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Siemens Healthineers AG (ADR) (NASDAQOTH:SMMNY)
Q1 2019 Earnings Conference Call
Jan. 30, 2019 1:30 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Siemens Healthineers 2019 first-quarter conference call. As a reminder, this conference is being recorded. Before we begin, I would like to draw your attention to the safe harbor statement on Page 2 of the Siemens Healthineers' presentation. This conference call may include forward-looking statements.

These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. At this time, I would like to turn the call over to your host today, Mr. Florian Flossmann, head of investor relations. Please go ahead, sir.

Florian Flossmann -- Head of Investor Relations

Good morning, everybody, and welcome to our Q1 conference call. The earnings release and Q1 presentation were released at seven o'clock this morning and you will find all documents on our IR website. Our CEO Bernd Montag; and our CFO Jochen Schmitz, are here with us today to review the Q1 results. Bernd will start with the highlights of the quarter, and Jochen will give you more details on our financial performance.

Afterwards, we will have time for Q&A. [Operator instructions] And with that, I would like now to hand over to Bernd.

Bernd Montag -- Chief Executive Officer

Yes. Thank you, Florian. Good morning, everybody, and welcome to our Q1 earnings call. Before diving into details of our quarter, let me remind you of our strategic priorities for the fiscal year '19 and beyond.

With Siemens Healthineers Strategy 2025, we are strengthening our unique position in the market and are instrumentally making medicine more precise. We're advancing the therapies of tomorrow, optimizing the patients' journey through the healthcare system and we are enabling our customers to have a more efficient and more patient-friendly healthcare delivery. Digitalization and artificial intelligence are important catalysts regarding these changes and we are proud to be leading in this field. In this exciting and dynamic environment, we have created market-leading products and a global motivated team of people.

The global imaging, advanced therapies and diagnostics markets are fully intact. We expect to further expand our market innovation leadership in imaging, driven by recently launched products including AI-powered applications and solutions and BioMatrix products as well. Minimally invasive procedures is an ongoing strong growth in areas like cardiology, interventional radiology and surgery. Our advanced therapies products actually take these treatment procedures through the use of image-guided therapy.

These sustainable developments will continue to benefit our advanced therapies segment. In diagnostics, we will capitalize on Atellica Solution, which is a great product, a fact which we can confirm in the current ramp-up phase. Digitalization and the application of AI will revolutionize the medical landscape. We are at the forefront and will play a major role in this revolution.

However, we do not only look ahead and outside the company. We also challenge ourselves the way we cooperate, the way we drive and the way we do business. With respect to this, the Healthineers Performance System will be a major catalyst of change, fostering a lean culture in our young company, providing continuous improvement going forward. Now looking into our Q1, comparable revenue growth has been moderate at 2.5%.

As Jochen will explain later, there is a mixed picture across the segments underlying this. We see a very healthy equipment book to bill of 1.13, which is the precursor for accelerating comparative growth in the coming quarters. Diagnostics instruments growth was again strong in the high single digits. And we are continuing the Atellica Solution ramp-up with more than 370 analyzers shipped in this quarter.

The adjusted profit margin, however, with 16.5% is 60 basis points below prior-year quarter impacted by minus 30 basis points currency headwinds. Diagnostics adjusted profit margin has been weak with 8.1%. The drop in margin in diagnostics has been driven by two main effects: foreign exchange headwinds of 130 basis points year on year and higher Atellica Solution ramp-up costs. While we do expect this to improve in the remainder of the year, we are monitoring the situation very closely.

Atellica Solution is a great product, which will be successful in the global diagnostics market. I will give you more details on diagnostic in a couple of moments. Cash is low due to inventory buildup and CAPEX for the diagnostics-related capacity expansion in the U.S. and China.

On the positive side again, basic earnings per share increased by 11% to EUR 0.34. We confirm our guidance for fiscal-year 2019. As I said in the introductory words, we are at the forefront of the digital revolution in the med tech sector. Let me give you more insights into our recently launched digital offerings and AI product applications and platforms, which are transforming care delivery.

AI-powered solutions capitalize on the ever-increasing volume of healthcare data and translate into concrete clinical and operational outcomes for our customers. We recently launched two digital Companion platforms. The AI-Rad Companion for chest CT, which is the first application of the new AI-Rad Companion platform. This intelligent software assistant identifies anatomies and potentially disease-relevant changes, thereby differentiating between the various structures of the chest, highlighting them individually and mark and measure potential abnormalities.

These findings are automatically captured in a quantitative report and thus increase productivity and quality in radiology. Our second product launch is the AI-Pathway Companion, a clinical decision support system based on artificial intelligence. The first application of our AI-Pathway Companion is for prostate cancer and will be scalable for further clinical disorders. This AI tool is designed to help optimize the process along the clinical pathway by intelligently integrating all relevant medical data together with imaging and diagnostic biomarkers of the patient.

