Q2 2020 Earnings Call
Good afternoon, and welcome to whole logic second quarter fiscal 2020 earnings conference call.
Right and as Grayson on your operator for today's call is conference is being recorded all lines have been placed on you know what going into this microwatts Vice President Investor Relations and corporate communications to begin the call. Please go ahead.
Thank you Brian good afternoon, and thanks for joining us for Hologic second quarter fiscal 2020 earnings call.
Today, or Steve Macmillan, the company's chairman, President and Chief Executive Officer, and Carlene over 10, our Chief Financial Officer.
Even carlene both have some prepared remarks, then we'll have a question answer session.
Our second quarter press releases available now on the Investor section of our website. We also will post our prepared remarks to our website. Shortly after we deliver though finally, a replay of this call will be archived through may 22nd.
Before I begin I'd like to inform you that certain statements. We make during this call will be forward looking at these statements involve known and unknown risks and uncertainties that may cause actual results could differ materially from those expressed or implied.
Such factors include those referenced in our Safe Harbor statement. That's included in our earnings release and in our filings with the FCC.
Also during this call we will be discussing certain non-GAAP financial measures reconciliation to GAAP can be found in our earnings release. One of these non-GAAP measures is organic revenue as a reminder, we're defining organic revenue was constant currency revenue less the divested blood screening and cynosure businesses as well as the acquired at supersonic imagine business finally any person.
The changes that we discussed will be on a year over year basis and revenue growth rates will be expressed in constant currency unless otherwise noted.
Now I'd like to turn the call them to Stephen Nolan Palogic CEO. Thank you, Mike and good afternoon, everyone.
Let me start by stating the obvious this is an unprecedented time for the company our shareholders and the entire world.
Therefore, we're going to structure our remarks differently today.
First I'm going to discuss three strategic topics related to the covert 19 pandemic better handed over to Carlene, who will cover all results and outlook.
Rather than keep you in suspense, you're my key points upfront.
First hologic was performing exceptionally well until late March continuing the strong momentum that has been building over the last few years.
Second as cobot 19 spread at threaten global economies, we moved quickly to mitigate the risk with a focus on cash so that our healthy fundamentals would be intact on the other side of the pandemic.
And third as one of the world's leading molecular diagnostics firms. This is a unique moment for us to live into our purpose by providing solutions for the most important issue facing the globe today.
So while we're scaling back in some areas in the short term we are simultaneously boosting investments in our diagnostics business to respond to the world's needs, which will make us a much stronger company on the other side of this.
Obviously, it's our employees, who are making as possible and we want to take a moment to thank them I am so unbelievably proud of the engagement and commitment we've seen inside whole logic in the face of these challenging times.
Countless employees for all our divisions have volunteered to help with our kogut efforts offering everything from new business ideas, the keep customer safe to their own Hansen feed for the packaging line in our San Diego plant.
A special Thanks goes out to our diagnostics team under the leadership of Kevin Thornell.
In so many ways the work of countless current.
And former employees over the years has positioned us to have a massive impact when the world needs us most.
Well I'd like to specifically highlight might markers burrell's project managers.
Bars Exner development team, Matt Friedenberg instrument group.
Kathy Chesters regulatory team, Dave Tyler's manufacturing organization, and Keith can nurse commercial team.
Someday you look back on this is one of the highlights of your professional careers, mainly because the world has never needed you more.
We will catch up on sleep, one would reach the other side, which we will.
With that introduction now let me turn to those three key points.
First.
We were performing exceptionally well until late March continuing the strong momentum that's been building over the last few years.
This is important because women's health needs are not going away due to cover 19, and we'll still be a market leader on the other side of the pen data.
Our growth strategies will continue to pay off we'll keep leveraging our strong U.S. commercial positions in breast health diagnostics and surgical.
We will keep growing internationally across all our franchises will keep investing in innovative research and development that drives new product growth.
And we'll keep boosting our growth rate through tuck in acquisitions.
As we said in our earnings release organic revenue growth was 5.2% through the end of February and we were on pace for another beat and raise quarter.
Three areas drove our growth in the second quarter.
First.
Global molecular revenue increased 14.2% the highest growth rates since 2012.
This included only about $3.4 million of assay revenue related to our coven test.
Excluding this the business still grew more than 12% as we continue to layer additional tests, including now our cobot assays onto our Panther installed base.
Make no mistake about it our molecular diagnostics business is on a role on a global basis.
Second.
Sales in our European region grew by a whopping, 20.8% for the second quarter, excluding the divested cynosure business and outstanding performance by John first Reckons team.
Diagnostics led the way in the quarter driven by cervical cancer co testing in Germany, and viral load testing in Africa.
But breast health and surgical also posted low double digit growth.
Third.
You asked surgical was incredibly strong for most of the quarter up 14.7% in the first two months.
Building on reached an acceleration and on pace to be an exceptional quarter.
