.7% year-over-year leading to revenues in the first quarter of 75.4 million which represents 1.8% in constant currency, positive contributors, so only slightly higher development in service sales. Again, this is not super high from our today's perspective as compared to some quarters we had in the past. It's just higher in Q1 of 2021. With super low comps on the other side, we see strong service parts and consumables. That's actually something we expected to happen with this almost exploding install base. During the pandemic over the past 2 years, we expected that our customers will bring those instruments into a regular service and maintenance scheme. And therefore, we really see some nice tailwinds top line, but particularly bottom line coming from our mainly service parts in consumables. Then, like very positive development on the instrumentation side, certainly on the one hand side, with immunoassays, mainly chemiluminescent immunoassays, but something which actually went slight, like, flat, during the pandemic was our immune hematology business representing, let me say, the fourth pillar of STRATEC product portfolio, and we saw really nice catch-up effects here as well.
Then we had those product launches, and I was already referring to products like the LIAISON XS or products for Becton and Dickinson, a product which has been newly launched, our CLIA is starting to ramp up nicely. So we have nice headwinds from that, offsetting a slightly lower sales in a certain area, particularly it's mentioned here, it's molecular instruments, but I would actually say overall, mainly the complex systems are slightly lower, which is actually an expected effect, which is actually mainly related to those super high run rates we had during the pandemic. Bottom line, we have an adjusted EBIT, which is down by 6.3%, which is actually a little bit less than expected year-over-year ending up with EUR 15 million in EBIT. So Q1 22 adjusted EBIT margin was just a little bit south of 20% compared to 22.3% in the previous year, like Q1 of 2021. Negative contributors. So headwinds are coming from a normalized product mix within, say -- we have an overall changing product mix if we see those 3 revenue pillars of instruments, consumables, and service parts and maintenance parts, as well as development revenue, certainly higher development revenues. On a percentage of sale basis, lower instrument sales, but even within the instrument, we see a normalization of the product portfolio. So those instruments which have been put on the backburner during Corona are now pulled more towards the more focused products for our customers. And I mentioned that at the beginning, the super-tense supply chain and input cost inflation, which is really a challenge. Typically, whenever we thought out one angle, we definitely see the next day a new contributor to delays. It's really a stressful time for our supply chain people. However, that's how they managed to sort out things fairly well. So far, we haven't had any super long delays on the other side. We literally have delays throughout our entire supply chain. I only came back from the United States yesterday. I think that particularly supply chain in the United States works a little bit better than in Europe, mainly related to the efforts over the past 2 years of the U.S. government to achieve higher independency, particularly from Asian supply chains. And I think in Europe, we are slightly behind that re-patriotic session of manufacturing to be brought back in the United States. I think it's already showing some effects, whereas I have the impression that in Europe, it's still getting worse. On the positive side, and I already mentioned that when we discussed top line, is the increased share of our high margins, mainly service parts, but to a certain degree, consumables since [indiscernible] as well. And we have that, which is actually a little bit uncommon, higher than usual contribution margin from development activities. Typically, our development revenues are coming along with a slightly lower margin than actual instrument sales. Again, it's not extraordinary high, I think we had a milestone in the area of EUR 2 million to EUR 3 million with an almost 50% EBIT margin. I think even here, we are progressing fairly well. Now, discussing cash flow, which has actually not been super satisfying, which is mainly related to increased activities or increased position of accounts receivable, seems to be a little bit a thing that our customers are trying to not pay us towards the end of the quarter, I think we can always report -- or this is actually like a reporting date effect. We already showed significant improvements at the beginning of the second quarter. This is actually only a snapshot towards the end of Q1. Overall, I think we are progressing here as well. Investment ratio came down to 5.2% of sales incorporated in our guidance, we actually see higher investments on a full year's basis. Net debt to last 12 months' EBITDA actually progressed to 0.8%, which is actually like a development in liaison with fairly good cash flows we saw over the past 24 months, and we are actually expecting that this continues over the next year. I think we have brought those huge investment cycles behind us, real estate activities over the past 2 years, and the 2 years before huge investments into development activities and development tooling, and so on. Even here, I think we made good progress. Let me get you to the outlook. In the press release, which came out this morning, we actually confirmed the guidance for 2022. It gives us some margin. However, we still see a high unpredictability. From our perspective, actually, transparency and predictability for '22 is actually lower than what we see for '23 particularly relative to the upcoming launches and particularly the fact that our expectations regarding those instruments of STRATEC which have COVID-19 exposure are still declining for -- [ on full year basis ]. We actually expect