Stratec SE

XETRA:SBS

Earnings Call Transcript 2019-Q3

[Marcus Wolfinger, Chairman of Board of Management & CEO]

Yes. Thank you, Stuart. And good morning in the United States, and good afternoon in Europe. Welcome to our 9 months financial presentation. As always, you can download this presentation either directly from this presentation client or through our website after the presentation. I think it's -- there is no need to read you through the safe harbor statement, and I would like to start giving you an overview of our agenda today, which is first, I would like to discuss the 9 months figures, particularly highlighting certain KPIs and other things which happened in Q3. This will be followed by the financial review and the outlook. In Part 4 of this presentation, I would like to offer the opportunity to bring up questions and hopefully answering these questions in the course of this presentation. So diving directly into the 9 months as we continue to show dynamic top line growth, 19.6% year-over-year, getting us to EUR 161 million in revenues compared to 9 months 2018 with only EUR 134.6 million in revenues, which represents 17.3% growth year-over-year at constant currency. Adjusted EBIT margin up to 17.8% -- up 17.8% -- adjusted EBIT, up 17.8% to EUR 20 million, after EUR 17 million of the 9 months in 2018, which is leading us to an adjusted EBIT margin of about 12.5%, a slight decline after 12.70%. Actually, I have been slightly dissatisfied with the EBIT margin of Q3, but the analysts -- the analysis I requested after that is clearly showing that it looks fairly well, that we achieve our EBIT margin growth, particularly as we have certain blocks coming up, or actually already came up in Q4, which will drive the EBIT margin in Q4. And still, we had an extraordinary high revenue growth coming from development activities, traditionally with a lower EBIT margin, and we are very positive that we could meet our EBIT margin goals on a full year basis. We had those successful market launches, which are the LIAISON XS for DiaSorin and FACSDUET. We will see further market launches in the next month. So we are actually fairly positive about our growth in the periods to come. Then we made significant progress with major development projects, particularly in areas where we saw scientifical challenges as a combination of instrument consumables and the chemistry coming from our customers. We saw some scientific challenges here, but we overcame that situation in Q3, which is actually making nice progress here. Additionally, we brought important development milestones in a situation that the remainder of certain development projects is actually more or less a thing of plain vanilla development process. And so far we are very positive with what we achieved in Q3 and what happened on the development end. In this slide, which is actually just a concurrent thing which happened over the past 10 or 11 quarters already, we showed stable growth organically. In the headcount growth, in the meantime, we are pretty close to 1,300 employees, again very much derived from an extremely strong project pipeline. And again, this isn't only the project pipeline [ by means of things ] which are already incorporated. This is the deal pipeline that's all about new products where we are currently, like performing feasibility studies, where we are negotiating the specifications and product requirements, where we are deriving specifications from requirements and where we are negotiating contracts. So partly precontractual work; on the long term, certainly extremely promising in terms of future growth. Now getting to the second part of the presentation, financial review. Again, already mentioned, sales, very positive development, up 19.6% after EUR 134 million after 9 months in 2018. We showed a nice growth here, leading us to EUR 161 million after 9 month in 2019. Adjusted EBITDA, EUR 27 million, growing 23%, not yet fully taking advantage of economies of scale. But this is only something besides the positive product mix and the lower contribution of development milestones and the lower contribution of starts. We see the EBITDA margin and the subsequent margin contributor as in shape -- good in shape and developing nicely. Adjusted EBIT, EUR 20 million after EUR 17 million in 2018 9 months, and again adjusted EBIT margin, 12.5% after 12.7% last year, slight decline. I would say this is -- and [ I was discussing, actually ] a difference to 2018 is actually our expectation to show significant growth in the EBIT margin in Q4, and that's what we -- where we definitely have to deliver. Again, we looked into the analysis. It looks positive, certainly challenging, and we have to do certain things and have to take advantage of certain things, including our efficiency gains program. But we are very positive that we can meet that figure. Adjusted consolidated income, literally same level of growth like we saw EBITDA margin and EBIT margin leading to an adjusted basic earnings per share of EUR 1.32 after EUR 1.14 in 2018. On the sales end, I think there are 2 elements which are worth to be mentioned: strong call-up numbers for