For the full quarter, you a surgical still managed to grow 3.1%. Despite a significant decline in March.
Now, let me turn to our second key point.
As cobot 19 spread and threatened global economies in March.
We moved quickly to mitigate the risk.
With a focus on cash.
Our primary goal was to ensure that are healthy fundamentals would still be intact on the other side of the pandemic.
I'd like to highlight several actions in this regard.
First our efforts to strengthen our balance sheet over the last several years prepared us well to face that covert crisis.
For example, several years ago, we established a 1.5 billion dollar revolving credit line with a very attractive interest rate.
And covenants that are usually seen only with investment grade companies.
As the pandemic rapidly spread we moved quickly to borrow $750 million from this line of credit.
Both to prepare for lower future cash flows and to pay off our 250 million dollar accounts receivable securitization program.
We wanted to act early and be at the front of align with our bank partners.
We also suspended our share buyback activities in March.
Before then however, we completed our previously announced a SAR and also repurchased 5.9 million shares for $267.6 million, which we believe will be an excellent investment over the long term.
Second.
We move quickly and decisively to reduce operating expenses through a combination of actions hopefully temporary that were specific each division function and geography across the company.
Based on the needs of each business.
We eliminated temporary employees and contractors furloughed employees and temporarily shut down or shortened work weeks at several of our manufacturing plants.
In other areas, we implemented broad pay reductions.
We cut salaries for me and the board by 50%.
For our global leadership team by 25% and for other salaried employees by roughly 10%.
At the same time, we made conscious decisions to preserve for a one k. matches and actually supplement the compensation of those salespeople, who would normally receive 100% of their pay through commissions.
Our goals were to keep our good people reduce outright layoffs as much as possible and be in a position to emerge quickly on the other side of the pandemic.
In total these and other actions should help us temporarily reduce operating expenses.
Fair to the second quarter run rate by almost $40 million in the third quarter.
Going forward, we intend to continue managing discretionary spending closely while still taking care of our employees and funding future growth initiatives, such as boosting capital expenditures to ramp up our cobot manufacturing capacity.
Which brings us to our third major topic.
As one of the world's leading molecular diagnostics firms. This is a special moment in time for us to live into our corporate purpose.
And become a much stronger company in the process.
Building on the success, we've had over the last several years in placing past Panther instruments around the world.
We are in a unique position to help fight the corona virus by providing them molecular testing that's needed to preserve human health.
As well as reopened our economies.
And our efforts could provide a significant positive offset the pressures elsewhere in our business.
When the genetic sequence of the Sars Koby to virus was published in January our scientists immediately jumped on it just as it did when each one and one influenza and the Zika virus emerged in the past.
Our focus then was on speed, we wanted to get a test to market as soon as possible with support from BARDA, we were able to secure emergency use authorization for our assay and about two months.
We chose to develop a PCR based test for a few reasons first it was faster as we leverage the open access software that was previously written for the fusion module.
Second we sell PCR based test for influenza and other respiratory viruses that run on the fusion side of our instrument.
These viruses can cause symptoms that resemble quoted 19 disease. So we wanted to give labs the capability to test a single patient sample from multiple targets.
Third there was a clear regulatory pathway for assets based on PCR, which is the backbone of most existing respiratory tests and the first couple of covert assets.
Today, we have all come to understand that are real key to controlling the disease and getting people back to work.
Is delivering fast highly accurate test results.
On a truly unprecedented scale.
Let me focus on that word results.
Many investors have asked us why U.S. testing volumes are still limited even as the diagnostics industry is producing more tests.
One reason is that many of these tests are run on manual or semi automated systems.
Putting a tremendous strain on lab technicians, who were in short supply to begin with.
Some of these systems require reagents for multiple vendors, which had been limited.
In addition wall point of care tests have an important role play against the pandemic. They can't be done in high volumes. In fact high volume testing has been concentrated in a relatively small number of labs, which can lead to longer turnaround times and backlogs.
For all these reasons, we quickly dedicated enormous resources to developing second covert test to run on the base Panther system.
Using our proprietary optima technologies, including transcription mediated amplification.
Which is an alternative to PCR.
Our lab customers already use these estimate technologies to perform tens of millions of molecular tests, a year for sexually transmitted infections cervical cancer screening and for rollicking.
There are two major advantages to this approach, which is again being supported by BARDA. This time was about $13 million.
First.
Because our supply chain has been scaled to produce massive numbers of aptamer tests for other infectious diseases.
We can now redirect these manufacturing resources to produce large quantities of Corona virus assets.
Specifically, we expect to provide our lab customers about 3 million.
Optima tests next week, yes, 3 million.
And are planning to produce at least 1 million tests a week starting in late May.
Customers using our Aptima assays do not need to perform additional sample preparation steps or by other commercial reagents for nucleic acid extraction.
This should help reduce competition for raw materials and further increased global testing capacity.
