Carl Zeiss Meditec AG (OTCPK:CZMWF) Q3 2022 Earnings Conference Call August 5, 2022 3:30 AM ET
Company Participants
Sebastian Frericks – Head of Investor Relations
Markus Weber – Chief Executive Officer
Justus Wehmer – Chief Financial Officer
Conference Call Participants
Patrick Wood – Bank of America
Oliver Reinberg – Kepler Cheuvreux
Graham Doyle – UBS
Alexander Galitsa – H&A
Falko Friedrichs – Deutsche Bank
Daniel Wendorff – ODDO BHF
Markus Gola – Stifel
Sebastian Frericks
Welcome everybody to our Nine Months Call and Q3 Call. And with me, as usual, are our CEO, Dr. Markus Weber; and our CFO, Justus Wehmer.
And before I hand over to the gentlemen, let me just explain the procedure. We’ll do some prepared remarks with an introduction to our financial statements. And afterwards as always we are open to take your questions.
And with that, I’ll pass it on to Markus. Please go ahead.
Markus Weber
Yes. Thank you so much Sebastian, and also a very wonderful good morning from my side and welcome to the nine months 2021/2022 analyst conference of Carl Zeiss Meditec.
So let’s go first to the agenda. So the slide shows what we are going to present in today’s conference call. I will start with an overview of the results. As usual, our CFO Justus Wehmer will give you more details on the financials in the next section of the presentation. Afterwards, I would like to share some highlights. And finally, I will talk about our outlook. So next let’s go to the next slide and the results.
And so Q3 was again a very successful quarter despite very difficult macroeconomic conditions, above all is the Shanghai lockdown, the war in Ukraine and supply chain constraints. The Shanghai lockdown brought us a weak start into the Q3. And June China business recovered sharply. Supply chain constraints affected us in our equipment business throughout the quarter. Still we are quite pleased with the results we achieved thanks to our strong team effort, which did really a great job.
Revenues reached more than €1.3 billion, an 11% increase, compared to prior year also helped by positive currency effects. The order intake was again very strong up to 36% over last year. This is yet another record quarterly order intake, and it underlines that demand continues to be very strong for our products.
Both SBUs contributed significantly to these results. You will hear about the contributions and contributors from Justus more in detail. The supply chain situation as I already mentioned before is tensed and required high operational focus of the entire team. We have taken various measures to increase the safety stocks and improved lead times.
So with all of these measures and the results, the EBIT margin decreased to 27% versus 23.6% in prior year due to increases in OpEx. The continuously growing share of recurring revenue had a favorable impact, while on the opposite the OpEx was highly mainly due to new product launches returned to physical trade shows and ongoing research and development projects what we actually have already reported to you in the last quarterly call.
Please keep in mind that last year’s margin level had been really outstanding due to an extraordinary low level of OpEx in the context of the COVID-19 pandemic, as we had clearly flagged at the time. Some special effects also included in our earnings. OpEx included an additional €5 million invest in costs incurred in the third quarter due to the implementation of our new SAP system.
Please keep in mind, last year had benefit from a property sale worth of €2.5 million. If adjusting for both these effects, EBIT actually would have stayed flat on the year. Our net income reached €191 million, which corresponds to an earnings per share of €2.14 versus prior year of €2.04. Yes. So this is the overview of the financials. Overall, we are very, very happy on these results, which we achieved under these what I already mentioned briefly under these very difficult conditions. My colleague Justus will discuss the figures now in more detail and will give you more background.
So, Justus, the space is yours.
Justus Wehmer
Yes. Thank you, Markus, and good morning and welcome also here from my side. And yes, let me say this right away, I do share Markus’ satisfaction with the figures, especially if we look at the increased level of global economic and political tensions negatively affecting the conduct of our business.
So I’m now going to give you a more detailed overview of our financials. And as usual, I’ll start with the performance of our strategic business unit Ophthalmic Devices. Revenue came in for OPT with €1,027 million compared to prior year. The reported increase was 11.2% and at constant currency 10%. Especially in our refractive business, we continue to see a very strong development with again a strong performance in Asia Pacific. While the third quarter started in China slow due to the lockdowns we saw a powerful rebound in June.
As expected, the EBIT margin decreased to 20%, compared to last year. Let’s remind that last year’s margin strongly benefited from the broad recovery of revenues, while expenses were still held back by the pandemic containment measures. Gross margin though remained at an excellent level, due to the once again strong product mix with a high share of recurring revenue as well as positive exchange effects.
As guided earlier, this year we clearly see the resumption in sales and marketing activities to the range of pre-COVID levels. Trade shows take place physically and travel is picking up again. This is in line with what we had been expecting and forecasting. On top of it, we invest in the sales and applications teams for our global phaco rollout and other marketing initiatives.
