Good afternoon, and welcome to Hologic’s Second Quarter Fiscal 2021 Earnings Conference Call. My name is Jenny, and I’m your operator for today’s call. Today’s conference call is being recorded. [Operator Instructions] I would now like to introduce Mike Watts, Vice President, Investor Relations and Corporate Communications, to begin the call.

Thank you, Jenny. Good afternoon, and thanks for joining us for Hologic’s second quarter fiscal 2021 earnings call. With me today are Steve MacMillan, the Company’s Chairman, President and Chief Executive Officer; and Karleen Oberton, our Chief Financial Officer. Steve and Karleen both have some prepared remarks, then we will have a question-and-answer session. Our second 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 them. Finally, a replay of this call will be archived through May 21st. Before we begin, I would 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 factors include those that are referenced in the Safe Harbor statement 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. One of these non-GAAP measures is organic revenue. We define organic revenue as constant currency revenue excluding the divested Blood Screening business as well as the acquired Acessa, Biotheranostics and Diagenode businesses. Finally, any percentage changes we discuss will be on a year-over-year basis, and revenue growth rates will be expressed in constant currency unless otherwise noted. Now I would like to turn the call over to Steve MacMillan, Hologic’s CEO.

Thank you, Mike, and good afternoon, everyone. We are pleased to discuss our financial results for the second quarter of fiscal 2021. We posted excellent financial results overall, highlighted by best-in-class growth rates. Total revenue was $1.54 billion and non-GAAP earnings per share were $2.59, both in line with our guidance. Organic revenue doubled, driven by strong recovery and momentum in our base businesses as well as our continued contributions to the COVID-19 fight. On the bottom line, EPS more than quadrupled. Our diversified business model again demonstrated its value in the second quarter as strong growth rates in our core businesses enabled us to meet our overall guidance even though COVID assay sales were less than expected. Our base Diagnostics business and our Surgical franchise, both finished slightly better than forecast, even while overcoming a tough January for U.S. Healthcare utilization that was driven by increasing COVID cases. And our Breast Health division clearly outperformed as our diversification strategy has led to a faster-than-expected recovery. Karleen will cover the revenue and expense details. But before she does, I would like to discuss two primary topics. When the COVID pandemic began more than a year ago, we set out to accomplish two things in simple terms: first, we committed to make as big an impact as possible against the pandemic. And second, we wanted to ensure that every action we took helped us emerge from the pandemic as a stronger company. We are clearly accomplishing both goals, which makes us more excited than ever about our future. In terms of our first goal, helping fight the pandemic on a global scale. Let’s summarize our contributions by focusing on four key numbers. Our first number is 100 million. Soon, we will ship our 100 millionth COVID test to customers, which included…

Thank you, Steve, and good afternoon, everyone. In my remarks today, I’m going to provide an overview of our divisional sales results, walk through our income statement, touch on a few other key financial metrics and finish with our guidance for the third quarter of fiscal 2021. As Steve said, our second quarter results were excellent as revenue and EPS grew significantly compared to the prior year. Reported revenue of 1.54 billion increased 99%. Organically, revenue grew an even 100%, driven by strong growth in our base businesses and a healthy contribution from global COVID testing revenue. We met our top and bottom line guidance even as the COVID testing market changed rapidly late in the quarter. Based on our strong top line, we significantly improved profitability compared to the prior year. As a result, EPS of $2.59 more than quadrupled in the second quarter, increasing 354%. Further, operating cash flow has continued to be exceptionally strong, which I will discuss in a moment. Before I do that, let me provide some detail on our divisional revenue results. In Diagnostics, our largest division, global revenue of 1.065 billion grew 225% in the second quarter. This was driven by molecular where sales increased 378%. Although COVID testing declined sequentially from peak levels in the first quarter, demand is still very high. We shipped about 27 million COVID tests to customers, generating revenue of 680 million globally. Excluding COVID, our base molecular business continue to grow as customers capitalize on the breadth of our assay menu and the strength of Panther’s best-in-class automation. Rounding out Diagnostics, the Cytology & Perinatal businesses grew 1% in the quarter, in line with trends before the pandemic. In Breast Health, global revenue of $336.3 million grew 7%, which we are very pleased with. Revenue also increased…

Thank you. [Operator Instructions] We will go first to Jack Meehan of Nephron Research.

