Q3 2020 Hologic Inc Earnings Call
Please standby.
Good afternoon, and welcome to the Logics first quarter fiscal 2020 earnings Conference call. My name is Cody and I'm your operator for today's call.
This conference call is being recorded.
Lines have been placed on me.
I'd now like to introduce like watch Vice President Investor Relations corporate communications to begin the call. Please go ahead Sir.
Thank you Cody good afternoon, and thanks for joining us for Healogics third quarter fiscal 2020 earnings call with me today or speed Macmillan, the company's chairman, President and CEO and Carlene over 10, our Chief Financial Officer, Steven Colleen both have some prepared remarks. Today, then we'll have a question answer session.
Third quarter press releases available now on the Investor section of our website. We also will post our prepared remarks tour website. Shortly after we deliver them. Finally, a replay of this call the archive through August 21st.
Before we begin I'd like to inform you that certain statements. We make during this call will before 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 that are 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. Its 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 imagined business.
Finally, any percentage 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 over to Steve, but now with the logic CEO.
Thank you, Mike and good afternoon, everyone.
We're pleased to discuss our financial results for the third quarter fiscal 2020.
Our results were very strong and reflect the value of our unique set of businesses in a time of great economic uncertainty.
To begin these last several months have been the most challenging tumultuous and unpredictable time my career.
But also the most exhilarating and ultimately gratifying.
There's still a lot of history to be written regarding this pandemic and things can change very quickly uncoated time.
But we're very pleased with the significant contributions hologic has made to human health, thus far and excited about our ability to do even more.
I am just so proud of our team who are working day and night with customers regulators suppliers elected officials and others to address the most pressing problems facing the world today.
The last couple of years, we've talked a lot about social responsibility and whole logics corporate purpose.
To enable healthier lives everywhere every day.
It is this purpose that inspired our people to do more than seemed possible in the third quarter fiscal 2020.
Never before have we lived into our mission more completely or touched more human lives than during the covert 19 pandemic.
Indeed, our results flow from the positive impact, we're making on human health.
Colleen will cover the details well, let's start by saying that while the quarter began with great uncertainty and painful decisions to preserve cash flow. It ended with results that were better than we ever envisioned.
We posted total revenue of $822.9 million and earnings per share up 75 cents.
Revenue grew 8.1% organically and eat P.S. increased 19%.
These growth rates are batched organic performance in a very long time significantly beat our expectations at the start of the corridor.
Outperformance was driven by unprecedented demand for our co bit tests on the Panther system.
As well as the quicker than expected strengthening of our surgical division.
In addition, covert testing surged late in the quarter. So our result also far exceeded the update we provided via the 8-K in Jan.
Well now highlight three primary points related to carve. It then carlene will cover the rest of the business.
First.
Our manufacturing and supply chain team did an amazing job in the quarter to ramp up production of our covert assays, helping more labs and doctors delivered diagnostic insight when and where they are needed.
Second.
We believe our diagnostic response to covert will have short.
Medium and long term benefits for the company as a whole.
And third the strengthening of our international franchises over the years is enabling us to make a big difference in the covert fight today, which in turn will further accelerate our international business going forward.
Let's start with manufacturing and supply chain and marry that doesn't get a lot of attention on the typical earnings call.
That's unfortunate because delivering high quality highly precise products that doctors rely on to make critical decisions is at the core of our business.
In the case of co that we're producing millions of tests that weren't even invented a few short months ago.
In each test has to meet Exactingly high performance and quality standards.
And this unique time when demand for cobot test is exceeding supply.
Hi quality high volume manufacturing is critical.
Although you never know what's in the media stories, the diagnostics industry as a whole has done an unbelievable job of ramping up cobot production capacity.
As a nation, we're on pace to conduct about 23 million test in July.
This is more than double the level of testing as recently as Meg.
And more than 20 times the number of tests performed in March.
In total more than 52 million Kobin test have been performed in the United States.
For perspective, this is about 50% more than any other G. Seven countries combined.
Never before actually molecular diagnostic test in scaled up to these volumes this fast.
In fact, the amount of cobot testing being done today, it's about seven times greater than the next most common molecular diagnostic test.
Our industry and its employees have a lot to be proud off.
And we're striving to do more.
In Hawaii objects case as soon as we launched our first covert assay in March a PCR test that runs on Panther fusion, we were overwhelmed with calls from customers everywhere.
So we immediately activated three key projects working closely with our suppliers and partners around the world.
First.
We began developing a second covert assay to leverage our proprietary after my technologies.
And manufacturing capacity.
And to run on our large installed base of Panther instruments.
Recall that we produced about 20 million molecular diagnostic test a quarter.
With the vast majority of this comprising TDMA assays for infectious diseases like chlamydia.
HPV and HIV.
Since the pandemic reduced demand for these tests.
We were able to redirect human and technological capacity to produce our aptima cobot assay.
In essence, we merged the supply chains for our covert tests and our legacy products to increase covert production capacity.
Second we set out to double our molecular diagnostics manufacturing capacity by the fall to 40 million test or more per quarter.
As we move into fiscal 21.