established systems and recently launched systems, like a bit more 50-50 split of instruments, which has been launched prior to 2018 showing a nice growth here. And certainly, we have the contribution of the recently launched instrument. I think it's again worth mentioning that those instruments which have been launched this year will only contribute meaningfully in our 2020 P&L, and those ones which has been launched prior to 2019 are here showing nice growth, particularly in those ones which have been launched in '17 and '18 are nicely growing here. Then we saw double-digit growth rate as far as service and consumables, also in parallel, certainly, the development in service sales, one contributed positively to the EBIT margin, the other contributing negatively or actually, through dilution, negatively to the EBIT margin. This will definitely turn further positive in Q1, and that makes us so excited about our EBIT margin in Q4 of 2018, which means we have to come to an 18% EBIT margin in Q4 to meet our guidance, which [indiscernible] seems more than realistic. Now talking about the adjusted EBIT and adjusted EBIT margin, negative contribution is certainly the SARs, stock application rights, which contributed negatively to the EBIT margin. So just taking out one example, just on a standalone basis in after Q3, actually the negative contributor there just isolated Q3, the negative contribution there actually on a level of 130 basis points, which definitely shows that, operationally, things are on track and that we are moving in the right direction. A negative contributor here, the product mix, same thing like after 6 months that the first thing is definitely that we have higher-than-expected contributors from development activities and lower contributors from our high-gross margin products. If we are looking into the forecast as far as they are available for consumables and we are looking into the forecast of the product mix as far as instrumentation is concerned for Q4. It is feasible to assume the EBIT margin needed in Q4 to get to the overall EBIT margin guidance. And certainly, it's worth mentioning that our -- that we see some positive results from our earnings improvement initiative initiated in 2018. And we see that certain things are coming through, particularly gross margin improvement by increasing our manufacturing there. Now getting into the cash flow situation, which was actually, from my perspective, not satisfying, down by almost 30%, which is more or less attributable to 2 things. Here, clearly, it takes time and then certainly, a timing issue with inventories, particularly as far as ramp-up of instruments, particularly those ones which have recently been launched, we see a significant ramp-up because the demand is extremely high. We had to go into inventories. And the second thing is definitely a timing issue, particularly things like accounts receivable and the taxing contributed negatively. I think it will look way different if we look into the cash flow, particularly the operating cash flow situation after Q4 this year. Then we have a significantly higher investment spending capacity extensions -- expansions in our headquarter. Construction is ongoing. We are actually in the second phase of our construction work, and the building next door is growing and growing because definitely, the people moving early next year until midsummer will be moved in the building and will be -- we will see no few -- no further drainage coming from cash flows here. And we'll definitely see efficiency gains through the new structure we will show in development. Investment ratio as total investment in intangibles to the -- and intangible assets as a percentage of sales at a level of 12.6%, which is in the area of what we have foreseen. On a full year basis, we would consider a target of 12% to 14%. In the years to follow, it will go back to the value we had in the past. So expectation long term should be in the area of 10-or-slightly-above percent. Then definitely higher net debt position, which is attributable to the financing of CapEx investments and first-time adoption of IFRS 16, which from my perspective will be [ settled ] more towards the end of the year and early next year that the situation will look better here. Now giving you the outlook. Guidance is that group sales are expected to increase by at least 12%. I think that's obvious that this goal will be achieved. And I was already trying to discuss the EBIT margin goal and as I said, the [ energies ] to meet that goal in the course of this presentation, definitely coming from positive scaling effects, very much through new product but existing products as well, which we missed in 2018 and early 2019, with positive for 2019, the remainder of the year, definitely for 2020. Then our earnings improvement program, then certainly the adverse effects from continuing high development activities, which are coming along with lower margins. And then certainly, the Q4 margin expansion, which is expected from -- derived from product mix. Then lower development sales with then higher margins, and definitely the earnings improvement initiative. And I