Thank you, good afternoon. Steve, Karleen, I appreciate all the color on the many dynamics at play when it comes to COVID testing. I was wondering, as you look at the guidance for the upcoming quarter, how much of the sequential step down would you say is related to kind of burn down of inventory that is in the channel? And if you will humor me, how are you thinking about longer-term demand for COVID testing given all the additional capacity that you are building?

Yes, Jeff, it is a great question. If we dimensionalize, we clearly see the inventory bleeding down, both in the tail - really throughout last quarter, and we are assuming continuing to bleed down this quarter. The hard part for us, we kind of internally use the toilet paper analogy and I think people can understand this really easy. When households first went into COVID, they are ordering toilet paper from everywhere, right and multiple brands and from multiple vendors. And what clearly happened here, I don’t think it is been as fully grasped in the outside world has been all of the vendors stockpiled as much supply as they could get from multiple vendors because we of course had people on allocation. So when you can’t get enough when do you order and now they are bleeding through that. I think we look forward to the day where that is probably bled down and we are back to tests matching - test chip matching test performed. I think as that comes, that would clearly probably be a little bit of upside. We are being a little cautious in how we are continuing to think about that bleed down. Looking forward to the second part of your question, you have been all over it. Look at everything. I think we still see this as a meaningful business for us in the future. And to put in perspective, the $200 million to $250 million that we have guided to for this quarter, while it looks like a big step down from where we have been, I would remind everybody on this call that is larger than our entire Molecular Diagnostics business ever was pre-COVID. So we are still looking at a big business, and that is why we are continuing to…

That makes sense. And pricing looks firm in the quarter at around $25. Do you expect to hold at these levels, given your positioning with the automated system in the market or do you think it makes sense to get a little bit more aggressive here?

I think we will be more aggressive here as we go forth, particularly as some of our possible vendors buy for, for example, the school contracts that, you know, just got sort of delayed. At this point, as supply has ramped up in our ability, we can offer some of the cost savings through to our customers. And frankly, it will still be very good for us and very good for them. But I would think as we look over the next year, you should expect that to definitely move down. Karleen.

Yes. I would just say as well, Jack, as international becomes a bigger piece, again we will see the overall average ASP come down for sure.

And so we will move to our next question from Dan Leonard of Wells Fargo.

Thank you. So two questions. First off, it looks like your Diagnostics business, excluding COVID, might have grown about 11% organically, first off, is that correct? And then secondly, why wouldn’t that be a bit better given the easy comp, the tours, the higher Panther installed base, the things we have been talking about?

Yes. Dan, I think a couple of pieces there. First off, we didn’t exactly have an easy comp. Last year, if you recall, in Europe, our Molecular Diagnostics business grew, I think, well over 30% in the quarter. We had actually a monster quarter last year when we reported at this time, so we had a big number. The other piece, candidly, is we are watching the toggle and the shift. So still a huge part of the volume is being used for COVID. I think as we start to shift out here that will start to grow. Now it is also dependent on women going back for their health visits. And the one thing we have certainly seen, and I think this bodes well for the future quarters for us is while women’s visits are still way down, there are still a lot of basically pent-up demand that should come back here over time, but it doesn’t snap back immediately to 100%. A lot of the intercity clinics have been diverted to doing COVID testing as they start to get back up to speed. So in a weird way, I think it gives us more runway going forward, but probably slightly less than exciting in the near-term on necessarily that base. We also have the ancillaries and some of the other stuff that are in those numbers.