We essentially established a goal to achieve our 10 year expansion plan.
In about six months.
And third we began working with our partner Stratec to roughly double production of our Panther instruments.
Based on these actions in our earnings call three months ago, we shared our goal to produce at least a million cobot tests a week on average starting in late May.
This would have enabled us to realized revenue of about $150 million or more in the second quarter.
Thanks to a herculean efforts by our operations team. We're proud to report that we significantly exceeded this goal.
And were able to increase our total molecular diagnostics tests production by about 50% in the third quarter, So roughly 30 million tests.
This enabled us to ship almost 13 million co bid tests to customers.
Including an extra production law, leading to sales of $324 million.
Based on data from the covert tracking project, we estimate that we provided one fourth to one third of the test results delivered in the United States during the quarter.
How did we get there.
Through a combination of ingenuity investment.
Brute force.
In terms of ingenuity.
We validated the use of one of our specimen transfer tubes, one bit is typically used with our thinprep Pap test for coven testing.
This helped total kit capacity catch up to our underlying production of reagents and enabled us to ship millions of additional tests.
And we validated a new sample collection and loading method that reduces the use of penetrate caps a short term constraint that we discussed last quarter.
In terms of investment we currently expect to spend over $50 million in capital to expand covered production.
What about $14 million that spent through the third quarter.
Some of this is being used to install new high speeds filling lines and we're also investing in new custom machinery to produce more penetrated caps.
As announced this week. This effort is also being supported by HHS and DMV.
In terms of brute force, we are producing 24 seven at our facility in San Diego.
Employees from areas like I S and finance were trained to work on the packaging lines, while we hire over 150, new operations employees here.
More than a 50% increase.
We also expanded capabilities are at our diagnostics plant in Manchester, United Kingdom, which began producing covert test at the end of June.
Overall.
These actions have provided the capacity to produce at least 1.5 million covert tests per week on average and should enable covance sales to increase sequentially in the fourth quarter over and above our very strong Q3, even while accommodating higher volumes of our way.
Women's health test.
And there is the potential to do more if we were able to work through some remaining supply chain constraints on certain instrument components.
The second point is that our diagnostic response to Cove it.
We'll have short.
Medium and long term benefits for Hologic has a whole.
In the short term the benefits are obvious over the next several quarters cobot testing will help drive strong overall corporate growth.
Even before the base business fully recovers.
In the medium term, we expected a record number of Panther on Panther fusion instruments that we're placing now we'll turbocharge, our razor razor blade business model and dramatically increased pull through of other assets.
These include our new women's health tests are quantitative virology products and our respiratory many panels.
To illustrate this.
Over the last several years, we've placed an average of 228, new Panther systems globally per year.
In the third quarter alone.
We placed 208.
Systems' 208.
That was made possible by a significant expansion of production capacity at Stratec.
Even by refurbishing more than 50 Panthers from our own research labs.
At the end of June our installed base stood at more than 2000 systems.
With almost 45% of these outside the United States.
And over this fiscal year, we expect to place about 500 Panthers more than doubling our recent annual run rate.
Of the 152 systems shipped this quarter in the United States, we estimate that more than 60% will replace one of our older workforce Tigris systems overtime.
This will enable those customers to access our full menu of 16, the F.D.A. authorize test some panther.
Rather than the for that are cleared on Tigers.
Other 40% of systems, either displaced a competitor or enabled a new customer to begin testing.
In some of these new customers are specifically targeting nascent growth opportunities such as home sample collection.
One way, we measure new customer adoption internally as well as incentivize our salesforce is by tracking what we call tours for tests of record.
And the contracted year, one revenue associated with them.
Hey, tore is achieved when a customer goes live with a new asset on our system.
In 2020, even as Cove, it is driving tremendous interest in pad there.
Our sales team has been focused on securing downstream revenue from other test.
Based on an excellent work and motivated by double the payout on Noncovered tours, we have already set a record for tore revenue.
And we have even more signed and waiting to go live over the next couple of quarters.
Since path there was cleared in 2012, we've seen over and over again.
That as customers come to know and loved the system. They adopt additional tests that drive even more pull through.
And we would expect the same dynamic to play out here.
This will drive growth in the long term as even as multiple covert vaccines are hopefully commercialized.
While everyone at Hologic has rooting for successful vaccine development, it's important to note that the strength and duration of immunity still have to be established.
And consumer surveys indicate that many people may choose not to be vaccinated.
For these reasons, we also forecast there will be a long term market for covert testing on a global basis.
Just as testing coexist with vaccines today for pathogens, such as HPV, hepatitis B and influenza.
The third point, we want to make is that the strengthening of our international franchises over the years is enabling us to make a big difference in the fight against Cove. It today, which in turn will reshape our international businesses going forward.
Let us give you a little more color on that.
Over the last three years international sales have been a major growth driver for the company with our base business is growing at a low double digit CAGR organically.
Within this molecular diagnostics has been leading the charge with growth rates often exceeding 20%.
Underpinning this growth we have invested methodically in our leadership and commercial infrastructure.
We also divested cynosure, which enabled our leaders to focus on the businesses They know best.
