Hologic Inc

NASDAQ:HOLX

Earnings Call Transcript 2021-Q4

[Operator]

Good afternoon and welcome to the Hologic's Fourth Quarter 2021 Earnings Conference Call. My name is Sara and I am your operator for today's call. This conference is being recorded.

I would now like to introduce Mike Watts, Vice President, Investor Relations and Corporate Communications, to begin the call. Please go ahead sir.

[Michael Watts, VP of IR and Corporate Communications]

Thank you, Sara. Good afternoon and thanks for joining us for Hologic's fourth quarter fiscal 2021 earnings call. With me today are Steve MacMillan, the company's Chairman, President and Chief Executive Officer; Karleen Oberton, our Chief Financial Officer; and Ryan Simon, our new Vice President of Investor Relations. Our fourth 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 today. A replay of this call will be archived through December 3rd.

Before we begin, I'd 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 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, which we define as constant currency revenue excluding the divested Blood Screening business and revenue from acquired businesses owned by [indiscernible]. Finally, any percentage changes we discuss will be on a year-over-year basis and revenue growth rates will be in constant currency unless otherwise noted.

Now I'd like to turn the call over to Steve MacMillan, Hologic's CEO.

[Stephen MacMillan, Chairman, President and CEO]

Thank you, Mike, and good afternoon, everyone.

We're pleased to discuss our strong financial results for the fourth quarter of fiscal 2021. Revenue was $1.32 billion and non-GAAP earnings per share was $1.61, both figures significantly exceeded our guidance. Since this quarter marks the end of our fiscal year, we want to highlight some annual numbers and themes today.

First, the numbers. For the year, total revenue was $5.63 billion, up 47% versus 2020. Non-GAAP EPS was $8.41, more than double the prior year. Some really big numbers and a truly impressive performance that was driven by our COVID test sales, as well as the recovery of our core women's health businesses.

Along these lines, if you back out COVID test sales as well as revenue from COVID-related products, such as instruments and collection kits, we grew about 12% in the quarter, a very nice start versus the long-term guidance of 5% to 7% that we introduced in our last call.

We believe we are well positioned for success regardless of the future direction of the pandemic. If it drags on, we have shown that we can respond aggressively and generate financial upside. For example, since the beginning of the pandemic, we have provided more than 130 million highly accurate COVID tests to our customers in more than 50 countries. And when the pandemic subsides, we can rely on a base business that has never been stronger or more diversified than it is today.

Now let's turn to those annual themes. We want to focus on the strengthening of our major businesses over the last 12 months, as well as 2 very important social initiatives that help improve health access and equality. We're so proud of everything that Hologic has done to help fight the COVID pandemic. And the resulting financial success has made us a significantly stronger company for the future.

Our core businesses are more diverse with more growth drivers than ever before. Our R&D pipelines are producing innovative new products and our commercial organizations are fully engaged. And our international business has emerged as a consistent growth driver with passionate teams on the ground who are building relationships and market presence all around the world.

On top of all this, we have used the strong cash flow we are generating from COVID test sales to acquire companies that we expect to generate more than $150 million in revenue in 2022. Although these acquisitions are slightly dilutive to near-term EPS, we expect them to accelerate our top line growth rate.

Now let's get into the specifics by division. First, in Diagnostics. Our Panther footprint continues to grow as we respond to the pandemic. In our fourth quarter, we placed 167 Panther instruments worldwide and about 650 for the year, well ahead of what we originally forecast. Our Panther installed base currently stands at more than 1,500 in the United States and almost 2,900 worldwide. Remarkably, this represents a 2/3 increase in our total installed base since the end of fiscal 2019, when we had about 1,700 instruments in the field.

And looking forward to 2022, we continue to see strong demand for additional placements globally. Utilization of this growing footprint and leveraging our robust portfolio of 19 assays will be key to driving the business forward in a post-COVID world. Toward this end, in 2021, we signed up more new assay business in the U.S. than ever before.

While our legacy women's health assays are leading the way, we also expect newer assays to make material contributions. For example, sales of our vaginosis panel almost doubled to nearly $30 million in 2021. We expect significant growth in 2022 as well, which would make this product our most successful diagnostics launch ever, aside from COVID.