There’s also an increase in R&D expenses to support our strategic initiatives like our digital healthcare data platform the so-called ZEISS medical ecosystem. And last but not least, the previous year had benefited as Markus already mentioned from a special effect with a property sale, which was worth around €2.5 million.
Yes. With that let’s go to MCS. MCS again delivered a strong performance with revenue of €306 million versus €275 million in the previous year. This represents a revenue increase of around 11% at constant currency 9% so despite a high base last year. Supply chain constraints were more pronounced at MCS. Lead time of some core devices extended to more than six months.
We had to significantly increase our safety stocks for some critical components. So revenue could well have been higher without the problems in component supplies. EBIT margin is still very strong and even further improved despite increased procurement costs and expenses in sales and marketing.
Positive exchange — foreign exchange effects also supported the EBIT margin as most of the cost base in micro surgery is in euro, which is quite a significant difference from OPT.
So let’s look at the regional performance. All regions again contributed to growth with yet again the strongest momentum in Asia Pacific. Americas achieved sales of €330 million, which is an increase of 8% at constant currency 1.1%. We see there the US with a growth of 7%.
Latin America, especially, Brazil and Mexico rebounded however strongly with an increase of 19%. And please keep in mind that you know that in the US market we are mainly dependent on our device business. We do not yet have a really significant consumable business so that is already a comment on the growth figure that I just shared with you.
In EMEA, we noted revenues of €334 million. Overall an increase as reported of 5.3% at constant currency 6.5%. It’s a rather heterogeneous development almost like always in Europe. We see some markets like Germany, UK with small single-digit growth; others in Southern Europe like Spain with a much more robust growth in the double-digit region and other markets a little bit more sluggish.
Once again we saw the strongest growth in Asia Pacific yielding €668 million of revenues, which is 16.2% growth and the same at constant currency. Here please remind — I want to remind you that the sales in Asia Pacific is mainly calculated on euro based. Therefore the much lower impact here on the currency.
China including Hong Kong again has seen outstanding growth with above 20%, but we also have enjoyed very good growth out of India. Again in India last year we saw the deepest corona crisis at this point. And therefore we now see growth rates above 50%.
Japan is also growing again Southeast Asia the same. So in other countries it’s a more mixed picture in Asia Pacific. But overall we are very satisfied with the performance. So let’s have a look at the P&L. The increased gross margin was 58.9% compared to previous year supported — was supported by some positive foreign exchange effects and mix effects.
The OpEx increase is mainly impacted by the fading COVID-19 development in most countries on the one hand and strategic investments on the other. R&D increased due to continuous investment in strategic development projects mainly in the field of digitalization and our IOL development.
Sales and marketing expenses are noticeably up, especially, for advertising and trade shows. And as we all remember last year was an unsustainably low level due to the corona restrictions. It’s noticeable that due to heavy inflation all costs are rising material, labor et cetera. Apart from the support of product mix we need to consider adjusting prices in some categories with good pricing power.
In prior year, we had seen a onetime effect in other results that we already mentioned that was due to a transaction of a property sale here in [indiscernible]. And so the EBIT reached €275.9 million. That is slightly below prior year’s level of €282.8 million representing an EBIT margin of 20.7% versus 23.6% last year.
On the next slide a quick look at our adjusted EBIT margin which reached 21.2% which is below previous level of 23.9% rather small effects related to purchase price allocations related to depreciation in both periods and we adjusted for the one-time effect that I had already mentioned.
Yeah. Finally, a short look at the cash flow statement. Operating cash flow was at €89 million versus previous year’s €228 million that is significantly below previous year, but mainly for two reasons. On the one hand side, the working capital development and on the other side higher tax payments.
On the working capital, there is of course an increase in inventories. We are building higher safety stocks, because of the tensed supply chain situation. And at the same time, we also have higher demo stock supporting our global launches of our new VisuMax and QUATERA. We also have considerably higher level of receivables due to the Shanghai lockdown we had a very high concentration of sales in the month of June towards the last weeks of the quarter.
Cash flow from investing activities are mainly payments for property plant and equipment. Here, I want to mention, again, our investments in our global IOL production network and production investments related to our ramp-up for our refractive lasers and the treatment packs. We also had additions in intangible assets, mainly due to capitalization of R&D. And then not to forget our acquisitions of Precise as one target and Kogent and Katalyst as the other one, which in total is representing another roughly €65 million.
Cash flow from financing activities is mainly influenced by changes in receivables and payables in our treasury accounts and higher dividend payments. Net liquidity continues at a level well above €800 million. Yeah. Thank you for your attention.