that additional tailwinds from COVID are over. Some of our customers are actually expecting that we might see a ramp-up in testing volume in autumn or early winter this year. However, they are expecting shorter durations and steeper ramp-up during the pandemic is sufficient to cover that additional testing volume, so we actually see more normalized business, and from their perspective, a more normalized product portfolio in sales. Adjusted EBIT margin has been forecasted by STRATEC to be in the area of 16.5% to 18.5%, after 18.9% in 2021. Again, I think already the progress made in Q1 gives us some level of tolerance for the remainder of the year. I wouldn't say it's aggressive or conservative, I think we are not yet in a position to data-mine the overall development on a full year's basis. However, and I think that's mentioned in that sentence at the bottom of that page, this guidance includes a higher than a normal number of assumptions and risk adjustments. Again, the good progress we made in Q1 gives us some tolerance level for the remainder of the year. Let me discuss the things we do have in the pipeline. The focus for, let me say, the next 12 to 15 months is to execute on the current development pipeline and launch pipeline. We are expecting -- among others, actually, we are expecting that 2 molecular platforms will be launched in the next 12 months, and we got another molecular platform onboard multiplexing in molecular for decentralized testing, which will get to the market before 2024 end. Again, on that slide, we are only mentioning some molecular programs. Certainly, we have other programs in the pipeline as well, just because particular PCR and other molecular methods has been so much of interest over the past 24 months than we thought, it's mentioning that really a lot of things are ongoing here. We actually believe on the one hand side that some of the smaller companies like after IVDR and after the strong tailwinds we saw during Corona will have a difficult time, particularly those one trick ponies, but on the other side, we believe that particularly in the United States, decentralized molecular testing will play a role in the future. In Europe, we think particularly because of the structure of the markets, decentralized testing will not play such a material role as compared to the United States. Second element is that we want to execute on our deal pipeline regarding new development in manufacturing equipment. We have a nice lineup of new things. We brought things back from the United States. I mean, I mentioned that already at the beginning of this presentation, that over the past 12 months, we see a lot of interest. We have started a number of feasibility agreements and are in contract negotiations, which makes us believe that the actual pace regarding new projects will continue to increase. Then, certainly, that seems to be the challenge of the year. So if you would ask me, if we see any top-line development constraints, where are those coming from? I would actually say it's most likely less the demand side this year than the actual supply chain issues. We definitely are about, and have not only in this quarter, but even in previous quarters, we have started measures to address the supply chain issues we have, and the rising input costs. However, this is not an easy approach, particularly as there is no structuring those supply chain issues. And I think I already mentioned that in the course of the presentation, that, like this week, it's that, then the next week, it's something else. Even such stupid things like, you probably know that we are shipping some of our instruments in wooden crates, that you just don't get the crates because the wood is no longer available. And then we have to switch to other woods, and then you have to bring in wood-free declarations because, in certain countries, you're only allowed to ship with those [ bug-free ] certificates if you ship wood, and that's like, it's just painful what we see here. Another element is definitely that M&A remains part of the company's growth and diversification strategy. I think we've mentioned that before, although the last trend action, it happened in 2016, we are continuously working on that. And even here, we have a nice lineup of attractive activities, like, besides the 2 angles we have within our universe of transactions, like the acquisition we made with Diatron giving us access to certain diagnostics market segments we haven't actively played a role in before. So the strategy in M&A here is making an acquisition to increase our universe in certain areas, like in the Diatron case, diversification into vet, hematology. So the other angle was the acquisition. We managed through the acquisition of not only DADC Bioscience business back in 2016, a technological approach, I think that's something we really have to discuss internally and where we are, focusing more our activities in the United States. I think with all those activities ongoing in the United States and based upon the fact that 9 out of 10 decision-makers are actually sitting in the States, it may make sense to try to get a bigger footprint in the United States in terms of manufacturing and development in parallel. Certainly, one of the key challenges is to restore pre-pandemic efficiency throughout the entire company. This is not just related to making people come back in and away from home office. It's actually like this degree of collaboration and fast turnover times we saw pre-pandemically where we still have to work on in order to restore those levels, and then certainly, we have to manage additional headcount growth, particularly in line with those wellfield project pipeline. This means getting developers in order to allow to offer our customers the same service and the same speed and quality in development they are used from us. This actually gets me to the end of the presentation, and I would like to hand back to our host, Stuart, who will explain us how to ask questions.
