Hologic, Inc.

Good day and welcome to the Hologic 3Q21 earnings conference call. My name is Kathy and I will be your operator for today's call. Today's conference 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, Kathy. Good afternoon and thanks for joining us for Hologic's third 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. Our third 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 August 27th. Before we begin, I'd like to inform you that certain statements we make today 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 referenced in the safe harbor statement that's 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, which we define as constant currency revenue excluding the divested blood screening business, as well as year one revenue from acquired businesses, currently Assessa, Biotheranostics, Diagenode, and MobiDiag. Finally, any percentage changes that we discuss today will be on a year-over-year basis, and revenue growth rates will be in constant currency unless otherwise noted. Now I'd like to turn the call over to Steve McMillan, Vologic CEO.

Thank you, Mike, and good afternoon, everyone. We're pleased to discuss our financial performance for the third quarter of fiscal 2021. We posted excellent results overall, driven by a strong rebound in our base businesses and continued contributions to fight the ongoing COVID pandemic. Total revenue was $1.17 billion, up 38%, and non-GAAP earnings per share were $1.33, up 77%. we significantly exceeded our guidance on both the top and bottom lines. Our revenue outperformance was broad-based in the quarter. Our breast and surgical divisions both grew substantially versus the prior year period when results were negatively affected by the pandemic. And importantly, both businesses also grew compared to the same period of 2019. Our diagnostics division grew about 20% compared to last year, despite lower sales of COVID tests and increased compared to 2019 as well. Carlene will review our full financial results today, but before she does, I want to take a step back and provide some perspective on where Hologic is headed over the longer term, as many of you have requested. As mentioned in our last call, we have been working through our annual strategic planning process, and based on this, I've never been more excited about our future and the global impact we are making by pursuing our purpose, passion, and promise. We know this is important to all our investors, and especially those focused on ESG priorities. Bologic is clearly emerging from the COVID-19 pandemic as a stronger, faster-growing company. We have a much higher profile on the global stage which has helped create a stronger and more durable foundation to accelerate our international growth. And we have placed hundreds of new Panther instruments, which is boosting our razor razor blade business model. From a financial perspective, we have generated more than two and a half billion dollars of operating cash in just the last five quarters. During this time, we have used about $1.35 billion to buy six companies and about $510 million to buy back our own stock. In diagnostics alone, we have added two new growth platforms in biotheranostics and MobiDiag and substantially increased our assay development capabilities with Diagenote. Based on all this progress, we are now targeting organic revenue growth rates of between 5% and 7% in our base businesses between now and 2025. This excludes sales of COVID assays and related ancillaries, which we expect to decline over our strat plan horizon. Now we'd like to discuss how we expect this to play out in our three divisions. This is more detail than we typically provide in a quarterly call, but it's important to underpin the enthusiasm we have for our future. First, in diagnostics, we are diversifying our customer base, installing more Panther instruments, continuously adding new assay menu, and driving testing demand. Our foundation in diagnostics remains rock solid, with leading US market positions for our FinPREP Pap test and our key women's health assays on the Panther instrument, namely chlamydia gonorrhea, HPV, and trichomonas. As leaders in these categories, we have built strong partnerships with many of our largest lab customers that enable us to educate physicians about testing guidelines issued by groups like the CDC. Just last week, in fact, the CDC posted new recommendations that are very positive for public health and for our business. So while our market shares are already very high, we are driving growth by expanding addressable markets. In addition, we have developed related women's health tests that are often performed from the same patient sample, such as our vaginosis panel and our test for mycoplasma genitalium. Finally, we see significant opportunities to increase sales of other products where our market shares are much lower today. Our response to the COVID pandemic has unquestionably enabled us to accelerate these growth strategies, We have grown from a successful niche player in STI testing into a much more diversified industry leader with a broader customer base. We have done this by dramatically increasing placements of Panther instruments. Since the start of the pandemic, we have increased our global installed base by more than 50%. or in real numbers, by almost 1,000 panthers. We now have about 1,500 panthers in the United States and more than 1,200 in other countries. And we are well diversified across customer sizes and types. And as COVID testing wanes, customers are beginning to use these instruments to run more non-COVID assays. This is a significant opportunity, because today, about half our customers, from the largest reference labs to smaller hospitals, run three tests or fewer on their Panther instruments, even though we now have 19 total assays available. We are capitalizing on this opportunity by signing up record levels of new business, as reflected in the test of record, or TORS, metric that we have discussed. Pre-COVID, our best year for tours was a little more than $20 million. Last fiscal year, we set a new record with about $35 million of new business, and we are on track to comfortably exceed that number in 2021. Outside the United States, where Hologic Diagnostics has been less well-known historically, COVID has materially elevated our profiles. Since the pandemic began, about a third of our COVID assay sales have been generated internationally. And the relationships we have established will help us win business and drive future growth. Finally, the strong cash flow we've generated from COVID sales has enabled us to complete three recent acquisitions and diagnostics. that together are expected to contribute more than $100 million of annual revenue, as well as providing new growth platforms that increase our top-line growth rate. First, biotheranostics enables us to enter the lab-based oncology space, a longtime area of interest that has been growing rapidly. Biotheranostics is off to an excellent start. with about $13 