Hologic, Inc. (HOLX) Earnings Call Transcript & Summary

Well, great. Thank you for joining us at the Citi Healthcare Conference here. I'm Patrick Donnelly, the tools and diagnostics analyst with Citi. Excited to have Karleen Oberton with us from Hologic. She's the CFO. And Karleen, I know -- maybe we can give some introductory remarks, and then we can dive right into Q&A. And if investors have any questions, feel free to e-mail them over to me, and I will try to get them asked. And Karleen, I'll turn it over to you.

Great. Thanks, Patrick, and it's a pleasure to be here today. So for those who may be not so familiar with the Hologic story, we are a medical technology company uniquely focused in women's health care. We have clinically differentiated market-leading products in each of our divisions. We are organized within 3 divisions: our Diagnostics, Breast Health and Surgical. And over 85% of our revenue today is recurring in nature between disposable revenues and service revenues. And just about 30% of our revenues today come from outside the U.S., which create a great runway for our business for growth in the future. We are really proud of how we have responded to the pandemic. We have really accelerated our performance over the last couple of years, delivering over 150 million COVID tests globally, responding to an unprecedented global health crisis while taking care of our customers and our employees. Certainly, we have accelerated on the molecular business, which is where the COVID test is done, placing over 1,200 Panthers since 2020, which -- in a global basis and really expanding that footprint and, again, a great runway for growth -- revenue growth for the molecular business. And certainly, we've generated tremendous free cash flow over the past several years, allowing us to accelerate our capital allocation, about over $1.5 billion on tuck-in M&A and strong share repurchase activity. And certainly, we've also been able to accelerate on our purpose, passion and promise for women's health with projects like Global Health -- Women's Health Index and Project Health Quality. I think, Patrick, all this sums up to is that Hologic is a much stronger company today than it was before the pandemic. We'd love to answer some questions about that.

Great. Maybe for the first time in a few years, we can start with something other than COVID, which would...

That would be great.

Breast Health has definitely been topical with investors. You guys obviously had some -- you're not alone, but you faced some supply chain issues last quarter, I think $50 million for this quarter and then kind of a $200 million pushout for the year. So maybe just talk to, I guess, what you're seeing in the supply chain, what it's impacting? And then, I guess, the visibility to that resolving itself at the beginning of -- kind of the start of the next fiscal year? Is there going to be a catch up? Maybe just talk through, I guess, the impact and how it normalizes on the other side.

Sure. Like you said, we're not alone, and this really is related to our image processing chips that is predominantly in the Breast Health gantry, but also impacting our Trident specimen radiography as well as our Affirm prone biopsy product. So there's 3 major products that's being impacted. And basically, we're on an allocation. So we're only getting allocated about 20% of our demand. So this is not a supply chain issue. Our demand for gantries is strong. And actually, since we've announced some of these supply chain issues, demand has accelerated, right? People want to get in the queue. But basically, what we've assumed for the best -- rest of the year is that we never get higher than the 20%, right? Now this is -- we have strategies in place, whether it's working with government officials, health agencies to get a priority rating, to get ahead in the allocation, get a larger allocation and working with our suppliers directly. But we've assumed that the allocation doesn't change. So that is kind of -- gives us the $200 million. Now certainly, if we get a higher allocation, we'll do better. But the reality is even if we got a higher allocation, by the time it works its way through the supply chain, it would really impact our fourth quarter. So this headwind is real for Q2 and in Q3 and certainly Q4 if we don't get a higher allocation. And our mindset, Patrick, was we could have delivered kind of our full demand here in the second quarter. We want to make sure we had enough chips to supply the installed base. We want to make sure that our serviceability of our installed base remains intact so that the gantries that are out there can continue to be performing screenings for our customers. So we all have initiatives, whether it's reclaim and remanufacture chips to allocate to service, to put more to new product, whether it's getting chips on the gray market. But those things aren't going to make a huge difference in that $200 million. It's more if we get a change in allocation, which we just don't have visibility to that. Again, working also with the strategies to gain more allocation, but just don't have the visibility. I think when you think about '23, it's hard to say. Does it -- how does this rectify itself over the course of '22 and '23? I think as we think about it now, it's likely -- it kind of corrects through the latter half of '23, where we'll maybe see kind of dealing with the backlog, right, working through that backlog, the ability to do that. And it's not going to happen in 1 quarter, in any event, between kind of the scheduling, the installs of new gantries. It's going to take several quarters once we start to get that release.