Okay. And then my second question, so the COVID views amongst the peer sets are really diverging this quarter. Some are using the flu analogy for what might be durable. What do you think about that analogy and how defensible then is your position in COVID, given that you hadn’t historically had a whole lot of market share in molecular flu and how important is Mobidiag to this calculus? Thank you.

Sure. Certainly, over the longer run Mobidiag is going to play beautifully into that. For the coming season, as it relates particularly to the United States, Mobidiag will not be a factor for us. But I still think there is going to be a strong need - there will certainly be the multiplex opportunities out there. But we think there is going to also be a very strong need as we had continued to say through this year to confirm whether something is truly coven or not as all the broad test. So we believe, with our customer base, hospitals, especially key labs, everything else, that there is going to be a meaningful need to confirm whether people have COVID and using a true good molecular platform. Whereas, frankly, traditional flu, you haven’t needed the levels of sensitivity and specificity. When it comes to COVID, people are still going to want that.

And moving on, we will hear from Tycho Peterson of JPMorgan.

Hey, thanks. I actually want to follow up on the Mobidiag question and a couple as well on Diagenode. I’m just wondering, Steve, if you could talk a little bit more about the strategy here with Diagenode? You talked about the CE Mark assays infusion, so how do we think about bringing those to the U.S. and time lines to build out the menu? And then similarly, with Mobidiag, you are giving two instruments, the Amplidiag, which similar to Panther, so how do you think about kind of future menu development on those platforms? Obviously, those are multiplexing, but those platforms versus content on Panther?

Yes. I think, clearly, the way we think about Diagenode is all about content on Panther. And particularly, a lot of the - if you look at the European landscape, particularly too, there is a much been a little bit of a competitive disadvantage is why we started to work with Diagenode in the first place. So it is really filling out that menu with largely still a focus on our European business. And I think a totally underappreciated aspect of what has happened to this company in the last 12-months, I would argue, is the strength of our European and frankly, broader international business. We are a completely different player in Europe today when looked at by leading customers, leading governments, everything than where we were 12-months ago. We were barely known, and now we are front and center on so many discussions. So Diagenode is going to play there beautifully. And then for Mobidiag, we really see it, over time, especially getting into the acute care settings as a big, big opportunity. First, obviously, in Europe, where they have already got a little bit of a presence, but ultimately getting everything ported over and cleared here in the United States. That is probably going to be more of a 2024, 2025 massive growth drivers then. We are being a little conservative in terms of when we get all of that proof tier. But it is going to give us another chance to place a box that is a different kind of box with different capabilities closer to the patient setting. So I think a really great technology. We know that was a highly competitive are really pleased we have prevailed in that.

Okay. And then for the follow-up, back to kind of the COVID dynamics. As we think about the Panthers you placed over the past year, what percentage of those went into the reference labs because I think Quest has said they are expecting 50% sequential decline in COVID volumes this quarter. And then on the hospital side, how long do you think that inventory work down last?

Yes, we are not going to get into the exact split between the reference labs and the hospital labs. I would say they were all meaningful when you look at 717 that we have placed. I think the magic, for us, even with the reference labs as their volumes come down recall, on TIGRIS, we only have four assays approved. On Panther, we have in the teens. So it is immediately opening up the dialogue with those customers to expand our menu, particularly as we come out with the BV/CV other things. So I think that is going to be part of the magic for us as well as being there certainly, if they do end up getting some help on if they get some of the school contracts or other things, but even as we go into next year. So I think we just feel better poised across the board with our Panther placements, which just gives us much more optionality.

We will move to our next question from Patrick Donnelly of Citi.

Good thanks. Steve, maybe just a follow-up on that last comment. It is great to obviously see the Panther placements, I think, 190 in the quarter. The installed base is obviously much more significant now. Just kind of wondering, I guess, when you think out about the clearly built out a lot of capacity given kind of this unprecedented demand for COVID. Just wondering, in your view, kind of the key pieces that fill that gap as COVID pulls back clearly comping now, but even if that remains some level of volumes, what are the key pieces to kind of fill that and where do you see utilization going on this larger fleet even a couple of years out?