In addition, we completed the back to back to back acquisitions of Biotheranostics, Diagenode and Mobidiag in 2021, our first diagnostic acquisitions in nearly a decade. These deals are broadening our product offering and customer base and strengthening our R&D capabilities around the world. While still in the early innings, Biotheranostics continues to exceed expectations with sales of more than $16 million in our fourth quarter.

In addition, the broad European launch of the Novodiag system represents a meaningful early achievement in our integration process, and we have already secured some encouraging customer wins. We are excited about opportunities to invest in these businesses in the near term and expect them to accelerate our top line growth in the years to come.

Second, in Breast and Skeletal Health, we are well positioned for fiscal year 2022 and beyond. Our Genius 3D mammography systems remain the core of our business, and our market share remains very high. Despite COVID pressures, we placed almost 950 3D units in the United States in 2021. We now have a domestic installed base of almost 8,700, which we can build on with new software and hardware upgrades.

At the same time, our business is now more balanced than ever as we operate across the entire continuum of breast health care; from screening and diagnosis through surgery and treatment. As a result, we are now less susceptible to the boom and bust cycle of years past and better able to capitalize on opportunities as demand continues to recover from the headwinds created by the pandemic.

Third, in our Surgical division, we are executing on our plan to broaden the division from a two-product hysteroscopy business to a more diverse provider focused on the OB/GYN.

In fiscal 2021, we broadened our portfolio by having Acessa, a laparoscopic fibroid removal system used to treat larger, more complicated fibroids that MyoSure cannot reach. We are pleased that insurance coverage for the Acessa procedure has steadily expanded. And with this tailwind, we expect to grow Acessa into a third important surgical brand alongside MyoSure and NovaSure.

Taking another step forward, we are also very excited about the recent signing of an agreement to purchase Bolder Surgical, which offers additional laparoscopic devices. We expect this deal to close later this calendar year. Bolder offers a portfolio of advanced energy vessel sealing surgical devices currently marketed primarily in the pediatric space.

Once the deal is closed, we expect to again leverage our strong customer relationships to grow Bolder sales in the OB/GYN market, which we estimate to be five times the size of the pediatric market.

Bolder and Acessa represents solid examples of executing against our tuck-in acquisition strategy, using our strong cash flow to add products that leverage our existing channel strength and accelerate our growth.

Fourth, let's discuss our international business, which was growing nicely before COVID, but has become even stronger, thanks to our pandemic contributions. Even excluding COVID, our international revenue has nearly doubled in just five years. And the business is positioned to continue its impressive strength of double-digit core growth.

I recently had the pleasure of being with Jan Verstreken's leadership team in Dubai, as they made plans to kick off fiscal 2022. It was inspiring to see the deep talent that Jan has assembled and the passion for women's health that helps them build and strengthen commercial relationships. I saw business benefiting from tremendous leadership and from years of dedication, transitioning from a distribution model to direct on-the-ground commercial expertise.

Further, the acquisitions of Diagenode, based in Belgium; Mobidiag based in Finland; and SOMATEX, based in Germany provide tailwinds to our international business going forward. Since the close of each deal, dozens of team members, including technical experts and leadership, have made numerous trips across Europe and across the Atlantic to ensure successful integration of these companies, all while dealing with strict COVID protocols, truly a global collaborative effort that we expect to accelerate growth for years to come.

Now, let's shift gears and discuss two groundbreaking social initiatives that we launched this year and that were made possible by our financial success. These efforts represent unique ways that we can extend our purpose, passion and promise even further for the benefit of women's health.

First, in May of this year, we launched Project Health Equality, a $20 million initiative to address the structural and cultural barriers that prevent black and Hispanic women in the United States from receiving the same quality healthcare as white women.

By teaming up with leading non-profit groups focused on minority health, our goals are to drive culturally competent care, improve public health policy, increase access and ultimately decrease disparities that lead to disproportionate mortality rates for Black and Hispanic women.

Second, in September, we released the findings of our inaugural Hologic Global Women’s Health Index. As leaders in diagnostics, we understand the importance of data and know that what we can measure, we can improve. We also know that women's health has been overlooked for centuries.

That's why we created the index. The first, to statistically represent the health of 2.5 billion women and girls worldwide. Developed in partnership with Gallup, the Hologic Global Women's Health Index is an unprecedented in-depth examination of critical markers for women's health by country and territory and over time.

Notably, 60% of those surveyed, equating to about 1.5 billion women and girls, had not been tested in the last year for four common diseases that affect women's health: cancer, diabetes, high blood pressure and sexually transmitted infections.