Okay. So maybe best case, again, to your point, things start working themselves out maybe in fiscal 4Q and then it will take a few quarters to kind of work its way through the system and maybe we get back to normal.

Right.

Okay. That makes sense. And I guess, to your point there in terms of orders coming in already, people wanted to get in the queue. Are you seeing kind of that backlog build to the point where, again, you're going to have this really long runway to work through once the chips hopefully, again -- I'm sure it won't be immediate, but as they start to normalize, you have this really long runway to kind of work through? It doesn't -- to your point, it's not going to be obviously an immediate inflection catch-up 1 quarter, but I guess it will give you good visibility once things do for a few quarters ahead. Is that the right way to think about it?

Yes. And I think that's a fair way to think about it, yes. I mean, I think, well, the most important thing is we don't believe this is a competitive disadvantage for us, right? That we believe our competitors are in the same spot in that they've kind of increased in demand as people want our products. It's clinically differentiated. When you think about the service that we provide in that breast continuum of care, how we own the breast space. Some people who want our gantries want our products.

Okay. Yes. And that was kind of the next logical question, I guess, is, is this a risk of competitive share loss? But it sounds like, to your point, it's a market-wide issue. You're not seeing people come to you and say, "We want one. If you can't give it to us, we're going to go elsewhere." That's not the case.

That's not the case.

Okay. Great. And I guess, maybe we can just stay with Breast Health, and we'll shift over a bit. The good news, obviously, is that the recurring revenue piece continues to be a bigger and bigger piece. That grew quite nicely. I guess, how do you expect that to kind of trend as we go through this year and next? Obviously, not really affected by the chip shortage. And again, maybe just talk through how that's become a bigger piece of the business and, a little more consistent, insulate from you -- from some of the...

Yes. Certainly, the interventional piece of the business has shown great growth at 20% last quarter. I think women returning to their screenings. If a woman has something, she's not going to wait. She's going to go through that biopsy process and hopefully got a bit onto the surgical process. So we've seen that recover nicely. We also have new products. We have the Brevera system as well, which -- off to a great start or relaunch, I should say, and doing nicely and contributing nicely to that interventional growth.

Yes. And I guess, on the kind of return -- patient volume recovering, I guess, what are you guys seeing on that front? How are you anticipating that to kind of play out? Obviously, we have the full year guidance. Is the assumption that we slowly get back to some semblance of normal pace? What's kind of baked in on the Breast Health side? Again, I know it's not perfectly sensitive to that, [ though ].

Yes. I mean what we look to is we look to the screening activities. Certainly, in the U.S., we're attached to a fair number of our units. And I think we're seeing kind of that steady 90% to 95% pre pandemic. And I think what we're working through now with some of these fluctuations with the Omicron surge, you have procedures being limited or short -- labor shortages is actually coming into play now, which was less of a factor probably a year ago. But in general, besides kind of surge impacts, we would expect a continued steady increase in the businesses.

Okay. That all makes sense. And maybe we can jump over to COVID. I know for the next quarter, you kind of guided to $400 million or so of revs. It felt like that's what you guys had kind of a good line of sight to. Obviously, the beginning of the year was quite robust on the volume side. So maybe just talk through, I guess, what was baked into that number. And then there's a pretty good drop off, obviously, forecasted for the rest of the year. Maybe just talk about the levels of conservatism that are baked in. Any recent trends? Obviously, we all kind of watch the daily volumes in the U.S., and they've come down pretty sharply over the last couple of weeks. I think that was what you guys assumed. But maybe we just talk through the assumptions that you guys layered in.

Yes. Certainly, the $400 million for this quarter was a very -- what we call a high-confidence number. We had strong visibility to that. We certainly have seen demand drop off just as we've seen the testing come down here in the U.S. I think, for us, it has created a little opportunity to pivot OUS. So I would say, back in January, we were in what I'll call an allocation process between U.S. demand and OUS demand. Now with the U.S. coming down, we were a little -- able to pivot a little bit more to OUS. But I would say the balance of the year is conservative. I would say this is just our kind of position is that on COVID, we're going to guide financially conservatively, but be ready to act aggressively to the extent demand is there. I think the reality is, Patrick, we're not getting any credit for the COVID revenue. So there's no need to throw out a number out there that we don't have good visibility to. And I think, as most folks know, the pandemic has pivoted a couple of times on us since the start, and we're just going to be conservative in our financial outlook.