For example in our European region, specifically, we had an installed base of about 220 Pantheris in 2016, just before our regional President Yonder stricken joined the company.
By the end of the third quarter, or however that number had doubled.
By leveraging this installed base.
Our team has signed contracts in about a dozen countries that secure about $500 million.
Of covert testing revenue over the next four quarters.
With opportunities to grow this further.
The largest contract is with the UK Department of health.
Which is worth nearly $190 million.
While the vast majority of our cobot revenues in the third quarter came from the United States.
Expanding production capacity will enable us to serve more global customers going forward.
In the third quarter alone, we shipped almost 60 Panther instruments to lab customers outside the United States.
Unlike in the US our commercial teams are capitalizing on the intense demand for cobot tests to drive pull through of our other assets, which is a robust opportunity given our lower market shares globally.
Before turning the call over to Carlene, let me conclude by saying that the covert 19 pandemic has really highlighted the importance of diagnostics within the healthcare system.
In the future we hope that this will lead to a strengthening of the public health infrastructure.
More favorable reimbursement for diagnostic testing and hopefully even more appreciation for the value of early detection, which is our core focus.
At the same time, our response to the pandemic is also making hologic a much more successful and influential player within the diagnostics industry, both domestically and overseas.
This is based on the power of our technology and automation.
And the ability of our people to quickly and effectively respond to public health needs.
There is absolutely no doubt that our diagnostics division and therefore, our company as a whole is becoming a stronger organization through this challenging time.
Now, we'll turn the call over to Carling.
Thank you, Steve and good afternoon, everyone.
In my remarks today Im going to provide an overview of our divisional sales results.
Our income statement.
Actually touched on a few other key financial metrics.
And finished by reinstating our financial guidance for the fourth quarter.
Let me stop by summarizing our third quarter results.
Revenue of 822.9 million declined 3.1%.
Due to the divestiture of dinosaur.
Organically, we grew 8.1% as strong sales of our cobot 19 diagnostic assays offset weakness in the rest of the business as a result for the pandemic.
Profitability improved with EPS of 75 cents.
Increasing 19% well ahead of our expectation.
We entered the third quarter facing unprecedented uncertainty.
And we acted prudently in decisively to reduce expenses and preserve cash.
However, the hard work ingenuity of our teams help maximize the value of our two cobot assays in the rest of our business is recovering better than expected.
As a result, we generated strong cash flow in the quarter.
Today Buddhist repay $250 million that we had borrowed under our revolver as a cautionary measure.
Our balance sheet and liquidity stronger than ever.
All these reasons, we're optimistic that we are in a position for a very successful fourth quarter.
With that introduction I will now provide some more detail on our divisional revenue result.
Diagnostics, our largest division grew an outstanding 74.9% in the third quarter driven by molecular with sales increased 170.3%.
As Steve mentioned in response, the unprecedented need for cobot testing, we increased our production capacity substantially in the third quarter.
This enabled us to ship about 13 million cobot test to customers.
Generating revenue of $324 million.
Outside of covered 19 testing our base molecular cytology businesses declined.
Trends improved as the quarter went on.
Breast health revenue was negatively affected by the pandemic, but the division performed in line with our expectation.
Global breast health sales of 224 million decreased 30.9%.
Excluding 3.9 million of sales from supersonic imagine sales decreased 32.1% organically.
Demand for many of our products was negatively impacted by Kobin 19, especially in the United States.
As our customers focused on responding to the pandemic.
Delayed or reduced purchases of capital equipment.
And we scheduled routine screening appointment.
However.
Service revenue in international sales declined much less.
Cushioning the overall decline.
In surgical sales of 51.5 million decreased 53.9%.
Better than our internal forecast as the business began to recover more rapidly than anticipated.
Weekly demand decline close to 90% early in the quarter as elective procedures were postponed.
However, we saw steady substantial improvement in may and more so yes.
Overall across the geography domestic sales of 660.8 million increased 2.9% on a reported basis.
As strong sales of Coca test more than offset the impact of the cynosure divestiture and reductions across all of this product line.
But on an organic basis, you asked revenue was up 11.2%.
Outside the United States reported sales of 162.1 million decreased 21.2% on a reported basis and 2.8% organically.
As you know many countries began to March from the Covance pandemic earlier than the U.S. did which helped our results.
In addition, we began shipping our cobot 19 assays to our international customers in June and expected to be significant significant contributors to our future growth.
Moving on to the rest of the PNM for the third quarter.
Gross margin of 64.7% increased 310 basis points.
Driven primarily by sales of Cobot test in the divestiture of our lower margin cynosure business.
These benefits were partially offset by lower sales in our other divisions as a result the pandemic.
Total operating expenses of 261.1 million decreased 5.5% in the third quarter, driven mainly by the divestiture dinosaur however expenses were significantly higher than our expectations entering the quarter. When we were planning for worst case scenarios that thanks.
Never materialized.
This was driven mainly by higher compensation expense as accruals for incentive compensation increased in line with our financial results.
In addition, we experienced higher than normal bad debt expense in the quarter, most notably the write off associated with exceed breast health distributor in Latin America.