The physician has all patient data at hand in one tool, for example, in multidisciplinary disease boards and can discuss diagnosis and recommendations for the patient treatment at this point. It enables to drive the right treatment for the right diagnosis and treatment at the right time for each patient individually. In the area of digitalization, we developed syngo Virtual Cockpit, a remote scanning assistant. Medical staff can use this software solution to connect remotely to scanner workplaces to assist personnel at different locations.

This is especially important for locations where more sophisticated examination is required and an appropriate expert would not be available. The experienced colleague can, so to say, tune in, in real-time via video and provide guidance on how to operate the scanner at the other location, e.g., to adjust protocol parameters. The ability to deploy experts across multiple locations reduces the number of undesired variations in reports, again helps making more accurate diagnosis. This makes workforce management more flexible, leads to a higher level of standardization and therefore increases provider productivity.

Now let's have a closer look at Atellica Solution. With Atellica Solution, we have developed a unique instrument in lab diagnostics with an extremely competitive offering. And this is confirmed by the feedback we are receiving from our customers around the world: highest throughput per square meter; no separate STAT analyzer or lab needed; minimal hands on time through automated calibration and quality controls leading to a time reduction of over 50%; intelligent, AI-enabled sample identification is also a strong enabler for increased productivity of our customers. However, in order to make full use of this unique instrument, you need a comprehensive assay menu, and we had a very competitive menu from the start and have been adding additional tests over the last year.

202 assays are approved in the EU, as well as 185 in the U.S., including all important tests as, for example, innovations like our high-sensitive Troponin I test. We received excellent feedback for the Troponin test, for example, from the Hopital Bernard-Bichat in Paris. So let me summarize. All those capabilities make the Atellica Solution the comprehensive lab solution with high scalability to adopt to customer space with generous layouts -- generous net layouts.

Together, with the high throughput and the high scalability, Atellica Solution is the preferred solution for large labs with large and highly automated instrument banks. We see this confirmed with the higher than average -- significantly higher than average, I might add, win rate in large labs with automation feed. Now we are in the middle of a ramp-up phase of Atellica Solution. Therefore, let's have a closer look at the implication of the ramp-up in Q1 and in fiscal-year '19.

The ramp-up costs unfortunately had a higher-than-expected effect in diagnostics margin in this quarter. We have been highly successful in bringing large automation contracts, therefore more deals than initially expected. In the past, around 15% of all deals have been dubbed as complex automation projects. Now it's double the number, around 30%.

At the same time, the sales of our high-throughput IM 1600 immunoassay analyzer has been very strong as they are ideally suited for this customer segment. These large deals are very attractive. On the other hand, as they generate high-revenue per box and are very attractive, on the one hand, as they generate high-revenue per box, on the other hand, they are also much more complex and need more time to get live and run. This is one of the key drivers for the longer-than-expected time from shipment until go-live until the start of the commercial use at a customer.

With the high number of analyzers shipped last year and go-lives only stepping up at the end of Q1, we still have a large backlog of analyzers being in the installation phase. We are working to bring the time down, but it will take a few more quarters until all required changes are implemented. The number of current installation in a fixed cost base to support further growth have an unfortunate effect on diagnostics margins in Q1. Therefore, the dilutive effect of Atellica Solution on diagnostics margin increased by 200 basis points compared to Q1 last year.

At the same time, our legacy business is performing well at margin levels in line with historic performance. Main driver for the low Q1 margin has been the larger number of analyzers in the installation phase while there only has been limited top-line contribution from reagents from those new systems. The high number of go-lives at the end of Q1 and in the following quarters, we expect reagent revenue to grow strongly and contribute increasingly to top line, even more to the bottom line. The dilutive effect of Atellica will therefore get smaller quarter by quarter.

With more analyzers in commercial operations, Atellica revenues will be become a more meaningful indicator for the success of the solution. The Atellica ramp-up is the priority for the company. We have all hands on deck and we have tightened project management for these devices precisely of the commercial rollout. And now I would like to hand over to Jochen for more details of our financials.

Jochen Schmitz -- Chief Financial Officer

Yes. Thank you, Bernd, and also a warm welcome from my side. Bernd already went through the key KPIs briefly. Let me start with giving some more light on our order intake.

We booked solid order intake in Q1 with 5% organic growth, driven by strong service growth. The equipment order growth was particularly strong in advanced therapies whereas imaging had been flattish against a very strong equipment order intake in the prior-year quarter, which was in the very high single digits. In aggregation, we are happy with our order book development with an equipment book to bill of 1.13. Coming to revenue, the comparable revenue in Q1 grew by 2.5%.