Finally to help alleviate shortages of commonly used sample collection swabs and transport media, we have validated our optimal multi test swab specimen collection kit, which is used today, mainly for STD testing for use with both the Aptima and Panther.
Fusion Sars koby two assets.
Second our Aptamer test run on the world's largest installed base of high throughput systems.
More than 1800 Panthers are in used globally.
Paired about 200 of the much newer Panther fusion platform.
You can do the simple math.
This is almost a 10 fold increase in our ability to leverage our industry, leading installed base of high throughput instruments.
This means that more hospital public health and reference lab customers can apply the power of full automation to grown a virus testing.
This automation reduces hands on time and the potential from annual error and helps reduce the labor bottlenecks that have emerged given the unprecedented volume of covert test needed.
So our lab customers will be able to deliver more results when and where they are needed.
Adding a co bit assay to the Panther menu provides a unique opportunity to turbo charged the strategy, we have been pursuing in molecular diagnostics for years.
Cobot testing will help us place more Panthers, both in the United States in overseas and also drive higher asset utilization on the systems that are already in the field.
And it will accelerate the positive change in diagnostics that we've previously discussed as we move from being the leader in STD leads to a much stronger position as a broad based molecular diagnostics leader with strong customer partnerships.
Before I turn it over to carlene.
Let me conclude by saying that in these unprecedented times, our purpose passion and promise remained steadfast.
Our purpose is to would help enable healthier lives everywhere every day.
Never has that been more relevant than today as we battle a global pandemic.
Our passion is to become global champions for women's health.
Obviously women are affected by covert 19, but when the pandemic is under control demand for our market, leading products and services will come back.
Early detection of diseases like breast and cervical cancer will always be important.
And our promise is rooted in what we call the science of sure providing highly accuray did accurate.
Differentiated products.
Which has never been more important than when combating a public health crisis.
As difficult as the current environment is I have never been more energized about our chance to play a major role in the toughest issue facing the world today.
While knowing that our efforts today are also strengthening us for the future now let me turn the call over to Carlin.
Thank you, Steve and good afternoon, everyone.
My remarks today I'm going to provide an overview of our divisional sales result.
Walk through the rest of our income statement.
Briefly touch on our overall financial condition and discuss some expectations for the future.
Unless otherwise noted my remarks will focus on non-GAAP result.
In percentage changes will be on a year over year basis in constant currency.
Let me start by summarizing summarizing our second quarter results revenue of 756.1 million declined 7.1% due to the divestiture of dinosaur.
Again agree we grew 1.1% despite the impact of coded 19 pandemic late in the quarter.
As a 57 cents below our expectation.
Mensa right with the decrease in revenue, but basically flat compared to a year ago.
Now I will provide more detail on our divisional revenue we though.
Diagnostics.
Largest division in the second quarter by growing John 8.3%.
Despite a substantial decrease in demand in late March.
Cytology had a good quarter internationally, driven by Germany's decision to adopt co testing.
Kansas.
But the primary growth driver with molecular.
As it has been for many quarters.
International sales were exceptionally strong based in part on the continued uptake.
I will note assay is in Africa.
The U.S. business performed very well, even when you exclude sales of our coded assay on Panther fusion, but you only 3.1 million in the quarter.
In breast health underlying trends with solid.
In that division performed well, even though to the quarter.
However, gantries accessories, and Threed upgrade bonds were substantially impacted as a result, the co. Good 19 disruptions late in March as our customer focus on responding to the pandemic.
Field service engineers, werent allowed to installing new products.
Given these factors global breast health sales at 307.8 million.
Decreased 3.7%.
Excluding 5.8 million at Salesforce supersonic imagine global sales decreased 5.5%.
In surgical Steve already pointed out that the team crushing it through most of marked especially in United States.
However, like most companies we saw a significant impact to demand in late March.
As elective procedure to occurred.
Despite this the business still grew 3.6% for the full quarter.
Based on the excellent momentum we had in January and February.
Overall in terms of geography domestic sales at 574.9 million were down 1% on inorganic basis.
And down 6.6% on a reported basis.
To the cynosure divestiture.
Outside the United States reported sales of 181.2 million.
Decreased 8.6%, but revenue increased 8.4% organically.
Reflecting a strong foundations, we have built for sustainable growth.
As Steve noted this growth was primarily driven by our European and Canadian franchises.
Not surprisingly sales in Asia Pacific were negatively affected by cobot, especially in China.
Moving onto our PNM for the second quarter.
Gross margin of 61% was actually flat compared to the prior year period.
As benefits from the Cynosure did that's terrible offset by lower sales due to the covered 19 pandemic.
On Facebook product sales mix.
And to a lesser extent the strong U.S. dollar.
Total operating expenses of 222.5 million decreased 18.4% in the second quarter, which was primarily driven by the divestiture cynosure.
In addition, the decline in equity markets reduced expenses associated with our deferred compensation plan as the liability is marked to market.
