Q3 2021 Hologic Inc Earnings Call

Please standby.

Good day and walk on to the Hologic 3 Q2, 1 earnings conference call. My name is Kathy and I'll be your operator for today's call. Today's conference is being recorded all lines have been placed on mute.

I would now like to introduce Mike Watts, Vice President Investor Relations and corporate communications to begin the call.

Thank you Kathy and good afternoon, and thanks for joining us for Hologic third quarter fiscal 2021 earnings call with me today are Steve Macmillan, The company's chairman, President and Chief Executive Officer, and Carl Yeung O'brien, our Chief Financial Officer.

Our third quarter press release is available now on the investors section of our website. We also will post our prepared remarks to our website. Shortly after we deliver that finally, a replay of this call will be archived through August 27.

Before we begin I would like to inform you that certain statements. We make today will be forward looking these statements involve known and unknown risks and uncertainties that may.

Cause actual results to differ materially from those expressed or implied.

Such factors include those referenced in the Safe Harbor statement. That's included in our earnings release and in 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 1 of these non-GAAP measures is.

<unk> revenue, which we define as constant currency revenue, excluding the divested blood screening business as well as year, 1 revenue from acquired businesses.

Currently assess our bioterror gnostics dyads note in Moby Diack finally, any percentage changes that we discussed today will be on a year over year basis and revenue growth rates will be in constant currency unless.

Otherwise noted now.

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 performance for the third quarter of fiscal 2021, we posted excellent results overall, driven by a strong rebound in our base businesses.

And continued contributions to fight the ongoing Covid pandemic.

Total revenue was $1.1.7 billion up 38% and non-GAAP earnings per share were $1.33 up 77% we.

We significantly exceeded our.

<unk> on both the top and bottom lines.

Our revenue outperformance was broad based in the quarter, our breast and surgical divisions, both Bruce substantially versus the prior year period when results were negatively affected by the pandemic.

Importantly, both businesses also.

Also grew compared to the same period of 2019, our diagnostics division grew about 20% compared to last year, Despite lower sales of Covid tests and increased compared to 2019 as well.

Colleen will review, our full financial results today, but before.

She does I want to take a step back and provide some perspective on where hologic is headed over the longer term as many of you have requested.

As mentioned in our last call we have been working through our annual strategic planning process.

And based on this I've never been more.

Cited about our future and the global impact we are making by pursuing our purpose passion and promise. We know this is important to all our investors and especially those focused on ESG priorities.

The logic is clearly emerging from the Covid.

19, pandemic as a stronger faster growing company.

We have a much higher profile on the global stage, which has helped create a stronger and more durable foundation to accelerate our international growth.

And we have placed hundreds of new Panther instruments.

Boosting our razor razor blade business model.

From a financial perspective, we have generated more than $2.5 billion of operating cash in just the last 5 quarters.

During this time, we've used about 135 billion to buy.

Which is ex companies and about $510 million to buyback our own stock.

In diagnostics alone we have added 2 new growth platforms in <unk>, and <unk> and substantially increased our assay development capabilities with IAG.

<unk>.

Based on all of this progress we are now targeting organic revenue growth rates of between 5 and 7%.

In our base businesses between now and 2025.

This excludes sales of Covid assays and related ancillary, which we expect to decline over our strat plan horizon.

Now we'd like to discuss how we expect this to play out in our 3 divisions.

This is more detail than we typically provide on a quarterly call.

Important to underpin the enthusiasm we have for our future.

First in diagnostics, we are diversifying our customer base installing more panther instruments.

<unk>, adding new assay menu and driving testing.

<unk> demand.

Our foundation in diagnostics remains rock solid with leading U S market positions for our thin prep Pap test.

And our key women's health assays on the Panther instrument name.

Namely Chlamydia gonorrhea, HPV and trich amounts.

As leaders in these categories. We have built strong partnerships with many of our largest lab customers that enable us to educate physicians about testing guidelines issued by groups like the CDC.

Just last week in fact, the CDC posted new recommendations.

They are very positive for public health and for our business.

While our market shares are already very high.

We are driving growth by expanding addressable markets.

In addition, we have developed related women's health tests that are often per.

Performed from the same patient sample such.

Such as our Vaginosis panel and our test for Mycoplasma Genitalium.

Finally, we see significant opportunities to increase sales of other products, where our market shares are much lower today.

Our risk.

Spots to the Covid pandemic has unquestionably enabled us to accelerate these growth strategies we.

We have grown from a successful niche player in STI testing into a much more diversified industry leader with a broader customer base.

We have done.

On this by dramatically increasing plant pant, increasing placements of Panther instruments.

Since the start of the pandemic.

We have increased our global installed base by more than 50%.

Or in real numbers by almost.

Most 1000 Panthers.

We now have about 1500 Panthers in the United States.

And more than 1200 in other countries.

And we are well diversified across customer sizes and types.

And.

As Covid testing wanes customers are beginning to use these instruments to run more non COVID-19 assays.

This is a significant opportunity because today about half of our customers from the largest reference labs to smaller hospitals run 3 test or fewer on their panther instruments.

Even though we now have 19 total assays available.

We are capitalizing on this opportunity by signing up record levels of new business as reflected in the test of record or tours metric that we have discussed.

Pre COVID-19, our best year for tours was.

More than $20 million.

Last fiscal year, we set a new record with about $35 million of new business and we are on track to comfortably exceed that number in 2021.

Outside the United States, where Hologic diagnostics.

A little bit less well known historically.

Covid has materially elevated our profile.