As we share this kind of data with international leaders and health organizations, our goal is to provide an actionable, science-backed data road map for improving life expectancy and quality of life for women around the world.

While we have made a tremendous impact around the world with our innovative products, the Hologic Global Women's Health Index may ultimately prove to be our most important accomplishment for women's health.

We hope that sharing a little about these initiatives is helpful to all our investors, but especially those who are focused on ESG issues. We also are pleased to share that we recently received some recognition for our efforts as Investors Business Daily just named us one of their top 100 ESG stocks.

Before I turn the call over to Karleen, let me wrap-up by saying that based on the stabilization, growth and diversification of our core businesses. We expect to grow revenue at least in line with our 5% to 7% long-term guidance in 2022. And on top of this, we have the potential for significant financial upside based on our sales of COVID tests.

To state the obvious, our success in 2021 and our optimism for 2022 would not be possible without our 6,000-plus employees. I am incredibly proud of them for their continued dedication and resilience. In a year marked by day-to-day, hour-by-hour management of highly variable pandemic demands, Hologic continues to make an enormous impact on humanity.

As I visit Hologic sites and talk to employees, the sense of pride, morale and engagement is palpable. The belief in our mission to enable healthier lives everywhere, every day is real. I personally have never been more proud or excited for our organization.

As a reflection of our global leadership team's gratitude, in the fourth quarter, we provided all our employees a special onetime cash bonus regardless of function and level. In an environment where finding and developing talent is increasingly challenging, we've strengthened our talent across all levels of the organization with individuals who embody our purpose, passion and promise. To all of you around the world, thank you.

Now let me hand our call over to Karleen.

[Karleen Oberton, CFO]

Thank you, Steve, and good afternoon, everyone.

We are very pleased to share our fourth quarter results that significantly exceeded our guidance. In our last earnings call, we said that while we were forecasting conservatively, we were well prepared to generate upside if COVID testing demand increased due to the Delta variant. And that's exactly what happened. Increased COVID test sales in the fourth quarter more than compensated for macro headwinds that have affected many med tech companies recently.

Our fourth quarter performance demonstrates that we are in a strong position regardless of how COVID evolves. We benefit from our invaluable testing contributions as the pandemic drags on or from a strong base business when it wanes. In the fourth quarter, revenue and EPS were down compared to the prior year, when COVID-19 testing volumes will be near their peak. Total revenue of $1.32 billion declined almost 3% and 6% organically.

But these figures mask the solid recovery of our base businesses. As Steve said, if you back out COVID assay revenue as well as collection kits, instruments and ancillaries that are shared by our COVID and other tests, revenue grew by 12% organically. This growth, which compares favorably to the 5% to 7% long-term guidance we provided last quarter, was driven by resilience across all of our divisions despite utilization pressures from the Delta variant and customer staffing shortages.

EPS of $1.61 in the fourth quarter was down 22% compared to the prior year as expected, but earnings exceeded the midpoint of our guidance by about 68%. Underlying this, our cash flow conversion remains tremendous, allowing us to continue pursuing tuck-in M&A and share repurchase, which I'll touch on 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 at times compare our results to both 2020 and 2019 as well as exclude the impact of COVID-19 where applicable.

In Diagnostics, global revenue of $8 36.8 million declined 11.5% compared to the prior year. However, excluding COVID assay sales and related items, worldwide Diagnostics revenue increased 5%. Although COVID testing revenue declined compared to the prior year, it still far exceeded our expectations as the Delta variant started throughout the quarter.

In Q4 2021, we shipped about 21 million COVID tests to customers, generating assay revenue of $443 million globally. Demand in the United States was robust and represented about two-thirds of total COVID assay revenue. This dynamic highlights the breadth of our Panther installed base, our commitment to respond to customer needs, and our flexibility to capture testing demand wherever and whenever it occurs.

To better understand the underlying performance of our non-COVID molecular business, I will again exclude COVID assay sales and related ancillary items. If we do this, we see that the base molecular revenue grew about 6.5% organically in the fourth quarter. Compared to the same quarter of 2019, molecular grew about 10%.

Rounding out Diagnostics, cytology and perinatal grew 3% compared to the prior year. But compared to 2019, these businesses were down low single-digits as well-women visits have not yet fully recovered from the pandemic.

