Q4 2020 Hologic Inc Earnings Call
Good afternoon, everyone and welcome to the Hologic fourth quarter fiscal 2020 earnings Conference call. My name is Christine I'm your operator for today's call.
Today's conference call is being recorded all lines have been placed on mute I would now like to introduce Mike Watts, Vice President Investor Relations and corporate communications to begin the <unk>.
Thank you Christy good afternoon, and thanks for joining us for Healogics fourth quarter fiscal 2020 earnings call.
With me today is Steve Macmillan, the company's chairman, President and Chief Executive Officer, Carlene over 10, our Chief Financial Officer had an accident last week that required surgery. So she is not joining us today. She is resting at home and doing well, but I'll be covering for her in our call. Today. Please join me in wishing Colleen a speedy recovery.
Our fourth quarter press releases available now on the investors section of our website. We also will post our prepared remarks to our website. Shortly after we deliver them. Finally, a replay of this call will be archived through November 27.
Before we begin I'd like to inform you that certain statements. We make during this call will be forward looking these statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied such.
Such factors include those referenced in the Safe Harbor statement, that's in our earnings release, and our filings with the SEC.
Also during this call we will be discussing certain non-GAAP financial measures a reconciliation to GAAP can be found in our earnings release. One of these non-GAAP measures is organic revenue, we define organic revenue with constant currency revenue less the divested blood screening and cynosure businesses as well as the acquired supersonic imagine antecessor businesses.
Finally, any percentage changes that we discuss will be on a year over year basis and revenue growth rates will be expressed in constant currency.
As noted now I'd like to turn the call over to Steve Macmillan Hologic CEO.
Thank you Mike and good afternoon, everyone. We're pleased to discuss our financial results for the fourth quarter of fiscal 2020.
We capped off a truly unprecedented fiscal year a year in which we made an enormous impact on public health with remarkable performance on both the top and bottom lines.
Since we're marking the end of fiscal 2020 will reflect on the full year today.
We also want to remind everyone of the steps we took in previous years that enabled us to post such terrific performance.
And discuss how our current successes will make us an even stronger company going forward.
Forward do that let's provide a quick overview of our financial results for the fourth quarter.
Total revenue was $1.347 billion and non-GAAP earnings per share was $2.07.
Revenue grew 17.9% organically and eat P.S. more than tripled.
As higher production volumes and diagnostics enabled us to leverage our fixed cost base.
Both revenue and EPS came in well ahead of our expectations at the beginning of the quarter as well as the updated guidance we provided in September.
The outperformance was driven by unprecedented global demand for our cobot tests on the Panther system.
And the continued recovery of our other product lines.
How did we achieved these results.
Five strategies that we pursued before 2020 <unk>.
Put us in a position to seize the opportunities that covered presented.
As well as mitigate the risks.
Well, we certainly did not predict the covered pandemic we.
We did put in place people processes and capabilities that enabled us to adapt quickly.
Making massive contribution to human health.
And drive value for customers employees and shareholders.
First over the last few years, we spent a significant amount of time defining our purpose passion and promise.
As a reminder, our purpose is to enable healthier lives everywhere every day.
Our passion is to become a global champions of women's health.
And our promise, it's the science of shore, which is all about providing clinically differentiated high performance products that customers and patients can rely on.
These principles have inspired our team's incredible efforts over the last several months, especially our many frontline employees, who have shown up to work every day since the pandemic the gap.
When the world needs Us most.
Our team rises to the occasion.
Second in diagnostics, we fueled our razor razor blade business model by placing a hundreds of Panthers and strengthening our assay development capabilities to add more tests to our menu.
At the end of 2014.
We had about 600 Panthers installed worldwide.
Over the next five years, we tripled that installed base to more than 1700 <unk>.
Yeah, and the 2019.
Similarly.
2014, we had a grand total of four assay is approved on the path there and the United States.
But by the end of 2019, we had quadrupled that with 16 tests cleared.
As a result, our molecular diagnostics business was thriving even before cove it.
With growth of 11% globally last year.
Clearly, we were well poised to make a difference when covidien merged.
Third in breast health.
We diversified our business under the leadership of Pete Valenti we.
We recently announced that he will be retiring in December and we want to thank him for more than six great years of service.
Pete was the first division President I hired at Hologic and he was the mastermind behind our genius Threed mammography strategy.
Pete leveraged our leadership position into a more diverse consistent business that tracks the clinical continuum for breast health care.
We acquired facts or tri focal and supersonic imagine.
Grew our service business to be even bigger than our capital franchise.
And develop innovative new products, such as Brevera and artificial intelligence tools.
As a result, our breast health division has been more insulated during the pandemic than many other businesses that are highly dependent on capital.
For.
In surgical we brought in a new leadership team that quickly transformed the commercial organization with their focus on talent and engagement. This.
This began with Shaun Doherty, who was recently promoted to group president overseeing surgical as well as breast health.
Sean's team also revitalize the division's R&D pipeline, bringing to market new products, including fluent and the omni historic scope.
As a result surgical was growing strongly pre covet and is recovering faster than expected now.
Yes, yes.
International we hired experienced senior leaders, who pursued an ambitious goal to double revenue over five years.