Since the pandemic began about a third of our Covid assay sales have been generated internationally.

And the relationships, we have established will help us win business.

<unk> has been drive future growth.

Finally, the strong cash flow we've generated from Covid sales has enabled us to complete 3 recent acquisitions in diagnostics.

Together are expected to contribute more than $100 million of annual revenue as well as providing.

Growth platforms that increase our topline growth rate.

First.

<unk> enables us to enter the lab based oncology space, a long time area of interest that has been growing rapidly.

<unk> is off to an excellent start with.

Adding new $13 million of revenue in the third quarter more than 30% higher than their best quarter prior to the pandemic.

Second the edge node will help us add PCR based menu to our Panther fusion instrument, both in Europe and the United.

Thanks.

And third the acquisition of <unk> enables us to enter the rapidly growing market for acute care near patient testing.

Which we have been monitoring for years.

We believe the Novo day AG instrument provides the right combination.

Stay ease of use rapid turnaround and low manufacturing cost to expand in the smaller hospitals and create a multi hundred million dollar product line over time.

Now, let's shift gears and discuss our breast and skeletal health division where revenue.

Although it is becoming more diversified more recurring.

More global and more consistent than ever before.

Similar to diagnostics, our strategic plan is built on a foundation of strength.

We are the leaders in.

<unk> Grill based on a long history of innovation partnership with customers and focus across the continuum of breast care.

Our strategy is built around the innovative market, leading genius <unk> mammography platform.

Like all our key products are.

Breast genius exams make a real difference in women's lives day detect more dangerous cancers, while reducing unnecessary callbacks.

A few years ago, many investor questions focused on whether we could overcome the 3 D cliff.

That was thought to be inevitable once.

Our junior converted to 3 D.

We don't get that question much anymore, because we have leveraged our leadership in 3 D to create a much more diversified business with more consistent steady revenue growth.

In fact in the third quarter U S gantry sales represented less than.

The <unk> percent of global breast health revenue.

We have accomplished this in 4 ways.

First we have expanded our service business.

We think of breast health service as a single product it would be the company's second largest with more than 5.

$500 million of.

Global revenue over the last 4 quarters.

While we don't expect this to grow dramatically over our strategic planning horizon.

Service will continue to underpin our financial results and be the cornerstone of the tight relationships, we have with our customers.

22nd we have beefed up our R&D capabilities beyond our traditional focus on X Ray imaging.

We have developed new software packages like clarity HD, which provides the industry's fastest highest resolution images.

We have introduced new tools like genius.

<unk> for detection of deep learning based software that helps radiologists detect subtle potential cancers.

And we pioneered rivera to fully integrate the biopsy procedure with specimen radiography for the first time from.

<unk> alone is now Jeff.

Generating about $40 million of annual revenue and we expect all of these new products to drive growth over our Strat plan horizon.

Third we've acquired 4 companies since 2018 to broaden our product portfolio ex.

Spanned across.

Across the continuum of breast health care.

And become the partner of choice for all our customers breast health needs.

These acquisitions include <unk>, which bolstered our offerings in specimen radiography.

And focal which moved us further into breast conserving surgery.

<unk>.

Supersonic imagine, which strengthened our position in ultrasound.

And Soma tax, which increased innovation in breast biopsy markers.

In aggregate. These deals are now, adding about $90 million annually to breast health revenue.

And are important contributors to growth.

In our strategic plan.

And fourth we are expanding internationally in breast health or.

Our focus is to continue gaining market share with our existing 3 D and upgradable to <unk> mammography products. The same products that have established leadership positions.

Growth in the United States.

We are also bringing the new products I've discussed both internally developed and acquired 2 additional countries.

And we've purchased distributors in Germany, Spain, and other markets to get closer to customers and secure.

More service revenue.

Now, let's turn to our guidance surgical division.

Surgical was our fastest growing division before the pandemic and our strategic plan assumes that surgical will continue its momentum through 2025.

We have a unique opportunity to leverage our strength in the Ob Gyn channel to provide differentiated solutions throughout women's lives.

While today, our products, mainly help middle aged women in the future. We plan to have a stronger presence among mothers to be and older women as we.

Expand our offerings within the history of Scopic, laparoscopic and pelvic health markets.

Within surgical <unk> remains the world's leading history scopic product to remove smaller less complicated fibroids.

Since July is fibroid awareness.

You've probably seen many articles describing the huge number of women who are affected by fibroids.

And the way they offered suffer in silence or undergo invasive procedures such as hysterectomy.

It's clear that this market remains large and underpenetrated.

And good.

Many years of exceptional growth.

<unk> still has plenty of room to run.

We are also very excited about assessment, which we acquired in 2020 and its laparoscopic fibroid treatment system.

<unk> is a perfect complement to <unk>.

As the system is used to treat larger more complicated fibroids the <unk> can't reach.

Importantly, the same Ob gyn, who rely on <unk> have the potential to use assessor. So it's a great fit for our sales force.

We recently received 2 pieces of.

Good news on assessor.

That it is now included in a Cogs updated fibroid management guidance.

And Cigna is list of medically necessary procedures. These.

These are important milestones on our road to creating a another $100 million plus surgical brand alongside.

Side, <unk> and <unk>.

Another reason, we feel confident in surgical's future is the revitalization of our R&D pipeline.

A few years ago. The division was basically at 2 products show.

Today, However, we sell multiple.

Of these products as well as new fluid management system.

History, scopes and other guidance surgical tools.

And we have a robust pipeline of new products in development.

Finally based on the strengthening of our global commercial.