And with that, I hand it back to Markus. Markus, you have to un-mute yourself. We think that you’re muted.
Markus Weber
Okay. Here we go. It’s a normal, let’s say mistake happens all the time. Good. So thank you so much, Justus. And as usual, I would like to share with you some focused topics. And as Justus has now reported that, results are quite satisfying so we are quite happy with the results so far under the given circumstances. However, there are a lot of concerns about a possible global recession and how it would impact our business. We would like to share the following two slides, with you to look into the underlying market trends for our consumable business to understand better what is driving the business.
So first, let’s look at the IOL market. In 2021, all cataract surgeries accounted for around €25 million, globally. so slightly under the pre-COVID level still in a recovery part. According to the estimates by recent market scope report, there are two clear trends in the IOL market.
First, cataract surgery is an elastic demand. People beyond a certain age can hardly avoid IOL surgery. Also the existing infrastructure continues to be developed. The total IOL sales unit will further grow at a mid-single-digit pace. In five years over 35 million cataract surgery are expected just driven by an aging society. Secondly, premium IOLs are becoming more and more popular. People have clearly higher expectations for the quality of vision.
In terms of units premium IOLs now have 12% market share which is expected to increase to 15% in five years at a CAGR of around 10%. Today, 40% revenue comes from premium IOL. By 2027 projected nearly the heart of the revenue will come from premium IOLs and this is also the reason that we have a very strong and focused strategy on them.
Our portfolio is benefiting from this trend even more than our competitors. Several factors are driving the trend. Above all the new technology development new innovations are the key factors. Patients can find the best suitable product amongst various choices. Improving awareness and favorable health insurance provisions are also providing tailor. So, overall, a trend which is very supportive to our strategies and also to our business model.
So going to the – and keeping – going to the next slide, the myopia prevalence. So this slide is actually from our point of view a very good meter study of myopia prevalence done by the American Academy of Ophthalmology. It demonstrates, the development of myopia and high myopia in the next decades. And at the moment, about a-third of the world population has myopia and the 20th is high myopia.
In 30 years, the myopia population will broaden to the health of the growth population. Growth of high myopia develops even faster. So, high myopia groups are potential patients for refractive procedures. The myopia prevalence in different regions and ethane groups is heterogeneous.
Generally, in Asia, and in high income regions the trend is more accelerating, most likely also driven by the intense work with computers and laptop on the desk. Particularly, the growth in the high myopia population provides an attractive outlook for our effective business. Importantly to know, whereas Asia Pacific is ahead in myopia prevalence today the relative growth in the myopia population in North America investment will be even steeper in the decades to come and is catching up. So these long-term trends for our markets will continue to support strong growth in our consumable business. They also require ongoing investments and capacities, which is what we are doing currently. And for example, with the IOL factory in Guangzhou and the expansion of our effective treatment pack manufacturing line, which will be also more and more automated and will be a robot line.
So this is actually — that was the things that we wanted to share with you concerning the focused topics. Now let’s move on to the outlook and to comment the fiscal year, as it is today. So first of all, what we see as a long-term demand driver. So also our industry is still impacted by the global supply chain difficulties and regional lockdowns. We believe that it will continue to benefit from highly-favorable long-term growth trends besides those topics of market trends with increasing prevalence of cataract and accelerating myopia that I just shared with you. Others are first, the aging of the population; second, frozen bars in the large part of the world; thirdly, rising access to host care in the rapidly-developing economies RDEs; and lastly, increasing information access. So these trends all together lead to a growing number of patients and thus a higher note to the health care system.
So lastly digital solutions, failure medicine and AI-driven features are becoming more and more relevant for the hospital sector and this is also the reason we are investing heavily in these technologies. So Carl Zeiss as well as the entire industry is impacted by the time situation of the global supply chain and political and macroeconomic uncertainties. Our outlook is positive in spite of the difficulties we are facing in the short term. So we expect our revenue to be at least around €1.8 billion for fiscal year 2021-2022. As we have already pointed out and as Justus has pointed out, we are having a substantial order backlog and it is very hard to say how long the situation will last concerning the tight intense supply chain.
So we estimate our EBIT margin for fiscal year 2021, 2022 to be in the upper area of the previously reported range of 19% to 21%. In forecasting revenue and EBIT, we assume that the COVID situation in China and the group supply chain situation will not further work in Q4 otherwise, we have a different scenario. We have taken this into account. As we have seen already in the current quarter, the operating expenses particularly in sales and marketing will continue being on a very high level. This applies even more so in the context of all product launches.