Sure. Yes. And I guess, how do you think about kind of that -- I know you guys gave the U.S.-international split every quarter. I mean, it seems like now, it's maybe shifting a little more towards international as U.S. settles down. But -- like how do you think about that piece as we go forward? Obviously, it has some price implications given the differences in the price. But do you see it -- again, to your point, is it shifting a little more towards international now?

Yes. I think we -- what we saw was a switch to international, certainly in Q3 and Q4 last year; Q1, OUS, probably this quarter; Q2 more U.S. and apply that same flip for OUS as we move forward. I do think, to your point, that the pricing, that's part of kind of COVID coming down from revenues. As we have more OUS, it's going to be a lower pricing than the U.S. In general, as we think of this becoming endemic, once the public health emergency ends here in the U.S., we think pricing will come down. But in general, we've got a ways to go on pricing on this and still have it -- COVID be accretive to our margins.

Okay. Yes. And maybe on that last point in terms of the endemics phase. You and Steve have kind of always felt that this was going to be a real revenue line going forward, a real testing line. Obviously, the last year has kind of shown that to be pretty prudent. But how do you think about -- again, comparing it to maybe some of the other testing revenue lines. Do you think this could be a couple of hundred million dollars going out multiple years? What's kind of the house view on the sustainability of COVID as we get beyond kind of these peaks and valleys? What's the right way to think about it?

Yes. And we think there is a role for molecular, that is the gold standard of diagnostics testing when accuracy is highly important, certainly in the hospital setting. Certainly, we're in surveillance mode and pooling. That high accuracy is going to be super important. So we do think there's a role for molecular, and we do think it's going to be significant for the next couple of years. And to put it into context, that prior to COVID, our largest assay was chlamydia and gonorrhea, which was about $275 million globally. So even if COVID was, in 2024, at $200 million, that's still a pretty meaningful revenue-generating, cash-generating assay in the portfolio.

Yes, absolutely. And again, your view on pricing, I guess, to your point, the emergency use probably wears off. Maybe we'll see it again. It keeps getting extended. But what's kind of baked into your guidance in terms of pricing? Do you expect the U.S. to come down or any of the contracts recently kind of shifting away? I know the contracts tend to be a little more international, but what's the expectation for the U.S. as we look out 6 months, 12 months? What happens to pricing on COVID?

Yes. I think, in general, we expect the pricing to continue to come down, right? So I think we definitely have lower pricing on our larger customers and premium pricing in our smaller customers in the U.S. So that comes out with this average of $20. And I think just, Patrick, to put it in perspective, if I go back to chlamydia, gonorrhea, in the U.S., that pricing is probably in the $8 to $10 range. So we've got a long way to go to get to that kind of large asset pricing.

Okay. Great. And on the back of COVID, one of the questions we get, and I know you guys get as well, is just how to think of Panther on the other side? So obviously, COVID gave you the opportunity to place just a very large amount of systems. Steve always says compressed maybe 5 years into 2 very quickly. So now we have this big installed base. What does it look like on the other side of this is kind of the million-dollar question. And I know you guys have kind of shifted away from utilization a little bit to kind of look at that whole revenue bucket. But maybe just help us frame, again, sitting here with a much larger installed base, what does it look like on the other side of COVID? Again, let's say, COVID is kind of a normal test revenue line. What picks up the slack, I guess, is a lot of the questions we get. And how confident are you that you guys are one of the net winners? Obviously, everyone placed a lot of systems. So how do you think about that kind of post-COVID world?