In Europe, especially we moved away from the distributors and strengthened our direct commercial capabilities.
Under the leadership of John versus tracking who was recently promoted to group President for all our international franchises.
Our international business grew 11% on average from 2016 to 2019.
And when the pandemic here.
We were in an excellent position to contribute with our testing solutions.
Now, let's spend a few minutes on the highlights of fiscal Twentytwenty.
What a year it was.
With organic revenue growth of 22% for the year.
And highly leveraged non-GAAP EPS growth of 64%.
In Cove at time, when days feel like weeks and weeks feel like mugs.
It's hard to believe that we sold our cynosure medical aesthetics business early in fiscal 2020.
The divestiture removed a drag on our growth and profitability as well as an overhang on our stock.
And behind the scenes it helped us refocus on our core businesses, especially overseas.
Which was critical when the pandemic hit.
With the divestiture complete we started 2020 in good shape.
For the first time, all our major divisions and geographies, we're performing well organic growth had been steadily increasing from a trough or about 2% in early 2018 to a solid mid single digit rate in early 2020.
Then.
David 19 changed everything.
In the early days of the pandemic, we moved quickly to preserve cash and brace ourselves against the global macroeconomic shock.
At the same time, our diagnostics R&D team triggered what has become an incredible division wide response, one that exemplifies our purpose passion and promise.
Working around the clock they developed our first covert test for the Panther fusion system in about two months.
And as soon as our fusion assay received its emergency use authorization, we began working on a second test and the Aptima assay for our base Panther system that could run on more instruments and be produced in much larger quantities.
Early on in response to the massive public health need we set a goal to double our overall molecular diagnostics production capacity from about 20 to 40 million tests per quarter.
Hey capacity expansion of this magnitude would normally happen over eight to 10 years.
What we set out to make it happen in six months.
As you can probably tell from our financial results. This quarter, we have already exceeded this goal in terms of both size and speed.
In the fourth quarter alone, we produced more than 50 million total molecular diagnostics tests. This.
This included about 25 million covert tests that we provided to customers.
An average of roughly 2 million per week.
This means that we sold more cove in test this quarter.
Than we had ever produced of all of our molecular tests in a quarter.
While our efforts to increase production volumes have gotten a lot of attention and deservedly. So.
We also want to highlight two areas that may be somewhat under appreciated.
First is the impact we're making internationally.
And second is the long term durability.
Of the Cove in revenue opportunity.
We're particularly proud of the role we're playing globally, especially in Europe.
Okay.
And Mr. Pixart early on in response to the mass no I get.
Got it.
We're particularly proud of the role we are playing especially in Europe if.
If kobin would have hit five years ago.
Our ability to make an impact would have been minimal as we just didnt have the installed base relationships or commercial capabilities.
But now under Yods leadership, we are on track to generate more than $1 billion in total European revenue this year.
As a major driver of this.
$500 million in committed Cove in revenue that's.
It started in the fourth quarter is now expected to be over $600 million.
And extend throughout fiscal 2021.
The extension of these contracts reinforces that demand for highly accurate molecular covert testing it.
He is going to remain robust for a while.
Infection rates are on the rise not just in the United States, but globally.
And it will take time to manufacture and rollout vaccines broadly.
Even if they are proven highly protective.
Effective vaccines will eventually slow testing demand.
But even then we believe that covert testing will remain a large market.
Probably bigger than any other molecular category for years to come.
Molecular tests have been the gold standard for infectious disease testing for decades.
And for good reason.
They are more accurate than other testing modalities and this is especially important when lives and livelihood are at stake.
And with our combination of robust chemistry.
Innovative engineering on Panther.
Differentiating differentiated labeling the FDA.
We believe we are the gold standard among molecular tests.
The data the FDA recently published.
Which compared the analytical sensitivity of more than 50 emergency use authorization assets.
Speaks to this point.
And underpins the asymptomatic screening claims that we receive for our cobot assays this quarter.
Sensitivity is especially important when testing people without symptoms when false negative results could provide a false sense of security and contribute to super spread or events.
So as we look forward.
What will these accomplishments mean for our future.
2020 was a year in which we significantly strengthened the company for the years ahead.
Let me give you some examples.
First.
We shipped 500, any 11, new Panther systems, this year, well more than double our run rate over the last five years.
This increased our global installed base to about 2250.
Up almost 30% in just 12 months.
We helped our manufacturing partner more than double production.
And refurbish scores of instruments from our own and other labs.
And we still have a waiting list for papers, we expect to have another very good year of placements in 2021.
Which reflects the longevity of covert testing that our customers anticipate.
The combination of our huge Panther installed base.
Facilities close to the patient.
Plus our assay sensitivity have us uniquely positioned to pursue opportunities that will be around for the long term.
Such as testing before hospital admissions and asymptomatic screening.
This is one reason we are moving ahead with further capacity expansion that will include our main plant in San Diego our facility in Manchester, England, and several of our key suppliers of related consumables.
Our goal is to produce at least 75 million total molecular diagnostic tests a quarter, starting roughly a year from now which would represent more than three and a half times, our total capacity precocious.
These efforts will be reimbursed in part by the 119 million dollar U.S. government contract that we announced last week, which supports increased covance production capacity for the domestic market.