Abilities, we now have many opportunities to deliver our less invasive surgical solutions to women around the world since less than 20% of the division's revenue is generated outside the United States today.

Before I turn the call over to Colleen, let me wrap up by saying that to me Hawaii.

Verge it looks like a fundamentally different company today than just 18 months ago before the pandemic.

We have 3 franchises growing faster than they ever have we are growing in all major regions of the world.

We have added multiple new growth drivers in all.

All our divisions.

And with our Covid test.

We have a significant new product line to provide upside to our strong base.

Taken together, we are excited for the future and confident that we will grow our base non COVID-19 business between.

<unk> 5 and 7% over the next several years now let me hand, the call over to Colleen.

Thank you, Steve and good afternoon, everyone.

As Steve said, our third quarter results exceeded expectations as revenue and EPS grew significantly compared to the prior year.

Yeah.

Revenue of 1.1 dollars 7 billion increased 38%.

Organically revenue grew 34%.

Driven by continued sequential improvement in our base businesses in a meaningful contribution from global Covid testing revenue.

We exceeded our top and bottom line guidance with upside in both our base and Covid.

We also significantly improved profitability compared to the prior year period.

As a result, EPS of $1.33 in the third quarter increased 77%.

Further operating cash flow remained robust, allowing us to execute on our capital allocation strategy, which I'll discuss more in a moment.

Before I do that let me provide some detail on our divisional revenue results.

To provide a more complete picture of our performance.

I will often compare our results to the third quarters of both 2020 and 2019.

Yeah.

In diagnostics global revenue of $665.5 million grew an impressive 20% compared to the prior year period.

Based on higher than expected Covid sales and the strength of our core molecular franchise.

Within diagnostics molecular diagnostics increased 11, 9% globally.

As massive growth internationally more than offset the decline in U S Covid sales.

Although COVID-19 testing revenue decline it still exceeded our most recent guidance.

Specifically, we shipped about 14 million Covid test customers generating assay revenue of $291 million globally.

About 2 thirds of Covid assay revenue was generated.

Besides the United States in the quarter.

Flooding the broader global footprint that Steve discussed.

Okay.

To better understand the underlying performance of our non Covid businesses. Let me remind you that the pandemic has also increased sales of collection kits instruments and ancillary.

So I used with our Covid test.

Backing this revenue out of the current and prior year periods provides a better picture of true underlying trends.

If we do this we see that base molecular revenue in total diagnostic sales grew about 76% organically.

Out in the third quarter.

Compared to the same quarter of 2019 molecular grew in the mid teens and total diagnostics grew mid single digits.

Rounding out diagnostics, our cytology and perinatal businesses grew 75%.

Compared to the prior year.

But compared to 2019 these businesses were still slightly behind their pre pandemic levels.

In breast health global revenue of $349 million grew 53% and exceptional results as a franchise.

<unk> continues to gain momentum.

As evidence of this revenue has now increased sequentially and compared to 2019 for the last 3 quarters.

The division's strong performance remains well rounded.

Reflecting our commitment to diversifying revenue streams as Steve discussed.

Discussed.

Both breast imaging in the intervention businesses increased compared to the prior year period.

With imaging growing 43% and intervention on increasing 120%.

Although we remain encouraged by continued improvement in the capital environment.

Capital is still not quite back to the 2019 levels.

However, breast screening rates continued to improve.

The healthy backlog, we are encouraged about continued recovery over the next few quarters.

In surgical third quarter revenue of 127.

I'm at a million grew 143%.

While also exiting 2019 levels by low double digits.

Surgical strong performance has been driven by normalization normalizing procedure volumes.

Oh, sure and new products in the hands of our exceptional sales force.

Now lastly in skeletal revenue of $25.9 million increased 66 per cent compared to the prior year period and was also up low single digits compared to 2019.

Overall in terms of geography domestic sales of $749.9 million increased almost.

Almost 14%.

On an organic basis U S revenue was up 10%.

Outside the United States sales of $418.4 million increased 130%, 137% organically sales outside the U S grew 131% are.

A tremendous result.

Now, let's move on to the rest of the P&L for the third quarter.

Gross margin of 66, 1% increased 140 basis points.

Given by volume recovery in our base businesses and a nice contribution from sales of our Covid tests.

Continuing down the P&L total operating expenses of $310.1 million increased 19% in the third quarter.

Excluding expenses from our recent acquisitions operating expenses would have increased about 11%.

As we re invested for future growth with incremental spending in R&D.

D and marketing.

In addition, remember that given uncertainties associated with the pandemic, we cut back on spending in our third quarter of 2020.

Our non-GAAP tax rate in the quarter was 21, 5% driven by a favorable geographic income mix.

Sales of Covid tests outside the United States.

Putting this altogether operating margin increased 650 basis points to 39, 5% and net margin increased 580 basis points to 29, 5%.

As a result, non-GAAP net income finished at 3.

Mainly from $44.8 million in non cash earnings per share were $1.33.

Exceeding the top end of our guidance.

Before we cover our fourth quarter guidance I'll quickly touch on a few other financial metrics.

Driven by a strong performance of.

300 businesses as well as the contribution from Covid testing cash flow from operations was $663 million in the third quarter.

This was nearly double our non-GAAP net income highlighting excellent cash conversion.

These strong cash flows continue to give us tremendous financial.

Or are based on strategic flexibility.

For example in the third quarter, we closed the acquisition of Mobi die from enterprise value of $808 million and also repurchased 3 million shares off docs from $188 million.

Overall, we had $828 million of cash.

At the end of the third quarter and our leverage ratio was <unk> 7 times.