The midterm let’s move on to midterm. We continue to have significant investment needs as I already have now reported also in terms of the things that we want to do, as we want to further broaden our global presence and want to continue to drive our innovation strategy with a high level of R&D investments. However, on the other hand, we consider the high level of recurring business is mostly sustainable. Profitability will clearly benefit from this trend. As a result of higher costs, but more also a high level of recurring business, we are confident that we can achieve midterm EBIT margins sustainably above 20%.
So with that we have to come to the end of our prepared remarks on the financials. Let me pass back to Sebastian to our moderator to move into our Q&A session. Thank you so much.
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] And we will take our first question from Patrick Wood from Bank of America. Please go ahead.
Patrick Wood
Perfect. Thank you very much. I’ll keep it to two questions please. I guess the first one, really curious could you give a little bit more detail on the recent performance within the sort of subdivisions a little bit more? So for you, let’s say IOL relative to refractive. Just a little bit of color around the growth rates you’re seeing and how you’re seeing the environment split a little bit more by those divisions for the quarter. That would be really helpful.
And the second one, just curious when it comes to pricing. Obviously, quite an inflationary environment. Moving into next I guess fiscal year, you’ve got some wage inflation in Germany and things like that. How should we think about pricing for you guys and the ability to offset some of that inflation which I mean seems to have been fine so far? But just curious how we think about that as we move into 2023? Thanks.
Justus Wehmer
Yeah. Thanks, Patrick. It’s Justus. I can give a few information on the pricing inflation and then maybe Markus can make a few comments on IOL refractive, if that’s okay. So pricing and inflation, you should look at it in the following. Of course, we are assessing basically segment by segment our market positioning, our product differentiation. And we are less talking right now about price increase but more actually actively managing to give less discounts. So that has the same impact on the bottom line, but you kind of do not expose yourself to that discussion of increased prices.
If we see over the course of the coming months and quarters that this will not suffer. We certainly will also have to look into price increases. We feel that we have in some of our products, let’s say, position and differentiation, that would probably certainly allow us to drive such a price increase in the market and to pass it on.
So with that we are hoping that we can offset the inflation and cost pressure and overall stabilize our margins. And on top of it, we obviously through our recurring revenue business, which we assumably will further grow, we obviously also have a bit of a positively diluting factor. So that is maybe my comment on pricing inflation here. Markus do you want to take that on IOL?
Dr. Markus Weber
Sure. Yes happy to answer this question. So first of all Patrick, good morning from my side also. Yes. So actually both are doing well. It’s different let’s say dynamics and also different market trends pushing it. So in effect we still see very strong demand in Asia especially in China and also Korea. So this is really very strong but we see also effects now coming in in Europe are seeing that the demand, especially for these procedures are increasing and the acceptance and population is increasing. So this is really something where we are also pushing and this is also one of the reasons that refractive was one of the main contributors also for the last quarter apart from MCS and the devices here.
IOL is different in that way that we see also a great demand and actually interest in IOL. We see that especially also coming in with QUATERA. So the QUATERA is helping also now opening the US market in this regard. And we see also now in our pilots for digital the cataract workflow that we see actually first and good interest in adapting the digital still way to go to be honest here, but we see that we are in a good track. So overall, IOL is also doing well but refractive was especially in the last quarter was the star and also helping us actually to come to these results.
Patrick Wood
Helpful color. Thank you so much.
Operator
We will now take our next question from Oliver Reinberg from Kepler Cheuvreux. Please go ahead.
Oliver Reinberg
Thanks so much, and three questions from my side. And firstly on the order intake. Obviously, that was quite impressive 36% increase in nine months even 45% in Q3. So can you just talk to has there been any kind of special effects being involved like pull forward or base effects? Anything that we should be aware of? And if so, what is your best guess for the kind of underlying growth in the order intake? And any color in terms of – is there any kind of gearing towards any kind of special product categories?
Secondly on VisuMax, can you just provide an update on just the VisuMax machine orders in key markets like China, South Korea and other regions? I assume what you just said that there are so far no concern on the kind of consumer slowdown. So is this basically only some kind of indication of the new VisuMax finding attraction?
And then the third question please on OpEx. Obviously, this has increased by 31% in Q3. Partly it’s a base effect. You have pointed out some kind of one-timers. But what is the reasonable assumption for OpEx growth next year? Understand, you would still want to build structures and you have some kind of inflation support. Any kind of color you could provide would be great. Thank you.
Justus Wehmer
Yes. Oliver, Justus here. I can start answering and then I think Markus can kick in or add, wherever you want. So the first question order intake, special effects, yes. There is a special effect and that is obviously has to do with the lockdowns in China. So we saw an overproportionately high amount of orders that basically then came in late in the quarter. So therefore basically couldn’t be transferred into revenue anymore. And as you know the significance of that market is big for us. So from that perspective, we would not guide here by no means that this level of order intake increase is sustainable. So there is a good portion of the special effect in it.