Clearly the government also believes that covert testing is going to persist and that we are making a meaningful difference against the pandemic.
Second the benefits of the new Panther placements will extend far beyond covet.
As we said in our last call, we are targeting Panther placements to customers, who want to run our other tests when the pandemic is over.
As a result, we are signing up record levels of new business, what we call tours or tests of record.
To be more specific in fiscal 2020, we signed up Noncovered tours worth $35 million annually in the United States. This.
This is almost 50% more new business than we had ever done in a single year.
And helps explain why our non coven molecular sales increased slightly in the fourth quarter.
In addition, we have another $35 million of Noncovered tours waiting to go live as soon as we have product available and capacity on Panthers.
The biggest contributor to these tours has been the new Aptamer that Genesis tests, which reinforces our long term enthusiasm for these products.
Overall, there is no question that additional Panther placements will make our molecular business markedly stronger over the next several years.
Third our contributions to fight the pandemic internationally.
Significantly elevated our market positioning.
Especially in major European countries, including the United Kingdom, Germany, and France.
We are already seeing the benefits in terms of market access for other products as we compete for tenders.
Finally, the strong cash flow that our cobot tests generating.
Is enabling us to further strengthen our balance sheet and accelerate certain growth investments as Mike will discuss.
In addition, we're going on off Thats in two ways.
First we are stepping up our business development activities. In August for example, we spent approximately $80 million plus future contingent earn outs to bias Sesa help.
Assess or markets a laparoscopic RF product that is used to treat fibroids myosure can't reach so it's very complementary to our surgical business and a nice fit for our salesforce.
Across our divisions, we have a full funnel of other acquisition targets today and would be surprised if we didnt complete at least another deal or two in fiscal 2021.
Second we resumed our share repurchase program buying.
Buying back about 1.7 million shares of stock for roughly $100 million in the fourth quarter.
For the full year, we repurchased 13 million shares for $654 million, reflecting our confidence in our future.
Before turning the call over to Mike, Let me conclude by reiterating how proud we are of the Hologic employees, who stared adversity in the face during 2020 and made remarkable contributions to the battle against COVID-19 not.
Not only did our team make a huge difference on public health, we positioned hologic for greater success in the future.
Now I will turn the call over to Mike.
Thank you, Steve and good afternoon, everyone. In my remarks today, I am going to provide an overview of our divisional sales results walk through our income statement brief briefly touch on a few other key financial metrics and finish with our guidance for the first quarter of fiscal 2021.
As Steve said, we're thrilled with our fourth quarter results as revenue and EPS significantly exceeded our guidance reported revenue of 1.347 billion increased 54%. If you include the divested cynosure business in the base organically revenue grew 71% driven by strong sales of our to covert test.
Below revenue the tireless efforts of our operations and supply chain teams to ramp up production of cobot assays boosted our margins profitability and cash flow as we leveraged unprecedented molecular diagnostic production volumes against our fixed cost base.
As a result EPS of $2.07 in the fourth quarter increased 218% well ahead of our expectations and cash flow was extremely strong as well, which I'll discuss in a moment, but.
But before I do that let me provide some detail on our divisional revenue results.
Diagnostics, our largest division more than tripled in the fourth quarter driven by molecular.
Sales increased 371% as Steve mentioned in response to the unprecedented need for further testing, we shipped about 25 million cobot test to customers in the quarter generating revenue of $601 million.
It's important to note that even if you exclude COVID-19 testing as well as koby unrelated Ancillaries and equipment are based molecular business increased in the mid single digit range. This speaks to the clinical importance of our assets as well as the bright future, we see in molecular as new products contribute more and more.
Rounding out our diagnostics division, the cytology and perinatal business has declined but trends improved compared to the third quarter in.
In breast health divisional performance improved a little faster than we expected.
Global sales of 289.2 million decreased 16.2%.
Excluding 6.2 million of sales from supersonic imagine sales decreased 18% organically.
Demand for many of our capital products was obviously depressed because of a 19, but as Steve discussed the increasing diversity of our business cushioned. The overall decline as consumables and service essentially return to their pre cobot levels versus.
For example, our interventional business was basically flat helped by the relaunch of our Rivera biopsy system late in the quarter and service revenue, which was larger than capital sales grew slightly.
In surgical sales of $100.2 million decreased 12.9% also better than our internal forecast demand for semi elective procedures continues to be negatively impacted by Coca 19, but trends definitely improved compared to the third quarter and our customers are reporting a steady increase of new patients, which bodes well.
For continued recovery.
Overall in terms of geography domestic sales of 994.9 million increased 52% on a reported basis as strong sales of Cobra test more than offset the impact of the cynosure divestiture and reductions across our other product lines.
On an organic basis us revenue was up 64%.
Outside the United States sales of 352.1 million roughly doubled on reported basis and grew 95% organically driven by excellent performance in Europe.
Now, let's move on to the rest of the PML for the fourth quarter.
Gross margin of 74.2% increase.
Increased 1250 basis points, driven by sales of high margin KOVA tests, and the divestiture of the lower margin side of your business.
As a further benefit of decided or sale total operating expenses of $276.6 million decreased 1% in the fourth quarter. Despite growth in core Hologic R&D. The addition of ESI expenses and opportunistic investments, we made to bolster future growth.
