Hologic, Inc.

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, Rachel. Good afternoon, and thank you for joining Hologic's second quarter fiscal 2023 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. 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 for the next 30 days. 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 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 sales from discontinued products 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 CEO. Thank you, Ryan, and good afternoon, everyone.

Thank you for joining us today to discuss our financial results for the second quarter of fiscal 2023. Our exceptional results confirm that Hologic is now a much bigger, stronger company with more diverse and durable growth than pre-pandemic. On top of this transformation, with our strong cash flow and exceptional balance sheet, we are operating from a position of strength and are poised to carry our positive momentum forward. We've also said throughout the pandemic that we've dramatically strengthened the company. We recognize that this transformation was harder to see and fully appreciate and supply chain anomalies. As these clouds continue to clear, the result of our robust transformation really shines. For the quarter, total revenue was $1.03 billion, and non-GAAP earnings per share was $1.06. Both results were above the high end of our guidance. Before providing the highlights for the quarter, which admittedly did have two more selling days, and we were going against softer comps from last year due to the Omicron surge, make no mistake about it, we are very proud of these results. First and most notable, our organic revenue, excluding COVID, grew 21.9%, with two out of three divisions growing north of 25%. By division, excluding COVID, diagnostics grew 14.9%, again, powered by molecular diagnostics, which grew nearly 24%. Surgical also continued to deliver, growing 25.2%. And breast health returned to growth, posting a very strong performance of 25.7% growth. Our outstanding results are a testament to the commitment of our many colleagues around the world to our purpose, passion, and promise to elevate women's health. Without the discipline and incredible execution of our teams, who have shown up every day throughout the pandemic, this strong performance would not be possible. Turning to our themes for today. First, we'll provide insight into the growth drivers in each division to showcase and to reinforce the diversity and durability of our transformed business. Second, we'll review our strong performance against our 2023 guidance and longer-term growth targets, helping to frame the outlook for the remainder of the fiscal year and longer term. And to close, we'll reflect on where we stand with COVID today, our progress through the pandemic, and our excitement as we look ahead. With that brief introduction, let's now focus on our second quarter performance and specifically the growth drivers powering our strong results. At the highest level, we continue to demonstrate and appreciate that many of you have come to realize our business is dramatically different compared to where we were pre-pandemic. We are more balanced, more diverse, and more durable. Through the pandemic, we strategically added growth drivers across the company that are contributing to our top-line growth today and will do so for years ahead. These innovative products and services are also accretive to our overall strength within the markets we participate in, deepening our strong relationships with the customers we serve. While the macro environment continues to present a multitude of challenges, you can count on us to deliver. In diagnostics, molecular diagnostics continues to lead the way. Our expanded global installed base of Panthers, over 3,250 strong, represents the catalyst for the division's sustained growth. The superior workflow of the Panther, combined with our broad menu of nearly 20 FDA-approved assays across the Panther and Panther Fusion systems, creates tremendous value for our customers and differentiates us from our competition. As we exit the pandemic, we are placing more menus with more throughput on more Panthers and adding more Panther fusion systems, positioning labs to unlock our full breadth of menu over time. Ologic and our Panther systems are well positioned to continue our strong performance. Consistent with prior quarters, the pillars of molecular diagnostics growth were diverse in the period. Growth was driven by our BVCV-TV vaginitis panel and aided by our core STI menu, including chlamydia gonorrhea, HPV, and TRIC. We also once again had strong contributions from biotheranostics and our respiratory menu on the Panther Fusion, where we expect the latter of the two to be more seasonal in nature. In breast health, After four quarters of decline, primarily due to semiconductor chip supply headwinds, the division emphatically returned to growth, posting 25.7% growth for the quarter. Comp considerations aside, the strong growth in breast health resulted from a combination of four positive factors. First, semiconductor chip availability continues to improve. allowing for the delivery of more gantries in the quarter than planned. This included moving a number of gantries originally allocated for the back half of the year into the second quarter. As a result, for the balance of the year, we anticipate Q3 and Q4 gantry delivery levels to each register modestly below Q2, though still well ahead of last year, as our visibility on chip availability continues to strengthen. Second, exceptional demand for our clinically differentiated mammography instruments remains high. And despite the duration of the CHIP headwind, our backlog remains strong, and we are seeing no increase in order cancellations. Third, in Q2, we again delivered strong service revenue, service being the largest source of revenue for the division. As we consistently demonstrate our value