Lastly, we made a $10 million charitable contributions to the companys donor advice funds.
In accelerated spending on R&D and marketing programs.
Bolster future growth.
Putting all this together operating margin increased 380 basis points to 33%.
And that margin increased 30, 360 basis points to 23.7% both recent high.
As a result, this led to non-GAAP net income of 194.7 million and non-GAAP earnings per share 75 cents well ahead of our expectations.
Before we cover our 2024th quarter guidance I'll quickly touch on a few other financial metrics.
At the end of the third quarter, our leverage ratio stood at 2.4 time, and we had 744 million of cash.
Cash flow from operations was 223 million in the third quarter. It very strong result.
Based on this cash flow, we pay repaid 250 million of debt under our revolving credit facility.
We also believe we are well positioned to take advantage of still uncertain market conditions pursue tuck in acquisitions in each of our division.
Our business development goals have not changed we continue to look for deals that accelerate growth and deliver attractive attractive economic return.
Either by leveraging existing commercial channel are helping us expand into near adjacent fees.
Finally, ROI see with 12.8% on a trailing 12 month basis.
Just a 30 basis points and adjusted EBITDA of 299 million increased 8.2%.
Before we open the call for questions I would like to discuss our expectations for the fourth quarter fiscal 2020.
While our business environment remain very due to the Cobra 19 pandemic. We are pleased that visibility has increased compared to last quarter.
This is enabling us to provide quarterly guidance again, albeit at a much wider range than usual.
For the fourth quarter fiscal 2020, we expect total revenue in a range at 925.002 million 25 million.
This represents organic revenue growth of 17.4% to 30.3% for the quarter.
Given the divestiture of cynosure revenue compared to the prior year period equates to an increase of 6.7% to 18.3% on a constant currency basis.
On the bottom line, we expect EPS of 95 cents to $1.15 cents in the fourth quarter.
This implies growth rates of between 46.2% 76.9%.
Significantly outpacing revenue.
I'd also like to point out that we expect other expenses net since to about 30 million in the fourth quarter as we don't forecast gains related to certain investments that resulted from equity markets rebounding in the third quarter.
This fourth quarter guidance is based on a full year tax rate of 22.75% and diluted shares outstanding of approximately 265 million for the full year.
Now lets turn briefly to our divisional expectation.
Diagnostics, we expect that demand for our two cobot assets will continue to exceed supply and the fourth quarter fiscal 2020.
As Steve said, our efforts to increase manufacturing capacity should enable us to increase cobot sales compared to the third quarter level.
And overall, the forecasted diagnostics revenue could.
Could double or more compared to the prior year period.
And breadth skeletal health recurring revenues such as service should continue to partially cushion steeper decline in capital sales.
Reflecting the diversification strategy that we've been pursuing several years.
Revenue should also performed better outside the United States than domestically.
We continue to believe that breast health will recover cobot fresh is more slowly than our other divisions.
So while fourth quarter results should be better than the third quarter, we still forecasts that breast and skeletal health and revenue will decline the range of 20% or more.
In surgical we believe revenue will continue to improve.
Based on both the clinical needs for our products and desire for a hospital customers to shore up their finances by addressing pent up demand.
However, there remains some uncertainty around the pace of this recovery.
Especially with Cobot cases continued spike in specific geographic regions and customers are forced to suspend elective procedures again.
Overall, we expect surgical sales in the fourth quarter to be down 20% compared to the prior year period.
As you update your forecast, let me remind you that macro uncertainty remains much higher than normal due to the virus were all dealing with.
That's why we're providing wide guidance ranges.
And we would encourage you to model at the middle of these ranges, which incorporate both potential upsides and downsides.
Before we open the call for questions. Let me conclude by saying that Hologic financial performance, a third quarter was excellent and our financial condition remains rock solid.
As I look back it's hard to describe how much our financial situation improved over the course of the quarter.
This we think in R&D team that quickly develop new Covent tests.
In operations and supply chain team found a way to knock down just about every barrier to increase to increase production.
As Steve said, it's especially gratifying that we did well by doing good in the third quarter.
What's more we expect this performance to get even better in our fourth quarter.
With that I'll ask the operator to open the call for questions. Please limit your question to one plus related follow up then return to the Q.
Operator, we are ready for the first question.
Thank you if you'd like to ask a question for taking my pressing star wondering your telephone keypad.
You are using a speakerphone. Please make sure your mute function is from top to layer signal to reach our equipment.
As we've said in order to occurring as many questions as possible. We do ask you. Please limit yourself to one question quick follow up before reentering the Q.
We'll take our first question from Patrick Donnelly with Citi. Please go ahead.
Great. Thanks, guys.
No not even sure where to start you guys get put an impressive numbers.
Solutions on that.
Thank you just remember.
Absolutely I know you can call about things can change quickly in these mr. appreciate that.
Looking ahead can you talk through your views on the durability testing into 2020 want to me. It certainly sounds like you're you're pretty bullish the opportunity maybe focus on the U.S. International Kinda give some good color there, but you guys, obviously rent capacity nicely, how you're thinking about the set up into fiscal 2001 cubic demands only increasing.