Finally, as Steve said, we did begin to reduce discretionary costs in late March as the negative effects and cobot 19 became more Claire.
As a result operating margin of 31.5% increase.
380 basis points.
Overall, our profitability remains very healthy.
Net margin of 20% increased 100 basis points compared to the prior year period.
With the benefits I, just discussed partially offset by higher effective tax rate.
This resulted from an unfavorable divisional and geographic mix of income primarily as a result at the cover at 19 pandemic.
Oh this led to non-GAAP net income of 150.9 million in non-GAAP earnings per share of 57 cents commensurate with our lower than expected revenue.
Finally, ROI see was 12.5% on a trailing 12 month basis, an increase of 20 basis points over the prior year.
Adjusted EBITDA was 248.3 million, which decreased 2.3% compared to the prior year.
Moving on I'd like to briefly discuss our overall financial condition as we navigate through these uncertain time.
The cobot 19 pandemic is a diversion remind us how can how fast unforeseen events can change our economic environment.
But even in this context hologic financial position is strong.
Because we have put a heavy emphasis on debt reduction in cash flow generation over the last several years.
Maintaining a conservative liquidity posture is even more important during these challenging time.
As we focused on taking care of arent. Please.
Sorry, I products remain available to our customers and patient.
And investing in critical cobot 19 diagnostic testing.
At the ended the second quarter, a leverage ratio stood at 2.6 times.
We had approximately 800 million of cash and equivalents.
The actions, we have taken to reduce expenses, but Steve discussed.
That put us in a strong position too, but I want a wide range of potential outcome that may emerge over the coming months related to cope with 19.
Before we open the call for questions I would like to discuss our expectations for the second half of fiscal 2020.
As a reminder, we've been drew a formal financial guidance when we Preannounced quarterly revenue earlier this month.
State the obvious the market environment is very fluid and unpredictable today.
Our future results will be highly dependent on what the virus does and how successful global containment efforts are.
But I want to clearly emphasized that we believe we are well perfect pad, but either extreme scenario.
John recovery or a prolonged downturn.
That said to give you a sense of the magnitude of the effects that Kobin 19 has had on our business.
We expect organic sales in our fiscal April to be down 45% to 50% from the prior year period, excluding sales of our co that test on plant the fusion.
Which will come back to in the second.
We are planning for our base business to be down by similar percentage for the full quarter.
Again, excluding our own cobot assay sales.
April sales, probably benefited a little firmer drank to most of March.
By planning for a significant downturn in being ready for it we believe we prepare [laughter] currently for an uncertain time.
[noise] by Division, we believe that surgical will be the hardest hit by cobot in the short term.
In April for example, global surgical sales are expected to be down about 85% compared to the prior year period.
We believe this business will begin to increase do based on both the clinical need in the desire by hospital customers to show up their finances by addressing addressing pent up demand.
In breast and skeletal health April sales will be down more than 30% compared to the prior year period.
Recurring revenues such as service should compensate somewhat front steeper decline in capital sale.
Reflecting the diversification strategy that we had been pursuing for several years.
We have recently seen access restrictions loosening somewhat so we are optimistic that conditions will will improve gradually going forward.
The pace of this recovery however is uncertain.
As it's hard to predict how long it general economic downturn will affect capital investments by customer.
Bob recovery could take a while it's worth emphasizing that our breast business has become far less capital dependent in recent years.
We increased service and other recurring revenue across the full continuum of breast health care.
In diagnostic sales of our core women's health tests have fallen significantly as routine screening has been put on hold.
For sales as a result are expected to be down about 45% excluding sales of our Panther fusion cause the asset.
It's worth noting that the strength, we've seen internationally in areas like viral load castings, it slightly offset the negative impact of co that on our women's health assays.
Our own KOVA test, especially the new Pmeight assay on Panther could represent a significant positive offset to the pressures we are experiencing in our other parts of our business.
We knew that in the near term demand for our cobot assay is very high.
As testing is essential to get people back to work in reopened economies.
As we said in our press release, the combination of our large PM a manufacturing capacity without Panther installed base can help lab deliver test result, when and where they are needed.
We could generate $150 million a more cobot sales in our third fiscal quarter.
In the future. We believe that's significant levels of testing will continue to be needed worldwide, but it's impossible to predict the exact quantity and duration at this stage.
So from a revenue perspective.
We will continue to watch the interplay between recovery in our base businesses Ecova test volume.
We are hopeful that most of our businesses will get back to normal in the first half of our fiscal 2021, but if not.
We believe we have significant offset in terms of our own testing volume.
But it's not based franchises gradually improve over the next several quarters encoded rep revenues remain high there's at least the potential that our results can be exceptionally strong.
We are making plans to significantly increased our manufacturing capacity to prepare for this possibility.
Before we open the call for questions, Let me conclude by saying that even in these uncertain times.
Fundamentals of our business our strong as is our financial condition.