We can intend to continue using our cash on divisional led tuck in acquisitions and share repurchases that improve our top and bottom line growth rates.

Finally, ROIC was 34.

Cash at 7% on a trailing 12 month basis, a significant increase of 2190 basis points.

Before we open the call for questions, Let me discuss our expectations for the fourth quarter of fiscal 2021 and provide a few comments on longer term targets.

In the fourth quarter of fiscal 2021, we expect strong financial results again with total revenue in the range of 1 billion to 1.04 billion, representing constant currency decline of 27% to 24% versus the prior year period, which benefited from huge COVID-19.

On a sales.

For perspective in the fourth quarter of 2019, we generated less less than $800 million of revenue, excluding the divested cynosure business.

So we expect to grow significantly above pre pandemic levels.

In our base businesses.

As I expect continued momentum and recovery to generate very strong growth rates compared to the fourth quarter of 2020, given the negative impact of the pandemic a year ago.

We expect these franchise to grow nicely compared to 2019 as well.

In terms of Covid assay sales the U S testing.

<unk> continues to decline as we forecasted last quarter and we expect this trend to continue as more people on vaccinated.

In addition summer vacations may further reduce demand domestically and in Europe.

With these factors in mind, we expect Covid assay sales to range from 150.

The mark of $170 million in the fourth quarter.

In addition, COVID-19 related items and diagnostics are expected to be approximately $30 million in the fourth quarter down roughly $20 million sequentially.

If new variants drive demand that exceeds our current expectations.

We are well prepared to deliver for our customers and generate upside to our estimates.

Our fourth quarter guidance includes approximately $35 million of acquired revenue from Moby Dayang Bioterror Gnostics Dash note an assessor.

Backing this out as well as $9 million.

<unk> tested blood screening revenue, we expect organic revenue to decline 30% to 27%.

But excluding COVID-19 assay sales and related revenue, we forecast organic revenue to glow grow low to mid teens in the fourth quarter.

Below operating income.

I would point out that we expect other expenses net to increase to about $25 million on the fourth quarter.

Our guidance is based on a tax rate of 21, 5% and diluted shares outstanding of $260 million per the quarter.

All of this net the 2 expected EPS of <unk> 92 to $1.

Dollar in the fourth quarter.

Given the outsized impact of Covid assay sales on the prior year period. This translates to a decline of 56% to 52%.

As you update your forecast, let me remind you that macro uncertainty due to the pandemic is still high.

We therefore encourage you to model at the middle of our range at which incorporates both potential upsides and downsides.

Before we open up the call for questions, Let me touch on a few longer term items.

As Steve discussed based on our recent strategic planning process, we are confident that organic revenue can grow.

We went to 7% through our fiscal 2025.

Excluding sales of Covid assays, as well as the related ancillary and instruments.

Many of you have also asked from our perspective on Covid assay sales next year.

From the shortest most accurate answer is we don't know no 1 does.

5 given the uncertainty significant uncertainties that still exist in that seemingly change on a weekly basis.

Having said that we do understand your desire for some kind of frameworks.

Toward that end, we believe that given the scope of the ongoing pandemic and our broad global installed base of Panther instruments.

It's unlikely that Covid assays revenue will be much less than 200 million next year.

Which would make COVID-19.1 of our biggest molecular assays.

It's certainly possible debt sales could be more than that maybe as much as double but we're going to be conservative at this stage and consider anything above 2.

200 million potential upside.

We would encourage you to do the same and focus instead on a strong underlying growth rates in our base businesses that Steve discussed.

Let me wrap up by saying that Hologic showed tremendous growth in the third quarter with results that exceeded guidance, we continue to make.

Make a huge impact on the top globally and are meeting Kobe tested needs as the pandemic evolves.

Further with organic investments in multiple acquisitions, we are emerging from the pandemic as a stronger company with topline growth rates of 5% to 7% excluding COVID-19 impacts.

With that I will ask the operator to open the call for questions. Please limit your questions to 1 plus a related follow up then return to the queue.

Operator, we are ready for the first question.

Certainly and ladies and gentlemen to ask a question that is star 1 on your telephone keypad. Please note that.

If you're on a speaker phone, we do ask that you pick up your handset or depress your mute function before pressing the corresponding digits and that is star 1 to ask a question and we'll go first to Tycho Peterson of J P. Morgan.

Hey, thanks.

A question to kick it off on guidance, both near term and the longer term outlook.

Outlook for the fourth quarter guidance, you're a bit below consensus at the midpoint on both revenue and earnings.

A lot of that is obviously, the COVID-19 roll off but I just want to make sure theres not any deterioration marvell parked on the base business in the fourth quarter outlook, and then longer term, 5% to 7% growth obviously, you've got easy comps from from 'twenty 1.

It was still impacted.

Heavily by Covid, So should we assume the core non COVID-19 growth longer term it could be at the high end or above.

Given given the comp dynamic here on the near term.

Sure starting with the.

The fourth quarter guidance Tycho you should feel very good about the underlying trends in the base businesses, we feel really good about.

Each of them and it is it's the Covid decline.

That really leads us and we're continuing to be conservative day.

Day to day.

It's hard to exactly predict what's going on in the Covid World 3 weeks ago look very different than.

A week ago, so are we.

I continue to be able to get people to focus on our base.

Businesses that we feel good about and you know we don't want to go too far on the longer term piece, but I think say on a 5 to 7.

This company is very different than where we've been and yes. So the comps were a little depressed somewhat next year, but not dramatically given that some of our businesses bounced back pretty well and I think we feel.

