Hologic, Inc.

Good afternoon, and welcome to the Hologic's fourth quarter fiscal 2022 earnings conference call. My name is Jenny, 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, Jenny. Good afternoon, and thank you for joining Hologic's fourth 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 fourth quarter press release is available now on the investor section of our website. We will also post our prepared remarks to our website shortly after we deliver them, as well as an updated corporate presentation. And a replay of this call will be available through November 30th. 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 filing. Also during this call, we will discuss certain non-GAAP financial measures. a reconciliation to GAAP can be found in our earnings relief. 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 change 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, Zoologic's CEO.

Thank you, Ryan, and good afternoon, everyone. Happy Halloween. We're pleased to discuss our financial results for the fourth quarter of fiscal 2022. and provide guidance for fiscal 23. It was another dynamic year for Hologic, delivering strong performance while navigating macro headwinds. And we closed 2022, once again posting outstanding results for the quarter. Total revenue was $953.3 million, and non-GAAP earnings per share was 82 cents. exceeding both our base business and COVID guidance. We also deployed $175 million of capital to buy back 2.5 million shares in the quarter. For those of you keeping score, for the full year, we utilized $542 million of our exceptional cash flow to repurchase 7.7 million shares, reflecting great confidence in our future. For today's call, we'll first provide a high-level overview of our fourth quarter performance and then reflect on our full-year results. In doing so, we'll also share insights into our future outlook as we look forward to 2023. Overall, make no mistake, our consistent, strong performance in these turbulent times is no coincidence. We are a fundamentally different company today than when we entered the COVID pandemic. We also understand that some of you are still trying to ascertain the strength of our core businesses. As we look ahead, each of our core franchises, listen closely here, diagnostics, breast, and surgical, are expected to produce low double-digit top-line growth for fiscal 2023. As we set out to do just over two and a half years ago, we are emerging from the pandemic a much stronger company. We thoughtfully and strategically reinvested our upside earnings into both our business and into our passion to be champions for women's health. Our ability to step up to the plate during the pandemic and address the global demand for COVID testing was an incredible achievement. But our real home run was the transformation of a logic that cannot be ignored. Through organic and inorganic additions, we now have more growth drivers across our business, in each of our divisions than ever before. These growth drivers, layered on top of our market-leading core franchises, form a solid foundation that anchors our business in these volatile and pivotal times. Under the intense pressures of the macroeconomic landscape we live in today, all companies will face adversity, That said, because Hologic is a much stronger company today, we will thrive. As we've said before, you can count on us to deliver on our commitments, even in the face of volatility and uncertainty. It's equally important to recognize that our revenue is the least capital sensitive it has ever been in our 36-year history. For fiscal 22, given COVID and the impact from chip shortages, only 12% of our revenue was from capital, a percentage we expect will settle well below pre-pandemic levels. A truly astounding change from where we were just a few years ago, and a transformation that makes Hologic a more durable company in the face of a potential recessionary environment. Our confidence and conviction in our business is underpinned by our unwavering commitment to our purpose-driven business strategy, a strategy that is centered around our purpose to enable healthier lives everywhere, every day, our passion to become global champions for women's health, and our promise, the science of SURE. We don't see our commitment to mission and ESG as a trend or fad. Instead, we know that in order to continue to achieve our strong financial results, we must continue on our path to elevate and improve women's health and well-being around the world. Now let's turn to the quarter results. As expected, our strong performance was driven primarily by both our molecular diagnostics and surgical businesses. To answer the question we're sure many of you are wondering, core Panther utilization is strong. Our molecular diagnostics business grew north of 17% in Q4, excluding COVID, driven primarily by more assays being run through our expanded Panther installed base. This exceptional growth was once again broad-based and fueled by a combination of legacy and newer assays in our robust molecular portfolio. Our legacy STI business contributed growth dollars, while our newer assays, including our vaginitis panel, MGEN, and our virology portfolio, lifted the growth rate. As for Panther placements, we now have nearly 3,250 Panthers placed around the world. A remarkable achievement considering we exited fiscal 2019 slightly north of 1,700 Panthers in the field. In surgical, our business grew nearly 9% organically and over 11%, including the Boulder acquisition. As anticipated, The COVID pressure on our surgical business abated in the quarter, and we saw procedural volumes return, as well as acceleration from our new business lines. Powering the strong performance in surgical were the same growth drivers as in Q3, myosure, fluent, and solid contributions from Boulder and Assessa. In breast health, as expected, The business was down 16%, driven primarily by the chip shortage adversely impacting our gantry business. Having said that, we have confidence that the worst of the shortage is behind us and that the business will return and accelerate throughout 2023. We will go into more depth on breast health later in the call. Shifting gears. we will now