Although cobot 19 will continue to continue to negatively affects most of our business.
Our efforts to develop and manufacture molecular test that diagnostics tests to fight the pandemic could represent a significant offset that will help us and mark a stronger company in a long run.
With that I will ask the operator open the call question.
Please limit your questions one plus I related follow up then returned to begin.
Operator, we're ready for the first question.
Yes, she'd like to ask a question. Please signaled by pressing star one on your telephone keypad. After using his speakerphone. Please make sure. Your mute function is turned off color Cignal TV choke business.
I've always felt on the phone line and will indicate when your line is open to please state your name before closing your question again for a star one ask your question.
And as a reminder, please limit yourself to one question and then one follow up question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
We'll now take our first question from Michael Peterson JP Morgan. Please go ahead.
Hey, Thanks, Congrats on getting that and then you called it cuts that you highlighted the large installed base I'm just curious about how you think about Korea driving incremental.
Thats, a particular on hospital side, given the push toward more on site.
Testing and then kind of follow up I assume serology is not a focus given the divesture and what's going business, but I'm curious if that's something you would consider thanks.
Yeah, Thanks, Tyco and by the way County in the rest of the guys are the warehouse our busting their butts right now so.
Part of it is on path as we have as you can imagine.
Getting a significant increase in interest in Panthers around the world.
And I think everybody's realizing did what it an incredible platform. It is so.
As a reminder, folks we've been placing about two to 250 Panthers a year.
Generally in that.
Call. It 20 ish a month, we're also scaling capacity right now for path there was there much longer lead times, but.
We are having significant additional requests, particularly as well frankly from departments of health some of the additional labs.
From hospitals, but it's across the board and including even the largest reference labs. So it's almost across the board people wanting to get even more access to capacity on the Surajit piece to your second part Yeah don't expect us to really do anything there we're not sure we bring anything to the party in that game, we're just putting all of our reach.
Sources in the molecular world that we know so well.
Thanks, Doug.
Okay, Alright, well now take our next question from Gosh Donnelly at Citi. Please go ahead.
Great. Thank Steve maybe a follow up there you're talking about the significant entry increase in interest in Panthers and this is a bit of a debate out there just pandemic fundamentally changed kind of the diagnostics market on the other side, which you might see abroad, increasing testing I guess, what you guys you on the diagnostic side do you feel like you're getting out in front of.
Customers you didn't have the opportunity to before and you could get integrated with some new systems all of sudden among other satish Hologic was great doing Kobe would not want to use them for a bunch of other testing what you view.
Fixed businesses as we get to the other sources.
I'll try to answer some real simply because it's an incredibly insightful question Patrick we've never had more calls from people wanting our products.
And I mean, this on a very global basis right to various regions within European countries.
Particularly frankly, all across Europe, but also wildly in the U.S., we've literally been in touch with virtually every governors office. It out it seems like half of Congress.
Obviously with the White House task for Us on a daily basis, the department of defense.
It's it's been mind blowing in terms of the interest really just since we launched the PCR assay.
And Kevin on all our commercial teams and our European teams in the Asia Pac teams in a write down to the Prime Minister in New Zealand I mean, we've got everybody reaching out to us and it is elevating our profile to a very different level.
Than anything we've ever experienced and there is zeroed out in my mind that absolutely creating.
It's a tremendous runway for us coming out of this.
Okay, and then maybe just a quick follow up on the bus health side.
You talked about obviously volumes are very hard to predict there regarding the bigger piece of business you guys now.
Quickly we think this could come back again on the other side of cobot immediate steps.
Women to be a bit reluctant to come back into the Doctor's office you do you think things pay that could read pretty quickly.
Oh, yes, it's it's still an evolving piece Patrick I think frankly, our orders were positive in the quarter, we had a tremendous breast health orders quarter, I do worry and having lived through the o. eight or nine downturn, where I know a lot of hospitals in the radiology suites, they want new capital I'm sure.
In a month or two as things start to settle back down you know hospital CFO as you're going to go back through their capex will define to parliament.
Some of those get pushed out I think if we're betting person I think breast health will probably be a little slower to come back.
Because of that now the positive for US is remember, we don't really get paid on a even as as the patients take a little time to get back in.
We've got the capital sales and then the recurring revenue and a lot of cases.
Really from service and those kinds of things.
So it probably won't cut down quite as deeply but it'll probably be up along the road back.
I would just add to kind of remind folks that the U.S. gantries the capital going to 21% of the total divisional wrapping them at this point in time.
Great. Thanks very helpful.
Thanks, Patrick.
All right I'll take your next question from Brian Weinstein at William Blair. Please go ahead.
Hey, guys that are door I just heard slump.
Go ahead please.
As a direct.
Congrats on the progress that you guys makes it so with this new assay should we be thinking about MSP similar to what you saw infusion of wells like basis here and then I think permitting was kinda talk about this a little bit the ability to manufacture I'm sure you thinking about this level of manufacturing even when.