Some examples include marketing campaigns to improve healthcare healthcare equality for underserved communities and to emphasize the importance of preventive screening during the pandemic.
We also outsourced and diagnostics R&D work to third parties and accelerated product registration efforts and clinical trials in some of our other international regions.
Finally, we had higher compensation expenses accruals for incentive compensation, especially in diagnostics increased in line with our financial results.
Putting all this together operating margin increased 2430 basis points to 53.7% and net margin increased to 2020 basis points to 40.4% both record highs.
As a result, non-GAAP net income finished at $543.7 million and non-GAAP earnings per share were $2.07 well ahead of plan.
Before we cover our 2021 first quarter guidance I'll quickly touch on a few other financial metrics driven.
Driven by demand for our Cobot test cash flow from operations was 442 million in the fourth quarter of very strong result for the full year cash flow from ops was almost $900 million and.
And even with the significant capital spending in diagnostics to support increased cobot production free cash flow was $740 million in fiscal 2020.
This strong cash flow gives us tremendous financial and strategic flexibility and enabled us to further strengthen our balance sheet in two ways.
First we repaid $250 million that we had borrowed on our revolver as a precautionary measure early in the third quarter.
Second we refinanced $950 million.
Senior unsecured notes lowering our interest rate from 4.375% to 3.25%, which we believe is the lowest ever for a high yield corporate high yield healthcare bond excuse me.
And we also pushed out the maturity for years to 2029.
Overall, we had $701 million in cash at the end of the fourth quarter and with more than $1.5 billion of EBITDA over the last 12 months, our leverage ratio fell to 1.5, we.
We do expect both EBITDA and free cash flow to grow significantly in fiscal 2021, but as Steve said, we are actively pursuing a number of acquisitions across our divisions to accelerate growth and hope to use our cash flow to complete a couple of deals this year.
Finally, ROI fee was 18.5% on a trailing 12 month basis, a significant increase of 550 basis points.
Before we open the call up for questions, Let me discuss our expectations for the first quarter of fiscal 20 2021.
We anticipate that fiscal 2021 will be an excellent year for hologic overall, but our business environment remains very fluid due to the pandemic. Therefore, we are only providing a single quarter of guidance today.
In the first quarter of fiscal 2021, we expect excellent financial results again, even a little better than last quarter. Despite the slowdown we usually see around the holidays.
We forecast total revenue in the range of $1.35 billion to $1.425 billion. This.
This represents organic revenue growth of roughly 71% to 81%, including cynosure in the prior year period, our guidance corresponds to reported growth of 59% to 68% and constant currency growth of 57% to 65%.
On the bottom line, we expect EPS of $2.10 to $2.25 in the first quarter.
This implies unprecedented growth rates of between 244, and 269% significantly outpacing revenue.
This first quarter guidance is based on a tax rate of 22.75% and diluted shares outstanding of approximately $263 million for the quarter.
Now, let's turn to our divisional expectations.
We forecast the diagnostics revenue in the first quarter could triple or more compared to the prior year period underpinning. This we expect that demand for our two cobot assays will continue to exceed supply this quarter.
As Steve said, we are further expanding production capacity for our molecular test, but most of this capacity will come online later in 2021.
Based on this timing, we forecast co that assay sales to increase slightly in the first quarter compared to the fourth commensurate with a small sequential increase in production.
We also expect that our combination test for cold and flu, which we submitted for an easy way last week will be available later this quarter.
We anticipate sales in both breast and skeletal health and surgical to be down again in the first quarter, although with slightly better percentage declines than in the fourth quarter.
In breast and skeletal health, let Rick let me remind you that first quarter sales often declined sequentially in absolute dollars compared to the fourth quarter due to seasonality around the holidays.
And in surgical we believe our customers are much better prepared than they were in the spring to manage their local increases encoded prevalence. So while we do expect trends to continue improving we will keep a close eye on whether increasing KOVA cases have a negative effect on elective procedures.
As you update your forecast, let me remind you that macro uncertainty remains higher than normal due to the pandemic.
While our visibility has improved compared to several months ago, we would still encourage you to model at the middle of our ranges, which incorporate both potential upsides and downsides.
Before we open the call for questions, let me wrap up by saying that the logics financial performance in the fourth quarter was tremendous.
I have no doubt that our efforts this year have significantly strengthened the company for the long term we.
We continue to make a huge impact on human health globally and have positioned ourselves to deliver an exceptional fiscal 2021 as we continue to battle a virus that isn't going away anytime soon.
With that I will ask the operator to open the call up for questions. Please limit your questions to one plus a related follow up then return to the queue.
Operator, we are ready for the first question.
Thank you at this time, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad, if you're calling from a speaker phone. Please make sure. Your mute function is often start you're saying okay Jack.
Again, I want to ask a question first so that you need to make your life from Evercore ISI. Your line is open.
Hi, Steve Congrats.
Congrats and obviously the here and now.
Good to be back on the comp here I guess just.
Maybe on.
The I guess the comments you made on M&A as Steve.
Hi, good step back.
The $1 billion that Bob covered revenues, we weren't expecting a year ago.