Underneath the group level, we saw a mixed picture, with on the one hand, a moderate growth of imaging and diagnostics, and on the other hand, advanced therapies with very tough comps. Regionally, we saw strong growth in the Americas, based on strong growth in the U.S. Also, Brazil contributed with very strong growth. Asia Pacific was soft this quarter with 1% on tough comps, especially in China.

Remember, we posted revenue growth in the 20s in China in Q1 '18. EMEA was flattish this quarter on tougher comps as well. Q1 last year, EMEA grew by 6%. Now let's proceed with profit.

On a group level, adjusted profit came in at EUR 545 million with a margin of 16.5%. This margin decline of 60 basis points can, to a large extent, be explained by foreign exchange headwinds of 40 basis points, primarily in diagnostics. We also saw a mixed picture in our segments. On the one hand, the imaging margin was strong with an improvement year over year also benefiting visibly from our cost-savings program.

On the other hand, the segments advanced therapies and especially diagnostics, posted lower margin this quarter. Finally, net income increased year over year on decreased interest expenses, as expected, with our post-IPO capital structure. However, the decreased interest expenses was held back by a negative one-off effect from foreign exchange related to the financing of our business in Turkey. For the quarters to come, we expect interest expenses to revert back to the levels seen after the IPO.

The tax rate was slightly below the also low prior-year quarter due to a positive impact from an international tax procedure. Nevertheless, we continue to expect tax rate of 28% to 30% for the full fiscal year. Now let's have a look at our segments, firstly on imaging. The solid imaging growth was driven by strong growth, in particular in Computed Tomography and Molecular Imaging.

The adjusted profit margin in Imaging increased year over year by 40 basis points from positive effects from conversion and visible benefits from the cost-savings program. Let's now look at advanced therapies on the very right side of the slide. Advanced therapies had a stellar quarter last year in Q1, hence, the business faced very tough comps in this quarter. As a consequence, revenue came down on these very tough comps by 4%.

Just to remind you, Q1 '18, the business grew by 8.5%. As a result and also due to less favorable business mix, the margin came down year over year by 270 basis points. Still was close to 20% margin, it is on the very healthy level and at the low end of our midterm ambition for this segment. Finally, diagnostics.

Diagnostics grew moderately with 3%. Admittedly, this growth happened on the back of easy comps of minus 1% last year. Instrument growth was strong again in the high single digits. Going forward, we expect to see gradual sequential improvements in growth rates over the next quarters again like in '18, but please keep in mind the easy comps situation this quarter normalized our growth, would have been more around 2%.

The margin in diagnostic was weak in Q1 at 8.1%. The drop in margin has been driven by two main factors: foreign exchange headwind of under 130 basis points year over year and higher Atellica Solution ramp-up costs. The foreign exchange headwind in Diagnostics was primarily driven by the devaluation of emerging markets currencies versus the U.S. dollar.

The higher ramp-up costs from Atellica Solution impacted the margin negatively by 200 basis points year over year, as Bernd has explained before. At the same time, our legacy business is sound and has been performing on a stable level in the last quarters. Therefore, in Q2, we expect an improvement versus Q1 on the back of additional reagent revenue with high contribution from the installations in Q1. Now let's turn to our cash performance in Q1.

Cash in Q1 was seasonally low due to the increase of operating working capital, which was driven by higher inventories. Especially after the strong Q4, the increase in inventories is not surprising. Having in mind our good order book, we need a basis for our future revenues in the coming quarters. Also, quite expected in Q1 and normal course of business, we saw an outflow in cash for incentive payout for the full past fiscal year.

Furthermore, as highlighted already last quarter, we see ongoing investments in our diagnostic factories with slight CAPEX spend. Now we come to our last slide, our outlook for fiscal-year '19. As Bernd has already pointed out at the beginning, we confirm our outlook for fiscal-year '19. For future growth, i.e., the underlying growth drivers for all our businesses are intact for all segments.

Thus, imaging and advanced therapies are fully on track for the full year and we expect diagnostics to improve during the course of the year. Our expectations for the year on tax rate and interest rate expenses remain unchanged. Although foreign exchange was a headwind for the group this quarter, we do not see a material impact from foreign exchange for the full year, since we hedged our U.S. dollar provision for the first nine months in the fiscal year.

And with this, I conclude my presentation and hand over to the operator for Q&A. 

Questions and Answers:

Operator

[Operator instructions] And our first question comes from Max Yates of Credit Suisse. Please go ahead.

Max Yates -- Credit Suisse -- Analyst

Thank you. Just my first question would be around the imaging outlook. Could you talk a little bit around what you're seeing in imaging equipment, particularly sort of CT and MRI scanners in both the U.S. and China? Obviously, we've had pretty strong growth rates there over the last 12 months.

And has anything changed in the way you're seeing the outlook as we start to hit tougher comparators in those regions?

Bernd Montag -- Chief Executive Officer

Yes. Yes. Thank you for the question. I think the market is impacting both geographies.