[Operator Instructions] First question is from the line of Oliver Metzger from ODDO BHF.
The first one, it's a more strategic question because there were plenty of rumors over the last weeks or months about your ownership structure. I know you cannot comment on detail on the existing ownership or their intentions, but it would be pretty interesting to hear from you what your customers think and what's your assessment, how they would react if there's any change of ownership from a private equity background or if it's from another industry player background as this would have a meaningful impact on your business. So that's number one.
Number two is you mentioned a new customer for smart consumables, which you described as a game-changing characteristic. Clarify, is this already over last quarters? Or basically, if not, if you talk about game-changing, it would be great to get a little bit more details about expected timeline and also the potential size relative to the existing smart consumable business. And the last one very quick, on your service parts and consumables rise, was there also some pent-up demand from customers which did not make, or basically to a lower extent, make services during the pandemic, which supported you in the first quarter?
Yes, Oliver, thanks very much for your questions. And come on, we almost always had those rumors, particularly as we have this stake of the founder family, the founder, Hermann Leistner, and his family owns those 40%. We always had those rumors. We never commented and we continue to not comment on those. I think our customers bring up the same questions, and here we are actually giving the same answer. I think it's not really contributing to the overall situation to comment on rumors and making them even more important. As mentioned, we haven't ever commented on those rumors and are not planning to do so. [ Cytovale ] and I mentioned the smart consumable for sepsis, again, it's not upon us to assess if something is game-changing, and even comment that -- I think it's an ongoing discussion about the diagnostics of sepsis. Here, early diagnostics is a sensitive and important topic. [ Cytovale ], is actually one of those players with a lot of expectations in the market. Our smart consumables business got that in, we are allowed to mention the customer's name, I think, at this point, a lot of discussion about [ Cytovale ] is actually taking place in the market, and again, here, I think again, it's important to mention that this is early in the pipeline, but it's one of those programs with high expectations in the market. And then your third question, service parts and the demand related from that, I think that particularly the focus of some of our customers, and we have to see what happened here during the pandemic, is that the majority of our customers they're trying to address the needs of their bigger customers. So it was always easier to put 5 or 6 or 7 instruments into a laboratory where our customers already had a certain install base, mainly leading to the fact that no qualification or user training or additional service activities had to happen. That's why our customers focused a lot on those customers of them, which already at the time had been existing customers. I think in the meantime, the majority of our molecular customers are trying to address the needs of smaller customers, trying to build up capacities, or already had built up capacities in the last 1/3 of the pandemic. And here, we definitely see other pattern in terms of service and maintenance parts. On the one hand side, we see initial ramp-up in certain areas on customer side and definitely shorter maintenance cycles. Certainly, the majority of our customers, they're trying to drive service cycles to the edge even, you know, including short-term maintenance to be pushed to the edge. And here we definitely see that they are returning to those patterns where they focus more on service and maintenance than it was the case during the pandemic, which on a like-by-like comparison to the install base is leading to higher service parts, particularly maintenance parts, sales per install base. So if you have been in earlier calls over the last quarter, that's something actually we expected to happen a little bit earlier, but particularly in Q1 and taking the demands for Q2 and 3 into consideration, we are expecting now way more, and like I said, our customers to return to more those normal pattern in terms of the ratio of service part sales compared to install base. I hope this answers your question, and happy to take the next.
