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

Good afternoon, everyone. Welcome to Bank of America's 2023 Healthcare Conference, coming to you live from the Encore in fabulous Las Vegas. I'm Derik De Bruin, the Senior Life Sciences and Diagnostics Tools analyst for Bank of America, and it's my great pleasure to welcome Steve MacMillan from Hologic, Chairman, President and CEO. Steve, welcome. Thank you for making the schlep out here.

Thanks for having us, Derik.

And appreciate it. Always a pleasure to see you. So...

Say that like you mean it.

Steve, it is always a pleasure to see you. I mean that sincerely and deeply. And so -- so let's -- do you want to make any opening remarks or -- about the quarter that you've heard last week? Or do you want to just jump right into the Q&A?

Yes. We'll make a slightly bigger comment than just the quarter, if I could, for 1.5 minutes or so. But I think for those of you who haven't watched Hologic over the years, what I'm really proud about that you're seeing in the quarters right now is actually the result of years of years of transformation. And for those of you dialing it back, right, in the 2013, '14 time period when I came in, I call the Carl Icahn chapter. We had him involved, and we're working through that. And I was purging the management team, and we really had to rebuild the company. There was no pipeline. And frankly, most of the leadership needed to change out. Then as soon as we got things going a little bit, there was a big concern about the breast health cliff because we had the breast health business going, and every investor meeting was filled with, yes, but what about the cliff? It's going to fall apart. Breast health is going to fall apart. It didn't. We said we were going to make it more sustainable. The next thing became concerns about international wealth. You built the U.S. business, but international is lousy. So what are you going to do there? And then we got international going. Then we did the Cynosure deal, not one of our brightest. We did also divested Blood Screening, which I think was a really good deal. Cynosure was not. That was an overhang. And by late 2019, I think all the work on the pipelines, the teams, all the businesses were ready to kind of blossom, and then COVID hit. And I'm remarkably proud of what this company did in COVID time. Because I've been in the office every single day alongside our people who are making our COVID tests, and it really was us and Roche as the 2 world leaders that provided more molecular tests than any other company on the planet. We came when the world needed us. And by the way, that has strengthened us financially. But that also created so much noise in trying to figure out what our company looked like. Because every time COVID spiked, some of our -- our base molecular business would go down, our surgical business would go down because hospitals were shifting resources. So what we realize is over the last few years, it's been very complicated for people to see what was this fundamental strengthening that was happening through the years. And then just as we're starting to come out of COVID, we have the chip shortage. And so we've been dealing with that in breast health. But fundamentally, the way I look at it is going into 2020, we were so much stronger than we were in 2014. But because of what we did over the last few years, in 2023, we're so much stronger than we were in 2020. And now as the COVID is going away and the chip shortage is getting behind us, I think to your point on the last quarter, I think the last few quarters, hopefully, people are really starting to see it when you look under the numbers. Particularly our surgical business and our core diagnostics business really over the last 4 quarters have been remarkable. So we love where we're going today. We've never been stronger. And not to mention the balance sheet and everything else that we have going. Got an incredible team, and it's taken a lot of work to get here, but I love where we're headed at this point.

No, absolutely. I mean I think when we initiated coverage back in 2015, it was a 3% to 5% grower sort of at the time, and there was a lot of concern. And we had a lot of this, and we sort of thought the same thing. But that sort of then begs the point. I mean you raised the guide to 5% to 7% last year?

Yes, during -- in COVID time.

In COVID times. Yet your business has been growing low double digits this year, right? And you've had some -- as you pointed out, surgical has been a real standout.

Solid low double digits.

Solid low double digits. Yes, very solid low double digits. But it sort of asked the question of like what's the future look like as we sort of come after this. Because you're still getting some tailwinds from breast catching up. You -- skeletal does not grow like this.

No, skeletal does not.

And the core diagnostics business, there's still some question on what the utilization rates you're going to get there. So why is 5% to 7% the -- right? Or is that just a holding pattern until you feel comfortable raising that?

Well, we did it in COVID time to really try to get people because everybody was so distracted with COVID up and down. We were trying to say, what are we in? We knew we were so much stronger. So our surgical business, a, from both internal innovation as well as the fact we were able to pick up a couple of other products during COVID time, we could see ourselves getting to a faster growth rate. And we thought, okay, let's put out there a 5% to 7% for really the next 3 to 5 years because we feel like that will get people understanding we're not that 3 to 5. In fact, obviously, in the very near term, we are delivering well above that. But we're still going against some funky comps and other stuff that we want to weed out. But I think we feel so good that every business in every geography is growing at a much better clip. I mean if you look at our molecular business, over the last 4 quarters, I think we've had 3 of the 4 have been over 20%. Our surgical business has been a double-digit grower now for the last 3 quarters and really 25% this last quarter. So now we're thinking about -- obviously, we're going to be jumping on top of that. We get some questions about should we raise the guidance to 5% to 7%. I'm looking at it, we're now going against off of a much bigger base. So to do that is going to be even more impressive from where we are.

Got it. Okay. How much of a tailwind has price been in sort of some of the growth right now?

Very little. I would love to be one of those companies, like the consumer companies, that seem to be passing along 10% and 11%, the McDonald'ses of the world and everything else. But at the end of the day, because a lot of our pricing is contracted and everything else, it's surprisingly little in price. Now the positive that I view it is it's volume, right? We are really, really driving so much better utilization and volume around the world.