In Breast Health, global revenue of $334.2 million grew 15% as the business rebounded from weak prior year period and showcased its increasing diversity in face of the latest Delta surge. Global breast imaging and interventional businesses increased with imaging growing 12% and the interventional up 27%.

Furthermore, our strategy to increase recurring revenue continues to pay off as global service revenue was approximately 40% of the division's total in the quarter, nearly twice as large as global gantry sales.

In Surgical, fourth quarter revenue of $122 million grew 21%. This strong performance was driven by MyoSure, which had another impressive quarter, growing in the mid-teens. While surgical procedures were depressed in August and September, the impact was far less than what we experienced at the beginning of the pandemic. In fact, compared to 2019 levels, Surgical was up mid-single-digits. Further, we continue to add products to the bag of our best-in-class sales force. The acquisition of Acessa and agreement to acquire Bolder set us up nicely for fiscal 2022 and beyond.

Lastly, in our Small Skeletal business, revenue of $23.6 million increased 26% compared to the prior year period and mid-single-digits compared to 2019. Now, let's move on to the rest of the P&L for the fourth quarter. Gross margin of 69.4% exceeded our forecast, driven by higher-than-expected COVID-19 test volumes in the period. Compared to the prior year, gross margins declined 480 basis points.

Total operating expenses of $353.2 million increased 28% in the fourth quarter. The recent acquisitions contributed about a third of this increase. In addition, we deliberately reinvested for future growth with incremental spending in R&D and marketing, spent $9 million on the one-time employee bonus that Steve mentioned, and made a $10 million donation to our charitable fund in the quarter.

Finally, our non-GAAP tax rate in the quarter was 21.5%, consistent with prior periods. Putting all this together, operating margin declined 1,120 basis points versus the prior year period, but came in above our forecast at a very healthy 42.5%.

Net margin also declined 880 basis points, but was very strong, 31.6%. Non-GAAP net income finished at $415.7 million and non-GAAP earnings per share was $1.61, far above the top end of our forecast.

Before we cover our 2022 guidance, I'll touch on a few other financial metrics. Cash flow from operations was $465 million in the fourth quarter. This completed our best ever cash flow year as we generated more than $2.3 billion of operating cash in 2021.

The strong cash flows continue to give us tremendous financial and strategic flexibility. For example, in the fourth quarter, we agreed to acquire Boulder Surgical for $160 million. And although we did not repurchase any shares in our fourth quarter, we have bought back more than one million shares so far in the first quarter of 2022.

Finally, I should mention that we recently refinanced our credit agreement. This further strengthened our balance sheet and financial flexibility by extending the maturity date to 2026, increasing our revolver borrowing capacity to $2 billion and lowering our borrowing costs.

Based on our strong operational performance, we had $1.17 billion of cash on our balance sheet at the end of the fourth quarter, and our leverage ratio was 0.6 times. We intend to continue using our cash on division-led tuck-in acquisitions and share repurchases that improve our top and bottom line growth rates.

Finally, ROIC was 32.6% and on a trailing 12-month basis, a significant increase of 1,410 basis points. Before we open the call for questions, let me discuss our financial expectations for the first quarter and full year of fiscal 2022. Although the pandemic remains highly unpredictable and we are not immune from the supply chain challenges you've been hearing about, we believe we have good visibility into the recovery of our base businesses as well as a valuable hedge to COVID-19 outbreaks with our testing revenue.

In the first quarter of fiscal 2022, we expect strong financial results again with total revenue in the range of $1.1 billion to $1.15 billion. For all of fiscal 2022, we expect total revenue in the range of $3.75 billion to $4 billion, significantly exceeding our pre-pandemic sales.

To help with your constant currency modeling, we are assuming foreign exchange headwinds of approximately $2 million in the first quarter of 2022 and $25 million for the full year. In terms of our divisions, we expect Breast and Skeletal Health, Surgical and Core diagnostics, excluding COVID effects, to grow in line with the 5% to 7% guidance we provided last quarter.

In Diagnostics, molecular should continue to lead the way based on our larger Panther installed base, uptake of new assays like our vaginosis panel, international expansion opportunities as well as the recent change in chlamydia, gonorrhea screening guidelines that supports opt-out testing.

In Breast Health, we have quietly been adding multiple growth drivers through acquisitions and breast conserving surgery, ultrasound and specimen radiography as well as internal development of software and hardware upgrades. Further, we have significant opportunities to expand our 3D installed base and service business internationally.