Yes. So a couple of points. So if you think about the 3,000 assays placed, I mean, Panthers placed in total globally, increase the mix to OUS, which is great for the international business. When we think about post-COVID, one of the things that you can start to look at is the test of records. So the test of records is the value of 1 year revenue of the newly validated assay on Panther. And in the U.S., prior to the pandemic, our highest year ever was $20 million. We did about $34 million in 2020 and over $40 million in 2021, all non-COVID. So that is -- that pipeline of revenue that's going to backfill the COVID as that comes down. And I think as well, just in general, the majority, more than half of our customers, run to only 2 or 3 assays. We have a menu of 19, right? So there's a long runway to sell there for many customers. I think that's where we become a winner. To your point, there's been a lot of instruments placed over the last several years. None of the instruments have our footprint, which is the size of, basically, a tall photocopier that you've seen in office. You don't need to break down walls to put a Panther in. You can just put it right in a lab. The high throughput, walkaway time, quick turnaround time, the high level of accuracy of our test and the menu, right? That is the difference. That is the 2 points that make a difference that the Panther instrument itself in the menu, which, for our customers, that's going to drive value. The more they can put on the Panther, the more value they generate for themselves. So and then the final point I would say is that we've also -- prior to the pandemic, our largest customers were utilizing our legacy Tiger system. Now we've essentially been able to recapitalize those customers with Panther. Our Tiger systems only had 4 assays approved on it. So now this allows us to sell more to some of our largest customers as well as some of these new assays. I'll note, BV/CV, the vaginitis assay, which was approved back in 2019. 2019, we did $6 million of revenue. This -- last -- in Q1, we did $13 million. So on track to be a $50 million assay in 2022. That is one of the best launches we've ever had, right? So because of COVID, we're not talking about it. It seems small in comparison to COVID, but an exceptional launch, and that's another assay, a new assay, the only IVD-approved assay in the market that will drive growth.

Okay. That's helpful. And then I guess, maybe kind of piggybacking on the test of record. I guess when you have sold kind of some of these instruments into COVID users, very heavy COVID users, do they typically run -- I know you kind of talked about 1 other assay along with it. I guess how long does it take them to kind of branch out and start using the rest of the menu? And then how do you, again, kind of encourage that activity or kind of move that along and get the other tests kind of recognizing again the broad menu that you have and kind of drill that home to customers.

So let's put it in perspective that 90% of our Panthers are running more than COVID. And that 90% represents 95% of our revenue. So only 5% of our revenue is coming from COVID only. So that tells you that the majority of the customers are making that move to other than COVID, right? And I think, really, it's when they see that automation, the pull-through, the lab techs. If you think about the burnout of lab techs over the past 2 years, they're going to want that instrumentation that has the least hands-on time, the most effective workflow for them. So we believe that, that is a contributing factor as we move forward here.

Okay. That's helpful. And I guess, maybe looking at kind of that core molecular franchise. You put up nice, I think, mid-teens growth last quarter. What are you seeing in terms of the recovery? How should we expect that to trend as the year goes here? Yes, maybe just some color on kind of that core business because it does seem like the underlying recovery is pretty healthy.

Yes. We feel good about the recovery. I think a lot of the core molecular relates to the well women's visit. And so I think in Q1, probably less impact on the well women's visits than maybe a little impact in Q2. I think Q2 is seasonally lower of a quarter for us. Anyways, if you think about our Q1 is the calendar fourth quarter, where deductibles are about to reset. So you see a lot of people getting to their office visits to get their exams and for the deductibles reset. So feel good about the recovery, and I think as well, some of that growth is international. Again, the exceptional amount of Panthers we placed internationally, as well as these newer assays, they talked about BV/CV but also M. gen is another newer assay that's driving the growth.

Okay. And then maybe on Panther, again, obviously, you guys place so many systems. One of the questions we get is, is there going to be this pause from the other side where capacity is built out so much, who needs another Panther? Obviously, this quarter, kind of debunked that a little bit. You guys had a really strong placement quarter. How do you think about that piece? Again, obviously, the consumable piece is much more important in terms of the revenue side, but just curious on the placements. Are you seeing continued demand? How do you think about that, again, given the bolus of not only your instruments, but everyone else's. It feels like labs have adequate capacity, but what's the right way to think about maybe the placement side as we go through the next few quarters?

Yes. So we are really pleased with the Q1 amount of Panthers that were placed. And I think we have committed back to the majority of our Panthers are placed versus sold, whether that reagent rental model. I think we're seeing higher demand outside the U.S. than in the U.S. which isn't surprising, probably just more regions to cover, right, than we have in the U.S. I would say 2022 is going to be higher than the legacy pre pandemic, 225 to 250. Could we see a step back in '23 and '24? Potentially, but again, that's not what's going to drive the revenue, it's the pull-through, it's the assay, much less about the actual placements. And we have, obviously, accelerated several years of placements here over the last 2 years.