would like to reiterate myself when I'm saying they are making us positive for the margin in Q4 and derived from that margin on a full year basis. Then again discussing the investments in tangible and intangible assets, very much derived from our construction work, which will lead us to the 12% to 14% this year and still a high contribution up until next year. And from then on, we foresee rates in the area of about north of 10% from sales. Focus for the remainder of 2019 and beyond is definitely the reduction of the earnings volatility. And we are discussing measures to, at least in the reporting, trying to decline the volatility and certainly the improvement on the EBIT as the contributor of our markets in all those business is certainly something which is in the focus that we continue to foresee margin accretiveness coming from our smart consumables business. And we see some means and measures here, and they have to pull that in, which will then contribute positively to the overall gross margin. That's the first thing. And definitely, the reduction of the volatilities, I think we are trying here to show the conflict of interest here. I think in the past 20 years, we have nicely developed a model, which is finding contractually the optimized setup between us and our customers as far as safety, predictability, trying to decline volatilities, saving recurring revenues and so on, trying to split risk and so on. I think that we found the ideal setup with our customers. Now through IFRS 18, we continue to be more and more penalized from this ideal setup in terms of revenues and earnings recognition. And I think it doesn't make any sense just because of a balance sheet, IFRS 18, to change the contractual structure with our customers just to do the right thing on the International Financial Reporting Standards and do the wrong thing with the customer. I think that makes no sense at all. And that's why we have to think about concrete measures of reporting in order to show the actual activities here in the company and to decrease volatilities in our reporting. The next big thing is actually to get those new products out of the door. We have 2 systems already launched year-to-date, which means we are going through that ramp-up phase. And I think it's worth mentioning that the demand is extremely high. In particular, those 2 customers, they have such a nice assay menu running on that instrument that we for perceive the overall demand for those products in an early stage, higher than common. So typically, we had that phase of the first 2 years after the market launch where certain instruments hasn't been launched worldwide, only in certain regions, and where our partner is only a part of the menu on these instruments. I think in those 2 cases, particularly those launches which had took place earlier this year, we see the opposite. And we are expecting actually a lot from those instruments in 2020. Then certainly, we are expecting 2 further long launches, including 1 blood banking instrument and 1 proprietary analyzer platform and certainly various stand-alone modules which will be delivered and handed over to customers within the next few periods. Then we have several new developments ongoing, which has been executed in line with new supply agreements. Very positive as far as the years 2021, 2022 are concerned, with several launches in between. And I mentioned that already, the product where we saw some scientific issues as a combination of consumable chemistry coming from our customer and the instrument where we overcame that situation, are now getting in a situation where we expect a smooth development process until the end of 2021. And then that product being launched in 2021 in certain areas and 2022 in the regions of the world. Then we want to continue to expand our development capacities, which are allowed to be expanded from our expansion we have here at the headquarter, mainly development and prototyping work. In our -- in all our other manufacturing sites, we are really in a good shape to -- where we have already the capacities prepared for the growth of 2021 and 2022. These were the activities we didn't stop in 2020 -- in 2017 and 2018. And again, we are in a good shape to cover the growth of those 2 years, 2021 and 2022 without any further activities. Then the efficiency gains coming from our ERP system. We discussed that in the past a lot. I think we maneuvered this company through the worst situation at the end of 2018, beginning of '19. In the meantime, we see the adoption of the ERP system, and we are positive that we can show efficiency gains within the next 24-months period from a situation that I think has to be done manually or a situation where we haven't had the efficiencies with -- compared to the solutions offered by the tailored legacy ERP system we had. And again, very positive signals received from the relevant departments that things are getting more and more on track and that we are starting to see efficiency gains even there. This gets me to the end of the presentation. And I would like to hand back to Stuart, our host, and he'll explain us how to commence with the Q&A.