I mean on the other side, you were asking for categories. We do however clearly see that there is a good demand also for our machines. You were asking about the orders for VisuMax. And maybe with that I can already move to answering that question. Yes, overall, we both see for the newly launched VisuMax but also for the so to speak for the predecessor for both.
Actually, a very good and solid demand. We do not disclose the exact numbers of units that have been ordered, but I can clearly assure you that the perspective for continuing to grow our installed base of lasers at a pace of the past or more likely even accelerated that this is clearly built into that order book.
There’s also other products that if I look here at my detailed notes that also enjoy good and high demand, if I look at our devices. So, that is true for the OPMI. That is true for the KINEVO. So therefore, we are overall really quite pleased to see that so far we do not see actually a softening in demand.
And we also anticipate potentially other questions. And we also see that this is an order book of high quality. So we don’t think that there are any kind of tactical orders that are just basically placed there to kind of reserve a delivery slot or anything of that nature.
Yes. So — and last comment on the OpEx. I mean, Oliver the increase is accentuated and it’s over-accentuated, of course, by the inflationary pressure. My best guess at this point is you will see us continuing to invest as we have just explained. We have also see, how inflation is going to fare. My personal expectation is that we probably will have to live for a while with the inflation rates that we see right now, if not even more elevated.
So therefore, and I think you may have read this between the lines of the guidance that Markus just gave, we obviously anticipate that we have to cope and deal with more pressure on our OpEx, which obviously will mean that we have to work hard on short-term EBIT margin improvement, especially in this high level of uncertainty with the supply chain constraints and the like.
So, I think this is the best I can tell you right now. And — but we certainly — maybe that comment we certainly do not want to cut back on our strategic growth initiatives as long as inflation is not going into crazy levels and therefore, OpEx develops completely out of control, yes. So, we stay firm. Yes.
Markus Weber
Yes. Maybe to add a point on that. So, Oliver, I think as Justus said, we are heavily investing also in our strategic initiatives for this predicted mid-term actually activities and also earnings and growth. And this goes especially then also in technologies like robotics.
This goes in base marketing activities where we see, especially US market actually a big opportunity for us also to grow. So these things are really on our list, and this is also for sure driving OpEx. And then there are negative effects like inflation, we have to work on and we have to work with efficiency programs against it.
Nevertheless, I think OpEx will be on a high level, but at a high level which is creating also added value to the company to Meditec. And as Justus already said before, the gross margin overall maybe this is just for the entire P&L.
The gross margin, overall, is also something we keep very focused, actually in that way that we want to keep it stable as Justus said, or even want actually to realize then also, let’s say, value proposition and added value of our solutions and products in the market.
Oliver Reinberg
Very helpful. Thank you very much.
Operator
And we will now take our next question from Graham Doyle from UBS. Please go ahead.
Graham Doyle
Good morning. Thanks for taking my questions. Just two for me, one sort of short-term, one longer-term, and sort of a similar question to what I asked last conference call. When you look at what you’ve delivered for the nine months to date, and you think about the consumables orders that you flagged in China in particular, it feels like you’re probably off to a reasonably decent Q4 start.
Could you give us some context on that? Because it looks to me the guidance for the full year, you probably only need to deliver something like 6% organic revenue growth in Q4, so it feels a little bit conservative. So maybe just give us a sort of push and pull on that would be great.
And then longer term, we’re all kind of excited looking towards the US and the expansion there in IOLs. And I suppose one of your peers is super excited by the EDof lenses, where you already play. Probably haven’t spoken so much about that. So, it’d be good to get your sort of sense on the opportunity there, where you stand today in Europe and APAC and maybe what you can do beyond the trifocal in the US by also having an EDof. Thank you.
Markus Weber
Yes. So — good morning, Graham. Yes. So, maybe to start first with the Q4 and why this is more conservative. Now, the reason is actually you see currently these super high dynamics in, let’s say, uncertainties coming up. So the VUCA World is really increasing significantly. And what we see is that, we have seen very dynamic quarters now, especially, the last three quarters, in terms of the supply chain, but also in terms of the market access.
And China is the best example than Ukraine, because of the COVID lockdown. To be honest, this was very on short notice for us. And actually, we are very proud of the team, because team really handled that uncertainty and the dynamic then, what has been created in this. And this is something what we see.