Worried about each franchise contributing steady growth.

As we go through that period currently and I would just add to that Tycho that some of the elements of our franchises are not back to the 19 levels. If you think about cytology you'd think about Nova sure in some of our S. T is that.

Are related to well woman visits those are still getting back to those 19 levels.

Okay. That's helpful and then a follow up on capital deployment, obviously, you've been very active on the M&A front, but you did repurchase 3 million shares this quarter I'm. Just curious how you think about M&A going forward do you know.

Do you have a pause here and would you shift more.

To buybacks, given given the valuation and the growth outlook you've laid out here.

No I think the M&A pipeline is still certainly active again its division led so maybe a little more quiet on the diagnostics front for a while but the other divisions are certainly still active and I think you know given the cash flow Tycho.

We can still continue to do both we can still continue to do M&A and share repurchase on that strategy will continue.

Okay.

Our next question will come from Patrick Donnelly of Citi.

Great. Thanks, Steve maybe 1 for you on the long term guide certainly appreciate all.

On the color there on 1 of the biggest questions. We get is just how to get comfortable with that.

Big increase in Panther placements that utilization beyond Covid I mean, we've seen so many various system see their installed base move higher as well I guess when you guys worked through the guidance. How do you think about this piece I mean, obviously, there's things like test of record when you look at that feel good about.

To your attach rate the near term on driving healthy healthy utilization, but maybe just talk about that dynamic because again theres a ton of systems out there, but what what did you kind of include in the guidance in terms of Panther winning out in terms of some of that share beyond COVID-19.

Sure Patrick you know it really comes across on multiple fronts.

The act.

Actually the contractual obligations as we place these panthers, particularly to provide both COVID-19 revenue, but then ongoing basis, the other pieces and Youre right Theres a lot of systems out there now.

The simple my Super simple ways, the common sense talk to the customer.

And I think <unk> been out there was enough on the labs as well to hear what.

<unk> is going to be important in an ongoing basis is the most highly automated instruments that provide the best level of tests and it's what has led us to really the unbelievable market shares.

<unk> probably have in virtually all of our businesses, but when you look at Panther the automated platform the incredible automation and particularly as labs start to look to the future where labor is going to be tougher and tougher to come by.

And so what we continue to.

Here is Panthers, where they want to consolidate and in the early days of Covid, everybody went everywhere and got every machine and every test that they could get and some are still bleeding off inventory from some of those we just keep hearing over and over the lab techs, especially that are still running out of inventory.

Of other People's stuff, they want to consolidate on Panther and I think we've got a multi year long term track record.

Delivering on that this is not a pie in the Sky Hey, we just placed a bunch of Panthers in the last 15 months and think this is going to happen. It's what we've been doing for 6 or 7 years.

Bruce.

Pre Panther, which as we placed more Panthers every year as our customers get used to them they want to put more and more stuff on them. So I think it's going to really help us emerge all automated platform is not the same old boxes are not the same Panthers established itself in the high.

Volume space high throughput space for a good reason.

Hey, Patrick it's really helping the only thing I might add to that just briefly is although we werent aware when we put our strat plan together of the new CDC guidelines that were just issued I think last week.

Certainly those are helpful to our business when you think.

About things like the opportunity for universal screening around Chlamydia gonorrhea. When you think about molecular testing for Amgen when you think about molecular testing for BV.

As I said that wasn't something we were aware of at the time, but it certainly speaks to our ability to work with our largest lab customers to drive primary demand and expand some.

Some of those categories.

That's helpful perspective, and maybe just a quick follow up per car leanne.

On the Covid piece can you talk about pricing on another 2 thirds of the business as you mentioned is O U S.

I know that was kind of shaking around 20 Bucks have the recent contract spend a little more in the mid teens, what's the right way to think about that then.

Just pushing that forward on a $200 million floor for next year, how should we be thinking about pricing as we go forward. Thank you.

Yes, certainly yes from Q2 to Q3, we saw an average pricing come down from 25 to closer to 20% given that dynamic of O U S. Inc..2 thirds of the revenue and I think what we'll see.

Is that as we renew those contracts proprietary pricing coming down.

And then as many reimbursement goes away well have some pricing pressure, but I think even if we end up with an average ASP in the law.

Good day mid teens, that's still very profitable assay for us.

Yes.

And next we will go to Vijay Kumar of Evercore ISI.

Hey, guys. Thanks for taking my question, Steve a lot of details here a lot of numbers up share the color.

Maybe some more details on on some of the assumptions behind.

High end to 5 to 7.

That 5 to 7 over the next few years are restarting at 5 and are progressing towards the higher end or maybe talk about the cadence and Oh, what's best lose it assuming per our you.

You know breast versus diagnostics surgical and franchisees.

Yeah.

Yeah.

I think Vijay at the highest level, we probably see each franchise being roughly in that range.

Be a little bit faster and and we don't see dramatic changes year over year, it's not front end loaded it's not back end loaded.

So we're not ready to give.

Formal year by year guidance.

Wait until our November call, when we give our 2022 guidance.

But I think our underlying belief is as you well know those are growth rates better than we were coming in and we always said when COVID-19 struck.

We're going to emerge as a stronger faster growing company Ed.

And we feel like this is exactly what we see for each of the businesses going forward, Yeah, and I would just add that to your point, Steve that historically it has never been all of the business is growing at these rates. It's been 1 of the other so this is what gives us confidence and excitement when the growth.

Both rate is driven by all of the businesses.

Think the magic of that as well Vijay and you know it from having lived through the breast health peaks and valleys.