Next question is from the line of Oliver Reinberg from Kepler Cheuvreux.
First is on understanding the top line a bit better in Q1. Marcus, can you just give us any kind of color to what extent has Q1 sales benefited from the deferral of sales from Q4 into Q1? And can you just talk to what extent the COVID-related business lines have really developed year-on-year, and probably add to that some kind of commentary to how strong was the kind of COVID-related demand in Q1? That will be question number one. Secondly, on the new contract that gets live middle this year, is there anything we should consider in terms of quality phasing? In the past, I recall that when a product comes to the market that is involved with significant stockings, I know this is not an immediate global [ wallop ], but is there anything to consider on that side? And then last question, please, is more technical nature, one on currencies, obviously quite some moving things here. Can you just update us, what is the percentage of sales in U.S. dollar? I guess around 45%, is that a reasonable assumption? And also what is roughly your cost share in U.S. dollar? And then the last technical question on the stock appreciation rights, I think the STRATEC stock is meaningfully down end of Q1 versus end of Q4. So just wondered whether there was not a significant contribution from stock appreciation rights in Q1.
Yes, thanks, Oliver. Thanks for your question. Actually, contribution like deferred revenue, it's where we had orders, but due to supply chain constraints, couldn't ship the product in Q4, and now ship them in Q1, it's not super high. So particularly on the instrumentation side, it was like inline -- so actually, we continue to have that issue, that we are not yet able to fulfill all the demands. So those, let me say, back order as compared to the actual order income is almost comparable after Q1 in 2022, as compared to Q4 in 2021. On the service part sales, and I think I've already mentioned that in the course of my presentation, we saw some nice developments here. So today I would say roughly 1.5 million additional sales coming from spare parts, but it's tough to say if this is really like additional demand we couldn't fulfill in Q2 or if the actual demand is still going up. Today if we are looking into those areas where we had forecasts, or where our customers have ordered their long lead times items, I would actually say that the additional demand goes up rather than we are reducing the overall back order, as that part of back order situation where planned supplies haven't been materialized in a particular backorder, but only in the quarter thereafter. Yes, Oliver, and again, thanks for the question, typically when we launch new products at the beginning of the supply phase, particularly because of lower volumes and being early in the learning curve, we are realizing lower gross margin on certain products if they are only young in the product pipeline. I think in this particular case, driven by the fact that we have already shipped some instruments and driven by the fact that particularly because of the supply chain issues, we are actually trying to put those parts and start assembling some components we need for the supply of those products, are at least partly already in inventory. We would see the effects coming from that particular angle, as we believe that the effects here are lower than compared. However, we have already factored in certain pressure on the gross margin coming from that angle, particularly on a full year's basis. Again, you're right that on the currency side, we are realizing about 42% to 45% of our revenues in U.S. dollars, same amount slightly higher in euros and then certainly other currencies like Swiss Francs and so on. I think it makes sense to say that certainly, if you see even compare the reported data from local currency, you see that we had some headwinds currency-wise. So don't ask me for my full year's expectation because I'm always wrong here. If we see the most recent development, particularly with U.S. interest, we should expect that this development continues for the full year 2022. I wouldn't be surprised if we stay on that difference between revenues reported if compared to revenues in local currencies. The stock appreciation rights, we had a positive effect of about EUR 250,000 in Q1 coming from the lower share price on an average basis for Q1 of 2022 compared to, and again, on average basis, Q4 2021. I hope it answers your question.