Finally, in Surgical, we expect MyoSure to continue to drive growth but to get help from a broadening portfolio of products such as Fluent and Acessa's ProVu. Boulder is not included in our guidance because the deal has not yet closed.

In terms of COVID assay sales, let me remind you that in the last 12 months, we have seen testing demand increase rapidly then decline rapidly, then increase rapidly again. Said another way, demand remains unpredictable and a lot can change between now and the end of our fiscal '22. So we continue to forecast conservatively and strong base business. But we will act aggressively to meet testing demands when and where it arises.

With this perspective, we expect COVID assay sales to be at least $200 million in the first quarter of 2022 and at least $300 million for the full year. COVID-related items in Diagnostics are expected to be approximately $45 million in the first quarter and at least $120 million for the full year. Finally, COVID has given us the opportunity to discontinue certain older products in our Diagnostics franchise. We expect a headwind of about $11 million from rationalizing these products in 2022.

Let me remind you that our organic guidance backs out acquired revenue until the first full quarter after the deals annualize, as well as revenue from our divested blood screening business. We expect blood screening revenue of $5 million to $6 million in Q1 and $20 million to $25 million for the full year. In total, we are backing out roughly $100 million of inorganic revenue for the year, which means that we expect organic revenue to decline 34% based on lower sales of COVID tests.

However, to appreciate the underlying growth of our base women's health franchise, it's important to back out of organic revenue COVID assay sales related ancillary items and the small amount of SKU rationalization that I mentioned. On this measure, we expect revenue in 2022 to be at least in line with the 5% to 7% long-term guidance that we provided last quarter.

Moving down the P&L. For the full year, we forecast our gross margin percentage to be between 63% and 65% and our operating margin percentage to be in the low to mid-30s. We expect both percentages to decline sequentially throughout the year since the vast majority of COVID testing revenue will likely be recorded in the first half of 2022.

In addition, we have incorporated some inflationary pressure in our supply chain into our guidance. Despite this, for the full year, both growth and operating margins should be better than before the pandemic. In terms of operating expenses, we expect spending to be flat to down slightly versus elevated levels in 2021, even as we absorb cost increases and continue to invest proactively in our acquisitions and our base business to drive future growth.

Below operating income, we expect other expenses net to be a little less than $25 million a quarter. Our guidance is based on the tax rate of 21.5% and diluted shares outstanding of around 260 million for the full year. All this nets out to expected EPS of $1.15 to $1.25 in the first quarter and $3.55 to $3.85 for the year. As you update your forecast, let me remind you that macro uncertainty due to the pandemic is still high. We would therefore encourage you to model at the middle of our ranges, which incorporate both potential upsides and downsides.

Let me wrap up by saying that Hologic posted a strong end to our fiscal 2021 with the results in our fourth quarter that far exceeded expectations and guidance. With organic investments in multiple acquisitions, we are emerging from the pandemic as a stronger company with core topline growth rates of 5% to 7% and potential upside from COVID.

With that, I will ask the operator to open the call for questions. Please limit your questions to one plus a related follow-up, and then return to the queue. Operator, we are ready for the first question.

[Operator]

[Operator Instructions] And we will take our first question from Brian Weinstein with William Blair.

[Brian Weinstein, William Blair]

Thanks for taking the question. I don't usually believe in public accolades for management team members on these calls. I don't think I've done this very often, but I just want to thank Mike for his work and his friendship over the last 14 or so years that we've worked together, going back to GenPro. Lots of history there. Enjoy your retirement. You've certainly heard it, Mike.

[Michael Watts, VP of IR and Corporate Communications]

Thanks Brian.

[Brian Weinstein, William Blair]

Yes, of course. So, just to think about 2022 for a second, then I also want to ask a bigger macro question. But on 2022, Karleen for you, just want to kind of understand the core operating margin. I wasn't sure if you mentioned it right there at the end. I might have missed it. But if we were to sort of back out COVID-19 from both, let's say, 2021 and 2022, how is that core operating margin expanding?

And what does that look like relative to pre-pandemic? Because it looked like on our method, operating margin may actually be coming down on the core a little bit. And I wasn't sure if that was acquisitions or other things that were there. So, can you just address kind of the trend in the quarter?