Yes. I think it is hard to probably fully describe our excitement, Patrick, as to where this goes. And let’s take it in simple terms. First off, lab folks have been going on adrenaline for the last year trying to get - there is been so much automated stuff they were dealing with. They all want to consolidate on an automated platform. We are even hearing out of Europe is from a number of customers just recently They just can’t wait to get our Panthers fully up and running because they know they can run them after hours. They don’t need to be handheld. They don’t need people there. And so I think, as you really look at it, everybody is going to go to the best-performing most automated machines with the best menu. And I hate to say it, but we say it all the time, the cream rises to the top. It is hard to beat our Panther system and with our menu. And the number of governors that called us last year early on asking why they wanted more samples was because "They kept touring the labs in their states and the people kept saying, look, we need Panthers. We want Panthers that is the one we want." So I think as this all shakes out here in the coming months, that we will do what we have always done really well and continue to grow our menu and Panther and that volume, which, as you had seen, average revenues per Panther, we have had a tremendous track record over seven, eight, nine years now. That number is just going to continue to go north.

That is helpful. And then maybe just focusing on COVID again can you just talk about the trends in the quarter? And clearly, as you noticed, we can all see the data that showed significant softening in March and April. Any metrics you can give around kind of Hologic-specific volume decline? And then going forward, just how you are specifically thinking about your share as the pie continues to shrink here in the U.S. and the OUS I know you guys have some pretty large contracts historically tied to COVID. How much can those help provide a level of stable volumes and should we expect any more of those or is that dialogue quieted down a bit?

That was a great like five-part follow-up, Patrick. We are going to give you the new award. I will try to get it all. And if I don’t get it, hopefully, Karleen and Mike are paying close attention. In terms of the quarter, January continued to be remarkably strong. So at the time we were sitting here giving our guidance, think about it, only 90-days ago, vaccines were just barely beginning. We were just transitioning from one president to another, vaccines were in the very early days and the post-holiday testing was spiking. So then we clearly saw it kind of turned a little bit in Feb. I think March and April have really been a lot of inventory catch up. And I would argue that that will shake itself out here probably pretty quickly, and then we will be a good place. The longer-term contracts on the last part, it is why we feel really good about a lot of the approaches we have taken with our governments particularly around the world, where we have often signed folks up for six, nine, 12-months contract where we guaranteed them supply and you know as of right now we have not - you want to knock on wood, but every customer that we have sold into has continued to come back and wants to continue to work with us. And I think that is where we feel really good, we know a number of the countries that even early on, we said we couldn’t provide them what they wanted and they went elsewhere they also came back to us. So I think we see this being more persistent and it is where, certainly, our international footprint, particularly Europe and then the Australias and New Zealands of the world. Obviously, we are not a big player in India, so don’t expect anything there. But for the major Western markets, we are in a really good place.

And we will move to our next question from Chris Lin of Cowen.

Thanks for taking my questions. I have two questions. So first, I wanted to follow-up on the COVID-19 dynamic. So Steve, Hologic has meaningfully accelerated organic and inorganic investments due to the cash flow associated with COVID-19. So with this in mind, could you just comment on how lower-than-expected 2019 volume and potential cash flow impact how you think about making these investments going forward? Do you need to pull back or are you still going to invest significantly with the longer-term horizon in mind?