[Operator]

[Operator Instructions]First question is from the line of Falko Friedrichs from Deutsche Bank.

[Falko Friedrichs, Research Analyst]

Yes. Three, please. Firstly, in terms of meeting this year's margin guidance and the required building blocks for that, we're now already 1 month into the quarter. So I was wondering how good your current visibility is into the expected product mix for the fourth quarter? Then secondly, regarding the large Quest tender for immunoassays in the U.S., can you speak about the potential implications for your business, like for instance, for sales with the LIASON XL? And then thirdly, could you quickly comment on the ramp-up of the Panther Fusion, if that has picked up meaningfully over the last few months?

[Marcus Wolfinger, Chairman of Board of Management & CEO]

Yes. Absolutely, and thank you very much for the questions. Before I start, I would like to correct myself. I was complaining -- with revenue recognition, I was complaining about IFRS 18. But actually, I complained about IFRS 15. Sorry for that. I messed it up. So I mean IFRS 15. Sorry for that. So talking about the Quest tender. I think it makes perfect sense to look into what DiaSorin said, because DiaSorin would definitely be the affected company. And I think Dr. Rosa made it very clear that DiaSorin, as a specialty company, shouldn't be too much worried about that if companies like Quest start consolidating revenues, this is something which is taking extremely long, and it actually mostly affects screening assays. DiaSorin, as a specialty company, will most likely not be affected, and DiaSorin has the right strategy to address as far as they are affected. So I would actually expect only a minor impact from that. And yes, you are right, we are already 1 month into Q4. So when we did the analysis about the margin contributors of Q4, it definitely turned out that we have certain blocks, which will be invoiced or blocked, which are related to supplies of like handing over milestones. And in parallel, we can recognize revenues coming from consumables and so on and softer deliverable things where we can invoice license fees because our doctor is used. So we are actually extremely positive because all of those things are under control. The thing -- and that's why I didn't promise but I would like to get over that I'm very positive about that, is that certainly, we do not yet know the full demand of consumables and maintenance parts, which are a huge earnings and EBIT margin contributor. But if we look into regular behavior over the past years, what happens in November and December, I think there is good reason to be positive and things are actually picking up nicely. We know that a lot of our customers are coming back in December. And after initial measures of Q4 for our customers to reduce inventory, they often see that they are running out of inventory for January and are then reordering to get their inventory level to levels that they are able to supply their customers uninterruptedly at the end of December and beginning of January. That typically happens, and it happened in the past, and we are expecting the same thing to happen in -- towards the end of Q4. So the straightforward and in a nutshell answer is the implication and signals we are receiving from those earnings contributors are actually looking exactly as expected. So now I forgot the fourth -- the third question, which was Panther Fusion. So we -- straightforward answer is, and I think it's obvious that I cannot disclose figures which haven't been disclosed by our partners. I can only reiterate what I said before. Already in Q1 of 2019, we sold more instruments than in full year 2018. The run rate is growing in the expected manner, particularly, I would say, mirroring our expectations we had for 2018. We know that Hologic is bringing one after the other PCR-based tests on that instrument. In parallel, they have a nice development pipeline for PCR and TMA basis. Then certainly with the new modules, we call that module for the Panther line, Panther Plus and the [ work cell tender ], we are extremely positive about the new placements through new technologies and new menu that it allows Hologic to position the Panther. In the meantime, in laboratories and achieving a scalability effect to even become an attractive player and an attractive supplier to the bigger and biggest lab, which positions the Panther nicely, and that's why we are so satisfied with both the run rate of the Panther as well as the run rate of the Panther Fusion.

[Operator]

[Operator Instructions] Next question comes from the line of Scott Bardo from Berenberg.

[Scott Bardo, Analyst]

Yes, first question just relates a little bit to your smart consumables business. And I understand that this is still a relatively small business and somewhat loss-making at this point. Can you talk a little bit about how you see this business unfolding over the coming few years and when you expect to turn into more robust profitability? Second question just relates to the personnel hiring that has been relatively strong for the organization over the last few years. So I think you've seen something like 8.5% growth in personnel again this year so far. Where are we in your mind with the build-out of personnel to meet and help service your developmental obligations? Are we almost there? Or is this sort of a continued exercise and there's plenty more hiring to be done?