I saw a similar picture than in December for us at least. We have a very healthy backlog and revenue for the remainder of the year is secured. You will see better growth rates in imaging over the course of the year, also supported by these geographies.

Max Yates -- Credit Suisse -- Analyst

OK. And maybe just a follow-up on free cash flow. Could you just give any sort of detail around where you would expect free cash flow for the full year to come out relative to what you did last year? Should we assume that in line with profitability rising, assuming that happens, that free cash flow should also be up relative to last year? Or are there any incremental working capital headwinds that we should be aware of?

Jochen Schmitz -- Chief Financial Officer

Generally speaking, I think we saw, as I pointed out, a seasonally soft Q1, which was not surprising. We expect to see free cash flow from a conversion standpoint relative to the profit level on similar or slightly up level relative to prior year.

Max Yates -- Credit Suisse -- Analyst

OK. Thank you very much.

Operator

Our next question today comes from Romain Zana of Exane. Please go ahead.

Romain Zana -- Exane BNP Paribas -- Analyst

Yes. Good morning. Thanks for taking my questions. The first one will be on diagnostics.

I was wondering if you could give us more granularity on the gross margin and -- versus the prior year just to note what extent that the pressure had been due to more important pricing inflation. Still on diagnostics, you mentioned the high single-digit instrument growth in Q1, but the organic growth was reduced clearly, including consumable is up only 3%. So can you clarify why the consumables were declining year on year? And maybe also useful to have the proportion of consumables versus instruments this quarter versus prior-year quarter.

Jochen Schmitz -- Chief Financial Officer

Let me start -- thanks for your question. So on the revenue growth question, please have in mind that the revenue mix is 90/10, 90% revenue -- reagent and consumables, 10% instruments. That does not mean that we were shrinking on reagents. It just says that the 10% of the revenue were increasing with high single digits.

Some light on the gross margin side. As we pointed out, the -- I would say the dilutive impact on gross margin of diagnostics from the higher ramp-up costs in Atellica was in the ballpark of 200 basis points. And secondly, obviously, most of the profit impact on foreign exchange also transpired obviously in the gross margin. So this is, I would say, the main driver behind the development of the profitability.

It was in the gross margin. I'm not so sure if you said something about pricing, I'm not sure if I heard that, but pricing was definitely not a topic.

Romain Zana -- Exane BNP Paribas -- Analyst

OK, good. And just on the consumables side, so the growth on diagnostics, can you give us a figure year on year?

Jochen Schmitz -- Chief Financial Officer

They were in the low single digits.

Romain Zana -- Exane BNP Paribas -- Analyst

Thank you.

Operator

And our next question today comes from Veronika Dubajova of Goldman Sachs. Please go ahead.

Veronika Dubajova -- Goldman Sachs -- Analyst

Good morning, gentlemen, and thank you for taking my questions. I have two, please, and they're both on the diagnostics division. The first question is the ramp-up costs, Jochen, that you've alluded to, I know in the past you've discussed some of the installation timelines taking longer. Is that what's going on here or is there anything else? And in the press release, you mentioned some measures that you have implemented, if you can discuss those and what those will mean, that would be helpful.

My second question on the diagnostics business is the comment you have made in your remarks, Jochen, about gradual growth improvement as you move through 2019. Does that mean that your expectation for the fourth quarter is that you exit the year at 5% for diagnostics? Or have I misunderstood what you're saying there?

Jochen Schmitz -- Chief Financial Officer

Thanks for your question, Veronika. First of all, yes, you're pointing with your -- I would say your first hypothesis with regard to longer installation times, exactly in the right direction. As Bernd highlighted in his speech, what we see is several facts. First of all, and we talked about that already for a longer period of time, we see higher competitive win rates than originally, I would say, and we talked about this, higher than 35% on an ongoing basis.

And we will with a high portion of deals in high throughput, more complex settings. And this effect, which is, on the one side, a very positive one as it shows the competitiveness of the extraordinary, I would say, feature set of Atellica be lift up by, so to say, on the one hand. On the other hand, I would say the initial downside of it is that the installation takes much longer because these are all projects. It's not just plug and play, like if you would just sell one analyzer or so.

And this leads then to -- first of all, the higher and longer installation times means higher costs at the beginning and which also plays a role, in particular in the gross margin development, the delay, so to say, relatively speaking, a delayed start of the reagent revenue stream. What we see and what we're very happy about is the ability of our, so to say, legacy portfolio or retention, which also is, so to, say holding up very, very well. So therefore, we have, on the one hand, a very strong message, which was not planned that way. Therefore it was a bit surprising how -- about the intensity of this.

On the other hand, we see the initial, I would say, negative impact on financial KPIs. This is the storyline. On the growth side, what I said was, first of all, we saw almost 3% growth in Q1. The 3% were on weak comps.

