Hologic, Inc.

Good afternoon and welcome to the Hologic first quarter 2022 earnings conference call. My name is Ron and I'm 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 Ryan Simon, Vice President, Investor Relations, to begin the call.

Thank you, Ron. Good afternoon and thank you for joining Hologic's first quarter fiscal 2022 earnings call. With me today are Steve McMillan, the company's Chairman, President, and Chief Executive Officer. and Carlene Oberton, our Chief Financial Officer. Our first quarter press release is available now on the investor section of our website, along with an updated corporate presentation. We will also post our prepared remarks to our website shortly after we deliver them, and a replay of this call will be available through March 4th. Before we begin, I would 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 included in our earnings release and SEC filings. 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 and revenue from acquired businesses owned by Hologic for less than one year. Finally, any percentage changes we discuss 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, Hologic CEO. Thank you, Ryan, and good afternoon, everyone.

We are pleased to discuss our financial results for the first quarter of fiscal 2022. Once again, our results are strong. we are off to a great start in all divisions with diagnostics, breast and skeletal health, and surgical, each delivering more than 8% global organic growth, excluding COVID revenue. For the quarter, revenue was $1.47 billion, and non-GAAP earnings per share were $2.17. Both numbers significantly exceeded the high end of our guidance, by 28% on the top line and 74% on the bottom. Over the last several quarters, and most recently at the J.P. Morgan Conference, we've been communicating three major themes. First, our base business is stronger with more diverse growth drivers than ever before. Second, as the COVID pandemic remains, we continue to help meet the world's testing needs and generate financial upside. And third, because of the first two points, we are well positioned to generate strong results regardless of how various uncertainties evolve, from the pandemic to supply chain challenges to healthcare utilization. In other words, you can count on us to deliver in today's uncertain business environment. These themes are certainly playing out as we look at our first quarter results and our dramatically improved outlook for the fiscal year. Our base businesses are performing well, and we are making a massive difference against COVID. As a result, we are raising our revenue and earnings guidance significantly as we expect upside from COVID-19 testing along with strength in our diagnostics and surgical businesses, to more than compensate for temporary supply chain challenges that have emerged in our breast health business. As we shared at J.P. Morgan, we are a fundamentally different company than eight years ago. Now more than ever before, Hologic has more diverse and higher margin recurring revenue across each division in each geography around the world. Our strong performance is a result of execution against our strategic plan and has been accelerated by our financial success during the pandemic. As evidenced by our Q1 results, we are well positioned for long-term sustainable growth, regardless of the direction the pandemic may turn. While we can't predict the future path of COVID, we'd like to expand today on what we do know That whole logic is emerging from this pandemic a much stronger company. More specifically, we will focus on what we know in each division that gives us clear confidence in our ability to maintain sustained growth over the long term. First, in our diagnostics division, we know that our huge industry-leading installed base of automated, high-throughput Panther systems along with our robust menu of 19 assays across Panther and Panther Fusion, will drive strong growth well into the future. Today, our Panther installed base is over 3,000 units, 75% larger than prior to the pandemic, with almost half of these placed internationally. Of note, demand for our Panthers is still strong globally. We placed well over 100 Panthers in the first quarter alone, more than double our pace prior to the pandemic. At this stage in the pandemic, this clearly indicates that customers expect to use these systems for non-COVID testing. Utilization of our Panther systems is also strong. We are seeing clear signs that customers are leveraging our menu of 19 assays on our significantly expanded Panther footprint. First and foremost, the growth of molecular diagnostic sales reflects this growing utilization. For Q1, our core molecular diagnostics franchise grew 14% worldwide, excluding COVID revenues, product discontinuations, as well as recent M&A activity. Now, we know a question on some people's minds is, will these panthers be used post-pandemic? The answer is an emphatic yes, based on the following. First, nearly 90% of U.S. COVID customers are already running at least one other assay. This speaks to our customers being bona fide molecular diagnostics players. who are invested in molecular testing for the long haul and who we expect will adopt more of our assays over time. And second, the incredible automation and workflow simplicity of the Panther, which dramatically minimizes labor activity and costs. In a labor-restricted world, our customers realize the enormous advantage of our Panther system. Extending and broadening the adoption of our portfolio of assays is a fundamental element of the diagnostic growth strategy. Our sales teams have done a tremendous job winning strategic accounts, strengthening our relationship with customers, and fueling our razor, razor blade business model with both legacy women's health tests and new assays. As an example, leveraging our leadership in women's health our vaginitis panel is off to a great start with $13 million of revenue in the first quarter, roughly two and a half times the first quarter of 2021. We are extremely proud of the