Thank you to be.
At one and a half plus of.
Incremental revenue coming in over the next 12 months.
Indeed revenues were dropping down at pretty high margins.
55%, that's a lot of free cash.
When you think clearly define those.
The proceeds.
I think you mentioned, one or two deals in the near term could you maybe talk about perhaps the focus.
What areas are you looking at.
Are these going to be focused on acquisitions, perhaps on the size of the transaction.
Sure Vijay I think what's great is we've really gotten back to our division led.
Business development strategies, we've got each division out there that way they know the adjacent sees the ability to bridge out I would say if you go forward. We're clearly looking at some ways to broaden our diagnostics platform, both product wise as well as geographically.
So that team has been very active on the business development front end.
In addition, obviously to all the production capability and everything else, but we're looking across the board surgical continues to look at some additional things and breast health is looking at some things as well, but I think diagnostics is probably more likely to be where we see it I do think we've kind of set up the rough principle.
Staying within the constraints of our annual cash flow and.
And I think that continues to be exactly what we're thinking about we're looking at some things that might be a little bit bigger than we were looking at pre cut of it but nothing.
No nothing beyond certainly beyond the annual cash flow or anything like that.
Understood and then Mike maybe one no not not.
I get the label extension care to asymptomatic.
Is this now an indication perhaps given the asymptomatic label.
But you could see in the testing.
Ansys Dan beyond the next six months as we look at back half of <unk>.
Next fiscal perhaps once we have a vaccine could you maybe just step aggressive.
What happens to the testing gross slack season, perhaps the durability testing.
In the context of thought you are asymptomatic Midland.
DJ I'm glad you picked up on that which is we believe this asymptomatic approval is any norm its win for us over the long haul and let's face it with what the world has gone through here even post vaccine.
There is going to be probably some pretty strong ongoing needs by governments around the world to want to monitor their healthy there their populations and just track.
On an ongoing basis.
Just to see relative incidents or any kind of recurrences and frankly, it's the asymptomatic people who are the key there and that's the on label indication, it's hard for us to probably fully underscore how strong we think the demand will be for the.
For years to come.
And you still play out the timing of vaccines by the way, let alone mutations and other things.
We believe and Weve been in close contact with most of the major governments around the world.
All of the key labs to health experts, we believe an ongoing screening program, where you're going to want to use the most sensitive.
Tools out there.
Including frankly hospitals are going to want to continue to test patients coming in.
What is the best way of rates going to Glenn for hip and knee cardiac any other procedure.
Thank you at least for the next couple of years.
Is probably going to be tested and again with our global installed base now in excess of 2200 and continuing to grow on Panthers. We think this is going to be a big big and growing market for US yes. It can be exactly what it is today.
Likely not.
But there are still we believe and we've made the bet that there is a longer tail. Yes. If you look by the way just one other data point the contract we got from the US government last week. If you look at it they are asking for us to be providing 13 million tests per quarter bye.
Yes per month really six quarters from now by the first quarter of 2022.
So again governments are increasingly planning to want to have major capacity.
Well beyond even just this coming cold and flu season.
And next we'll go to Tycho Peterson from JP Morgan Your line is open.
Hey, good afternoon, I'll start with one parent from Mike and Mike Nice job.
Go ahead, Bob Hope all growth Carlin, but I want to ask on the operating margin 24, or 30 basis points of margin expansion. No question is how sustainable is that.
If we get the run rate on the EPS guide for the year that gets you to kind of $9 at the high end is that the right way to think about it or is there some reinvestment and we think about that over the course of the it.
Yes sure Tyco.
So operating margins, obviously were very strong in the quarter based.
Based on the Cobot revenue and just higher revenue overall, we did guide for revenue to be a little bit higher sequentially in Q1 versus Q4.
Margins growth in gross and operating should be about the same maybe a little bit little bit better base.
Based on the higher revenue. So we should be looking at another strong quarter of EPS in Q1, I think that corresponds to the guidance. We gave at the bottom line, which was a little bit ahead, I think we guided to 10 to 25 for EPS, so that that should all be pretty consistent.
Certainly I would be cautious about kind of taking that level and just annualizing. It I think that as Steve said, we feel very strongly that we're going to get very healthy demand at least through the March quarter right.
As as flu kind of hopefully.
Hopefully goes away around that time, I think from that point forward, you're likely to see overall.
Coated revenue start to decline on a sequential basis, but I think it's going to be pretty gradual.
Steve talked about some of the drivers of long term demand so I think that.
Maybe we peak in our March quarter, maybe we peak in the June quarter, but things will likely decline on a sequential basis from there and that will have an effect on EPS as well.
Okay. That's helpful and then for Steve.
Quick hits on the testing side, you've been pretty negative on the pooling front I'm. Just curious if you think as we head into next year pulling starts to pick up and then on the government contract is that a one off in your view or could there be other kind of chunky government contracts like that to support scale up and then lastly, I'm just wondering if you could comment on the non coated testing volumes.
Mid single digit, yes, certainly better than we expected so I'm curious about the sustainability of that thanks.
I think tyco just set a world record for the one follow up that was three or four so let me let me make sure I try to get all of those take out.