We actually cannot see or we cannot foresee what will happen now in the next few weeks and months with all their uncertainties also coming up in a geopolitical way. Also, in terms of the supply chain, seeing also that the supply chain is actually the geopolitical — the global supply chain. This is actually unstable and we have to make sure that actually our deliveries are going out of the factory and this is also something which keeps us more on the conservative side. So maybe to explain why we are more conservative for the Q4 in this regard.
So in terms of the EDoF lenses indeed. So EDoF is something which is — and as you already said, is something which is on our R&D. And one of the reasons that we are also investing high in R&D, because definitely we want also to invest in EDoF. I hope for your understanding that I cannot speak now about dates when the EDoF comes to the US market or to the — then to the other markets in the world. But I can definitely tell you and actually report to you is that, we are working hard on this EDoF lens concept and making sure that we will stay on top of the things.
Graham Doyle
Brilliant. Thank you very much for your answers.
Operator
And we will now take our next question from Alexander Galitsa from H&A. Please, go ahead.
Alexander Galitsa
Yes. Good morning. Thank you for taking the question. Can you put the seller growth you’re seeing in order intake into the context of various product franchises maybe with a little bit more granularity? And then maybe also put it in the context of customer behavior in a sense.
So whether there may have been a situation where your customers would pull forward some planned investments, expecting that you might increase prices the longer they wait with the orders. Or is that completely not the situation you’ve seen?
Justus Wehmer
Yes. Hi, Alex. Justus here. I had thought I have given already a bit of a qualification on the order intake. So I try my best. And if I’m not hitting your question, then just help me afterwards. So I think we — I’m speaking to sales basically — on a basically weekly, daily basis to the sales directors in the regions. And I do not get as an explanation that we have now basically advanced or farfetched, so to speak, order placement in order to avoid any later price increases. At least, I do not see or hear this as a guiding pattern.
I’d say, overall, I repeat myself, I mean, we have launched products, especially with the VISUMAX on the one hand side, but even still the KINEVO enjoy really globally still a good demand. We are enjoying also the fact that with the new VISUMAX, we now basically have still the existing predecessing model in the market that also drives some additional demand for people who say, well, I choose the existing model as being good and, how should I say, a more economic — potentially more economic choice for my investment.
And that both is driving the order book right now among other products, yes? So therefore, I wouldn’t really put it in the context of any inflation-associated decision-making. That can now become increasingly an issue. But at least so far, I haven’t heard this as an argument. I don’t know whether that answers your question appropriately. But yes, I hope it does.
Alexander Galitsa
No, thank you. That’s helpful. And then, maybe, just a little bit of idea. Looking into 2023, would you expect revenue to be mostly carried by the accumulated sort of excess backlog from this year, or are you similarly, sort of, optimistic on the ongoing demand dynamics that you’re seeing currently, given the rejuvenated portfolio you have?
Justus Wehmer
Well, you see, I mean, that is probably the key question right now. How is 2023 really going to turn out? Again, the project pipeline is not softening. That is what I can tell you. The demand is there and the — apparently the robustness of the demand for our customers so, the patience.
And as Markus shared in his slides on the myopic and the IOL or cataract market, the — let’s say, the customer profile or the customer — the market that we are serving there seems to be also rather robust or resilient to these economic concerns or crisis that we see right now.
That may explain why there is still the interest in investing into those devices. And yeah, and therefore, overall we look with confidence into the next fiscal year. I can clearly say that, we rely on our very competitive product portfolio in terms of its technology, its innovation.
And I think with the workflow solutions that we offer we clearly hit a market trend or a market demand. So it may be somewhat, how should I say, unpleasant outside with inflation and walls, and crises, and so on but we remain pretty confident that we will see another good year again, provided the world is not going to go completely crazy.
Unidentified Analyst
Excellent. Thank you very much.
Operator
We will now take our next question from Falko Friedrichs from Deutsche Bank. Please go ahead.
Falko Friedrichs
Thank you very much. My first question is, can you provide an update on the phaco rollout and provide us with the latest time line for the IOL launch in the U.S.?
And secondly on China, where you magically managed to show some growth in the third quarter, despite the lockdowns, can you share how Q4 is trending in the country? And whether the strong growth that you must have seen in late Q3 continues into Q4 now?
And then, thirdly, in terms of the supply chain, which parts of it are really creating the most headaches for you at the moment? And do you see some of it easing already? Thank you.
Justus Wehmer
If you — I’d say, I get going and take it from the back. And then, Markus can add wherever he wants. So supply chain, honestly it is a pretty big variety of issues, that goes from of course the electronic components through to any kind of components that we are sourcing, whether it’s more mechanical parts or pieces.