You gave those numbers on June any reason to think.
Don't continue to accelerate as we head into one Q2, two next year as you guys can talk about Fourq, you certainly looks better than through Q, maybe just talk through the set up there should be testing side, which is going to be happier.
Sure and again, Patrick as you well now hard to put long range forecasting, but here's here's where we think about it and it was really around the decision. We made in March to double our capacity by the fall between people first looked at as far as not here's the simple reality, we're going to be going into a cold and flu season.
I think every single person that sneezes or costs.
September through the next season is going to end up getting tested for Cove. It.
And it's not just us its globally and even all the talk at the vaccines.
Let's say a vaccine comes theres still so many unknowns. There's also the fundamental reality that it's going to take months to get everybody vaccinated. Even after that people are going to be still getting this thing and particularly on a global basis, we're not going to vaccinate the world and there is only.
So long we can shut the world down have people staying at home and not traveling and everything else. So I think we really see this again can't exactly quantify the magnitude, but what I mean look at all the universities right everybody needs to get back to work testing is the key area to help.
Get people comfortable so I think we see this at least going well through the next season and beyond that this thing is so voracious that we really believe theres going to probably at a bare minimum being on going trail.
Of testing just for prevalence or something else and population screening for at least another year or two I mean, I think even pfizer.
Announced as it relates to the vaccine they see they see a vaccine market continuing for years. So.
We really see there a lot more durability, there having said that if it's not we got a base businesses as well but.
Fundamentally we think this thing is going to be far more persistent that I think where a lot of people.
Necessarily thought at the beginning.
That's helpful.
On the marketing side can you talk to expectations, there, obviously value investing a lot.
Like capacity expansion.
Are you putting other growth initiatives just capitalizing again on these near term tailwind good cash flow numbers et cetera, and then quickly on the margin as well anything to call out on the profile of the international Koby testing, we've got a bit lower given how a massive when will that yet.
Yes.
This is currently so a couple of things. So yes, certainly we are investing in capacity, but also.
Our R&D for sure.
To accelerate your future products.
Point on.
Hey, ASP is outside the U.S., yet those will be a little lower than what we've seen at this point in the U.S.
Thank you, we'll now take our next question from Chris Flynn.
Go ahead.
Hey, Thanks for taking my questions and congrats.
Can you prepared remarks, you stated that Hologic is to increase manufacturing even more.
You can work through some of the supply chain constraints can you just help us understand what these constraints are and if you are able to overcome them how much what's your manufacturing capacity increased over one point.
[music].
Sure Chris they the constraints themselves go really through the supply chain lot of its even things that get used on Panther itself. So our ability to produce that test kits and everything else is good but they are.
You've seen there's been some.
Knowledge from out there about pipette tip shortages and other things like that things that we don't control that we don't even supply.
To the vendors they buy them directly so were even working with manufacturers at some of the ancillary ingredients and it's probably a little too early to sell we think there's clearly a little bit of upside.
Beyond the high end of our guidance if we can crack these things.
But I feel really good about the guidance we have.
Now I'll just add that it will be thinking about increasing capacity, we're seeing our base business and diagnostics come back as well.
It.
Can be a challenge in bouncing on the two products.
Got it.
And then for my follow ups, leading cancer shipment forecast a 500 total placements in fiscal 2000 County implies that placements declined sequentially in Q4 summit materials ate systems that you placed in Q3.
This is ray could you just provides a bit more John this decline is just a function of strategic manufacturing constraints and completing your refurbished research lab systems ads.
Can you give us a sense.
Our instrument backlog. Thank you.
Sure, Chris they will be a little bit lower to your point, we said about 50 of those that we shipped were refurbished one so you figure there they're all gone we've literally taking every one out of our buildings that we didnt have we also had a little bit of inventory coming into the quarter. So weve shipped as you can imagine we've shipped every last one.
As I joked every time, there was a white house press conference and various customers or whatever we're down there promising more volume they came back in the next day.
One 800, Hologic what else can you do for us.
So we drained everything that we had an inventory we're building now at a certainly at about a double the rate, but it will be a bit of a sequential decline, but we got.
We made so much progress this quarter that that already sets us up well.
Thank you will hear next from Tyco Peterson with JP Morgan.
Hey, Thanks, Steve there's been a lot of talked about pool. Examples can you just talk little bit about we think pooling, we'll do the Panther utilization and then any thoughts on we test for legacy cancer, the debits and grown the panel on the larger installed base.
Sure Tyco as you well know as a leader in this space were so close to the FDA to our customers and.
Try to help come up with solutions I think as it relates to pooling. We are working closely with FDA and with our customers to look at some claims and think that.
We'll be certainly a player in that space in a may help increase the overall capacity, particularly in an environment right now where there are frankly, a lot more people that would still like to be tested.
That we think that may help more on a.
On that.
Testing, where are you, it's less diagnostic and more screening and I think there's going to be a ton of that come to fall with universities and everybody else trying to get back. So we think there will become a place for pooling and.
And it's something we're very familiar with really going back to our.
Our blood screening days, so as it relates to a combo again, you can imagine given our presence in this space, we're looking at combo products for the fall as well.