And I mean there was such a tight capacity, and people were so desperate to get diagnostic platforms during COVID. Did people -- I mean what sort of contracts have they taken? Are some of those contracts rolling over at some point? I mean were they taking 3-, 5-year contracts and then agreeing to buy products, and those are going to roll over and there's going to be some price? I'm just curious what this...

It varied. And I'm -- frankly, I'm really proud of -- for those of you who are the long-term shareholders who know our values, I'm really proud of the way we approached COVID. And I was telling this story to somebody last night, that during COVID time, every customer, both in the United States, but also every country, I had notes from the Prime Minister of New Zealand, everything else, right, every Prime Minister, President across Europe and everything else asking us to provide what they needed in COVID, not to mention the customers in the U.S., right, every hospital system, every lab system. And what we were very careful -- and we literally had daily calls to allocate our volumes. And when customers say -- a country said we need 300,000 tests a week, we looked at everything and we said, we're going to try to take care of everybody as much as we can. And we capped, and we told people, look, we can only give you 200,000. And we lost a lot of business very early in the pandemic because other companies promised they could meet 100% of the demand. And I can tell you, every single country that passed us and every single customer that passed on us all came back to us. And they appreciated that what we committed to, we then delivered. So what we ended up in a situation, we tried to balance short and long term. Candidly, we could have sold everything in the world, just to question Labcorp at 1 point in time, but we didn't because we wanted to strategically strengthen our business around the world. And so we inked some longer-term contracts with some of the European countries and everything else. And so what we try to do in everything is respond in the moment, but with an eye to the future. And so at this point, most of the contracted business is pretty well gone. But we put all those Panthers in, and they are now getting picked up on -- they're now picking up our other assays as the COVID revenue comes down.

That's a great segue. That's where I was actually going to go next in terms of what is utilization right now of additional tests on the platform and -- on Panther and where can it go, right? I mean how many people are doing STDs or like this in viral and like this...

I brought a cheat sheet, if you pardon me. So I'm not going to answer your -- the specifics. I'm going to give you the last 4 quarters growth rate of our molecular business, excluding COVID, okay, this is a big business, last 4 quarters, 22.4% growth, 17.2% growth, 24.5% growth, 23.9% growth, the last 4 quarters. So people keep trying to figure out, okay, are these Panthers mothballing? How many Panthers are running x number of tests? At the end of the day, the way we think about it, I don't think about it down to that level of I'm not trying to build a model, we're trying to run a business. And so what we're seeing is dramatic uptake of new customers shifting over from all that COVID revenue to adopting our menu, and we're seeing it around the world. Those growth rates were even faster outside the United States than inside the United States. So it's broad-based customer adoption is what we're seeing.

Got it. Let's switch gears to it and let's talk about breast health. I guess let's start with the news today. So since that -- I wasn't expecting that would help fortuitous. So that came out. USPSTF, looking about lowering the age from mammography screen. How do you sort of think that plays out?

I think the biggest issues that I look at and for us as a company that advocate for women's health, it's a massive step forward that really undoes a step back. What people forget is in 2009, and then it was filed in 2016, the USPSTF raised the screening age from 40 to 50. Now most of the medical practitioners, and frankly, a lot of the insurers didn't necessarily go along with that because of that. Now the most recent revelation that came out today, for those of you who haven't seen it, is they're going back to we need to start screening at 40 because lo and behold, what happened since they made those recommendations, the incidence of breast cancer is going up in women in their 40s. No kidding. You'll notice, and I'm not a big fan of USPSTF, as you can imagine, that organization, that, by the way, did not even have a radiologist on it when it made some of those recommendations, and frankly, I think deprioritizes women's health relative to men's health. So what we're really doing is undoing a problem. So I think, again, it's going to be positive for women's health. It will be positive for our business. It plays out over time. I mean poor Ryan, we're getting questions 2 minutes after the news broke this morning. Okay, wait, are you going to sell more gantries this quarter?

Yes. I already got those myself.

Right? It's like, folks, relax. You know what, this is going to be good for women. It's ultimately -- probably be good for our biopsy business as well with more screenings and then more detections. But I think the biggest part for us is it's a validation that buried within that, they're also talking about the fact that the newer technologies, which is really us, are doing a much better job of catching early-stage cancers and reducing false positives, which is, therefore, leading -- in the old days, they kind of said, well, we're catching false positives. That's leading to unnecessary biopsies. So let's raise it. Well, the whole thing that we brought to the market with 3D made that concern go away.

So you mentioned USPSTF, and obviously, there's a judge in Texas that took exception to some of the commentary there. So how does that whole thing do you see playing out? I mean to your point, I mean we got questions on that immediately where like, look, that's going to take years to play out about this. But what sort of do you think of this? And...

This is the [indiscernible] thing that -- yes. The way I view the federal judges and this kind of stuff moving back and forth, I think it will take care of itself over time. And we don't think it's going to have much of an impact, because at the end of the day, I think common sense will prevail. And at the end of the day, screenings are going to happen. Anything that obviously tries to take screenings away, it's going to be a problem. I think the positive that we do have going for us, even with some of the questions around Pap and HPV primary, those sort of things, most of the kind gynecologists and the key physicians of the country know what has worked for their patients. And it's why even when the USPSTF raised the guidelines to 50, a lot were still advocating, hey, I still think you should be getting your mammogram every year starting at 40 or at least every other year starting at 40. So I think common sense among the physician community is usually our best friend.