Right, right. Okay. And then typically, kind of along with COVID comes kind of the margin conversation. Obviously, COVID has completely changed the margin profile over the last couple of years, starting to come back. I guess, what's the right way to think about kind of that core margin profile? Obviously, the second half, there's some noise with the Breast Health side, dragging margins down. So we've had some questions again. What's the right way -- I know you've talked about the low 30 piece. Maybe you can kind of baseline us, and then we can talk through maybe the impact of the back half and the right way to go forward.

Yes. I mean prior to the Breast Health impact, when I looked at my exit rate for the fourth quarter -- because, as you likely know, we are reinvesting because of the COVID revenue, it's now a separate COVID P&L, right? It's 1 P&L to run the business, and we make reinvestments as we can afford them. And obviously, we've been able to afford many investments that we couldn't prior. So when I look at my fourth quarter, again, prior to the Breast Health headwind, I have minimal COVID revenue contribution and that operating margin is in the low 30s, so while absorbing the acquisitions. And to remind folks, we've talked about -- on balance, the acquisitions are neutral, except for Mobidiag, it's probably about $0.10, and then Bolder is probably another couple of pennies. So feel good about that base business earning power is where it needs to be, again, prior to the Breast Health headwind, I mean, that's a significant headwind. And at this point, we're letting the majority of that margin impact drop. We aren't cutting significantly OpEx because we want to be able to have a sales force, have our teams ready to go when the business comes back. Just given the labor environment, we have to preserve our talent and be ready to respond. And so that's where we're at now.

Okay. And then, yes, I guess in the second half, again, given the Breast Health impact, I think it shakes out to, I don't know, maybe like 28% or so in the second half. How should we think about that? I know you talked a little bit about the revenue trajectory on the other side of this, maybe kind of slowly ramping. Is the margin the same thing? I mean, I can't imagine it flex right back to that low 30 number. So should we think about it kind of entering '23 as a recovery path towards that as Breast Health recovers? Or what's the right way to think about kind of the cadence there?

Yes. I mean, actually, people will probably be surprised that the gantry margin is actually accretive to the corporate average. So I think we will see that margin earnings come back with that gantry revenue if we're unable to address the headwind more effectively.

Okay. That makes sense. And then I guess, on the margin side, I mean, obviously, inflation, wage inflation. I guess what are you guys seeing there? Obviously, the supply chain is pretty visible with Breast Health, but are you seeing any other pressures? Maybe just talk through the levers kind of outside those obvious COVID, the deals, maybe that core organic story. And what we can expect in terms of potential expansion once things normalize a bit, I guess, in maybe kind of mid-'23 or whatever it ends up to be.

Yes. I mean, certainly, on the kind of inflationary supply chain, we're seeing higher freight costs, higher commodity costs that others are seeing, I think, they've been pretty manageable to this point. But I think it's something that we have a strong eye out for that seemed they don't kind of resolve as we get into '23. But certainly, the teams are looking at certainly other initiatives, whether it's network optimization, what else can we move to our Costa Rica facility? What can we do to kind of offset some of those headwinds? But they have been real. It's not visible externally, but some of the, what we call, we'll say, efficiency initiatives that were put in place prior to '22 are offsetting some of those higher costs that we're seeing. So that's an ongoing activity of our ops group, our supply chain groups, and we'll continue to look at those opportunities to offset.

Okay. And then on the deal side, you obviously mentioned the near-term dilution. What's the right way to think about the trajectory for things like Mobidiag in terms of flipping to accretive? What does that margin trajectory look like? I know you guys have plans for the margins to kind of get towards corporate average in relatively short order.

Yes. So I think we'll put Mobidiag aside, but I think the rest of the acquisitions we should see. We said net neutral, which you could see, continued improvement, right? Each year as we move forward, as revenues grow, as we integrate them into our supply chain, consolidate facilities, et cetera. On Mobidiag, I would say still dilutive in '23, probably maybe wholesale breakeven in '24, and we expect probably a launch in the U.S. in the late '23, early '24 time and that's when you'll see the kind of accretive nature of that acquisition.