We continue to hear from customers government.
Cove, it is going to be the primary need.
The sad, but we think this year that frankly, when somebody gets flu, they're going to be relieved.
Versus curve it is still going to be a bigger concern, but we'll be there.
All fronts.
And then for the follow up can you talk a little bit more about the woman's health recovery, how you think about that beyond the fiscal fourth quarter.
Mammography may start to come back is that more of a 2021 of that or could you see some some up kicking into yearend.
Yes, I think part of what we're not totally sure about yet we've seen a significant strengthening.
Certainly June July ish of both our surgical and women's health businesses in diagnostics, we think a chunk of that was catch up.
People that delayed and kind of got rescheduled so we're not yet sure exactly.
What the trajectory will be particularly as you have any additional hot spots and in this in that but I think overall, we feel pretty good about the progress there and really our breast health business.
The diversification that we have in that business, so much more disposable and recurring service revenue at everything else.
That's probably still going to be the slower climb out.
But we're seeing some real positive signs in that business as well, but having said that obviously forecasting as carlene said still to be down somewhat.
In the current quarter and continuing probably to strengthen here over time.
Thank you. Our next question comes from Dan Littered with Wells Fargo.
Hey, Dan So Hello, a couple of questions on coded surprise surprise.
First off Steve you talked about the opportunity to use your kobin tax to capture.
Other test volume longer term can you elaborate on the mechanics of that is that contractual rent.
And then are you that the customers on acquiring Anders you tend to.
You know mothballing in 12 months.
Yes, I think a couple of things we're very confident.
In that many of them are contractually there.
Both us and internationally internationally, we've really linked it very clearly into hey said, but we're providing you covered tests and theres the clear linkage to as the covert volume goes away, we will fill the Panthers with our women's health assays. So there's lot of new customers that are going to be coming on board. The other fundamental.
In reality that we see everywhere and it's why.
As you see Hologic, we haven't been showing up the press conferences, but we're clearly showing up in the marketplace, everybody loves Panther and the more that people use panther the more they want to use it and by definition. The lab tax are constantly out scream and we've got a number of governors call Kevin Barnaul.
What I was just talking a couple of the labs in our state.
All I keep hearing about is how great your pantheris and show that even experience. There I think we're seeing more and more people just getting experienced on it and they love it.
Okay, and then for my follow up you talked about where the Panthers are going between between Tigers competitive wins in some some new customers view to automate and molecular diagnostics.
Group can you elaborate on what these customers look like I think you think would add some to nasons opportunities that but really what is the.
What is the demographic of this new to automated molecular diagnostic customer look like.
Yes.
There is one that we had referenced which is a company called lets get checked and they're doing a lot of direct to patient where they use our sample they send it out people send it back in and they're running it on our Panther and while it certainly they were actually a nascent customer in.
With our based products that has covert came in it's a real opportunity. We've done several people just locally didnt use them. So.
Those are examples of.
That will be breaking out.
Thank you well next take our next question from Brian Weinstein excuse me Weinstein with William Blair.
Hey, guys hi, Thanks for taking the question and I see that was not was quoted doors for them.
Congrats on that.
Thank you our Panthers were born to run.
They were home.
But not that on your part in a nice job.
We think about that 1.5 million.
In all the demand that's there you mentioned directs you mentioned or.
Details on those.
Less supply agreements that you guys have side do you need to increase the capacity in order to be able to.
He says Oh, U.S. supply agreements and how are you sort of allocating that's up between the rights in the U.S. at this point.
Yeah, We do you know weve only committed to what we know we can make so that 500 million number that we referenced over the next four quarters internationally is included in our production plans. If we can expand beyond that we know there continues to be more business.
Both domestically and abroad. What's great is this is where frankly, having our manufacturing facility in Manchester UK also because that's our diagnostics facility for Europe.
Again, just not it's not just San Diego, but its them crank in full out now and we really got them up and running in late June on the Cove and test.
Okay, and then if I could just kind of prints on.
First question a little bit here on the idea of the copper test I wasn't sure. If you were committing to be in the market.
And does that would be sort of a true combo tests that will be covered flu or if you're going to get a flu test sort of approved onto Panther, then have kind of a.
We have during flu and covert you probably running two separate tariffs or just how you're thinking about kind of pursuing that and just to confirm if you would be on the market you felt fine by the flu season or not.
Hey, Brian, it's Mike I'm going to I'm going to take that one without the Springsteen reference I think sorry.
So just as a couple of things one just as a reminder, we have the ability to do multiple flu plus coded on our fusion instrument today.
As you know so that'll be an important part of the armamentarium.
We are developing a second tests that will run on the Panther side that will combine.
Uhhuh with coded I'm not going to speculate on when that's going to be available obviously, that's impossible to predict but certainly the goal is to have it available in the for the fall flu season.
Thank you we'll take our next question from Jack Meehan Weve definitely search.
Thank you good afternoon.
I will continue on ER Hello.
Can you on the diagnostic theme I was curious if you could just comment on how you're saying you expect customers to use their panther system, the routine volumes start to improve but the.
Kobin testing sustained.
I'm sorry can you hear me.
