Hologic, Inc.

Good afternoon and welcome to Hologic's second quarter fiscal 2021 earnings conference call. My name is Jenny and I'm your operator for today's call. Today's conference call is being recorded. All lines have been placed on mute. I would now like to introduce Mike Watts, Vice President, Investor Relations and Corporate Communications to begin the call.

Thank you, Jenny. Good afternoon and thanks for joining us for Hologic's second quarter fiscal 2021 earnings call. With me today are Steve McMillan, the company's chairman, president, and chief executive officer, and Carlene Overton, our chief financial officer. Steve and Carlene both have some prepared remarks, then we'll have a question and answer session. Our second quarter press release is available now on the investor section of our website. We also will post our prepared remarks to our website shortly after we deliver them. Finally, a replay of this call will be archived through May 21st. Before we begin, I'd like to inform you that certain statements we make during this call will be forward-looking. These statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Such factors include those that are referenced in the Safe Harbor Statement included in our earnings release and in our filings with the SEC. Also during this call, we will be discussing certain non-GAAP financial measures. A reconciliation to GAAP can be found in our earnings release. One of these non-GAAP measures is organic revenue. We define organic revenue as constant currency revenue, excluding the divested blood screening business, as well as the acquired Assessa, Biotheranostics, and Diageno businesses. Finally, any percentage changes we discuss will be on a year-over-year basis, and revenue growth rates will be expressed in constant currency unless otherwise noted. Now I'd like to turn the call over to Steve McMillan, Hologic CEO.