[Marcus Wolfinger, Chairman of Board of Management & CEO]

Scott [indiscernible], thanks for your question. The answer to the smart consumables business will actually take me a couple of minutes. But if you are following the statements being made in our industry, particularly as far as diagnostics is concerned and as far as, let me say, translational research is concerned, I think it's undisputed that the role -- that on the one hand side, we definitely see this polarization. So bigger accounts getting bigger and bigger, consolidation here, which means bigger instruments, higher throughput and everything the like. On the one hand side, we see the other trend. And I would actually include companies like DiaSorin, bioMérieux and some other players who are offering, on the one hand side, specialty instruments and particularly taking advantages of those markets which do not fit in this high throughput segment, like general practices and so on and so forth, down to bigger point-of-care solutions still being operated by professional operators. So I mean, non-clear based point-of-care devices.And I think it's undisputed, if you listen between the lines, that the consumables are playing a more and more important growing and further growing role, particularly to drive things like multiplexing, sensitivity, digitalization in the readout and so on and so forth. So I think we are leaving that area where there was a simple [ reaction metal ] like a tube, and you read with whatever it is at the end through such a tube. I think in the meantime, the readout is more and more related to higher fluorescence signals on a small -- on a mitral valve basis or camera systems or whatever is the like. So I think it is undisputed that more complex consumables are playing a more and more important role, not only on point-of-care devices, but even on the bigger machines. Like if you think about applications coming from Quanterix or other applications which are getting to the market in the next couple of years, we definitely see that, that more complex consumables, including several process steps on one consumable and including microfluidics are making their way from point-of-care devices more into the more centralized labs to improve results, to improve flexibility, to improve sensitivity, to improve multiplexing and everything, which helps to derive better results from data. And I think this is particularly -- when we took the decision to increase our -- the contribution of revenues for Stratec more on the consumable end, we clearly said we can only grow nicely if we do the smart consumable thing. I think that trend is only at the beginning. And if you think about companies like the BioFire or like a [ Selfix ], they do their complex consumables in-house but they have this kind of complex consumables. And we are one of those very, very few providers who would actually do this as a third party. And particularly, with the -- our Stratec consumables business, which used to be the Sony DADC BioSciences business, they know how to manufacture those things. So they are -- they do not come from the academic angle of manufacturing. They really come from that [ I draw ] high-volume manufacturing. And that's why I think nobody in this world is better positioned than us to act as an independent player for this market segment, which will definitely go through the roof in the next 10 years. And this is one of the reasons because this business scale is so good, we are absolutely 100% convinced that this will be accretive to the margin. So it -- this was a long answer, but I hope that helps. And then talking about personnel development, definitely unaffordable to grow on a personnel end in a way like we did it over the past 10 quarters. And I think it only turned out to contribute negatively to our operational development because we had this dip in 2018. From today's perspective, I would say we are actually in a good shape. And we will definitely no longer hire on a 10% level. I think we will continue growing. But if we see that the deal pipeline and the stage of the different development projects, I think we are in a good shape and so we don't necessarily have to hire on that level like we hired over the past 10 quarters. I need to tell you the caveat here, which is definitely like if we would get a further development project, and if we did our business plan for next year and we are actually assuming to get 3 further bigger projects in 2000 -- in the -- during the remainder of this year in 2019, from a today's perspective, we are good with today's headcount. If we would get more than those projects I just mentioned, if we would get more, then we would definitely have to continue to hire on that level. But I personally -- I perceive this as getting into an unbalanced situation. I hope that helps as well.

[Scott Bardo, Analyst]

Very good. And just following on from the previous question, less specifically about Quest but more about the overriding trends towards consolidation centralization. Can you talk a little bit about the portfolio of customers that Stratec serves and how you feel your portfolio is positioned in the world, which is becoming increasingly automated or higher volume? Is this opportunity or risk for your current setup? If you could share some thoughts there, that would be helpful.