Yes, yes.
Sorry, I thought I could hear something it back on yeah.
Just how do you expect cuts how you expect customers use the Panther system.
As we could testing sustains, but the routine volumes come back and is there any cannibalization of existing testing that you expect.
It's part of the magic by the way as you know with the random access Panther, it's so easy to be able to run the women's health test the covert simultaneously not having to batch not having to do all the other stuff that can slow step down. So we really are seeing our key customers using it for both.
And obviously, we're not going to short change.
Our core business that we've built this company, which is women's health. So all of the numbers will providing are continuing to do fell within our women's health business plus adding on that additional coated.
Covert volume, but I think we see the customers being able to use both in that part of the I guess part of the Big Magic in our system as you well now and Jack I Wouldnt now that I.
Talked about prior to co that on average a panther was only 35% utilize to there was capacity already within that installed base to add additional testing.
Great and then Steve I was wondering if everything going on with Cobot 19, if it changes your philosophy around M&A in the diagnostic space at all historically.
Thank you guys have looked at point of care is closely given your positioning in the hospital in regional lab, but do you think it makes sense with a focus on early detection hershberger that way.
Yes, Great question, I would think you'll see us continuing or probably accelerating a little bit of our bolt on strategy.
Probably with both surgical as well as diagnostics.
Some things that we're looking at teeing up and we think this is going to put us in a good position to acquire having said that we also think theres no.
There are clearly some lofty valuations that have been created within some of the space.
Diagnostics right now so we're also willing to be patient and.
Certainly don't need to do anything, but I think it does give us more flexibility.
And frankly haven't Kevin foreign all out here running this business as many of you know Kevin.
Worked for several years in business development in his Stryker days.
Having him now running this diagnostics business and doing an amazing job.
Of that he also brings a deep or business development bolt on mindset and I could day, there's a lot more activity going on in the division with his leadership here.
Okay, and we'll take our next question from Anthony Petrone with Jefferies.
Thanks, and congratulations on a quarter on on lots of progress in diagnostics I, just a couple of mass questions on.
Some of the numbers throughout here, Steven calling and so.
First it will be as the 500 million you referenced over the next four quarters for Europe, I guess, how much of that is baked in the fiscal Fourq you should we just expect that evenly loaded so a quarter of that goes into the next Q and then how much is baked in there I guess for the fourth quarter for back to school.
When you referenced that earlier, Steve et cetera that that strikes us as a big driver.
Next quarter.
Then last just to get it in there if we if we do it another way or.
Looking at your production capacity.
At a minimum we're coming up with 400 million or.
Yes for Q is that a good starting point when we think about the mix numbers that's again congratulations.
Thanks, Jeff the certainly starting on the.
The that the 500 million, which is a glut, which is eight international number that both Asia Pac as well as you're up its primarily Europe, but just let me set the record straight there I think a good way to think about that is fairly level loaded over the next four quarters.
Is kind of the way that the contracts or.
Our laying out as it relates to back to school, we're clearly we've been building and trying to ramp to get more and more production for the September October period. So I think that we're clearly seeing and expecting.
Continued growth in the September timeframe, and that's what's baked into our guidance.
Thanks again.
Great.
You will hear next from Dan Behrendt with TBS here.
Great. Thanks, Thanks for taking the questions here congrats on a really good quarter. So can you I guess, Andrew could you help us think through maybe.
Now you're thinking about.
Where the market for testing goes you know I think you mentioned were somewhat below 20 in the U.S. right now where do you think that goes by the fall any any sense or how you're kind of planning your.
Business and I'd be interested now if you could provide what your split is while it between us and the U.S. cobot testing because it's hard to get a sense of what the or U.S. qubic testing numbers.
Yes, well, obviously weve effectively.
Given you a number on in terms of.
If you take that 500 million outside and.
Divided by four over the next four quarters, hopefully that gets you in the range of what the international.
Component will be obviously, they'll still be more of it.
Going to the us as well so.
It's hard to exactly know where this market is going but I think when we were I remember being part of an AD from that call in.
You know she is who is a late April early may and they were saying that the country has the capacity of maybe do 400000 test today maximum.
We're now in that I Love. Your report every day, the 750 that 800 and Weve hit a 900000 day I I'd be surprised probably if we're not of the million a day in that September timeframe.
But again, we're obviously, we've gone well think about it is went.
5 million in April $10 million on May 15 in June July is going to be over 20 million, yeah, probably puts us on that page to a 30 ish million number of tests in the United States in that September timeframe.
And I think being very persistent.
As it goes through the whole cold and flu season.
Great. Thank you Karen and then maybe just one more on vaccine you kind of gave your or some color. Following on from consumer survey stuff and kind of how you think about the persistence of testing even when we have I've actually in the marketing.
A wait and see what the efficacy of does look like but is this sense that.
I think you talked about a real persistence screen can 21, so you talked about HPV and influenza but.
We were thinking too that there could certainly be a much higher vaccination rate given the economic comedy that you know that that's that this has caused so I think some investors worry that if we get an effective vaccine that the testing market could dry up rather quickly. If there was like a dramatically higher trade towards getting it. So anyway, it's hard to put the copper for the horse, but how how should we think about.