Core aptima kind of comes back or whether you could be some sort of a trade off.
Great question, Brian and.
Did you I think as we look forward certainly some of this would be volume dependent but we've been building our capacity.
To be able to serve you know even as as the core business comes back to also be able to meet these demand. So it's we're looking at our our total capacity.
To be able to deliver on US yeah, and I would you say you know we haven't Steve made meaningful investments in capital could to do that said that we don't have to make the trade off.
And then on that ASP.
Around 25 is like how we should we thinking about it.
You will probably go just though a little below that probably when you think about a global.
Weighted ASP.
Okay, and then a follow up question here I mentioned no nothing in Vulcan's rollicking that makes sense, but.
Fair enough acuity here for you to participate in viral though we're seeing much more.
Literature about viral load.
Used to determine kind of where somebody isn't the courts or a the carbon 19 infection or maybe even even viral load to trying to determine how severe that in fact, you might be as the team working on anything there that an opportunity for you guys given.
Pardon there.
It's not a focus at this point, we've been so locked and loaded on try to realize this is major testing opportunity, which we think is gonna be.
The single biggest needs to really get people back to work and everything else, but like everything else as we get this out the door.
And as the science continues to evolve our team will be looking at the areas that do make some sense for us in that one clearly would be closer end, but nothing.
Nothing on the progress at this point or nothing under development at this point to be honest.
Okay, great. Thanks for taking my questions. The congrats again.
Oh, Thank you Brian.
All right well now take car next question from Doug Schenkel at Cowen. Please go ahead.
A good afternoon, Steve and I'll Echo what others are set thanks to you and the team for moving so quickly with more solutions and that's a little pandemic.
The first thing I want to touch on is.
Just kind of been alluded to in some of the other questions there or clinical labs that we've talked to at least right about that I've talked about molecular systems.
Arctic Cat oftentimes being I'm back or we know you've been placing around 200 Panthers per year, you know naps that's separate from the pandemic I guess the question is what is capacity for campers and for that matter on a fusion starts out onto existing Panthers.
And then I guess, that's really the first part I guess another question is is it possible I just don't remember is it possible wrong cancer infusion assays simultaneously.
So what I pause there on those those those questions.
Sure. The second part, yes, you can run Panther infusion simultaneously in terms of supply I think part of the reason frankly that Dr. Berg from the government are you know so excited that were little bit of the cavalry coming to the rescue here is we already have the systems everywhere. We're the only we're the only folks that have.
Hi, Throughputs systems in all 50 states. So while there were a lot of test or proven suddenly people are scrambling for equipment I think we feel pretty good that.
We've already got this massive installed base that's been building over the last six seven years as opposed to this mass scramble now you know can we supplemented ever getting additional request, yes, but fundamentally we can ship 3 million tests next week and the capacity is all.
Ready there to be able to produce to be able to run those.
Yep Yep military point, Okay. Thank you for that and then.
I know there's been some other questions about adjacent sees that you might be able to move into to do more than you're already doing which which again is great but up I guess one thing I'm wondering is.
I would think about reopening in the U.S. and broadly there's a lot of talk about the need to not just let a lot more cost, but potentially to to move closer to the point of care, especially when it comes to things like.
Using molecular test as part of getting folks back to work.
For some employers is there any opportunity for you guys to do something there I mean, I know it would be herculean to move quickly on like a smaller optima based system for you some smaller labs, but I'm. Just wondering is there anything that was maybe already going there that could be expedited to allow you to play a bigger role in that need.
Yeah, Doug I think again, the best Best thing, we have going for US is already the installed base that we have out there you know it's hard to underscore to people over a thousand of these systems in the United States. So, let's just take an example, northwell hospital or the more than 400.
These that are already in hospitals.
One of the key areas to keeping our healthcare workers safe is the beat making sure that they're all tested on regular basis. So yeah picture that most of the hospitals that already have these employees at the end of the day could all be tested the test can be run overnight and in the morning. They know if somebody should and show up for work that same can.
To be true in so many de centralized areas, even companies rather not necessarily the us, but there's going to be labs, all over the place very close that we'll be able to run. These things. So it's as you know it's back to you know each not point, let's be very clear, we're not point of care.
There, but we are able to run a whole bunch of test in a very local geography, so to a large degree again, if somebody wants to do a drive up.
Drive through pop up thing, there's generally a panther not too far away that they should be able to access through either a hospital lab, one of the reference labs or even.
The department of health within their stage, so again we.
Do we wish we had even more yeah, but it's it's already an incredible installed base that again nobody else has had when you look at at the marketplace. You got point of care on one end and you've got the massive systems in a centralized reference lab at the other end, which you have.
Not had is the ability to have high throughput testing close to the patient to be able to deliver those results where and when they're needed not a week later.
Understood. Okay. Thanks again.
Thank you Doug.