We normalized it and I normalized it to two percent-ish, so to say, and then I said I expect to see acceleration quarter by quarter as in prior year, will then be 5%, we will achieve but acceleration starting with 2%. That was the storyline.

Veronika Dubajova -- Goldman Sachs -- Analyst

OK. Can I just -- I was just going to ask a quick follow-up just because I understand Atellica is very complex and you're having some great wins with large customers. But as I look at your guidance, you are anticipating more Atellica installations throughout the remainder of the year. So what's your degree of confidence in margins actually improving from here because as I think about Q2, Q3, Q4, you're going to have more than the 370 analyzers than you had this quarter.

How is that not going to be greater headwinds to margins as we move through the rest of the year?

Jochen Schmitz -- Chief Financial Officer

I think the main difference will not be so much the cost side, but the -- how and the amount or the degree of kicking in of reagent revenue stream with the obviously high profitability levels on top. That's driving the margin improvement on the Atellica side, not so much the lower costs because we expect to ship and install throughout the year a lot of instruments, you're right. The main profitability push will come from the increasing reagent revenue stream when the instruments get -- whenever we have more and more instruments being live and producing reagent revenue streams.

Veronika Dubajova -- Goldman Sachs -- Analyst

OK. Thank you.

Operator

Our next question comes from Michael Jungling of Morgan Stanley. Please go ahead.

Michael Jungling -- Morgan Stanley -- Analyst

Great. Thank you, and good morning. I have two questions around diagnostics. Firstly, on Atellica.

Of the total Atellica shipments that you've had so far, I think it's 1,300, how many are live and producing revenues as of today or last week? Then, secondly, on diagnostics, your weak growth in Q1 is perhaps a little bit inconsistent with what we're seeing, for instance, from the Abbott result, which was showing 9% organic growth driven by Alinity. Is it possible also that you are seeing some greater competitive headwinds from Abbott and the like that is causing a bit more of a challenge for you in diagnostics?

Bernd Montag -- Chief Executive Officer

OK. Thank you, Michael. I mean, the answer to the first question is easy: 400 is the number. So we had by the end of Q1 400 analyzers live.

By that, we note this is end of Q1 so that doesn't mean that they have contributed to profitable reagents revenue for the entire quarter, but it is a very good, encouraging sign. And we will see this continuous ramp-up following the wave of installations. Then when it comes to growth rate, this is clearly just a continuation of what we have seen over the last years that simply -- which we -- at our installed base is, because of these lower productivity of the legacy systems, is not driving the same reagent growth. So this is the picture and new system installations do not change the picture yet in our case.

Jochen Schmitz -- Chief Financial Officer

Yes. And maybe just to have the numbers here. The shipments are 1,370-plus, more in the 1,400 arena than in the 1,300, just to have this clear. And you talked -- and maybe one aspect also, the shipment KPIs was just used because, at the beginning, the revenue line will be dominated obviously only by instrument revenue.

Therefore, as you know, the normal revenue mix is 90/10, 90% reagents; 10% instruments. And therefore, at the end of the day, to also give a good prediction on what we can expect also from a bottom-line perspective, it only makes sense to talk about really about revenue really on this side then when you have achieved a certain really full mix of those two components.

Michael Jungling -- Morgan Stanley -- Analyst

OK. Can I just follow up on -- is when I look at the Alinity success thus far with Abbott, can I just confirm that you believe this has not had a negative impact on your shipments in your first quarter of a bit over 300-or-so Atellicas?

Bernd Montag -- Chief Executive Officer

Yes. I can confirm that. We are very happy with Atellica -- very happy as a data point with the competitive win rate. So again, significantly more than 35% of the Atellicas we sold and shipped have been competitive wins, which is more than we anticipated.

And especially these are wins in the customers we -- in the bigger customers, which have high demands. So we are very, very happy and see the competitiveness of Atellica more than confirmed.

Jochen Schmitz -- Chief Financial Officer

And that's also why we feel not too bad about the topic, generally speaking, because the win rate in those high-throughput accounts is something which should also lead, generally speaking, in the future also to higher revenue per box. And this is at the end of the day what drives profitability levels in this business.

Michael Jungling -- Morgan Stanley -- Analyst

OK. And when you talked about in the press release about being a little bit more sharper or so in terms of the Atellica rollout, does this mean you have to employ more people, that you have to be a little bit more cunning? What specifically gives you the confidence that you'll be able to sort of sharpen the Atellica ratio here? Just curious what it is. More salespeople? More technicians?

Bernd Montag -- Chief Executive Officer

OK. That's a little bit kind of the issue because, I mean, first of all, we are here in a situation where we have success with the product and we are, to some extent, here paying the price short term for the success because of the high number of installations, which we have now in the field. You can do the math, how many systems have been in transit, so to say, have been in the field without being live yet when you look at the numbers I gave you. So this is one topic, it's the sheer amount of system.

