Hologic, Inc.

Good afternoon, and welcome to the Hologic 2Q22 earnings conference call. My name is Lauren, and I am 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, Lauren. Good afternoon, and thank you for joining Hologic's second quarter fiscal 2022 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 second 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 May 27th. Before we begin, We 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 discuss certain non-GAAP financial measures. a reconciliation to GAAP can be found in our earnings release. Two of these non-GAAP measures are, one, 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. And two, organic revenue, excluding COVID-19, which excludes COVID-19 assay revenue, revenue related to COVID-19, and discontinued product sales and diagnostics. 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's CEO.

Thank you, Ryan, and good afternoon, everyone. We are pleased to discuss our financial results for the second quarter of fiscal 2022. We posted solid results overall and continued our excellent performance. Total revenue was $1.44 billion and non-GAAP earnings per share were $2.07, exceeding the midpoint of our guidance by over 12% on the top line and over 33% on the bottom. As we stated last quarter, we continue to deliver in an uncertain business environment. For example, In January, we saw COVID cases spike once again, putting pressure on healthcare utilization and certain elective procedures. Through February and March, the ripple effects of the war in Ukraine added additional uncertainty to a world already facing headwinds from COVID, rising inflation and interest rates, as well as ongoing global supply chain disruptions. In these challenging times, we continue to deliver. Our performance is a direct result of the planning and investments we made throughout the pandemic to strategically strengthen our business. We are a stronger Hologic through portfolio diversification, the addition of multiple growth drivers into our franchises, and continued growth in our international businesses. Today, we'd like to provide additional color in three areas. First, We'll discuss Q2 growth in light of the macro environment, including updates on the breast health chip shortage we spoke to in Q1. Second, provide progress on acquisitions turning organic in our third quarter. And third, highlight our additional efforts to lean into ESG and how our purpose, passion, and promise are elevating women's health around the world. In our second quarter, Both our diagnostics and surgical divisions delivered organic growth excluding COVID, while, as expected, our breast and skeletal health division declined. In breast, as we discussed in our last call, the semiconductor chip shortage was the primary driver of the division's temporary decline. Encouragingly, underlying demand remains strong, as measured by healthy orders and a growing backlog. As we've seen during the last two years, as COVID testing rises, elective annual exams, screenings, and gynecological procedures are often postponed. And as COVID testing declines, we see the opposite, and our base business returns. We believe what the latest rebound also makes clear is that demand for our products remains strong despite the unpredictability of COVID surges. We are confident in our business, confident in our people, and excited about our positioning heading into the third quarter. For example, in diagnostics, we placed an additional 123 Panthers in the second quarter, surpassing first quarter placements of 119. Only halfway through the year, we have again exceeded our pre-pandemic average of roughly 225 Panther placements per year. This is a phenomenal result given the rapid global expansion of our Panther installed base during the pandemic. Our Panther installed base is now over 3,100 instruments worldwide, with over 45% placed international. Also in diagnostics, our vaginitis panel, BVCVTV, continues its growth trajectory. In our Q2 of 2021, this assay generated about $7 million for the quarter. One year later, the panel contributed almost $14 million in worldwide sales, nearly double the year before. And BVCV-TV is now on pace to become a top three women's health assay in our molecular diagnostics portfolio. Now let's provide an update on chip supply and breast health. Our supply chain service and commercial organizations have been working hard to gain greater visibility and mitigate the impact of the shortage. In Q2, the impact was slightly less than estimated, driven by favorable availability and precise management of chips and circulation within our service inventory. While our teams continue to do a great job navigating the unpredictable supply challenges on chips, The ongoing volatility of supply makes it possible that up to $50 million in additional headwind could surface in the back half of the year. Despite this, we are still materially increasing guidance for the full company, which Carlene will speak to later on. To finish the chip discussion on an upbeat note, we recently received notice of an increased allocation of chips for late in fiscal 2022. While this is very encouraging, given production and delivery timing, the benefit from this increase is unlikely to help revenue until early 2023. Said another way, we are optimistic the back half of our fiscal 22 will prove to be the low watermark in terms of available gantries. Moving on to an update on acquisitions turning organic. In our fiscal third quarter, Contributions