We even surgical early on weak and then kind of some good quarters and back down I think we just see this profound underlying strength.

<unk> of each of the franchises, both domestically and internationally with a cadence of product flow.

And the installed base and the service, where Theres just a strength.

That has not existed and we've been building over time in.

In each of the businesses and then supplemented with the acquisitions that are giving us effectively accretive to the top line growth rates more products in the bag.

There is no magic to it but it's a lot of things coming together.

Understood that's helpful to you and maybe Carl.

1 for you.

<unk>.

What should that 5 to 7 on the top transplant.

Bottom line I guess.

Going back to.

Some of the debates on the stock a few years ago peak margins. It was a question so where are we on margins right now.

If.

On some capital planning.

Logic and the double digit earnings growth trajectory.

Yes, So certainly I think if you looked at our historical transpiring on the pandemic.

Cadence and growing EPS high.

High single low double digits, I mean, I think I don't think that's an unreasonable expectation I think if you go back.

Back to Q2, 'twenty kind of our last clean quarter before the pandemic operating income was in the low thirties.

Certainly as they move forward any COVID-19 revenue is going to be accretive to that percentage, but.

But I do I would also say that as we look to that 5% to 7% international.

We're growing faster than U S, which is a little lower on the margin side and certainly acquisitions, you know probably over the near term or a little dilutive to that.

Yeah.

And now we will go to Jack Meehan of.

And he from research.

Thank you good afternoon.

I wanted to turn back to diagnostics and get some color on the Panther trajectory I think I caught 2700 total systems now.

Seems like you are still placing instruments at a higher rate than you have in the past and just thought it was interesting given where we are in the pandemic.

Curious to get your thoughts.

How that will trend from here and if you look at the systems I appreciate the color on test of record, but is there any color of how many are just doing COVID-19 only an ability to translate them to other things.

Sure Jack I think the.

As we look to.

Carl It next year 2022, we're already starting to think about okay. What will replace on Panthers in I think.

A little early to tell but we're still seeing pretty strong demand. So I would expect 22 not to fall off a cliff even though we've just placed literally.

All 4.

4 years worth in about 15 ish.

15 to 16 months.

And I think there's some concern that that would drop off I think it will probably still be in the 200 ish.

Plus panthers to be placed even in the next fiscal year. So we're continuing to see very encouraging demand and I think.

Part of what we're seeing right now is some of our folks picking back up that we're running flat out Covid I don't think theres a ton of them today that are running COVID-19 flat out I think we're starting to see them picking back up as as women's visits are starting to go back and so part of the magic.

Perform is yeah, and it's you know even with the batching that not needing to batch you can just start to get back to running you know women's health assays viral loads or you know.

Covid tests all simultaneously so I think we're feeling pretty good about that.

Great.

And sticking with molecular <unk> acquisition can you give us an updated timeline for when you think Novo day.

And through the U S market and as you look out to 2025.

Yeah.

Can you humor us with what you think the revenue contribution for this platform can look like here and how it sits.

That applies to Panther.

Yes, I think the best way to think about novo coming to the U S is towards the end of that strap plan Horizon I think we've got few years' worth of work to get it in the meantime, we do have in installs in Europe and already some more interest among customers in Europe since we've acquired them and our sales force that.

It's nicos Panthers, so I think we see some opportunity to immediately inject even additional life into into that and I think beyond that I think as we said in the script, we do see this becoming a multi hundred million dollar business over time.

That's probably closer to the end of that.

But already.

The end of the strap plan horizon, 2, particularly we've really got to get into the U S.

To really get that.

Those numbers.

And now we'll take a question from Brian Weinstein of William Blair.

Hey, guys. This is dusting on line, Brian Theres been a lot of talk regarding democratization of testing in the particular STI testing, where we're kind of seeing a number of diagnostic companies going after this market.

Can you talk about your viewpoint on how decentralize testing plays and where you think STI testing.

Thing.

Kind of take place longer term and as it relates to you guys where does entering this market rank in terms of company priorities.

Yes, I think first off.

Established ourselves with a pretty strong presence in the stis and Theres always a lot of competition in every.

Market. We're in there is also a lot of hype.

And talk frankly from.

Companies, putting projections out there that haven't necessarily operated for a long time in the real world.

And at the end of the day I think we do see increased decentralization, we see opportunities for whether it's home.

On collection of other stuff in and we're positioned both with our customers.

As well as frankly, the just the decentralized footprint that we already have with Panther. So I think it's also important that it's back to the CDC guidelines that.

Just came out last week that we also see significant market expansion.

And we're the ones that have been helping to drive that over time. So there will be certainly more competition more.

Tests being done in different places and I think we continue to be there.

Great. Thanks, I appreciate that.

On a goes off an earlier question a little bit, but I'm wondering if you guys can give an update.

On the recent diagnostic acquisitions things seem to be going pretty well for biopharma gnostics, but just looking for a general update of how integrations are going versus your expectations and how these businesses we're doing in <unk>.

As previously.

Yes, I think <unk>.

<unk> is a great 1.

Absolutely love It it's right down the street here in San Diego, the integration has gone very well.

Yes.

In our San Diego facility. This week I've seen some of the bioterror Gnostics people theyre already well integrated with our team and I think excited to be part of Hologic that note our team.

In Belgium, we have been working with them really 4 or 5 years. They have been developing assays. So we have great relationships there and on mobile.

<unk> pleased with what we're seeing and hearing and Kevin for all on his team have made multiple trips over to Finland.

Timeline.

Lots of people don't want to be traveling those kind of distances and masks and everything else our teams have been.