And so no I cannot really give you here a — or should I say, kind of guide you in a way that we see now that there’s only one particular component family also that is causing concern. It still remains all very fragile at this way. And we can just hope that things will smoothen or ease up a little bit. But too early to tell, I’m afraid.
Q4 expectation, I think, it starts good. That’s the good news. But I think — and this is somewhat the message of the Q3 numbers. It’s not so much about the market. As you have seen the market is strong. The demand is there. The Q4 performance is ultimately more a function of what will we be able to ship and that is the tough part to be answered, yes.
So we literally have now basically a lot of unfinished goods, sitting in our assembly facilities. And we are waiting then for the last component that is missing. And if that comes in, on time, we can ship a whole bulk of systems. If it doesn’t come in, we won’t. And that makes it so difficult.
So we have to differentiate between what the market kind of would like to absorb. And what is — what we can really then match in terms of the demand. And so that’s I think the kind of differentiation one has to make, once we are talking about Q4.
So in terms of the market, how should I say, market healthiness at this point at least we still see that there is good activity and good demand. I don’t know Markus, did you want to add?
Markus Weber
Yes. Maybe just to add on the first question concerning the phaco and the VisuMax, so overall we see for the phaco, we see good feedback in the U.S. market especially starting with the demo systems. And now coming the first orders in.
The issue here is actually still our supply chain as Justus already reported, and as we pointed out several times. So, really to make sure that, we can ship these systems. This is currently the big let’s say, roadblock for us we have to overcome. But overall there’s a good request and actually also good acceptance on the customer side.
On the VisuMax, we see also super high demand and this is also resulting in high lead times just driven also by supply chain shortages. So, we see for instance currently in Europe this year VisuMax order entry only for Europe here for 80 units for the 800 so this is quite nice.
And we see also that overall there’s a great acceptance for the new system. So, overall, this is quite positive and we see the positive trend here. As you know in terms of when it comes to US still a way to go. And as usual with regulatory also having now these new things coming in MTR and so on which are actually limiting or actually delaying regulatory it’s really hard to predict when it will be done on the market.
And also important to know is that the LUCIA which will come next fiscal year on the US market this will be again an additional push in bundled deals and bundled sales than with the QUATERA, especially in US. And this is also the reason that we are preparing our sales team actually to handle that. So, overall, I think we are doing well there. But again as we already reported I think there’s still a way to go but the overall trend is positive.
Falko Friedrichs
Okay. thank you. And when do you expect the LUCIA to launch in the next fiscal year roughly?
Markus Weber
So, again, it’s really tough to say because — so please forgive me here because we have seen now so many variances and delays coming in to the COVID lockdowns and we don’t know what will happen in autumn in fall time. So, this is really something it’s hard for us to say. Currently, we expect to have it in the first half year of next year, but again it’s hard to say and hard to predict.
Falko Friedrichs
Okay. Thank you.
Operator
[Operator Instructions] We will now take our next question from Daniel Wendorff from ODDO BHF. Please go ahead.
Daniel Wendorff
Yes, good morning and thanks for taking my questions. Two for me please. The first one is can you talk in general bit about the performance in North America. So, what is driving the market there? And what is running really good? What is potentially not running so good?
And my second question would be on the recurring revenue stream. How is that developing according to the different regions you’re reporting about? So, any particular differences it goes hand-in-hand region-by-region? So, any more color you could provide here I would appreciate. Thank you.
Markus Weber
Yes. So, maybe I’ll take the first question and Justus in the second. So, overall, the performance in US is indeed driven by device business. I think Justus has already mentioned that. So, I think especially the KINEVO is doing super well in the US market and we see there a great performance. So this is really the core market also for microsurgery. So, this is really good.
We see also in ophthalmology when it comes to LUMERA so the opt is there. Device is also a strong demand and which is only limited by our supply chain and the shortage in supply chain. So, overall, this is doing very well.
In QUATERA, I already mentioned, so this is a good start, but we see we see a high resonance high feedback there. And this is then also pulling our IOL business. Nevertheless and this is also something that we have reported to the audience here already.
So, IOL is still a way to go because we have not closed the entire hydropublic portfolio in US and this is still a way to go where we see. But overall we are preparing that in all aspects so that’s not only on digital. It’s a full workflow solution we see as I reported in some pilot markets and this is also in US. We see good resonance on that from the — actually from the ophthalmologists and also from the patients. So, overall, this is good. But especially and when it comes to performance, device performance is crucial here and this is actually what is driving the performance.
And in terms of recurring revenue stream, maybe Justus you can answer this question.