[Karleen Oberton, CFO]

Yes. So, certainly, acquisitions are dilutive. I think we've talked about at least $0.10 in 2022. I think when we look at the core, we would expect that the operating margin would be at or slightly above where we - prior to the pandemic. I think we've referenced that 31.5% right at Q2 2020 as what to think about on the base business.

But certainly, as we move forward, the acquisitions are dilutive. And while we're really pleased about the international growth, that is also dilutive to the operating margin profile. But certainly, our job is to continue to look for opportunities to drive efficiencies.

[Brian Weinstein, William Blair]

And then the inflationary pressures there, they are being offset or are those flowing through as well?

[Karleen Oberton, CFO]

To some extent, offset, but some of it's dropping to the bottom-line as well. As we always have initiatives to improve cost, but then certainly, those initiatives are at the pace of these headwinds that we're experiencing.

[Stephen MacMillan, Chairman, President and CEO]

Brian, the other piece to keep in mind is what we kind of called out as well, with additional charitable contributions, extra employee bonuses. It was our - as you can tell, it was our fiscal year-end. It was a tremendous year, dropping an extra $0.01 or $0.02 to Wall Street at this point on an 8 41 number. It was probably not our top priority versus investing for the future. And you look in total, our R&D spending up significantly over 20% for the year. We really used it to make additional investments for the future.

[Operator]

And our next question will come from Vijay Kumar with Evercore ISI.

[Vijay Kumar, Evercore ISI]

Thanks for taking my question. Steve, maybe on the Q1 on the guidance. Maybe I'll start with the queue. Breast Health, can you just talk about the CapEx environment? It looks like imaging was down Q-on-Q. I'm just curious if there was anything in the queue, whether it was the pandemic impact that had some disruption.

[Stephen MacMillan, Chairman, President and CEO]

Yes. Overall, we feel really good. There were clearly some impacts on installations here and there as hospitals hunkered back down a little bit in that August-September period. We continue to feel good about the backlog and feel good about the overall trends within that Breast Health business.

[Vijay Kumar, Evercore ISI]

One on the fiscal 2022 guidance, the underlying base is expected to grow 5 to 7, and I want to make sure I have these numbers correct.

The total COVID contribution for the year, I think the guidance is contemplating about 420, including 300 of testing and 120 of others. Did I get those numbers right? And Boulder, I'm curious what the contribution from Boulder is, what the revenue run rate is and margin is?

[Karleen Oberton, CFO]

Yes. So you have the 420 is correct, Vijay. There's no contribution from Boulder in the guidance as the deal hasn't closed.

[Operator]

Our next question will come from Tycho Peterson with JPMorgan.

[Tycho Peterson, JPMorgan]

First question, I'll stick with the guidance, Steve. Just as we think about Panther placements, do you think about being back to kind of pre-pandemic levels, call it, 190, 200 systems next year? And then, any rough guidance you can give us on pull-through versus the historical 240,000?

[Stephen MacMillan, Chairman, President and CEO]

Sure, Tycho. I think we continue to feel really good that we will not see a drop-off relative to historical placements on Panther's. And if anything, we'll probably do a little bit better than the number you just mentioned and therefore, probably a little bit better than even we've been doing the previous years going into it as global demand continues to be great.

The average dollars per Panther, it's all over the place right now because, obviously, we have COVID running through a bunch of them. I think the logical expectation is we'd probably be a little bit lower than that 240 number, given the incredible number we've placed. Also, a huge amount of them are outside - if you basically look at it on a base business basis.

I think what - with COVID, those numbers are going to continue to be good, but it's hard to predict for the full year, obviously, given where COVID will go. But I think what we love is they're out there, they're placed. We probably take a slight short-term dip on revenue per Panther in the short-term, while that continues to go up as they port our base assays onto those Panthers.

So I do think as you're getting to the overall number of Panthers we have placed has got to bode very well. And the other reality is, we're all seeing about labor constraints. Do not underestimate - again, I know you know it, Tycho. But the fact that Panther is such an automated system. And I know there's ongoing questions of, okay, what's going to happen with all these Panthers once COVID runs down? Most of our customers are dying to get our base business on to these and for those labor savings opportunities.

[Tycho Peterson, JPMorgan]

Okay. And then a follow-up on China. There's kind of two dynamics in the market there. There's China 2025, encouraging local competition. And then there's kind of the near-term dynamic around volume-based tenders. Can you maybe just touch on either both of those, and whether you're seeing any impact?