Getting very close to the teams over there so feeling really really good and it's really the power of the division led acquisitions, where our teams. We are deeply involved in the diligence and getting to know the teams.

<unk> in advance and chomping at the bit to work together. So I think what's been need is particularly each of those 3 companies. The employees of each of those companies I think have genuinely been excited.

To be a part of a company that's got our purpose passion promise in.

It is.

Not just a big old American company.

<unk> only on profit, but we've actually got a much bigger purpose and I think particularly as we've done some of the deals in Europe, that's been a big deal to the employees and the same frankly with Soma tax on Ssi, we've done a lot in Europe.

Recently between breast health and.

Ignostic and I think you know it.

It really resonates with the teams on the ground over there now.

And I would just add in surgical our assessor acquisition young from recent good news there we've got a guideline from Ed Cog in coverage from Cigna. So we're excited for what that's gonna do in FY 'twenty 2.

And now we will go to Anthony Petrone of Jefferies.

Okay.

If either.

And Anthony Your line is open do you have us on mute.

I'll move on.

Our next question that will be from teahouse savant of Morgan Stanley.

Hey, guys. Good evening, so Stephen 1 on the on the Panther placements for you, particularly in terms of the new Panthers.

Youre, replacing with.

Oh logic customers.

Has that mix evolved over the last few quarters and specific to those customers can you share some color in terms of the menu uptake.

Sure.

We don't have the incredible detail on that other than I would just say.

Frankly, a lot of them and placed with existing customers along with new customers.

What we've been seeing on each of them is.

Certainly a lot of the new customers. The initial impetus was for Covid revenue.

But they've been qualifying importing over the other assays.

As the Covid revenue is starting to come down a little bit and as frankly, the lab techs have been able to come up for air and qualify things. So I think we feel very good as evidenced by the underlying trajectory of our core diagnostics business coming back and Mike.

It's Mike.

If we look at our test of record.

Metric as an indicator of what you are asking about probably no surprise, we've got a big chunk of after macondo to new business coming in that's our biggest selling assets other than Covid, we've got a big chunk of HPV human papilloma virus business coming in but I think what's really encouraging is even bigger than that as the interest in our Vaginosis panel B B C V.

Record, so thats, a little bit of a reflection of what we were talking about before in terms of our ability to take an existing menu and build out from it.

With a new test of an awesome oftentimes comes from the same sample types. So that's been encouraging.

Got it very helpful.

A couple of unrelated ones for Caerleon here at Carlin.

T D. You spoke about sort of about $160 million on COVID-19.

On testing contributions for the fourth quarter, and then about $200 million as a floor for a fiscal 'twenty 2.

Can you just outline what your resumption score around sort of potentially on the delta Varian, leading to an uptick in testing and perhaps even oh.

Really strong flu season would that all be upside and are you seeing any pick up at all on the last few weeks in terms of a trend reversal because of the delta dynamic.

Yes, I would say our approach to the Q4 guide was similar to what we did in Q3 was looking at on July actual looking.

Relative what's contracted pretty much outside the U S is a commitment and then looking at recent trends. So for the most part I would say delta accelerating would be upside as well on the flu season will likely be upside to those numbers that we provided.

Okay.

And.

And we will go to Ed Derek Debruin of Bank of America.

Hi, This is John on for Dan.

Thanks for taking my question.

Alluded to it but.

With specifically on <unk> competitive landscape you have.

On the companies pushing on today's small keep.

I'd now like in the landscape.

I was wondering how we should think about the revenue ramp.

Had the 42 now.

And of course, it's going to be the leading growth driver in 2025.

And also what was the contribution from.

On this quarter.

Yeah.

Sure I think the.

We clearly do see it getting much bigger in the out years as we come to the United States. So.

It'll be.

A few million dollars a quarter right now.

Part of that will depend particularly in Europe, all European business right now.

And I think youll see it build over the year that they had some COVID-19 revenue last year. So again, the core business, we see it picking up over time here and even starting as we go into a into the new year.

Gotcha and then.

On any are there.

Assets that.

Do you want to digest in the near term.

Maybe maybe again on the.

Diagnostics or more on the European from in that.

The integrations of the marathon off day.

As you know, they're all doing well.

I think we feel really good with what.

And you'll have it allows us to be opportunistic there is nothing that we're lacking right now and we will continue just to kind of keep our eyes and ears open I would say I think we feel very.

Very good about integrating everything we have right now on that that alone.

1 way to think about it we've accelerated multiple years of acquisitions and.

What we have in <unk>.

Real short period of time, we did 3 deals in a.

3 to 4 months.

Window of announcement actual closing 3 deals and call. It a 6.7 month window.

That covered our next couple of years some of what we were hoping to do.

So we're now hot and heavy end of the integrations and into the execution mode that we tend to be pretty good on the execution side.

But we will continue to keep our eyes open, but theres no gaping holes in our portfolio.

And now we will go to Max Masucci of Cowen and company.

Thank you.

Hi, good afternoon, thanks for all the detail today.

Can you just give us a bit more detail around how the recoveries has trended for routine wellness and breast screening visits lately.

That backlog stands and what sort of impact you've seen.

More recently with <unk>.

The emergence.

<unk>.

The Delta variant.

Sure I think overall, we've seen pretty good recovery is really in mammography.

The core women's health some of the sexually transmitted infection and Pap tests have not balanced fully back yet and I think we see that as the opportunity for the future.

That you know.

They will.

They will get back, but I think we've seen a little more recovery in on.

On the mammography side, most places back to close to a 100% I think the very recent.