We don’t need to pull back on anything because none of the forward-looking thinking is any different than what we probably really expected. So I think what has been magical is we have used the cash, and it just kind of worked out really well in terms of the investments that we have made. We never expected this. It is why we didn’t give guidance for the full year. the way we have approached COVID completely has been, look, there is an opportunity here, we are going to try to maximize it for as long as it is there. And eventually, we will get back to our other business. So I think we feel really good. I would also say the balance sheet is even stronger despite being able to buy shares back, done 5 acquisitions, we will still generate a meaningful amount of cash here even in the coming quarters. And candidly, we will probably hit a point where there is only so many more assets we would be able to metabolize in the recent term, especially in the Diagnostics and European footprints. So I wouldn’t expect us to be continuing to try to gobble up as many companies in the coming quarters as we just have. It has been an opportunistic thing, but also no reason to pull back. We are not pulling back on any forward-looking plans.

Yes. And I would say we are not different from pre-pandemic. We had talked about focused on deploying our free cash flow to share repurchase and tuck-in acquisitions, so we will continue to do that even as the COVID testing comes down.

Okay. Great. And then for my follow-up question, I think your 10-Q mentioned that chlamydia and gonorrhea volumes were lower on a year-over-year basis. Could you just elaborate how sexual health testing volumes are tracking to pre-pandemic levels and when you see that fully recovering and I guess, specific to Q3, whether you have built into guidance for non-COVID-19 tests? Thank you.

Yes. So I think what we are seeing is that business is still recovering, that women still aren’t getting back to their well visits at the pre-pandemic levels, coupled with a temporary guideline from the CDC about not doing a screening for asymptomatic women. So I think that is some of the pressure we see here in the current quarter. I think we are assuming that will continue into the next quarter, probably some improvement on well women visits, but we fully expect that, that business will recover as again we kind of get back to pre-pandemic life.

And we will go next to Dan Brennan of UBS.

Great thanks for taking the questions. Steve, you talked about in the opening remarks how the company was growing 5% pre-COVID. And now, certainly, given the acquisitions and the installed base, you expect to be a higher level. I haven’t heard the question asked, maybe I missed it, but can you elaborate a little bit on that? Give us a sense of what you are thinking about go-forward growth rate for Hologic? And any other kind of building blocks to get to that number?

Yes. Dan, we are not going to articulate on this call exactly what that looks like. But clearly, as you know, for years, we were kind of in that three to four-ish range. We were moving it up into that five range. And I think as we look at what we have been able to do both organically, but really strengthened - the acquisitions we have been able to do put us a lot better off than if COVID hadn’t hit, right. We probably wouldn’t have bought Mobidiag, Biotheranostics, all of these things, all of which should be accretive to that growth rate. So do we see us moving a little north of that 5%? Yes. Are we ready to commit to an exact range? We have our June Board meeting where we will be looking at our strat plan with our Board. But I can just tell you the early roll-ups, I think we look at every business being able to be at least mid-single, if not moving into the higher single-digit and particularly with our international business. Now on a completely different footing than it ever was, we think we will be able to really drive all of our franchises stronger outside the U.S. So I think it puts us clearly north of 5, which I think is a very meaningful step-up for this company. It is not something we have had from a sustained growth, and I think that should not be lost. And I’m glad you asked about it.

Great. Thank you Steve. And then as a follow-up, I know It is been asked a number of times. I’m just wondering, given the COVID strength that you have had and obviously, the rate of decay that we see will be important for your top line results. But just how do you think about the right mix, if you will, of testing as we move out beyond this year into next and we get to a steady state on COVID between PCR and maybe rapid testing. I think you discussed earlier the accuracy is really important here, much more so than flu. So we are just trying to try to think about what the right numbers to plug into models and kind of that aspect will help in terms of the mix that you see unfolding as COVID flows. Thank you.