On the pooling, we think eventually that will start to kick in and again, if you look at the way, we're poised and because of the extreme sensitivity of our task we feel like we're poised no matter, where this goes and by being able to offer to customers. If it ends up going into a pooling world.
We are there for them and certainly you know years in the future we wouldn't be at all surprised if theres still some level of ongoing testing that probably would use pooling.
Certainly more adults, we don't see much interest frankly, and given the still that the very high incidences belt.
I don't see that being as much right now what were that the other parts of the.
The contract is that a one off or could there be other.
Yes. Thank you on the government contract side I think this largely covers the bulk of the expansion that we had both planned and then.
Did encourage us to even go that much higher.
On wearable.
Well, we're going to work getting to that 75 million.
Quarter number I think tyco. The last question was related to diagnostics volumes non coated and I think there we were encouraged in the quarter by growth in the base HPV had a good quarter trick Kattegat Trichomonas had a good quarter contain.
Continue to get good traction with our HIV viral load product, particularly in Africa.
Doing a good job there I think we called out in our script a lot of good interest around our veggie notices panel, which is bdcv TV, which has contributed to the growth as well. So it was nice to see even if you back out all the cobot stuff, which obviously was huge the underlying business growth as well in the quarter.
Yes, correct.
And next we'll go to Patrick Donnelly from Citi. Your line is open.
Great. Thanks, guys, Steve maybe actually you just wasted maybe just one on the capacity side certainly appreciate it will take some time to expand on that can you just talk through I guess the key hurdles.
Through for that and any potential for a larger increase even this quarter I mean, similar last quarter. I know you said you had some things that to break through to get the capacity going fiscal Fourq. You did that maybe just talk through how this trends over the next couple of quarters and any potential then pull that capacity expansion.
Yes.
Yes, I think the way to probably think about capacity is it's not a steady linear it comes as pieces of equipment and suppliers can come in and show that we were able to get a few that we had a bunch of stuff ordered early in the year a number that came through now.
It sort of making the investments for the future Patrick that for example, this quarter next quarter not much additional capacity coming online, including things like multi caveats and pipette tips and all the ancillary consumables, where we are giving additional investment to our suppliers.
To put in new machines that they've got to now order those machines were sort of in the next wave of placing the orders where they won't be calling online for another six or nine months ish.
And therefore, it's much more incremental here in immediate quarters, but we are continuing to position ourselves for for further out.
Hopefully that helps.
But it kind of goes up and sort of straight line, it's more of a stair step I guess than a linear progression.
Yes makes sense and then maybe one on breast health certainly held up better than anticipated on R&D can you just talk through the key pieces of performance.
The outlook heading into even calendar 21, New York.
Handle on hospital capital spending outlook, maybe this year too so great.
Yes, I think the great Paul when you think about our breast health business. Today is we probably think about it as you know three charts, you've got the capital of the core mammography. We've got the service piece, which has become so much bigger and then a much bigger disposable business.
Pete and the team really have built out so its instead of a one legged pone of Gantries and then it's also much more international so if I play it out overall service is holding up pretty well.
The disposable businesses, including the per barrel launch now looking good and frankly, a lot of the European countries Didnt dip down quite as much initially.
I don't have as much service business over there, but we've got those businesses. So then you come back to the core capital piece and I think our teams, particularly in the us are feeling fairly encouraging even frankly around the world. We are getting even into some new countries. We've had reach out to us recently I mean.
So I'll go there and then come back the fascinating part is the more we're having discussions about posted revenue with a lot of countries around the world. They are becoming much more aware of hologic overall, and so we've actually been selling some gantries into some countries. So it's going to help the breast health business overtime mission that back to.
The piece in the US I think our teams are cautiously optimistic that they feel like they're back having good discussions.
Our order patterns are getting a little healthier and so I think we're still suggesting we'll be down a bit this quarter, but probably down less this quarter than we were just in that call. It 16 percentage down this past quarter. So.
So I think overall and as we look to 21.
We're probably anticipating each quarter just get gradually better.
As hospitals and particularly the focus on women's health, it's not lost on us by the way and we're kind of encouraged that the new Senate and house will have more women than they've ever had and what's been fascinating through the course of this year too we've got to know a lot more of the governors Kevin born all is on a first name basis were probably half the governors.
In this country and.
Everybody else. So weve got relationships that will continue to I think help us.
Even on women's health issues and wanting to make sure people are getting back to mammography screenings and cervical cancer screening.
And next we'll go to Dan Leonard from Wells Fargo. Your line is open.
Thank you so on molecular given that capacity now seems pretty static at that $50 million test level. How are you managing the tradeoffs between serving totally demand in your core molecular demand now that thats coming back and what are you assuming in your Q4 guide.
Our Q1 guidance.
Our quarter.
Yes, I know our fiscal year always kind of gets a little square either Dan we are doing everything we can to make sure that we do produce all of our women's health as all of our core assays there were.
A couple of weeks here or there were just components because it's a shared supply chain.
But we ran into a couple of of back orders.
Certain products, but overall right now are guiding.
Philosophy for all of this is we take care of our core business and then we add coded on top so I think we feel pretty good with the 50 ish million that were at right now that we can.
Deliver certainly if you figure we were in the 20 to 21 million a quarter.