Trends with Delta, we're seeing little pockets here and there.

Small hospital systems here or there in certain.

Geographies that may.

May not be scheduling extra.

Visit right now things like that but I don't think it'll be material.

To the quarter or going forth.

Got it.

Moby Diane allows you to serve customers that want both lo.

Slots are higher plex testing capabilities in the decentralized setting, but just on an industry level.

You're seeing rising demand for higher flex testing today compared to pre pandemic times and just as a follow up do you view the mobi diagonal is a bigger share taker.

Game changer in the in the low plex.

Or higher plex segments of the market over time.

I think we think it's going to play very well on both but certainly in the multi in the multiplex area over time, I think it's going to be a great a great platform for us the magic for US is it does give us a completely new growth.

Lo platform. In addition to Panther. So we've got all of the additional Panthers replaced now it will be building up the menu over time in.

Getting those Panthers working at.

At a higher rate. While we then are subsequently we will start to bring in the <unk> platform.

Both frankly more around Europe right now it's largely just.

And a few northern European countries.

As we expanded across Europe, and then ultimately bring it to the stage.

And we have time for 1 final question and that will come from Anthony Petrone from Jefferies.

I apologize just hopping between.

Growth positive just have 2 on on diagnostics first on the the CDC guidelines.

It's sort of recommend universal screening, but it looks like it will be site specific in terms of adopting.

Adopting that protocol. So just just wondering how you actually see that rolling out in and certainly at.

It represents upside for the Optima combo STI franchise, but.

Any thoughts early on on what that can mean for tailwind in the second 1 quickly on Covid testing O U S.

Some of your competitors have referenced tenders.

I'm just wondering if the company is participating in tenders in and what that.

Call represents going forward. Thanks, a lot.

Sure I'll start on the Sycamore FERC, yes, we're certainly involved in any of the tenders for Covid revenue.

When we've established very strong relationships upfront, it's also where frankly, our ability to serve our customers internationally as we said about 2 thirds of our revenue.

That kind of Ed last quarter was internationally, we've built some very strong relationships and the frankly, the health ministers around the world have known they can count on us and they can count on Panthers to deliver so we feel pretty good about.

Being involved in those and back to your first piece on the CDC.

We feel really.

For Covid.

Really good about these new guidelines and specifically while it leaves it up the regional we've got a couple of things going for us first off our own diagnostics sales team.

Calls on physicians and helps to educate them, but really more importantly going from effect.

Lee and opt in to an opt out system. So there've been so many women who should be having these tests done or on a routine visits that have really had to be opted in and now the default should go the other way so.

Is that going to affect this coming quarter probably not.

Will it significantly expand the market here in the coming years.

We think so and we think it's a great move for human health because there are a lot of the young women weather.

If theyre at the Doctor's office on the width or mom and the doctors asking him questions.

<unk> sexually active to decide do I give this test or not and therefore, okay, where is the kid has to answer yes to get the test written as soon as the default becomes hey, you might not be but we're just going to order. This test anyway that is a much.

On a much better way for society, ultimately to probably have a better handle on what's really going on.

Thanks again.

Great. Thank you.

It looks like we've just got 1 more left in the queue. We can take that last question.

Quickly if theyre still there.

Certainly.

I think we will go to Ryan Zimmerman of <unk>.

<unk>.

Hey, Mike Thanks for squeezing me in Stephen Curry and thank you just 1 from me.

I wouldn't have done it sorry about that.

Thanks for hanging on as long, we couldnt cut off.

With that said.

Certainly.

Just 1 from me.

Bruce growth.

Steve you called out this cliff and certainly the percentage of sales gantry sales.

Is declining and it kind of dovetails with the B J's question, how do you think about that growth rate over time.

Given the long range.

I know you've provided.

Can that move up from what people have historically thought of as a kind of a low single digit.

Mid single digit growth rate within breast as as the dynamics of that business shift over the next few years.

Yes, Brian.

Well, we're very encouraged by.

Brian I'll give Pete Valenti, who is subsequently retired from from Hologic, but when he came into the company and joined me in early 2014, our entire goal was to eliminate the boom bust, the cliff and the peaks and all that stuff in the breast health business and we've achieved.

Exactly that of go into a much more consistent business through both diversifying but also by bringing additional ideas to the Gantries, where we've continued to launch better gantries along the way it makes them much more stable. So I think what we see there is a core underlying gantry business.

<unk> and service business, but then also as we're getting into a little more of the disposable stuff with the breast surgery stuff.

And those things, whether it's a bit of focal and frankly, the markers that Soma Tech Springs, now <unk> with the biopsy, which is the capital, but really then it's the needle.

I'll use is adding these ongoing revenue streams that are a little bit accretive to that underlying market.

Growth.

We have so as breast health is going to be the fastest growing business, probably not but it isn't going to be comfortably in that range I think we feel really.

Really good about it yes, I think I would just add that internationally. If you think about historically that breadth of the business with managed commercially with a new set of dealer network that you under Kevin doing all we set out a strategy to go direct we're seeing that improve the international business I think there's other markets, we're looking to do in Iraq and in general.

Internationally, our commercial capabilities continue to grow on I believe that's gonna be health net that international growth will be breast growth will be accretive to the overall worldwide Division.

And Ryan will yell at Mic afterwards from being rude.

Yes. Thank you.

Alright, Thanks, everybody. We appreciate your time this afternoon.

<unk>.

Thank you. This now concludes the whole logic third quarter fiscal 2021 earnings conference call have a good evening.

Yes.

Yes.

[music].