panel's success and believe this will be our most successful diagnostic launch ever, COVID aside. In Q1, we also once again responded to our customers' COVID testing needs, and generated significant financial upside. We posted $523 million in COVID assay sales, over $300 million more than our outlook and consensus. Clearly, COVID is sticking around longer than anyone would like, and just as clearly, highly accurate molecular testing continues to play a major role in fighting the pandemic. We continue to believe COVID testing will contribute materially to our business for the foreseeable future, and we remain prepared to meet ongoing demand globally. Second, shifting to our breast and skeletal health business. We know that broadening across the continuum of breast health care, from screening and diagnosis through surgery and treatment, has transformed this franchise. from a once capital-dependent business to a division with more diverse, higher growth, recurring revenue. In the first quarter, the breast health business grew 8.4% as we've maintained our high market share and continue to grow our installed base of Genius 3D mammography systems. The attachment rate of service on this gantry base continues to remain strong at more than 80%. making service one of our largest top-line contributors company-wide. And we continue to upgrade our installed base with high-margin software and AI. The mammography capital business is and will continue to be a meaningful and foundational part of our breast business going forward. In addition, we've built a solid adjacent portfolio of more recurring interventional breast surgery products that is driving the growth of the division. These interventional products include markers, needles, including those used in our Bravera biopsy system, and handheld devices. Sales are more recurring in nature, with higher projected growth compared to the legacy capital business. As points of reference, today the gantry business is only 23% of breast health revenue, compared to 29% in 2014. And interventional sales have grown to roughly the same size as gantry revenue. We expect the interventional business to continue its growth and further transform our breast and skeletal division going forward. The increasing diversity of our breast business will help us offset supply chain challenges that have emerged recently, specifically shortages of computer chips in our mammography and other imaging systems. Our updated guidance incorporates a temporary but meaningful revenue headwind for the balance of our fiscal year. Despite this, as Carlene will discuss, we are raising our revenue and EPS guidance significantly based on outperformance in COVID, core molecular, and surgical. Now, shifting gears to surgical, we know that the diversification of the business will drive growth. Despite pandemic headwinds, the division grew 8.2% in the first quarter, and we continued to solidify our market-leading positions for NovoSure and MyoSure. With the addition of the Assessa procedure and the close of the Boulder acquisition in late November, our surgical business has a very different profile today. with more growth engines than ever. Assessor revenue in Q1 was nearly three times a year ago, and the Boulder integration is off to a great start, as we are already seeing Boulder sales through the Hologic surgical sales team. The recent launch of NovaShore version five, developed in-house, is also seeing good traction. It's early days, but we are seeing a lot of excitement in the field around this product. We are committed to maintaining our leadership position in this space with best-in-class products. Further, the Fluent fluid management system, also developed in-house, is used to streamline the complexities of fluid management in hysteroscopic procedures. Fluent is another great example of organic innovation driving future growth. Fourth, and finally, we know that our international business will be a consistent contributor of growth for years to come. We are no longer the export business of prior years. Through organic growth and M&A, we are direct in more regions than ever before, especially in breast health, with our feet firmly on the street and engaged with customers. In Q1, the international business achieved nearly 13% organic growth, excluding COVID, and we expect strong growth to continue. With the leaders we have in place today, we are confident the foundation we've laid and the progress we've made will yield strong results for many years to come. To add additional perspective, There are over 3.9 billion women in the world, with only about 170 million of them in the United States, which is our largest market today. Clearly, we have an opportunity to impact more lives and more women around the world. Through our groundbreaking initiatives, like the Hologic Global Women's Health Index, in conjunction with the opportunity we've earned as leaders in the fight against COVID, We are connecting with world leaders and change makers to elevate women's health around the world. In summary, our first quarter results and improved outlook demonstrate that Hologic is a much different and much stronger business than ever before. Stronger through diversification and stronger from our leadership in COVID molecular testing. These factors are generating exceptional cash flows, and a pristine balance sheet that are especially valuable in the midst of uncertain market conditions. As we've done for the duration of this pandemic, we are confident in our ability to manage our business through various uncertainties and continue to deliver strong growth regardless of how external conditions evolved. What is clear to us at Hologic is that we are poised to continue our strong growth. Whether COVID wanes or continues, we have fundamentally changed our business into one with more growth drivers and more recurring revenue across all geographies. This gives us the clear confidence that we can navigate change and continue to generate exceptional financial results. With that, let me turn the call over to Carlene.