Of non Covance stuff back two or three quarters ago, we can handle some growth on that core and then still have that 25 ish million of co that volume to do so I think we're assuming this quarter is just marginally above.
What we did this last quarter on on molecular.
Okay, and then just secondly on on the share repo. It seems like you were you were pretty opportunistic on the repo in the fourth quarter. How are you thinking about it in the first quarter and beyond.
Expect there could be continued market volatility.
Take a more opportunistic approach towards repurchasing shares or more methodical. Thank you.
Sure Craig we're in debt, we have the ongoing debate about being more methodical versus opportunistic and we probably end up a little bit in between I think you know with the cash we're going to be generating our first priority is still going to be.
You dishes acquisitions, but I think with the cash we are generating and as we continue to look at our own stock.
Having confidence that acquiring a company that we know a lot about I'd ourselves is also not a bad deal. So.
It will probably be a bit of both methodical and opportunistic going forward.
And next we'll go to Chris Glynn from Cowen Your line is open.
Hey, Thanks for taking my questions and I Hope Carlene is doing well.
We do because she's lists she's listening and she is going to be sending us a grade probably.
Oh said, telling us not to mess it up.
Well I think you Mike is that going pretty well.
Can you just can you talk about how many pantheris do you expect to ship in 2021 is it possible for you to ship another 500 or so how should we think about figure that south south of that level, but more at the.
The typical 200 to 250 to run rate.
Chris you have just answered your own question I think probably somewhere between that the typical to 50 in the 500 I don't know that we'd get full 500, just given that was a massive.
Influx of orders, but I think it will be well north of the 250 so.
Not totally sure, but I'd, probably feel comfortable splitting the difference.
At this point probably in that.
North of a 350 ish number probably call. It a 350 to 400 is probably a.
A reasonable place to be and I would say if demand continues to persist.
Yes. It then it might be able to go a little bit north of that but yes.
Even with where we are if we do another 350 to 400 this year.
That will have been almost a 50% increase in two years of our entire global installed base of do you think thats a big part that is not fully appreciated.
Understood.
And for a somewhat unrelated follow up.
Now you still back at prior question on M&A Diagnostics is clearly your one of your strongest franchises and you have extensive foothold and then allow trades with Panther systems. So I was hoping you could elaborate a bit more on why there isn't so much and they focus segments. Thank you.
Well I think as we see we've got a great commercial presence certainly in the labs and in the in the hospitals around the world. So I think obviously can.
Continuing to add menu and continue to add Panthers is great, but the ultimately I think what we're starting to look at is hey look we can build a stronger diagnostics platform that may have some other technologies and I want to get much more specific is that could lead to.
Speculation or specifics, but I think we have Kevin foreign all who has a nice business development background from his Stryker days now leading the diagnostics division and it's been amazing what he has done obviously just from an operational standpoint, what you wouldn't see as he is also.
And very busy on the business development front as well.
We've actually walked away from some deals based on valuation even over the last few months.
Since he's been here so he's completely changed to the flow of ideas that's.
Thats coming forth to us and therefore, I think we'll probably make some things happen, but we're going to remain disciplined we're not going to get silly, just because we have more money flowing in.
Our next to Jacquelynne from Nephron Research your line is open.
Thank you good afternoon.
Jack Steve.
Hey, so Steve it would be great maybe just to start to get your thoughts on Tom, though Covidien flu testing do you think the market could shift meaningfully as we hadn't even further.
Further in the flu season from Kogan, only and what will be the implications for hologic from a financial perspective.
Sure, we're continuing to be in very close touch with our customers and everything else and obviously, we expect to.
Be launching in this quarter the combo test I think that the much bigger concern right now continues to be co that itself.
And when you look certainly the southern hemisphere, where there's been very little flu season. If you think about all the mitigation measures in the us of social distancing and mask wearing and everything else.
I think there are a lot of experts that will think we may have a very mild flu season.
And the most important thing frankly, right now that that that the bigger concern continues to be flow I'm, sorry continues to be covered.
But I think we'll we'll see bits above and.
We're basically preparing in our supply chain to be able to toggle as to whichever our customers will want but theres. It's funny as we've just been out caucuses them, they're still been a relentless focus really on.
Just to echo that asset at this point in time.
We feel definitely.
Oh.
Great and can you just talk a little bit more around how pricing is trending it seems like from the Staps you threw out about revenue and volume it was pretty stable in the quarter, but you guys durable and good pricing change. If you you know with the co the combo test.
Sure I think we're seeing relatively very stable pricing actually globally.
Right now on Cove, it and certainly the combo would be likely priced higher.
And I don't want to get into specifics, depending on reimbursement everything else, but at this point in time.
Pricing has remained very steady I think that will continue to track a little bit whatever happens to reimbursement in the future and this and that I think over the long run.
We will be wise, we certainly plan that there would be some degradation in pricing over time.
But feel very good about the nearer term how.
It's holding up we also and you were on top of that the reimbursement change it came down to us recently of lowering.
That the base price from 100 down to $75, but providing the $25 upcharge if the patient can get the results returned within 48 hours.
Is very beneficial to us given our footprint of around the country. So.
Thank again, our ability that to help labs to help hospitals return the results quickly.