I think that persist into the 21, which you talked about when we begin to get some of this vaccine data out what are some of the signposts to watch you think.
How how strong and study testing could be.
Yes, I think you don't think about it particularly for the first half of 21 involve a vaccine is rolling out.
There are still going to be a bunch people getting sick and.
In the United States by the way you got what 350 ish million people and the big part that I keep coming back to because of all of our discussions and as a global enterprise existent. So much focus on Covidien us.
We're not going to eradicate we're not going to vaccinate 7 billion people in the world and given how persistent. This is just Vietnam as you heard today right Vietnam and gone I think 90 days without any cases and suddenly three popped up in Vietnam say, there's going to be this is going to be circulating.
Around the world and again exactly what that none of us have the crystal ball CDC doesn't have it the wthr doesn't have it God forbid I certainly in our team don't have it.
But I think just try to use some common sense thinking about the real realities.
By the way I mean, if I'm honest with you who's going to likely get vaccinated first in the United States, It's probably going to people who.
I'll have a little more money who are in the suburbs and.
Are we going to be getting the migrant workers population and a lot of the other folks that we really need to get where the persistence is bigger.
Not sure we're going to get all those people right away. So I think theres going be all kinds of reasons. Why this thing is still going to be out there. The other realities even over the next five six months before vaccine comes I think we're going to start to get better at realizing and it'd be helpful. If some of the public officials and said well we have to do is realize.
We've got to live with this and learn how to cope and learn how to manage in diagnostics are such a great tool to help people better understand where is it breaking out what should we not do you know and I think we're getting smarter and smarter. So that we don't go into complete Lockdowns again, and everything else, So I think which meet all kinds of.
As you know if your University President right now.
So many folks that need information that we're going to be helpful too to provide.
Operator, I think we can I squeeze in we can squeeze in two more questions. Maybe we'll just limit. These last two to one question each please.
Thank you we'll take our next question from RT Mart with Bank of America.
Hey, congrats on a great quarter.
Your first squeezing me.
So I can click on the question.
Hi, there on the 40 million.
Per quarter.
Cody capacity.
Would you expect that one.
Third market share to proceed in that back several quarters.
And related to that.
It takes years.
Well.
Going on and Oh.
Yes.
Sure hospitals.
Other facilities.
You don't see installed during this time thank you.
That was good job getting about 14 questions in there I think so very impressive.
Let me try ubiquitous much of the answer to that Ken first off to clarify the 40 million that we're building to for production capacity is our total molecular volumes of which clearly well more than half of that we'll be going pretty much towards our base business. So with the Cubs ought to make sure we didnt.
Confusion and suggest that was a covis production.
Volume in terms of market share, we're really not that focused on market share right now because I don't think any of us can provide.
The real battle, while we normally battle our competitors the battle here as all of US battling this pandemic and and battling Corona virus.
So I think theres going to be plenty of of business for us going here I think as it relates to point of care.
The point of care, certainly has a role but at the end of the day Super High volumes, it's hard to test a thousand people using point of care just from a manual the time that it takes.
Last quick to get one test back for one person or you get four people tested.
It's hard to do hundreds of people.
In a point of care world and linear as a country right now.
Conducting the level of tests.
700, 800 900000 test today.
I've got to have high throughput high volume systems to do that so I think we're in one of those unique situations, where you know what point of care is probably going to continue to grow and we're going to continue to grow.
Thank you, Okay for 11 hours and final question.
Thank you I'll take a final question from Richard Newitter from SPV, but your Inc. Please go ahead.
Hi, Thanks for.
Your and congrats on the quarter.
If I could just maybe on the of the Dod go would parts of the business. He just single gained in your surgical business.
Can you just elaborate a little bit on the trend as you were exiting Jude.
Into July I. Appreciate you had mentioned some backlog work down or for procedures getting.
Getting back on on schedule, but.
Is there what was the trend in the most recent you weeks it was it improved.
Great and telling ended June and if you could comment a little bit on the actual new business.
Denovo had to.
It's if you will and what are what you're seeing anecdotally in transportation seeking out care from that standpoint. Thank you.
Yes, rich, we're not going to get into how the last two weeks were relative to other two weeks and this and that I think it's baked into our guidance. We say, we see our surgical business being down roughly 20 ish percent this quarter or that's a dramatic improvement from the down 50% plus last quarter I think we.
Like seeing it come back and menu we have some really good days and then you have you know Texas or.
Florida goes into a slight will lock down again, or whatever and you see a little bit of things back. So we don't have perfect visibility to the trend going forth, but we feel really good about the trajectory we due to the second part of your question on new visits were versus.
Backlog, we're trying to track that and we've got combinations of both a little more new yet we don't have exact numbers, but you know clearly myosure with its.
People have fibroid cases, that's going to be that's a lot a new and existing and Nova sure. There was a little more catch up initially, but yes, I think we're starting to see new new patient patients coming back in as well.
Yes. It is all the time, we have for questions. Today. This now concludes logic second quarter fiscal 2020 earnings conference call have a good evening.
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