from both biotheranostics and diagenode will be included in the organic growth of our diagnostics division. We will provide an update on both today. First, biotheranostics. As a reminder, we completed this acquisition in February of 2021. The goal of this acquisition was to enter the high-growth lab-based oncology market, an adjacent long-time area of interest. and bring our resources and expertise to create an even stronger business. Based on breast cancer indexes earlier than anticipated inclusion in NCCN guidelines in January of 2021, the deal is off to a great start. Last year, in its first full quarter post-acquisition, Biotheranostics posted $13 million of revenue, which was more than 30% higher than their best quarter prior to the pandemic. Fast forward to our most recent quarter. Biotheranostics generated $16.4 million in revenue. This early success comes as a result of outstanding engagement in a successful cross-functional, cross-enterprise integration. As planned, we deployed Hologic resources and expertise and paired this with legacy biotheranostics capabilities to refine operational efficiency and, most importantly, set a solid foundation for scalable growth. To accelerate biotheranostics' already strong growth, as an example, we are streamlining the business's ordering process, which we believe will simplify things for the customer. We expect this enhancement will greatly improve the customer experience and ultimately result in more orders. We are also excited to share that we are in the process of transferring biotheranostics operations to our diagnostics headquarters in San Diego. While maintaining required division between CLIA and IVD activities, we believe the move will lead to an even more unified culture, stronger relationships between counterparts, and more collaborative efforts. Finally, and even more encouraging, Just last week, the biotheranostics BCI test was included in the American Society of Clinical Oncology guidelines, another major step towards increasing utilization and recognition of BCI as the standard of care. BCI is now the only genomic test in both NCCN and ASCO guidelines for predicting benefit of extended endocrine therapy. Moving on, shortly after we closed the biotheranostics transaction, we acquired Diagenode, based in Belgium. The goal of the acquisition was to accelerate PCR-based assay development for our Panther fusion and leverage additional R&D capabilities in Europe. So far, we have checked both boxes. Since the close of the acquisition, as planned, We have integrated the Diagenode organization to optimize the speed and efficiency of our global R&D organization, enabling more effective and more efficient cross-border innovation. To date, teams from San Diego and Belgium have worked together closely to improve processes and clearly define a robust product development pipeline. The team is already making meaningful progress towards approval of two viral load assays, which will expand our virology portfolio in the transplant testing space. Overall, for both Biotheranostics and Diagenode, we are pleased with the integration and progress of these two businesses. As we look forward, we are excited by the opportunity to unlock more synergies from both, and in turn, create more value for our shareholders. Shifting gears, I'd like to close by highlighting two very meaningful and opportunistic marketing efforts from our second quarter. The first being our Super Bowl commercial, which also ran during the Winter Olympics. And the second, our title sponsorship of the Women's Tennis Association Tour. As many of you may have seen, our television commercial titled, Her Health is Her Wealth, featured Mary J. Blige. The commercial highlighted that despite her busy life, she makes time in her schedule for her annual health exams. The campaign came at a critical time as an alarming number of women missed annual breast and cervical cancer screenings during the COVID-19 pandemic. In January, the inaugural results of our Hologic Global Women's Health Index found that nearly 50% of women ages 16 to 54 had not seen a medical professional in the prior year. The purpose of our message was to encourage women to schedule their annual exams and prioritize their health. Detecting cancer early is critical and can often make the difference between a curable and non-curable prognosis. After two years of the pandemic, with too many women not being screened, and our unique relationship with Mary J. Blige There was no better time and no better stage for us to encourage more women to see their doctors. Our second effort is our landmark title sponsorship of the WTA Tour, announced in early March. This alliance was forged to make significant progress on our shared vision of greater wellness and equality for women. The partnership has global reach and will emphasize the importance of preventive care through well-woman visits. We are proud to stand with the WTA as we work together to jointly raise the profile of women and share the importance of early detection and treatment. Before turning the call over to Carlene, let me conclude by saying that the results of this quarter demonstrate our business is both durable and resilient, and the demand for our products is exceptionally strong. Despite multiple macro headwinds, we continue to deliver strong results. We are both excited and confident in our business and see great opportunity to be even stronger in the years ahead. With that, let me turn the call over to Carlene.