Justus Wehmer
Yes sure. I can do that. Yes, you wanted some regional flavor Asia Pacific as you know that is strong and most dynamic. However, we see in EMEA actually since COVID, quite a dynamic development, both in installation of lasers, as well as in procedures being conducted. So, that is true for Germany, but also some other European countries, where we see clearly a pickup in the trend of laser vision correction.
So, I think that is certainly something positive. And we should also not forget that also in the US, we keep on growing with our recurring revenue. It is, as I said earlier, it is for the US, not yet on a size that is making or pushing the needle so to speak, because we have the high device dependency. But even though, we continue to grow there faster than the market with SMILE and are growing the installed base of LASIK. So therefore we are also quite pleased with the US however, at a smaller scale of course. So, hopefully that answers your question.
Daniel Wendorff
Yeah, very good. Thank you.
Operator
And we’ll take our next question from Markus Gola from Stifel. Please go ahead.
Markus Gola
Great. Thanks and good morning. So my first question is a follow-up on Falko’s question to better understand your ability to process your order book. So, compared to the previous quarter has your ability or have the availability of components as well your internal supply chain to process these components improved sequentially, or is it pressure at the same level as in the quarters before? And related to this and based on your current visibility, how long do you expected growth in order intake will surpass sales growth?
My second question is on capital allocation. Given the current inflationary environment is a bit more painful for investors, if you carry around €800 million in cash. Are there some plans to accelerate the deployment of these funds for example by meaningfully increasing the amount of R&D spending or from M&A — for M&A? And is there maybe some threshold on the cash side, where you would feel the need to increase your dividend payout ratio?
And finally a follow-up on the refractive laser and VisuMax in the US. Can you maybe share with us what percentage of the installed base is now located in the US? And have you noted any weakness on the refractive laser procedures in the country, given the recent economic slowdown? Thank you.
Justus Wehmer
Okay. Markus, I’ll kick it off. So the first question was on the order book, the outlook; whether we will be able to basically turn around the orders faster. I would be reluctant at this point to see a big improvement in us reducing our lead times, given the factors that we have all discussed. You were asking about improvements, I’d say it — I’ll answer it the other way around. At least overall, the situation did not get worse, but it’s far away from being what we would like it to be, yes. So that’s I think the best way to answer it. So therefore, I think again, hoping that markets will continue to remain stable. I would think yes for a while to come you probably will see the order entry exceeding the revenue that we can generate. So that covers question one.
Question two, on our balance sheet or on our basically funds. I mean, first of all, as you know, we have just made two more technology acquisitions and I think, we commented that previously. We clearly see inorganic growth as part of our strategic road map and technology acquisitions in the sense of kind of string of pearls, where we add technologies that we feel either enhance our offerings or can enrich basically meaningfully technologies and innovations in our current offering will always be on our radar screen and will be acquired and then integrated as we go.
So, from that perspective I think we still see that this balance sheet is providing us the opportunity to move fast and move also on bigger targets or on various smaller targets at the same time. And I think that is an asset that we would like to maintain. We — and you asked about R&D. Yes of course, we are increasing also prospectively our R&D investments and digitalization is one topic that we keep on mentioning here, but that is not the only one where we invest. I mean our IOL portfolio, our hydrophobic portfolio is one thing.
The other thing that I would like to mention here explicitly is the investment into our regulatory global competence and coverage. I mean the question of getting products registered or reregistered is a strategic factor. And we also see there clearly an area of additional investment in the future. So, no we don’t have a threshold defined at what point, we would start considering a higher dividend policy. It’s in the end the Supervisory Board’s decision. But right now, I can tell you no there’s no such thing in place.
Last question was refractive, the installed base for lasers. I mean for competitive reasons honestly, we are not really disclosing the percentages per country — our entire installed base. But I think as you know we have more than 100 lasers installed in the US and the number keeps growing. I would leave it there. Yes.
Markus Gola
Great. And on the refractive laser procedures in the US have you noticed some slowdown in this economic environment or not yet so far?
Justus Wehmer
No sorry. No sorry Markus I missed that one. No, we actually have not seen a slowdown and the numbers have been the last ones that I saw still indicate growth. I think we had some — maybe some two or three months ago we had a bit of a sidewards development, but that already now has turned again into growth.
Markus Gola
That’s great. Thank you.
Operator
And there are no further questions at this time so I would like to turn the conference back to our speakers for any additional or closing remarks.
Markus Weber
Yes. With this we are at the end of the Q3 conference call. Thank you so much for attending for the call and also the great questions and discussion that we had. We are looking very forward to welcome you then the next time again in December for the yearly results and hopefully then having a wonderful Q4, even with these circumstances and we wish you all the best for the summer time now. Stay healthy and see you then again in December. Thank you so much. Take care. Bye-bye.
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