The second topic is take Atellica Solution literally. This is more than a box, yes. This was not about just unboxing an analyzer, it is about significant changes at a customer side, which the customer wants. They want to reengineer their lab and this is a process which takes longer on their end and on our end, especially because of the high amount of bigger projects.

So what we have to do and what we are doing is making the organization fully ready for this change also in how we deploy systems. This is not only about delivering, it is about installing more complex solutions. We have put our most experienced people on these installations. We are backfilling in other areas to make sure that we have the best people on this topic.

And we also, because this is a huge transition also for our organization, we run this on the next nine months as a project with direct attention of the board with very, very streamlined reporting and communication lines. This is the "all hands on deck" project to turn the Atellica product success and confidence into commercial success as soon -- as quickly as possible.

Operator

Our next question today comes from the line of Sebastian Walker of UBS. Please go ahead.

Sebastian Walker -- UBS -- Analyst

Hi, there. Thanks for taking my questions. I've got two, if I could. So just, first, on Diagnostics Solutions and Atellica, so 400 live systems implies something like seven- to eight-month lag time between shipments and go live.

So could you talk about where you expect that number -- that time could reasonably go to? And then also just on that, whether you're still comfortable with the 16% to 19% medium-term guidance for the margins? The second question is on imaging and AT on the China quotas. Could you maybe -- your commentary seems a little bit more muted here than some of the radiotherapy players in the market. Could you talk about perhaps why you're less positive on the opportunity and whether you've seen any pickup in activity in discussions with customers?

Bernd Montag -- Chief Executive Officer

OK. Question on the in between installation and go live, so we anticipate this number for our fiscal-year '19 to go on average in -- to go down to five months. And the number varies between small installations and large topics like, for example, the Pardini deal we talked about. It's more than 100 analyzers in one huge installation.

But we are targeting a significant reduction, but it still will be five months. And maybe also to qualify this a little bit, in our current installed base, 15%, as I said, 15% of the analyzers are connected to a tracker. In the Atellica deals, it is 35%. So we have the aspect of automation.

And the second topic is that even if there's no automation, it is very often now that we're placing a set of independent "boxes" at a customer side with one integrated modular Atellica Solution. It is about the customer making the change of, for example, switching off their STAT lab because this can be done now with one system, so we can do emergency testing in one topic. So it is about changing customer habits and making the customer feel comfortable with this workflow, which gives a lot of productivity gains in the future. So imagine this to be more than just switching on a box.

This is about making significant changes to enable somebody to have a much more productive, sophisticated medical factory. So this is what this is about. I think the second question was about the China region. So I mean, I cannot -- I'm not too literate on what other companies say.

And I think, I mean, I read recently in a report, I think about Varian, that they are also a little bit careful about these expectations. So what I want to make clear when it comes to these Chinese quotas, this is not a tender document. This is an intent -- or I would say this is not even an intent, it is what is theoretically possible. There's no funding behind it, there's no purchasing process behind it.

And from what I know without being an analyst here, I don't see that others are too bullish about this either. So we don't see on the ground in China that this document is changing behavior of our customers.

Jochen Schmitz -- Chief Financial Officer

But we still expect high single-digit growth rates out of China in imaging. So we're still seeing this as a very, very important growth driver for our imaging franchise.

Bernd Montag -- Chief Executive Officer

And the good thing is to say that this document here is not putting the brakes, but it is -- and I think I had that in many one on one relations with you and your colleagues. This is not document I would use to assess the outlook of the Chinese market. The Chinese market is healthy. We have good pricing digitals there and expect it to go like this, but I think with or without this document, this is the fact, OK?

Jochen Schmitz -- Chief Financial Officer

And if you were to ask the midterm guidance on diagnostics profitability, we stick to this guidance. Remember we said at the Capital Markets Day, three to four years and this is still holding up.

Sebastian Walker -- UBS -- Analyst

Thank you.

Operator

Our next question comes from the line of Patrick Wood of Bank of America. Please go ahead.

Patrick Wood -- Bank of America Merrill Lynch -- Analyst

Perfect. Thank you. I think a have a few remaining. Firstly, just a point of clarification on the imaging side, just to confirm.

The confidence that you guys have at growth improving through the year despite the tough comps is because of what you're seeing in your existing order group within the Imaging franchise. So just to confirm if that's the case is question one. Question two, I'm just curious on the diagnostics side, maybe to follow up on the points made on Abbott, I'm curious who do you think you're taking the installations from if you're holding your base installations -- sort of your basis state kind of flat with the legacy platform? Who do you think Atellica is replacing mostly in the market? It doesn't look like it's Abbott. So should we conclude that's Beckman? Or I'm just curious.