Alright, well now take their next question from highly Ivy <unk> at Bank of America. Please go ahead.
Hi, I'm glad Tom in your parents and thank you for taking my question.
So first question that we've seen estimates from anywhere.
Just on the broadcasting market the need for.
Thank you Kate 500, K Buddy Creditex a day.
Yes, a day throwing around in the news.
These days so just wanted to get your thoughts on.
Capacity expectations or need expectation you are you actually planning for since they are.
He wants to increase that by default. So first part of his question is just on what you're seeing out but testing need well.
And how long that duration that is and this goes into a question about where are you seeing youre your market share. Thank you.
Sure I feel start backwards in terms of market share without really focused on that the way we typically are.
Because I think we're we're all routing.
It's a unique time in the world, where I think were less about competing against each other and more all trying to race to create enough.
Capacity to help notches this country that help the world get back to work, which kinda back to the first part of your question.
We there are so many unknowns.
From the fall are we running 500000 test today, we're running 200000 test a day every running 3 million test today in the U.S.
It's just so hard to know at this point in time, we are planning to continue to invest.
Now in capacity candidly one of the biggest rate limiting steps for US is our very unique cap system, which is what makes our system. So highly automated we're building more cap machines. These things typically take 18 months to build we've got people working round the clock to try to build them and call. It a six month timeframe. So.
Yeah, we want to be prepared to bring out even more capacity later in the fall.
Ahead of the next flu season in the northern Hemisphere, because we do believe you know the way we look at it is next year. When anybody you know, there's any outbreak of flu or anything as soon as somebody costs, we're going to be wide and testing them just for regular flow as well as recall of it. So we want to have even more capacity online by the.
Paul, but I don't really want to get into giving specific numbers.
Great appreciate sharing the color I know, there's a lot of.
This.
Bob on serology.
So I'll just testing capacity in the U.S. maybe more than.
That is any color. So I'm just curious how you see the marquee Mon evolving going forward in terms of the split between multi carrier Charles passing, especially when I was thinking more about getting people back to work. Thank you.
Yeah. It at the end of the day, we view this can be a massive need for diagnostic testing because at the end you know even in a surajit world first off there's so many unknowns with serology as you well know you know just because you may have seen any bodies and I may appear you know are you really immune to a <unk>. There's there's just.
A lot of uncertainties to it and still gonna be.
I'll only a percentage of the population at the end of the day, what is going to be critically important.
To getting people confident to go back into the workplace too you know get the back to where we can have everybody back in school have people traveling on airplanes again is got to be a robust testing real time capability and that's you know that plays to our strength, that's where our.
Our focus is and again, how big the strategy market becomes on that end.
We.
Don't know.
But we frankly think theres theres enough for us to play in the area that we know a lot about so thank you.
Great. Thank you.
Alright, well have to be taking the next question from Raj to noise Jefferies. Please go ahead.
Hi, This is a anthony corrosion and all.
Second and third the congratulations here. It's unbelievable work you guys have done any Scott.
Steve just a question on something you mentioned in your prepared remarks, just in terms of the availability of.
Vital transported median swabs.
As you scale on on Pantheris saw spoke to test on Panther as opposed to fusion how much of a limitation is that is there an opportunity for hologic is actually bundle. There and then second quick follow up would be just any thoughts on that on the Boston scientific announcement today.
On the sale of their entry either in portfolio to mirror the.
Locations for sure. Thanks again congratulations.
Sure. Thanks, Anthony said arbitrage for us too.
You know as it relates to the the swap the magic.
We referenced obviously is we're qual weve qualified our aptamer swab to be used along with us. So the great part of as we basically have.
Some degree to close system, we can ship the swap and you know the vials together bone. They test you use our swabbing, they're ready to go so we're providing the customer with effectively a complete package and I think thats going to dramatically.
Streamlined I think it's hard for people that aren't close to these to fully understand the incredible workflow efficiencies that come from using the app in the system all the way through so that that should be huge advantage for us on me.
On the Boston News with Minerva I think you know we continue to feel really good about what our surgical business is doing as we mentioned that was up 14.7% through the first two months of up of the last quarter or surgical business is just really had an incredible turn around and.
And strength over the last couple of years.
You know clearly Boston was not.
There are an incredibly successful company.
And having a challenge in that space.
With those products.
I think our team.
Is quite happy too.
I'll see whoever is out there and continue to fight. So we think we've got a better products in a better sales team.
Thanks again.
Thank you.
Frank will now take our next question from David Lewis at Morgan Stanley. Please go ahead.
Good afternoon.
Two testing questions from me once you're probably in one for one for Steve. So clearly I just wanted to admit out some math here for the third quarter. So if I just assume capacity for a second here, we have roughly $45 million a fusion sales, maybe 75 million and that bolus Panther order.
Get to 1 million test per week at the end of May So it's kinda million catch a week in June that's another obviously cadone hundred million and if I just adjusted ASP below 25, and assume kind of a 20, 30% cannibalization rate in the core platform does that kind of give me close to 150 million anything.