[Marcus Wolfinger, Chairman of Board of Management & CEO]

Yes. So like if we are looking into our product portfolio, I think it is obvious that we already talked about that thing that we will see, the big consolidators, like those Siemens and Abbott and Roche of the world, and we will definitely see a number of customers which cannot play this consolidator role. So we -- and certainly, the nice thing -- let me touch with our partners, are extremely well positioned to play their relevant role in the fragmentation we see in the market. We talked about DiaSorin with their strategy of specialty offering, not trying to play that big game against the Roche and Abbott of the world, but doing their specialty menu and offering an instrumentation portfolio, which particularly takes advantage of that fast-growing and attractive market segment on the one hand side. And on the other, certainly you probably know that instruments like the Panther or like the LIAISON XL and some other instruments in Stratec portfolio are actually offered in a derivative, which allow us to put those instruments into the big track systems being used by these Abbotts and Siemens and the Roches of the world, allowing companies like a DiaSorin or like a Hologic to use this instrument, either in a track system, which is offered by third parties or by themselves in order to upscale to get into a throughput volume where it might become attractive to Quest and LabCorp and those Sonics and Kaisers of the world. So I think the -- we are not worried at all derived from our customer base that we might be negatively affected from that development. We actually discussed with our investors and with our customers for more than 5 years that it is going to happen. You'll definitely see that the big labs do not want to deal with 20 or 30 further suppliers, but that doesn't necessarily mean that we will only have 2 or 3 suppliers to the Quest and LabCorp labs. This only means that the consolidators will use instrument of the smaller specialty companies being integrated in their track system in order to have that offering that only 1 supplier offers solutions to the lab but that several suppliers are offering their solutions to the big consolidator. That is actually a trend which has been implemented last year by Quest. It's actually something which other lab chains, like Sony, is doing for 5 and more years.

[Scott Bardo, Analyst]

Yes. Very good. And perhaps a last question for me, please. I think if over the last 3 years or so, Stratec has been somewhat opportunistic with acquisitions, with Diatron but also made some technology moves with Sony. Funding environments are relatively favorable in the capital markets. Your balance sheet remains strong. Can you talk a little bit about whether external growth is still a high priority for Stratec and whether there are any obvious opportunities and areas for expansion?

[Marcus Wolfinger, Chairman of Board of Management & CEO]

Absolutely. So the straightforward answer is a clear yes. We -- even directly after the acquisition of 2015 and '16, we didn't stop looking into opportunities. And I wouldn't actually describe our approach as opportunistic only. We have a structured approach. We have a team sitting on that, continuously looking into opportunities. And I think over the past 9 months, we have performed like at least 3 due diligences, where we came to the conclusion that the setup we have given ourselves, that prerequisites for an acquisition, which doesn't only include pricing, but it includes management structure, IP structure, position in the market, trying to avoid the 7 other customers and so on and so forth. We didn't -- we just didn't find the ideal setup. But again, I would like to reiterate myself when I'm saying we are continuously keeping our eyes open. At this point, we don't have anything in the pipeline which has the potential to be executed in the next 2 to 3 months. But it's definitely our goal to continue to grow externally. As far as the areas are concerned, I definitely don't want to elevate the knowledge base of our competitors. That's why I cannot be too precise. But certainly, there are some areas, and actually our perspective on that, and sorry for my roughing issues. Actually, we are trying to identify the areas which are causing our customers headaches and are perceived as noncore for them, which may be a different diagnostic market segment. It may be different things like talking about -- if you see the immunoassay companies, they certainly offering -- they perceive it as their core competencies to develop and manufacture the immunoassay, particularly chemiluminescent immunoassays. That's a different story on the clinical chemistry end. That's a different story on the hematological end, where often enough it happens that even the tests are coming from outsource and solution providers. Same thing applies for consumables. And if we go down the value chain, like thinking about regulatory approval and so on and so forth, there are certainly areas which are noncore to our customers, but could generate a nice margin over time if a company who specializes in the art of doing those things is taking advantage of the situation. And definitely, we balance internal growth against external growth. And we definitely see some value contributors here and there helping our customers to get their instruments and tests faster to the market, showing a steeper ramp up curve, helping them on their end [ goals ], like KPIs in terms of return on capital employed and so on and so forth. So we see nice areas of growth where we are still looking into.