proposition, and strengthen our relationships with customers. And fourth, the interventional side of the breast health business returned to form, growing 13.9% for the quarter, driven by our disposable portfolio, such as Brevera's biopsy needles and Somatex's two-mark markers. This strong interventional result also serves as an indication of our success navigating some of the non-chip-related supply chain headwinds we faced in prior quarters. To close out Breast Health, we'd like to take this opportunity to thank our chip supply partners who have aligned with our purpose and have prioritized women's health. As a result, we had the ability and confidence to deliver more gantries than projected this quarter, and our customers are better positioned to screen more women sooner rather than later. We are thankful for these strengthened partnerships, which have also undeniably influenced our innovation and design efforts, making Hologic even stronger for the future. While much attention has been given to diagnostics and breast health, our surgical business has also remarkably transformed during the last few years and is emerging as a meaningful driver of growth for us globally. A completely different business than three to four years ago. It's much bigger, stronger, and faster growing. In Q2, surgical grew more than 25% and was driven by strong contributions from our hysteroscopic portfolio of MyoSure, the fluent fluid management system, and NovoSure, On the latter, we are encouraged by yet another strong quarter for our latest NovaSure iteration, the NovaSure V5. In addition, our laparoscopic portfolio continues to build momentum and is growing into a larger driver for the division. Now we'll move on from the division growth drivers to reflect on our performance against our guidance for the year. At the beginning of the fiscal year, we said that each division would deliver low double-digit organic growth for 2023, excluding COVID. As the Q2 close marks the halfway point of the fiscal year, we are pleased to share our progress towards achieving our 2023 goal. Through the first half of our fiscal year, the total company has delivered organic growth of nearly 14% excluding COVID. And by division, diagnostics, surgical, and breast health have grown 15.4%, 19.6%, and 9.1% respectively. This puts us in great shape to achieve or exceed our initial low double-digit 2023 targets. Looking ahead, for diagnostics and surgical, we will have much tougher comps going forward. By the close of Q3 last year, both divisions were posting solid numbers, resulting in the healthier, stronger comps we'll now be facing. And for breast health going forward, due to the phasing of the chip headwind, the opposite is true. Our breast health comps in the back half of fiscal 23 will be softer than in Q2. Now, focusing on our longer-term growth projections. With recent very strong results, we understand that some may question whether our 5% to 7%, excluding COVID, organic revenue growth rate through 2025 is still appropriate. In short, We believe that it is because we see fiscal 23 as a unique year. Taking a step back, we view our long-term revenue goal as more impressive today due to our expectation for double-digit growth in 2023, on top of our already strong performance since we announced the target. Shifting gears to our final topic today, COVID. In Q2, we generated $71 million in COVID assay revenue, exceeding our prior guidance of $50 million. We are excited for the opportunity to turn the corner and further concentrate our energy and resources to continue to drive our dynamic business forward. Since the start of the pandemic in early 2020, we maximized the opportunities presented. We rose to the occasion, delivering high quality, highly accurate molecular tests to meet the world's testing needs. For this, we are extremely proud. And should COVID waves return, leaning on the massive expansion of our manufacturing capacity and operational flexibility, we are even more capable of weathering future storms. We are also extremely proud of the larger and stronger business Hologic is today. We've accelerated years of Panther placements across the globe. And as a byproduct, we expanded our largely domestic business into a much more formidable global enterprise. Today, Hologic is a more recognized and respected worldwide brand, which has immensely more influence to advance women's health around the world. With the benefits from our response to the pandemic, We diligently and thoughtfully invested in our business, adding growth-driving products through organic R&D innovation and completing strategic acquisitions. And equally important, through it all, even during the strongest quarters of COVID revenue, we maintained expense discipline. We managed our business with precision and never got ahead of ourselves with headcount. And when the world needed it most, we made opportunistic and carefully timed marketing investments with our Super Bowl ad and WTA sponsorship, each encouraging women to prioritize their health and to return to well-woman exams that were put off during the pandemic. Maintaining our operational discipline and opportunistic investment approach affords us the ability to continue to support R&D, marketing, and sales initiatives today, all while keeping expenses relatively flat versus a year ago after adjusting for the Super Bowl and WTA initiatives. All in, our Q2 results demonstrate that we are realizing the benefits of our transformed, bigger, stronger business that is fueled by our purpose-driven culture. We've built our culture from the ground up over many years, and it has powered our success through the challenges of the pandemic, where we maximized our opportunity. As a result, Pologic has transformed into the strong force we are today, and at the same time, transformed our future. We have strengthened our durable growth path, and our future is bright. With that, let me turn the call over to Carlene.