Yes, can I just understand, so it's not the share price at the end of the quarter, it's the average share price in the quarter that is impacting the stock appreciation rights?
It is the actual share price for the start at the end of the quarter, so the last trading day of the quarter.
Yes, we have seen a big -- I think it's actually a delta of EUR 20, so I'm just surprised that it's such a small impact, okay. And can I just follow up on the U.S. dollar? Can you just give us a rough idea what is the cost-share in U.S. dollar? Is it 30% or less?
Oliver, just looking up the share price difference, which actually [indiscernible] our closing on the last day of the quarter. Yes, and actually those rumors came out the closing which made the difference. Just -- you're on -- I think the EUR 20 is [ not entirely right ]. So help me out, your second question again?
Any idea of the cost-share in U.S. dollar? I mean, was it something along 30% or so?
Actually, at this point, we are trying to increase our natural hedging in dollar, but so far we're actually trading the majority of the revenues and have like a system where we are selling dollars on a rolling 12-month basis.
But independent from hedging just from your positions, any idea what share of cost on U.S. dollar?
I would say at this point less than 25%.
Because if at some stage, hedges run out, that would give you meaningful margin support I guess when...
True. I've mentioned, and we're trying to cover that even in Europe, but we have to see that the majority of our supply chain is still sitting in Europe and Eastern Europe and not in the United States, and then like with our approach to increase our independency from Asia, I think, for the time being, we have to expect lower input to be paid in U.S. dollars. However, on a long-term basis, it's definitely our goal to increase natural hedging.
Perfect. And the last question just is any idea -- if you look at your COVID-related book of business in terms of instruments, how has this changed year-on-year in Q1?
Yes, I think, you know, we discussed that already, it's super difficult for us to say whether an instrument has been placed by our customer just because of COVID or whether it has initially been placed because of COVID and is now used based upon another breakdown of the menu. It is important to understand that our instruments are not exclusively running within a certain application, so which means the majority of our molecular instruments are running certain panels. If this is a respiratory panel, this might include COVID-19, but, like, if this is another infection diseases panel or even sexually transmitted diseases panel, then the instrument can certainly run COVID-19 tests but doesn't necessarily have to run COVID-19 tests. So if we see today, in our looking into the breakdown and our talking to our customers, only some of the instruments are still placed on the basis of certain expectations of higher testing volume in COVID-19 in autumn and in winter of 2020, but the majority of the molecular instruments today placed are either actually for replacement or are actually placed for the remainder of the panel of our customer which means non-COVID. I think from those instruments, and again minor, the leftover and back order we supplied instruments in Q1, which couldn't have been supplied in Q4 2021. We saw, like, less than 10% back order situation of instruments which were exclusively COVID-19 related and actually are perceived as sufficient from our customer's perspective to cover potentially higher testing volumes towards the end of the year.
Next question is from the line of Jan Koch from Deutsche Bank.
I also have a 3-piece. Firstly, I would like to start by coming back to your back order situation. It would be interesting to know if that backlog spreads across all modalities and applications, or if certain modalities are more affected by this, and a high-level breakdown of your backorder across your segments would be helpful as well. Then on a breakdown of your growth in Q1, so it is great to see that you were able to report a positive organic growth again in the first quarter, but it would be helpful if you could break down your organic growth a little bit more into price and volumes, just to get an indication on how successful you were on the price increases. And then the third question is on your guidance in the remaining quarters. So following a good start to the year, and should we assume that Q2 will be the trough quarter with the highest earnings decline? And I'm sorry if you already answered some of the questions in your introduction. I couldn't join the call on time.