Thank you, Mike, and good afternoon, everyone. We're pleased to discuss our financial results for the second quarter of fiscal 2021. We posted excellent financial results overall, highlighted by best in class growth rates. Total revenue was $1.54 billion and non-GAAP earnings per share were $2.59, both in line with our guidance. Organic revenue doubled. driven by strong recovery and momentum in our base businesses, as well as our continued contributions to the COVID-19 fight. On the bottom line, EPS more than quadrupled. Our diversified business model again demonstrated its value in the second quarter, as strong growth rates in our core businesses enabled us to meet our overall guidance, even though COVID assay sales were less than expected. Our base diagnostics business and our surgical franchise both finished slightly better than forecast, even while overcoming a tough January for US healthcare utilization that was driven by increasing COVID cases. And our breast health division clearly outperformed as our diversification strategy has led to a faster than expected recovery. Carlene will cover the revenue and expense details, But before she does, I'd like to discuss two primary topics. When the COVID pandemic began more than a year ago, we set out to accomplish two things in simple terms. First, we committed to make as big an impact as possible against the pandemic. And second, we wanted to ensure that every action we took helped us emerge from the pandemic as a stronger company. we are clearly accomplishing both goals, which makes us more excited than ever about our future. In terms of our first goal, helping fight the pandemic on a global scale, let's summarize our contributions by focusing on four key numbers. Our first number is 100 million. Soon, we will ship our 100 million COVID test to customers, which included 27 million in the second quarter. At the same time, we have maintained our commitment to provide women's health tests by dramatically increasing total molecular diagnostics production capacity. We are on track with our expansion plans in San Diego and Manchester, UK, to have the capacity to make at least 75 million tests a quarter across our portfolio by January of 2022. Our second number is 40. This is the number of countries in which we've sold COVID tests as we help battle what has been and continues to be a global crisis. COVID testing continues to strengthen our international business, our relationships with customers, our future prospects and diagnostics, and even market access for our other franchises. These COVID sales contributed to total international revenue of $474 million in the second quarter, which represented tremendous growth of 142%. Our third number is $700 million. This is the number of Panther instruments we have shipped to global customers over the last year, including about 190 in the second quarter. As a reminder, in the five years before COVID, we shipped an average of 225 Panthers a year. So we've more than tripled that pace over the last 12 months. In addition, we are encouraged that demand for Panthers remains very high. And for all of fiscal 2021, we expect to exceed last year's record placements. Overall, our global installed base now stands at roughly 2,600 instruments, approximately 40% higher than when the pandemic began, giving us a robust platform for future growth as more customers come to appreciate our system's best-in-class capabilities. And as we have discussed, we are seeing this play out with record levels of new non-COVID business on these Panthers. All these numbers lead to our fourth number, which is 2.35 billion dollars. This is the total COVID assay revenue we have generated on a global basis since the pandemic began, including $680 million in the second quarter. And this has contributed very significantly to operating cash flow of nearly $1.9 billion over the last year. This has enabled us to acquire four companies and sign a deal for a fifth, even while further strengthening our balance sheet. We'll discuss our business development activity more in a minute. Before we do that, we wanted to provide our current perspective on the changes in the COVID testing market that you have all seen, with the understanding that the pandemic and its impact on Hologic remain highly unpredictable. Based on publicly available data for the U.S., molecular COVID testing volumes remain very high, much higher than for any other molecular test, but have declined significantly since January based on a better than expected vaccine rollout. In this context, our U.S. sales of COVID tests also declined significantly in March and further in April. We believe that molecular COVID testing demand will likely decline further as vaccines roll out, but remain important into fiscal 22 and beyond. This reflects the ongoing need for accurate clinical diagnoses, the value of testing for infection control purposes, and the so-called back-to-life testing that is helping to reopen economies. In this environment, the combination of our huge Panther installed base at facilities close to the patient and our gold standard assay performance have us uniquely positioned to gain market share. Customers continue to tell us that Panther and Aptima remain their products of choice and that they intend to consolidate on our platforms. But we believe many of them are first using up less automated assays before they expire. Customers had accumulated these tests in the winter when they needed multiple manufacturers to accommodate then higher levels of demand. This dynamic is further supported by the public ADVMED data that many of you see, which show that industry-wide, tests performed are now running ahead of tests shipped, indicating that inventory is being worked down. In response to these market changes, we pivoted in two ways in the second quarter. First, by selling more COVID tests to our base hospital customers who want to bring highly accurate testing closer to their patients, improving turnaround times, and clinical relevance. Panther is well positioned for this, with first test results being delivered in about three hours. Notably, COVID tests are now being run on Panthers in more than 600 clinical labs in the United States. This means that COVID is the second most decentralized test that we sell, following only Aptima Combo 2, which has been on the US market for roughly 20 years. Second, we pivoted by selling more tests internationally. As everyone has seen in the news, The vaccine rollout is proceeding at different paces around the world. Europe in particular has struggled with inoculations, increasing the importance of testing. For example, in the second quarter, almost 40% of our COVID assay revenue came from outside the United States, mainly from Europe. Now let's shift gears to our second major topic. an update on how the tremendous impact we've made against COVID has strengthened our business for the other side of the pandemic. As many of you will recall, before the pandemic hit, our organic growth rate had been steadily improving to around 5% based on new products, international expansion, and our early acquisitions. Now, as we begin our annual strategic planning process, We are confident that organic growth for the next several years, excluding COVID assay sales, will be higher than it was before the pandemic hit. In diagnostics, we've used COVID cash flows to broaden our portfolio by buying assets that are growing faster than our base business. Since the GenProbe acquisition in 2012, we had acquired exactly zero companies in diagnostics. But since late February, we have completed two deals and announced a third, dramatically accelerating our longstanding goal to become a more complete, diversified diagnostics leader. In February, we closed our $232 million acquisition of Biotheranostics, a leader in molecular tests for breast and metastatic cancers. enabling us to expand into the adjacent growth market of oncology. This business is off to a very strong start, based mainly on the inclusion of the breast cancer index test in NCCN guidelines to predict the benefit of extended treatment with endocrine therapies. A few days after that, we closed biotheranostics, I'm sorry, a few days after we closed biotheranostics, we acquired Diagenode, a Belgian developer and manufacturer of molecular diagnostic assays and epigenetics products for approximately $153 million. Diagenode, which generated more than $30 million of revenue in the last year, will enable us to offer a broader, more differentiated menu of molecular diagnostic tests on our fully automated high-throughput Panther fusion instrument. We know Diagenode's capabilities in assay development well, since we have partnered with them since 2016 to develop and manufacture PCR-based assays for fusion. As you might recall, the ability to leverage external PCR expertise was one of the reasons we developed the fusion system years ago. Now that Diagenode is part of Hologic, we can accelerate those assay development efforts and make many of their CE-marked PCR tests available on our unique platform, further enhancing European growth. Finally, earlier this month, we announced our agreement to acquire MobiDiag, a Finnish developer of innovative molecular diagnostics tests and instrumentation, for approximately $795 million. In contrast to Diagenode, which helps us leverage our Fusion installed base around the world, MobiDiag brings new capabilities that we have been interested in for more than a decade. Specifically, MobiDiag is an innovator in near-patient acute care diagnostics, a large, rapidly growing area that we don't compete in today. This market encompasses tests for respiratory and gastrointestinal conditions, healthcare-associated infections, and antibiotic resistance, among others. Having monitored this space closely over the years, we believe MobiDiag's NovoDiag platform is a truly differentiated asset with a unique combination of ease of use, rapid turnaround, multiplexing, and low costs. MobiDiag generated more than $40 million of revenue in calendar 2020, with a limited commercial presence and no sales in the United States. So we believe we can accelerate their growth globally, but especially in the United States once we get some of their assays approved here. Before I turn the call over to Carlene, I wanted to touch briefly on how we have also strengthened our breast and surgical businesses during the pandemic. In breast, we have continued to expand on our strategy to diversify the business across the patient continuum of care. We now sell a full portfolio of capital equipment, hardware and software upgrades, interventional tools, and service. While the world has been understandably focused on COVID, we have increased our direct presence with breast health customers. We have launched new software products based on our investments in artificial intelligence. And we have strengthened our interventional franchise by relaunching Bravera, which is doing very well, and buying Somatex, a longtime partner and leading developer of breast cancer markers. Together, all these strategies helped breast health outperform in the second quarter, with total sales exceeding 2019 levels and global growth of 7.3%. While the mammography market is not quite back to pre-COVID levels, we are very pleased with our competitive position and growth outlook for the future. In the surgical, both our R&D and business development pipelines have been productive, broadening the portfolio of products that we sell through a high-performing, highly engaged sales force. New products such as our Fluent fluid management system, new hysteroscopes, and Assessa's laparoscopic RF product, ProView, are complementing our market-leading MyoSure and NovaSure devices. As a result, surgical sales surpassed 2019 levels in the second quarter and grew 6.6% on a global basis, even while overcoming a slow January that resulted from reduced procedures in U.S. regions that were hit hard by COVID. In conclusion, I want to emphatically state that I have never been more excited or confident in our future. We have responded to the world's need for COVID testing in remarkable fashion and will continue to be there for testing needs around the world. Even more importantly, We have literally strengthened every one of our businesses in every geography and added multiple new growth platforms to our company during the last 12 months. I am truly amazed at what our team has done, and we really look forward to the quarters and years ahead. Now we'll turn the call over to Carlene.