Plays to our strength as well and then also contributed to the continued demand for more Panthers more boxes as well yes.
Operator, I think we have time for maybe one or two more questions.
Thank you next we'll go to Brian Weinstein from William Blair. Your line is open.
Hey, guys. Thanks for taking the question.
Okay.
So.
Just to ask a political question I guess I mean, we've seen a lot of funding for testing under the Trump administration. So we know what that looks like but if we do see a biden administration takeover in January what do you think that means for testing in general for funding for reimbursement or even anything with the FDA I'm just curious.
If you have thoughts on kind of his broader COVID-19 strategy that you've outlined.
Yeah, I think it's hard to believe that it wouldn't be neutral to positive.
And more likely potentially more testing so I think the bigger.
The bigger risk would have been.
Republicans maybe wanted to cut back.
So I think but I also think there's such event in a negligible force of the consumer and frankly state and local governments and companies in everybody.
That will also continue to drive this but I would consider biden to be a a net positive.
For us.
Got it and then in today's weekly EPS, Tom Hall, There was some discussion from one of your employees about.
Turning to the language changed for TEP.
Okay, so to kind of expand beyond just say the PCR to molecular.
Probably the technology as well and Thats something that is probably in the form of a headwind in the market.
We seem to be I mean.
The book to change it it sounded like on the call, but is that anything that you guys have seen as being problematic in anyway.
Yes, Brian its Mike I mean, I think if you look at our sales performance the answer would be no.
Clearly Pcr as a little bit like.
Become a little bit of a term like clean X or something to be synonymous with paper tissues and such and Thats.
Thats fine obviously, we use a different technology, that's been competing against PCR for decades called call TDMA.
And it really hasn't had an effect I mean look at the uptake of the products and.
It has been used has been leading the chlamydia gonorrhea market for decades, HPV et cetera, I think the specific issue that came up was related to travel.
Between states and what would qualify for a test or whatever but I.
I think thats fairly inconsequential, I think we'll get that stuff resolved.
Operator, maybe one more quick one.
Okay, Great well go next to that too Raj Denhoy from Jefferies. Your line is open.
Yes, Hi, good evening, Hi, Steve and Mike.
You're a bit earlier as well.
Mike maybe actually Steve I should ask you. This question. So prior to covert grabs Panther was doing something on the order of 240 $250000.
It is now well over a billion maybe close to million and a half when we start to think about the sustainability of this business right. I think what people are trying to figure out is where that goes.
You've given us some detail on your thoughts here, but maybe to put a finer point on it now a year from now what do you think your average Panther is going to be generating in terms of revenue.
Yes, I think Raj as you well know it was kind of increasing in a high single digit almost double digit rate per Panther.
Exactly where it will be will be so dependent a year from now as to how much co. The test and whats the coated pricing, but clearly it just continues to go up and with our broader menu 16 approved.
I'll pass the nationality.
Two additional cove and one for 18.
Just more and more to be able to put through.
I, probably don't want to.
It'd be premature to state to try to give you an absolute number as to where that where that will be but I think we just feel great that there will be more volumes of more tests.
And more path to others and so collectively just driving higher yes, maybe to add to that Raj just for a second I mean to put a fine point on it we mentioned in the script. This concept of tours, which is one thing that we look at a lot internally.
We signed in this past year tours, representing more than $35 million of year one revenue.
To give you a sense I mean, thats more than 50% more than we've ever done in a year before.
And in addition to that there is another 35 million of tours kind of waiting in the ways.
For when we have capacity on the Panthers as well as.
Product availability so.
A lot of good excitement around some of our new test in particular, and I think thats going to contribute to continued steady growth in that in that pull through.
Helpful and maybe just lastly, Steve one quick one just your updated thoughts maybe on rapid point of care tests.
Any updated thoughts and your.
The desire to get into that business or your views on that.
That segment of the diagnostics.
Yeah, Great question.
Hi.
We are really we've got an incredible group of scientists in this company that and from the very outset myself.
Myself, Kevin kind of challenge different ways of thinking and looking at all of these different things and we are staying very close to our core of really having the best products. When you think about what we do in Threed mammography, what we have with Nova share My Usher, what we've always had in our molecular portfolio.
Really wanting to make sure that we have the best product with the best labels.
And candidly, there's a lot of.
Point of care staff right now what I would say is being used off label.
Particularly being used for screening when it's not supposed to be and.
Over time.
I think right now, there's a little bit of a wild west component where people are just.
Making money selling test getting them out there and saying hey run a bunch, whether they are accurate or not if you test enough. It will work I think over time, the cream always rises to the top and there will like in any market things will settle out.
And I think as things settle out the superior products with the best labels testing the right people in the right way at the right time will prevail and I think we feel really good about that yes. We've looked at we've had we can imagine through distribution agreements. We've had a lot of opportunities to frankly, even drive more short term.
From revenue by offering other products through our.
Incredible sales channels and really are staying away from it because we want to make sure that we don't do anything to delude, our long term brand equity.
And want to stay really close to the science. So thank you for asking that.
And thank you that is all the time, we have for questions. Today. This now concludes Hologic fourth quarter fiscal 2012 earnings conference call have a good evening.
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And.
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