[Stephen MacMillan, Chairman, President and CEO]

Yes, I hate to say it, but I think we're a little fortunate in that we're pretty small in China and therefore, are not seeing big impact in the volume-based tenders, probably not coming quite after our categories at this stage in time. But I would tell you truthfully, it's a time I'm glad we're smaller there. We see opportunities to grow there, but we probably have more upside than downside as we look at that part of the world.

[Operator]

And our next question will come from Jack Meehan with Nephron Research.

[Jack Meehan, Nephron Research]

I wanted to continue on with Panther. It looks like just based on the disclosures, incremental Panthers in the quarter were placed internationally. Then just looking at some of Karleen's commentary around the U.S. versus international mix of the COVID sales. Most of the incremental sales actually came in the U.S., which kind of makes sense, I guess, because of the Delta. I was just curious maybe more broadly, you got thoughts around the international adoption of these Panthers. How much is getting used now for COVID and versus broadening the footprint for other things internationally?

[Stephen MacMillan, Chairman, President and CEO]

Sure. I think a lot of it in the near term has still been COVID. And even – there are a lot of hospitals and a lot of labs that even as they saw - started to see some declines pre-Delta, they were starting to ramp up our base assays and then decided we better stay loose. And so, I would tell you there's probably some Panthers being a little bit underutilized right now internationally because they don't want to start to ramp them up with our tests and then have to stop.

So we feel great about that as basically on deck and ready to go as soon as they have the ability. It's one reason why the Panther placements internationally have continued to be very strong because they've gotten the exposure and they want to build up with our tests.

So, I think feeling great that there has been - we've even had a number of customers in the United States as well that we're just starting in kind of July to start to ramp down the COVID, ramp up our women's health stuff. And then all of a sudden, time out, we want to keep this capacity for right now on COVID.

[Jack Meehan, Nephron Research]

That makes sense. Then on the Breast Health and the GYN Surgical businesses, they both came in a little below what I was expecting. I was curious if you could call out just what impact you think Delta might have had on the results in the quarter. And as you were thinking about the 2022 guidance, do you just – do you assume that was the baseline just when you were thinking about the 5% to 7% to grow off of?

[Stephen MacMillan, Chairman, President and CEO]

Yes. We did kind of view that in the baseline. They were a touch - obviously, as we saw the August, especially September, they had a little bit of an impact. Again, I think there's been way too much overall focus on the short-term ups and downs of COVID and what it does to the base.

But I think overall, we feel very, very good about that core and about where we're headed as we come into 2022 on both of those businesses. And as Karleen and I both mentioned, those businesses are more diversified than ever, both product-wise as well as geography-wise. And I think that sets us up well here for 2022 and for the longer term.

[Operator]

And next, we'll take a question from Anthony Petrone with Jefferies.

[Anthony Petrone, Jefferies]

And I want to congratulate the team on a strong execution for the whole year. And congratulations as well to Mike Watts on your retirement. Good luck on the next phase of the transition. A couple of questions. One on actually the acquisitions, the $34 million of total deal contribution. How much of that was actually Mobidiag? And when we think about a quarterly run rate, I think the timing of Mobidiag was not a full quarter. So, should we be expecting a number perhaps in the $40 million to $45 million range for total quarterly contribution from recently closed deals? And then I'll have one quick follow-up on COVID testing.

[Karleen Oberton, CFO]

Yes. So Mobidiag was roughly $7 million in the quarter. And so I think as we look to 2022, I think we talked about $150 million plus from all the acquisitions and about half of that is organic.

[Anthony Petrone, Jefferies]

Okay, great. And then just on the newly placed Panthers throughout the pandemic, I mean how many of those systems are actually only doing COVID testing exclusively? And at what point do you think they will transition to just broader diagnostic contracts? Thanks again.

[Stephen MacMillan, Chairman, President and CEO]

Thank you, Anthony. The reality is we don’t exactly know and track at that level of the Panthers. But what we do know is they've clearly been running, in many cases, not quite flat out, but close to it during the pandemic that all of which creates the opportunity as COVID ramps down for us to really shift over our base business.

So, I think that's what makes us so excited about the future of Diagnostics. We had good growth rates going in. Particularly internationally, you've been seeing - we'd had double-digit almost 20% growth in our molecular diagnostics business for the last few years and numbers of quarters as we come out of the pandemic or even as things slow down to a more manageable level, which looks to be hopefully on the horizon here. That creates meaningful opportunity for more and more of our base businesses to really get ramped up there.