Okay. That's helpful. And maybe we can just stay on Mobidiag. Maybe just update us kind of on the rollout there? Any expectations, customer feedback, what you guys are seeing kind of in those markets? And so again, I think that's obviously the biggest -- kind of a bigger focus in terms of the acquisitions you've done. So just curious on an update on that front.

Yes. So I would say, from an integration perspective, a lot of work on the R&D front between the teams in Finland and the teams in San Diego to really find -- determine what is the right clinical path for the U.S. approval. But in the meanwhile, we've had a launch of the Novodiag in the EU and well received. However, we've got some supply chain capacity constraints on the cartridge itself. So kind of holding back a little bit on actually getting the boxes out there, but kind of just the launch and showing the product to customers, feeling good about that once we kind of get the availability of cartridge.

Okay. Makes sense. And then kind of in your opening remarks, you highlighted international as an opportunity. It's long been a big opportunity for the company. It feels like COVID maybe gave you, to your point, in terms of Panther installed base. . Maybe it's a bit of an inflection where you guys can see some real sustainable strength there. Can you maybe just talk about the international opportunity, which segments we should be focused on for the biggest ones and expectations there for the next couple of years?

Yes. I mean broadly speaking, there's opportunities internationally across all the segments, right? And the molecular is a clear one with the Panther placements. But when you think about what we do, women's health, you think of breast cancer screening, screening for SGD, screening for cervical cancer. They're just not the programs outside the U.S. that we have in the U.S. And really what COVID allows us to do has given us access to health ministries, to government officials to have conversations about putting those right screening programs in place, coupled with our Global Women's Health Index, where we can again talk to a health ministry about specific countries, the health and well-being of women and girls in that country, and talk about what we can do to put in screening programs, policies that improved. So at the high level, we've elevated our need in what we bring to the table because of COVID and believe that, coupled with our products, coupled with the investments we've made in our commercial teams that would be able to capitalize on that growth moving forward.

Okay. And -- well, I guess, how do we think about the margin profile international versus OUS? As that growth be a bigger piece of the pie, what is the impact on the margin front there?

Yes. Certainly, at the gross margin, there is a step down from U.S. to OUS in operating margins. Again, a step down, but we have intentionally invested in the international commercial capabilities over the last several years and believe that will create leverage as we move forward, that we've made the right investments and now we can start to leverage from this point forward.

Okay. Makes sense. And then on your -- on the kind of the investment point, obviously, it seems like you, among others, during COVID, the amount of revenue coming in, the amount of margin impact was so significant. You used that opportunity to really kind of invest in some areas that maybe you wouldn't have previously given, again, the size of the cash coming in the door. Maybe internally, can you just talk about what the priorities have been for the past year or so with some of those increased investments? And where we should expect some of those growth initiatives to play out?

Yes. Well, certainly, R&D and marketing, right? What can we -- there was a clear focus on what can we accelerate from an R&D perspective during this COVID time. What are the key marketing initiatives that could make a difference post COVID? Certainly, the other thing we've been intentional in preserving our employee base, some of our sales force, again, so as business returns, we're not rebuilding teams to move forward. Certainly, all the acquisitions are investments. But -- and then on the kind of ESG front, our purpose, I talked about, certainly, we've invested in Global Women's Health Index, significant investment in Project Health Quality and. Certainly, you might have saw our shoppable ad, which we view as really a public service announcement and a unique opportunity to partner with Mary J. Blige who partners with us on Project Health Quality to really bring attention to the need for women to get back to screening because just because you haven't gotten stock there and the more I think most people know, the earlier diagnose the cancer, the better your potential outcomes are. So we really felt that was important to get that message out.

No, for sure, yes. That definitely got a few inbounds in the Super Bowl commercial. So it's definitely well seen. Maybe the last one on the business then we can flip to kind of the balance sheet and capital allocation for the last few minutes. Just on the surgical side, that's seen a nice transformation during COVID again. It seems like COVID is kind of the overriding story for so long. A lot of things under the hood maybe aren't getting seen. But surgical put up nice 8%, 9% growth last quarter. You guys have kind of done a few additions with Acessa and Boulder. Just talk about that business, the recovery path here. Again, I was very pressured by COVID, but we're coming out the other side, hopefully. Maybe just talk about the trajectory there and, again, the kind of transformation that's gone on over the past couple of years.