million of revenue in the third quarter, more than 30% higher than their best quarter prior to the pandemic. Second, Diagenode will help us add PCR-based menu to our Panther fusion instrument, both in Europe and the United States. And third, the acquisition of MobiDiag, enables us to enter the rapidly growing market for acute care near patient testing, which we have been monitoring for years. We believe the NovoDiag instrument provides the right combination of ease of use, rapid turnaround, and low manufacturing cost to expand into smaller hospitals and create a multi-hundred million dollar product line over time. Now let's shift gears and discuss our breast and skeletal health division, where revenue growth is becoming more diversified, more recurring, more global, and more consistent than ever before. Similar to diagnostics, our strategic plan is built on a foundation of strength. We are the leaders in breast health. Based on a long history of innovation, partnership with customers, and focus across the continuum of breast care. Our strategy is built around the innovative, market-leading Genius 3D mammography platform. Like all our key products, our Genius exams make a real difference in women's lives. They detect more dangerous cancers while reducing unnecessary callbacks. A few years ago, Many investor questions focused on whether we could overcome the 3D cliff that was thought to be inevitable once the market converted to 3D. We don't get that question much anymore because we have leveraged our leadership in 3D to create a much more diversified business with more consistent, steady revenue growth. In fact, in the third quarter, U.S. gantry sales represented less than 20% of global breast health revenue. We have accomplished this in four ways. First, we have expanded our service business. If we think of breast health service as a single product, it would be the company's second largest, with more than $500 million of global revenue over the last four quarters. While we don't expect this to grow dramatically over our strategic planning horizon, Service will continue to underpin our financial results and be the cornerstone of the tight relationships we have with our customers. Second, we have beefed up our R&D capabilities beyond our traditional focus on X-ray imaging. We have developed new software packages like Clarity HD, which provides the industry's fastest, highest resolution images. We have introduced new tools like Genius AI Detection, a deep learning-based software that helps radiologists detect subtle potential cancers. And we pioneered Bravera to fully integrate the biopsy procedure with specimen radiography for the first time. Bravera alone is now generating about $40 million of annual revenue, and we expect all these new products to drive growth over our strat plan horizon. Third, we have acquired four companies since 2018 to broaden our product portfolio, expand across the continuum of breast health care, and become the partner of choice for all a customer's breast health needs. These acquisitions include Faxotron, which bolstered our offerings in specimen radiographies. And Focal, which moved us further into breast conserving surgery. And Supersonic Imagine, which strengthened our position in ultrasound. And Somatex, which increased innovation in breast biopsy markers. In aggregate, these deals are now adding about $90 million annually to breast health revenue and are important contributors to growth in our strategic plan. And fourth, We are expanding internationally in breast health. Our focus is to continue gaining market share with our existing 3D and upgradable 2D mammography products, the same products that have established leadership positions in the United States. We are also bringing the new products I've discussed, both internally developed and acquired, to additional countries. And we've purchased distributors in Germany, Spain, and other markets to get closer to customers and secure more service revenue. Now let's turn to our guidance surgical division. Surgical was our fastest growing division before the pandemic, and our strategic plan assumes that surgical will continue its momentum through 2025. We have a unique opportunity to leverage our strength in the OB-GYN channel to provide differentiated solutions throughout women's lives. While today our products mainly help middle-aged women, in the future we plan to have a stronger presence among mothers-to-be and older women as we expand our offerings within the hysteroscopic, laparoscopic, and pelvic health markets. Within surgical, MyoSure remains the world's leading hysteroscopic product to remove smaller less complicated fibroids. Since July is Fibroid Awareness Month, you've probably seen many articles describing the huge number of women who are affected by fibroids and the way they often suffer in silence or undergo invasive procedures such as hysterectomies. It's clear that this market remains large and under-penetrated and that after many years of exceptional growth, MyoSure still has plenty of room to run. We are also very excited about Assessa, which we acquired in 2020, and its laparoscopic fibroid treatment system. Assessa is a perfect complement to MyoSure, as the system is used to treat larger, more complicated fibroids that MyoSure can't reach. Importantly, the same OB-GYNs who rely on MyoSure have the potential to use Assessa, so it's a great fit for our sales force. We recently received two pieces of good news on Assessa, that it's now included in ACOG's updated fibroid management guidance and Cigna's list of medically necessary procedures. These are important milestones on our road to creating another $100 million plus surgical brand alongside MyoSure and NovoSure. Another reason we feel confident in Surgical's future is the revitalization of our R&D pipeline. A few years ago, the division was basically a two-product show. Today, however, we sell multiple versions of these products, as well as new fluid management system, hysteroscopes, and other guidance surgical tools. and we have a robust pipeline of new products in development. Finally, based on the strengthening of our global commercial capabilities, we now have many opportunities to deliver our less invasive surgical solutions to women around the world since less than 20% of the division's revenue is generated outside the United States today. Before I turn the call over to Carlene, let me wrap up by saying that to me, Hologic looks like a fundamentally different company today than just 18 months ago, before the pandemic. We have three franchises growing faster than they ever have. We are growing in all major regions of the world. We have added multiple new growth drivers in all our divisions. And with our COVID tests, we have a significant new product line to provide upside to to a strong base. Taken together, we are excited for the future and confident that we will grow our base non-COVID business between 5 and 7% over the next several years. Now, let me hand the call over to Carlene.