reflect on our full year results and outlook for fiscal 2023. For 2022, diagnostics grew 10.2%, surgical grew 6.3%, and breast and skeletal health declined 7.7%, driven primarily by constrained gantry sales as a result of CHIP shortages. net without the chip shortage, it is very clear that each of our businesses would have been solidly at or above our long-term guidance. As a reminder, each of these figures are in constant currency. Exclude acquisitions until they annualize and also exclude COVID assays as well as COVID-related and discontinued products revenues. We are extremely proud of where we landed in both diagnostics and surgical, and we have high confidence that the concentrated impact on breast health will rebound strongly in 2023. Looking forward by division, as mentioned at the onset of this call, each of our businesses, including international, is expected to achieve low double-digit growth in fiscal 2023. in diagnostics. Powered by our vastly expanded Panther installed base, we expect low double-digit growth from the division in 2023. Bolstering growth for the division, we expect continued strong sequential growth from biotheranostics, as well as incremental contribution from MobiDiag internationally. Focusing on molecular diagnostics, Our growth thesis centers on more customers running more volume and more menu on our Panther systems. While we are still in the early days of ramping utilization, we are already seeing positive signs today. With our broad menu, we are well positioned to continue double-digit growth in our core molecular Panther business in 2023. To provide additional color, and shed more light on non-COVID Panther utilization. Pre-COVID, at the end of our fiscal 2019, about 20% of US customers were running at least four assays on their Panther systems. Fast forward to the close of Q4, now over 33% of US customers are running at least four assays. Nice improvement. and still future opportunity ahead. Moreover, last quarter we spoke to the fact that over 90% of all COVID customers were running at least one other non-COVID assay. Many of you asked, what about new customers acquired during COVID? As of the Q4 close, over 85% of new customers worldwide are running at least one other assay on their Panthers in addition to COVID. More impressive is that over 55% of these new Toho Logic customers are running at least two non-COVID assays on their Panthers, a strong signal of future utilization at new customer sites. While still early, We expect these positive utilization trends to continue in the quarters and years to come. Now, turning to surgical. We also expect surgical to deliver low double-digit growth in 2023. Consistent with the last two quarters of 2022, we believe MyoSure and Fluent plus Assessa and Boulder will lead the way. We expect the division's revenue to accelerate as we continue to integrate our acquired laparoscopic assets into the business and into the bags of our strong surgical sales force. Increased physician access and payer coverage for our laparoscopic portfolio should continue to improve over time and be a tailwind for growth. Longer term, our goal is to build both Assessa and Boulder into $100 million-plus surgical brands that will complement our market-leading NovoSure and MyoSure products. In breast health, we fully expect to exit 2023, achieving low double-digit top-line growth from the supply-constrained 2022 comps. We have confidence the worst of the chip shortage is behind us, As chip supply normalizes, as it should over the course of 2023, we expect our gantry business to return to strength. Frankly, as we work down the backlog, we have the opportunity to perform slightly above the historical gantry placement run rate as we exit the fiscal year. Even with the shortage of gantries we faced in 2022, we maintained our market-leading position in the U.S., grew our presence internationally, and have no reason to believe we are giving any ground to the competition. In fact, the backlog for our best-in-class gantries continues to grow, and we continue to receive orders at a healthy rate. We also understand capital budgets may face increased pressure given the macro environment. Despite this challenge, we remain confident in our ability to place gantries even if we enter a recession. The reality is that gantries tend to be at the lower price point of hospital capital spend. Gantries also represent both a value-driving opportunity for our customers and, more importantly, essential capital equipment for world-class patient care. Finally, our international business will continue to be a tailwind and a powerful lever of growth for each division. In 2022, our international business grew just north of 6% organically, excluding COVID, posting strong growth even with the chip headwind and constrained gantry supply. International is now nearly 30% of total revenue and poised to continue its growth trajectory. Looking forward to 2023, we are confident our international business, excluding the impact of COVID, will return to double-digit top-line growth and sustain the momentum created by our strong response to COVID and from our groundbreaking initiatives like the Hologic Global Women's Health Index and our Global Access Initiative. To conclude, at Hologic, we know we must center on our purpose to achieve our strong financial results. From our strong results, we will continue to drive patient education and access initiatives and continue to invest in our business. From our strategic investments, we will continue to deliver innovative, life-changing technologies. These technologies will power our perpetual cycle of reaching and helping more patients, all while delivering value and strong financial results for our shareholders. Before turning the call over to Carlene, let me close by saying that we are incredibly excited about where we have been and even more excited about where we're headed. And finally, from me personally and the rest of our global leadership team, we would like to thank and congratulate each and every one of our nearly 7,000 employees around the world for their dedication to our purpose and another incredible year at Whole Lodge. With that, let me hand the call over to Carlene.