Bernd Montag -- Chief Executive Officer

OK. I mean, first one on Imaging, I mean, yes, it is on the volume of the order book. I spoke about the very, very helpful book-to-bill on the equipment side of 1.13. It's also the funnel, which we see here of orders, which we will generate.

And we are very, very confident that Imaging will have a very healthy year, will have a much -- a very strong remainder of the year. And partially, you can also -- when you look at one of the reasons, by the way, for the low cash flow in Q1 is also building up the "inventories" for the ship -- for the revenue to come in imaging in the next quarter. So here, we are very confident. And I think, Patrick, you have followed us for a while, sometimes the growth rates in imaging can fluctuate a bit quarter over quarter.

We have seen this pattern. So imaging is in a very, very healthy state. The second question was -- what I would like to remind you is the diagnostics market is not as consolidated as the imaging market. So the big three have -- so us, Roche, Abbott, have about 48% of the market, so which means that when you are in a position like we are in here, I mean, you get 14 or 16 or whatever percent market share, you have 86% of market you can grow from where you can take instruments from.

This is not like a two- or three-participant game and that is -- so I can't say that there is one particular competitor we win especially from. What makes me very, very confident is and something -- and the team is also proud of that we have won deals and especially very important deals against all big competitors with Atellica, especially with customers who are very demanding when it comes to solutions for the lab of the future. And there, Atellica is a great weapon to have.

Patrick Wood -- Bank of America Merrill Lynch -- Analyst

Fantastic. Thank you for taking my questions.

Operator

Our next question comes from Scott Bardo of Berenberg. Please go ahead.

Scott Bardo -- Berenberg Bank -- Analyst

Yes. Thanks so much for taking my questions. It seems to me that the placement targets that you set for Atellica are, I think, toward the end of the year being 3,200 to 3,500 were heavily underpinned by your own installed base of systems in the market. And while I appreciate you're making some good success with commercial wins, it feels a little bit that your existing installed base is somewhat sluggish to swap over to Atellica.

So I wonder if you could comment on this a little bit. Is there any reticence from your customers? And the placement targets that you put out for this year, are you concerned about those at all given the dynamic you see in Q1? Also just following on diagnostics, I think a few months ago there was some confidence from the management board about improving diagnostics margins about 100 basis points or so from what was actually a relatively weak last year. Obviously, we've started off pretty soft here. Is it still an attainable target to improve margins in diagnostics 100 basis points year over year?

Bernd Montag -- Chief Executive Officer

Thank you. I mean, let me give you a little bit more of background here. When I look back at what we -- when I look at where we are today and compare really what we expected and communicated a year ago when we started also the IPO market and what we revealed in our Capital Markets Day, we are extremely happy about the competitive wins of about more than 35% in that the system is received so positively by the professional customers. When you talk about installed base conversion, I would draw a little bit of a simple picture.

There are customers who basically want to leave their lab as is. There are "boxes" and the boxes come off contract and they want to replace one box with another box. And then there are customers who really want to change how to do things and bring the automation, bring the operation to the next level. We have a high win rate when it comes to those who want to bring their lab to the next level.

When it comes to those who just on a regular basis, so to say, are up for renewal, they are sometimes a little bit slow in adopting the idea because "before I have a new system I want to make sure they are really running because I don't want to change things. I'm happy how things are." So there, the adoption is a little bit slower. This is not -- this is a nice problem in this mix. This is a nice problem to have because changing the installed base to Atellica without having more reagent revenue is not supercritical for the P&L.

The critical aspect is winning new customers and winning in the high-productivity environments. So from that point of view, the change in the installed base is a bit slower. But the good thing is that we have more wins on the competitive side and more net new deals and more high-throughput, high-productivity deals. And this is also one topic for the financial effect.

We have very well secured the installed base. We are happy with the legacy business and how it's holding up. On the other hand, the Atellicas we put on top are not yet contributing as much as they will in the future in terms of reagent revenue. And that is why for the time being, we have this -- especially in Q1 we have this negative impact on the gross margin.

Jochen Schmitz -- Chief Financial Officer

And I think as a perfect lead over to your second question, Scott, the margin improvement in diagnostics is primarily a function of the speed of installation and then the timing and the amount of reagent revenue coming in. Obviously, with Q1 being weak on this side, the margin improvement obviously became more ambitious, no doubt about this. But at the end of the day, the mechanics are holding up very well. It's about the speed of installation and how quickly we see additional reagent revenue coming.

And that is also one of the reasons why we tighten management of matching on the topic. And at the end of the day, our ambition is that we will at least, ex-foreign exchange, improve margins year over year.

Scott Bardo -- Berenberg Bank -- Analyst

OK, understood. And perhaps just one quick follow-up, if possible. Just on the advanced therapies business, which I appreciate can be a little bit lumpy, but there has been somewhat slowing growth over the last several months in that business while your competitor has been reporting quite good growth from its comparable business. So I just wondered if you could talk a little bit to your future in this segment.