Materially often that math.
Yeah, I would say that the million per week as an average so you know with locked at the end. This product is built in lot to we may not actually ship and million each week, but yeah, that's probably gets a pretty close.
Okay, and then Steve you know I think getting Panther out there can't be underestimated from sort of public health perspective, maybe just sort of share your thoughts there's been significant barriers to testing a reagents nasal swabs, and then jamel protocols and the infrastructure I'm sort of call. It and yet you know five days are going to 300000 Tester day, then yesterday, we had 200000 death, so reagents or.
Coming on at the test numbers I haven't gone into right direction. As you think about the infrastructure in these barriers that have been addressed but just wanted to share your thoughts with us about do you think all the barriers have been just out there and what are some of the outstanding barriers that are sort of creating this disconnect between capacity and then usable test. Thanks, so much in great work on this.
Sure David Thank you and I.
I think the way to think about the barriers that you're getting too is I think one of the biggest barriers, let's face it just didnt in normal.
Day to day activities has been people, who feel like they should be tested it actually getting test and so I think Dave.
All of the states all the hospital all the doctors have been fairly restrictive in allowing people to get tested yeah. You had to fight through hoops and you know everything just to get a test because the supply will show constrained. So I think one of the magical things that may start to happen right now.
Is as people start to get more cost or ball that theres. The supply is really starting to ramp up I think we will start to see a little bit more of the loosening of the gauntlet. They had that patient has to run through to get tested and I think as we start to open that up to me the math.
I think of that will be will start to get truly more tests out there.
You know the ability of the people on the front line just to administer the swaps, but I think again in our case, we're going to have the swatch you don't need separate transport media when it gets to the lab you don't need somebody to extracted from the transport media put it into another vile show there's an incredible.
I think you understand as well as well as you know there's an incredible efficiency on that side. So I think it's like everything even in another week.
Things will start to go out you know, what we know that Dr. berks and her team.
Our in touch with all that the the public health labs, letting people know work coming there was incredible excitement there I think those things will I think help to finally on Locke.
Not going to be the unlock it you know.
But I think the progress there will really start to see.
Coming in in a big way.
Great very clear thank you Steve.
Operator, I think we have time for maybe two more questions. If we can be quick.
Yes, I will not be taking our next question from Dan Leonard handful slug of Wells Fargo. Please go ahead.
Thank you sit so I'll just ask one.
Steve you talked a lot about the aftermath test for coded as we think about 12 months down the road. Your for fusion is about 10% of your Panther total installed base does that ratio meaningfully change post its pandemic you see yourself.
Having a much higher proportion of fusions or is all the excitement around just the traditional panther.
I've got to minimize it but but just curious your thoughts on that equation.
Sure Dan I think it will it'll ramp up overtime, if anything it will probably take a short term pause because we're gonna be running the machines, probably you know at a fairly hefty tastier nobody's going to want to shot one down to accommodate adding a fusion onto the side and now with the P.M.A. actually out there.
They frankly can manage without it for a while so I think we'll continue to build it overtime. Mike did you want to have some Dan the only thing I would say is once we get into the fall to winter with a flu season, and you get kind of intermingled virus in order to be able to test for both you do need of fusion. So we think that'll be helpful. In the medium term as well.
Great. Thanks, Dan.
So it's I for one more question number.
Alright, well now be taking our last question from then Redman or did you give us. Please go ahead.
Great. Thank you I guess hearts question on breast health and so the number that you gave for April and for the quarter, maybe could you parse out a little bit between Steve.
You know the U.S. contributing 20%, but how do we think about.
The math on that in terms of what Gantries are doing kind of service I mean, interventional and then you know as we look out is there any predicate for alito knowing that you suggested about you know how we might look further out beyond the next quarter to and how hospitals to get those might react. Thank you.
Sure. Thanks, Dan you know, we're kinda describing this internally is everybody talks about these W. Els.
Use whatever in terms of recover we're describing it as kind of a check mark.
Sharp down and then you know certainly coming back I think nicely it'll be probably a little jagged there on the way back up.
But I think what we see and we feel really good about the breast health business overall that it has become so much more diversified.
But the capital will probably be lagging a little bit.
As it comes back and then the flipside is the Grand scheme, our capital purchases are also not a huge amount.
For any given hospital system.
So we're not totally sure, but we feel really good we're going to be able to work with our customers to.
Have it coming back online.
Yeah, I think we'll be back by a year from now, but I wouldn't expect to be back.
The next couple of quarters, quoting yet and I would just at the biggest component of revenue for that business is determined business, though.
This is stability within yeah honestly for that division with that recurring revenue.
Good.
Great. Thank you everybody.
Thank you and that is all the time, we have for questions. Today. This now concludes Hologic second quarter fiscal Twentytwenty earnings conference call have a good evening.
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