Yes. So we were really pleased with the Q1 results for Surgical, and I think I'll take it by product. NovaSure has been -- is our most elective procedure. It's the most impacted. But we launched NovaSure 5 in Q1 and really created some momentum with that enhanced product and saw a nice rebound, but still not at the '19 levels. But again, a nice rebound. MyoSure really partners with Acessa, and so we're seeing some synergies there, where MyoSure treats smaller fibroids, 0 to 2; Acessa, 2 to 6. And so you can have, in 1 procedure, a patient having the Acessa and the MyoSure to deal with fibroids. And now a fibroid is less elective, the treatment of those, because oftentimes, the woman is symptomatic, right? Or there's fertility issues in MyoSure. And certainly then has been organic. Our R&D pipeline and our fluid management and some of our scopes that we've launched over the past couple of years continuing to do well in that recovery. And then we're excited to see what Boulder will do once we get that product into our sales force's hands.

Okay. Perfect. And then, yes, maybe on the balance sheet again. One of the big benefits of COVID is obviously the cash flow. The cash is very real coming in the door. You guys have done a handful of acquisitions. Maybe start with that in terms of the acquisitions talk through some of the impact. They are higher growth, right, lower margin, which we obviously covered. What's the right way to think about the growth profile of that acquired revenue? And then maybe we can jump to kind of some future plans after that.

Yes, sure. So I mean, I think in this -- COVID allowed us to accelerate our capital allocation strategy. It had been prior the pandemic, focus on the free cash flow, priority of tuck-in M&A and share repurchase. And the COVID cash has allowed us to just accelerate that and then the number of deals that we've done as well as cast a wider net and the ability to take on some dilution maybe prior to the pandemic, we wouldn't have been able to take on. So that's what's really changed. And I think you feel confident that the -- that, that acquired revenue is going to be accretive to the corporate average from a revenue growth profile, likely in double digits, close to 20% again for the next several years. So feel really good about that and focused on the bottom line as well. How do we get the operating margins where we need it to be and be a nice contributor over the next couple of years.

Yes. Yes. And maybe on the future plans, I mean, we always get asked how big will they go in terms of a deal? So maybe, I guess, what parameters do you look at to your point, maybe, again, COVID cash allowed you to soften a little bit on some metrics like dilution. I guess, where do you stand today in terms of what you look for in a deal? What are the key parameters? And then maybe we can think a little bit about size, how big you guys would go.

I don't think the overall mindset of our strategy has changed. Tuck-in M&A, that is growth accretive on the top line; that is a close adjacency; or there's a clear synergy, for example, the sales force. The surgical is a great example in that. That is our largest sales force, right? So what more can we put in that bag that's being sold to the OB/GYN. So the strategy hasn't changed. I think to the point I made earlier, what's changed is our free cash flow. So I think what we're also seeing, though, is we've done a number of smaller acquisitions. And the integration activity is actually probably a little more than if we bought a smaller public company, right? Because it's not just the financials, it's more of getting them up to our back office procedures, getting them up on regulatory, quality operating procedures that we are accustomed to. So there's a big lift there often. So we might look a little bigger. So maybe it's the Mobidiag size a little plus, but nothing that would be a fourth leg of the stool. I mean, again, we're focusing on those adjacencies, points of leverage, points of expertise, you know the customer, et cetera. So that's how we're thinking about it. It's still not in terms of free cash flow, but cash flow is obviously bigger to the ability to do a little bigger and may be able to integrate more smoothly as well.

Okay. That makes sense. And I guess, in terms of priorities, is M&A kind of the big priority? How aggressive should we think you are versus, again, letting whether it's cash build, or share repos, -- maybe just talk through kind of the priorities and the urgency or lack thereof.

Yes. To me, I think it's about being disciplined, right? I mean that's the most important. I think in regards to M&A. M&A is the priority, but disciplined in the targets that we go after as we move forward. So we will -- there'll be continued part of the strategy could be a little bigger, but we're not going to do anything sideways, continue to be disciplined in our approach and feel good about the balance sheet and our ability to do bigger deals, where they get to really make sense.

Okay. I think we're up on time, Karleen. I really appreciate it. This was a great overview, and we'll talk soon. Thanks so much.

All right. Great. Thank you, Patrick. Take care.

Take care.

Bye.