[Operator]

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

[Michael Heider, Head of Research]

Yes. I have 2 questions here from my side. Just first of all, on your product pipeline, you said you are expecting to launch within the next -- in the near future. Can you quantify a little bit here, are you talking about first half next year? Or are you even looking at a new launch in this year still? And then the second question is again on the Q3 margin on the adjusted EBIT margin here, just a question on the product mix. And I was expecting, actually that you have a much lower development in service revenues in the third quarter, as you have indicated already, and -- with the first half results, that you're expecting less to come in the second half. So against that background, I'm a bit surprised that the margin didn't improve a bit more here, even if you exclude the one-off from your stock program. Can you explain a little bit? I mean is this -- is it here that the instruments are actually having lower margins? Or is it still the mix? I mean are you -- have you been selling less consumables than expected? Or maybe you can give a bit more insight here.

[Marcus Wolfinger, Chairman of Board of Management & CEO]

Yes. Thanks, Michael. Allow me to answer the second part first. Actually, the honest answer is that I haven't been satisfied with the margin development in Q3, and my expectations were higher as well. But if we are looking into the analytics side, and I can only reiterate myself, so definitely, we had higher-than-expected revenue recognitions coming from literally margin-free development activities, first thing. So we cannot break it down. We never do that in Q1 and 3. We only do that in Q2 and Q4 just to avoid a reaction, which is based upon volatilities. And even then I think the terms of reporting are too short because, like 6 months is nothing. We show higher than -- we showed higher-than-expected growth on the development and lower-than-expected growth as far as our -- particularly maintenance kits are concerned. And then on the other end, and this is, again I can only reiterate myself when I'm saying this was actually a timing issue, that we didn't ship margin heavy instruments at the end of the quarter, but shipped more than expected margin lower or margin weaker instruments at the end. I would actually derive a lot from product mix timing. And when I'm saying product mix, I mean they're twofold. So in the first instance, I mean instruments versus consumables versus development. And the second layer is actually if we are now looking into the instruments, certainly we have instruments with a stronger than other gross margin and weaker than other gross margin, and those instruments with the weaker gross margin contributed more. And certainly, we have to keep into consideration that we have a certain growth coming from newer instruments in an early product manufacturing stage, which typically means we do not yet have the efficiencies, neither economies of scale through higher procurement volume, nor still in front of the learning curve in manufacturing, which typically costs us, particularly if the contribution from newer instruments is higher, which typically costs us a bit of the gross margin. But again allow me to reiterate myself, we looked into that matter and I'm very positive that we are picking up in Q4. Then the product launches, and we discussed it in the past a lot. Yes, it's a certain phase where we cannot contribute to the product launch. At the end, in certain countries, it's the decision being made by the authorities, here are mainly regulators, like the FDA in the United States. And secondly, it's definitely a question of the quality management and regulatory affairs departments of our customers. And let me say, pulling it in by a quarter of a year or pushing it out by a quarter of a year literally means nothing. From a technological perspective, particularly as our CLIA platform is concerned, and that's 1 of the 2 product launches. We are at a stage that the majority of the customers, the early stage customers, are in a position to see earmarked instruments, which would then mean initial sales that's actually on a horizon, but certainly, on a low volume horizon as it is early in the product life cycle. We are very positive that this may take place in the next 4, 5 months. The other instrument, which is a blood banking instrument is way more complicated, particularly because the approval project is way more complicated than in like a [ 4 or 510(k) ]. And here, we are definitely in the hands of the regulators and in the hands of the quality management department. And it would actually just be a big guess if I would get you a date of launch.

[Operator]

[Operator Instructions] There are no further questions at this time, and I would like to hand back to Marcus Wolfinger for closing comments. Please go ahead.

[Marcus Wolfinger, Chairman of Board of Management & CEO]

Yes. So thanks, again. And ladies and gentlemen, thank you very much for your contribution and for your interest in Stratec. Thanks very much for the question. And I would like to wish you a good remainder of the day and of the week. Thanks very much again.