Yes. Thanks, Dan. I think consider us biased because we are in the molecular space. But I think as more and more people have had bad experiences candidly with rapid tests. And I think all of us know a number of people who have had false results. I think the dynamic is going to play out where there is going to be less people racing out to need the immediate test and to try to get something super quick. And as you move into a vaccinated world and more of an ongoing monitoring where a few hours isn’t going to make a difference, I think it is going to evolve much more towards most diagnostic testing, which is you want to use the most sensitive and most specific tests. And we just think that is going to ultimately prevail and that a lot of the euphoria and urgency and design - even some of these people calling for - everybody would be taking a test every day, dah, dah, dah, you know what, it is just we don’t see it that way. Ultimately, the market will decide and you can come back and slap us upside our heads if we are wrong. But I think we see it playing out as a more traditional market overtime where it goes to our advantage. Thanks.

And we will go next to Anthony Petrone of Jefferies.

Thanks and few follow-ups on just all around Diagnostics and one on capital. Steve, maybe in the 200 to 250, if you could give us a break on U.S. and Europe I know, in the past few quarters, Europe, as it relates to COVID testing, was underweighted for Hologic, what was growing. So I’m just wondering how Europe plays out when there is still heightened pandemic there? And then on Mobidiag and Diagenode, I’m wondering what the combined installed base of platforms is there and is there a pathway to consolidating those tests on Panther overtime?

Yes. In terms of the first part, the COVID, I think we will see Europe being a bigger percentage of our revenue probably this quarter than even the 40%, I think part of our business, we feel really good about the longer-term contracts we booked with Europe and obviously, with the rollout of the vaccinations not going nearly as rapidly there. I feel pretty good about the persistence of the COVID testing in Europe. And then Mike is waving his hand here.

So Anthony, on the second piece about installed base, you remember Diagenode, think of Diagenode as an assay factory. So the priority there is to really get their PCR expertise in those tests onto our Fusion installed base, right, which is roughly 15 or so, 1 5 percent, of the 2,600 that we have out in the field. Mobidiag is a little bit of a different situation. The focus there is really on their Novodiag instrument, which is the more rapid turnaround instrument, and they are really just getting started with a relatively small installed base, even in Europe. And in the United States, I don’t think they have any revenue, so there is clearly some big opportunity there on that Novodiag instrument.

Yes. It will be more focused on driving that instrument than necessarily taking their stuff over to Panther. Thanks.

Understood. Thank you.

And we will go to that last question from Vijay Kumar of Evercore ISI.

Hi, this is [Cindy] on for Vijay. We notice the gross margin this quarter was down about 200 basis points sequentially. Could you - drivers behind that decline?

Yes. That is simply just because of the lower COVID revenue. So COVID revenue was about 745 million in Q1 and 680 million in Q2, so that decline in that very accretive gross margin revenue was the reason for the decline. But note, it is still at - 75% is pretty exceptional.

Thanks.

And we will go to Ivy Ma of Bank of America.

Hi, thank you for squeezing me in. So just wanted to follow-up on the broad screening opportunity. Steve, as you mentioned earlier, the school programs sort of got delayed. So just wanted to see if there is any details you could share around upcoming catalysts and when we could expect those would be helpful.

Yes. I think the broad approach we are taking is just trying to be there for our customers. If some get the school contracts, that would be great, we will be there for them. If they don’t, we will be supporting other stuff. So I think that is probably the only potential bigger catalyst, I think, Ivy on the horizon, and obviously, that will really kick in for the fall. But I think there will be ways that, obviously, we will be working with various customers to be able to help support any of those initiatives.

Yes. And we have the pooling claim as well, which will be helpful for those screening programs.

Great. And a quick follow-up for Karleen. Could you maybe comment more on the margin profile of the recent acquisitions and any opportunities for margin upside from those and how long those might take? Thank you.

Yes. I think we had talked about Biotheranostics is probably a little accretive to the overall gross margin profile of the company, but more in line with diagnostics. And I would think that Diagenode, at this point, may be a little less than the overall average and Mobidiag would be a little less than the average at this point. But those are things that as we build those installed base and grow those revenues they should get in line.

Thank you. That is all the time we have for questions today. This now concludes Hologic’s second quarter fiscal 2021 earnings conference call. Have a good evening.