Yes, thanks, Jan. Actually, thanks for bringing that up, it hasn't been answered so far. So elaborating a little bit on our backorder and backlog situation, let me put it that way. Except our plastic segment, I think we were hit throughout the entire product portfolio. So particularly, instruments, and I think trying to describe this on a technological basis, or on an application basis doesn't make too much sense. So what we could say that particularly those customers providing us with a quality forecast as early as possible, which is actually part of the agreements we have with our customers, actually turned out that those additional or those demands could be easily satisfied. The biggest issue were actually caught by lumpiness and additional demands in particular. So back in the days when we were able to satisfy additional demands from our customers, within a 4- to 6-month period of time, it gets more and more difficult. So if we are asking our suppliers to pull in supply chain, we see them facing the same difficulties as we do. Today, we clearly see that if our customers are reporting additional demands, it takes us more like 9 months as compared to 6 months previously, to ramp up manufacturing in certain areas. So long story short, if we had, like, high-quality forecasts in terms of demand, those demands have been easier to be satisfied as compared to volatility, particularly growing demands. It was difficult. Again, this mainly reflects the products where we have complex supply chains, particularly in components and plastics. It was a little bit easier because here we actually control the supply chain in a better way. I'm trying to compare or to break down the organic growth in price versus volume. Only in a very few instances, we have been able to really get the price activities done in Q1 which means actually the growth in Q1 is mainly driven by volume and not by price. My teams are actually working very hard on finding agreements with the customers to cover the price increases. I think the majority -- and if this flips from volume to pricing, will be only in Q2 and Q3. Looking into Q2, and you brought that up, when do we expect the hit, so if I'm seeing demand for Q2, particularly for our main road outlines in chemiluminescent immunoassay and molecular, and on top with the spare parts, I wouldn't expect a big hit in Q2. However, we want to be careful how the actual demands are developing in the remainder of the quarter, and if our customers are trying to push out supply from Q2 and Q3. However, the real concrete answer is that I'm at this point not expecting a big hit in Q2. I hope this answers your questions and happy to take the next.
[Operator Instructions] This question is from the line of Michael Heider from Warburg Research.
I have actually 2 left. The first one is on shortening replacement cycles. We had the discussion last year that the instruments in the market are really being utilized on a very high rate and that you expect to see some shorter replacement cycles. Do you have any view on this, how the situation is now? I mean, is there anything like this coming through? Do you see any new orders that are replacing instruments that have only been in the market for one or 2 years? Can you give any color on this? Then the second question has been partly answered now, just with the last comments you made, but I will be interested in how you proceed in price increases with your customers. I mean, you mentioned that it's expected in Q2, Q3, but maybe you can give a little bit more insight here, how that works, how the discussions are going, and when do you expect this to happen?
Yes. Thanks, Michael. Excellent question, thanks for bringing it up again. Actually, I think it's worth mentioning that our long-term planning actually is based upon the expectation that we see higher price increases on the input side as we could actually get through on the sales side. So as mentioned, my team is working on price increases, but I think it's obvious that it's not only our customers, it's even us understanding that there is an equation of volume and pricing, and that we as a company, STRATEC as a supplier to the diagnostics market and adjacent market, that we are "only" supplying the vehicle to make our customers successful. So we are the enabler, but we don't provide the content. And I think it's obvious that everybody is expecting that we see a more normalized level in terms of pricing, so no longer guaranteed or governmentally guaranteed prices for COVID testing. Then we will switch back into a scenario where particularly those of our customers not only having emergency approval to sell COVID tests but regular approval, that those ones will become a bigger share of the overall smaller pie. So long story short, we want to keep our pricing increases minimal because we believe that we will be in a better spot if we are selling more instruments as compared to a lower volume of instruments for higher prices. I hope this makes sense, and like I said, our planning assumptions at this point, particularly midterm and long-term planning foresees input prices growing faster than actual output prices. At this point, we are trying to find or to reach consensus with our customers, and in order to find that sweet spot and balance between price increases, but still keeping the volumes up to the extent possible, which then certainly contributes positively to our overall overhead. I hope this makes sense. And now discussing replacement cycles, I think the majority of our customers are now getting back into more of those, let me say, normal patterns in terms of how long instruments are used during Corona, particularly in the United States, but to a certain extent, in Europe as well. We saw instruments which have been directly or indirectly paid by the government, and our customers didn't focus too much on those activities to keep this install base young. So already in the second half of last year, we saw that new instruments hitting the market were not only in order to satisfy the demands and needs of additional customers for our customers, but replacing instruments which we are fairly young in the market. So like a typical product life cycle in a laboratory depending on the actual application in the contract between our customers and the end customers of between 3 years in some cases up to 7 years, we saw that the actual lifespan of a product in a laboratory came down to 18 months, 2 years. We see this ongoing, particularly for those instruments which have been used for COVID-19 testing. So in a regular setup, about 15% to 20% of a fleet, particularly if a product achieves the phase of being a mature product in the product lifecycle, about 15% to 20% is actually replacing instruments of its own family just being aged or lifecycle-d or worn down. During COVID, this went up to a third, in some cases, even 40%, and step by step we see this normalizing. Still, we are replacing instruments which saw extraordinary high wear and tear through utilization during COVID, but we believe by the end of this year, or mid-next year, we will come back to that normalized level of replacement that an instrument typically runs for 3 years on high utilization rate, and in the clinical lab more like 5 to 7 years. I hope this makes sense, and happy to take the next question.