Are there any major product launches to support better growth here? Perhaps just a little bit of a feeling for that business, please.

Jochen Schmitz -- Chief Financial Officer

Yes. I think, Scott, you said a lot already. I think it's a bit more fluctuating this business because it's smaller. It's relatively dependent on single use, you either can take revenue for or not.

Therefore, the volatility of the business is higher than the others. We are very happy with the business, in particular, with a very, very strong order intake we saw over the last four quarters on the equipment side. And therefore, we have a very good order book now and we expect very, very healthy revenue growth coming in the next quarters. And let's say more for the strategic aspect of the question, I will turn over to Bernd.

Bernd Montag -- Chief Executive Officer

I mean, strategically, this is a growth engine for us both from a business point of view but also from a, let's say, medical footprint point of view and we see diagnosis and treatment growth together, but more on a short-term basis, we have a very strong product pipeline with significant introductions within this year, which will contribute not only to the order book, but also to revenue. So I'm very confident about this business. Thanks, again, Scott. OK, operator, let's take the last question please.

Operator

Our last question today comes from Gunnar Romer of Deutsche Bank. Please go ahead.

Gunnar Romer -- Deutsche Bank

Gunnar Romer, Deutsche Bank. Thanks for taking my questions and thanks for all the explanations you've provided around diagnostics. On the diagnostics business, one left from my side, just curious whether you have an update for us when it comes to your strategy in molecular diagnostics, and in particular, your relative preference of driving this organically or via M&A? And my second question would be on imaging. Seems to me also when looking at numbers of your competitor that we're seeing a temporary market slowdown.

Just curious on your comments around market shares. You've been upbeat on that over the last couple of quarters, just curious whether these comments still hold true. And then also related to imaging, just a follow-up, can you remind us of what the order intake was? I think you've talked about the book to bill, but what was the order intake growth you've seen in Imaging equipment?

Bernd Montag -- Chief Executive Officer

OK, thank you. I mean, comment on molecular, I think one is the -- what became very clear in this call, again, is that we are the automation and industrialization, the high-productivity company in diagnostics. And if -- and when we are interested in growth -- I mean, when it comes to molecular, it is about what are ways to bring molecular out of the, let's say, the niche of our specialty lab. This is what our view on molecular is, to make sure that, at some point, this becomes as much an automated, easy-to-do test like immunoassay and clinical chemistry.

This is the target. This is what we worked organically on. This is also where we have made inorganic moves like the acquisition of Fast Track Diagnostics to speed up the development when it comes to abilities, which we better find on track. Then on the imaging side, I think...

Jochen Schmitz -- Chief Financial Officer

Bernd, I can take it over. I believe, you touched on the topic. Imaging had been flattish against very strong equipment order intake on the equipment side. Last year -- remember, last year, in the prior-year quarter, we were at a very high single-digit equipment orders.

Therefore, we are very, very happy with our Imaging business and we expect accelerated revenue growth in the coming quarters.

Gunnar Romer -- Deutsche Bank

And in terms of market shares?

Bernd Montag -- Chief Executive Officer

Yes. OK, market shares, I am very, very confident that when you look at the last four quarters that we have won market share. This is also how to -- I can't tell you about the last quarter, I don't even have data. But this is to be looked at in a long-term trend and I'm extremely happy about the trend line of the last 12 months.

Gunnar Romer -- Deutsche Bank

That's great. Just a very final one, if I may. On tariffs, is that -- do you still expect the 40 million euro drag? Or has any changed -- anything changed in that regard? And what was the impact in the first quarter, please?

Jochen Schmitz -- Chief Financial Officer

I think, generally speaking, we do not expect -- we do not have better information than you. We still expect the same thing, 30 million euros to 40 million euros. As pointed out, in the first quarter, mid to high single digits amount of millions effecting or impacting our numbers. And obviously, more on the imaging and advanced therapies side than on the other businesses.

Florian Flossmann -- Head of Investor Relations

OK. So thank you, everybody, for participating today. As always, the team and myself, we will be available for more questions if there are. So thank you, everybody, for participating.

Operator

[Operator signoff]

Duration: 63 minutes

Call Participants:

Florian Flossmann -- Head of Investor Relations

Bernd Montag -- Chief Executive Officer

Jochen Schmitz -- Chief Financial Officer

Max Yates -- Credit Suisse -- Analyst

Romain Zana -- Exane BNP Paribas -- Analyst

Veronika Dubajova -- Goldman Sachs -- Analyst

Michael Jungling -- Morgan Stanley -- Analyst

Sebastian Walker -- UBS -- Analyst

Patrick Wood -- Bank of America Merrill Lynch -- Analyst

Scott Bardo -- Berenberg Bank -- Analyst

Gunnar Romer -- Deutsche Bank -- Analyst

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