Next question is a follow-up question from the line of Oliver Reinberg from Kepler Cheuvreux.
Marcus, just wanted to clarify, when you said at this point you do not see a big hit in Q2, is that referring on a year-on-year comparison or sequential comparison versus first-quarter 2022? That's question number one. Secondly, just on supply chain, I mean, it sounds it's still all very tight but still manageable. Is it fair to say that over the last 5 weeks, this has not significantly gotten worse? Is that a fair assessment?
Answering your second question first, Oliver, I think it's still getting worse. That is at least the perception. I know that my team is heavily complaining and that we have more meetings with suppliers and that we are trying to find alternative sources and that we are trying to help our suppliers. Particularly, thinking about the supply chain for microcontrollers coming from certain countries, and then being sent to those companies manufacturing the PCBAs for us, and then being forward to companies, manufacturing the sub-assemblies like a reader, or what are using that PCBA, using that microcontroller. So already here we see that we are only #4 or #5 in that supply chain. We are trying to help our suppliers, particularly Tier 2 and Tier 3 from our side to get their materials in. We still see that the uncertainties and the interruptions in the supply chain are getting worse rather than better. I know that particularly, the automotive industry, in particular, the automotive industry in our area are trying to make us believe that they are about to sort this out, but I think additional demands on the consumer side and additional demands in certain areas, and the fact that, during COVID, a lot of investments simply didn't happen in this area, and that it takes time to build the factories and the manufacturing line, it makes me believe that it will continue to get worse before it gets better. Then answering your first question regarding the hit, I think it's actually a fair mixture of both. If we are looking into the forecast, I think it is still too early to determine how big and if we will see a hit, then if it is actually -- defining what big means, I actually want to keep that open. It's definitely too early. If I'm looking into the forecast and talking to my manufacturing teams and my teams talking to the customers, it's not really devastating what we get back. Our customers, to a certain extent, are actually surprised themselves how big the end customer's demands are, like the pace of their leads, and that's why I can only reiterate myself which is a derivative of a lot of soft factors we are collecting at this point that I wouldn't expect any meaningful negative surprises for Q2.
Okay. When you talk about a hit, that means versus Q2 2021, correct?
I would actually say that if we compare the actual developments, our expectations are obviously compared to Q2 of 2021. Again, Oliver, definitely too early to discuss if this is -- or to discuss percentages. I think we would be in a better position if we would discuss that in 3 to 4 weeks from now.
No further questions at this time. I would like to hand back to Marcus Wolfinger for closing comments. Please go ahead.
Thanks, Stuart. Thanks, everyone. Thanks for your interest in STRATEC. If you have any follow-up questions, please do not hesitate to call our investor relations department. Again, thank you very much for following STRATEC. I would like to wish you a good day. Thank you very much.
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