[Operator]

And Derik De Bruin with Bank of America has our next question.

[Derik De Bruin, Bank of America]

Hi, good afternoon and Mike, happy trail. It's been a pleasure. So, just on - just once again, another Panther question, but how much is greenfield versus people just adding on additional molecular testing capabilities versus replacements of - or swap-outs from competitors?

[Stephen MacMillan, Chairman, President and CEO]

So you're talking to new customers, completely new customers?

[Derik De Bruin, Bank of America]

Completely new customers to - yes, completely new customers to testing that you've not been in the lab before versus people who have been doing molecular tests, who are adding systems or ones just beating out some competitor that's installed?

[Stephen MacMillan, Chairman, President and CEO]

Yes, the vast, vast majority, Derik, are customers that we've already been doing business with. When you consider our - just our market shares, as you well know in women's health, we're pretty much in most customers. There are very few customers, certainly in the United States that we're not in. So, it's really expanding their capacities. A few more greenfield outside the United States, which is new customers coming prospecting. But the vast, vast majority across the board really is our core business. Mike, you wanted to add something?

[Michael Watts, VP of IR and Corporate Communications]

Derik, the only thing I might add is we are seeing a lot of customers add on new assays, of course, right? So, customers for our, say, women's health panel today, call it, chlamydia, gonorrhea, HPV, but we're seeing a lot of excitement, in particular, around our vaginosis sale, which we the script as well as Amgen. So that's an existing customer, but they're bringing on a new assay or assays.

[Derik De Bruin, Bank of America]

And then just one follow-up. What are you assuming for breast imaging growth in 2022? And on the services component at 40%, is there additional upside to that number?

[Karleen Oberton, CFO]

Yes. I mean, I think the thing about that service is tied to our installed base in that as we even place new gantries. Now sometimes the replacements, they kind of come off a service for you, they have warranty. So, I would expect that the service would probably be a lower end of growth when I think about that division. But certainly, as I said in the prepared remarks, the overall division should be in that 5% to 7%.

[Operator]

Next, we'll take a question from Mike Matson with Needham & Company.

[Mike Matson, Needham & Company]

Thanks for taking my question. I guess I want to ask one about the COVID flu combined test that you've launched. So, do you see a scenario where if COVID, maybe we don't have another big wave, but we have kind of a worse flu season that you could still see kind of a benefit from that to that combined test?

[Stephen MacMillan, Chairman, President and CEO]

Yes. Mike, we're prepared - and when we said we launched it, we've had it cleared now, and it's ready to go for customers. We're still basically hearing from most of our customers. They want straight COVID test. As the months evolve here, do we start to get a bigger spike in that - the flu season?

Clearly, I do think that we believe as you go forward this year, and let's face it, probably even next year, most people that are going to get tested for flu are probably going to end up getting tested for COVID as well. So, we will see how it plays out. We're assuming relatively small volumes as it relates to our multiplex test at this point in time until it starts to materialize.

[Mike Matson, Needham & Company]

Okay. Thanks. That's helpful. And then, I just want to ask about Breast Health outside - can you just maybe give us an update on where things stand with 3D penetration? And because from what I remember, there was a much bigger opportunity there to upgrade customers to 3D and some of the other newer software and things that you've offered - or introduced, sorry.

[Stephen MacMillan, Chairman, President and CEO]

Yes. 3D is still very low penetration rates in much of the international markets. And frankly, it's something that we hope the Hologic Global Women's Health Index will actually be able to start to highlight a little bit more, which is many countries outside the U.S. are still only reserving 3D more for diagnostic mammograms as opposed to screening. And frankly, many still don't have great screening programs in general.

So we're able, ultimately through the Global Women's Health Index, I think to start to have more discussions about better screening programs, about the need for 3D. And the fact that 3D in many cases is economically advantageous over the longer term, particularly in single-payer systems, where the ability to detect earlier, treat earlier, avoiding all the false positives, the false call - the unneeded callbacks and all of that. So I think we remain very bullish over the longer term. It continues to be something that's going to play out over years, not quarters.

[Operator]

Next, we'll take a question from Tejas Savant with Morgan Stanley.

[Tejas Savant, Morgan Stanley]

Just a two-part around COVID to start with. Karleen, can you give us a sense of the impact on how we should think about pricing from the combo test launch? And the OUS mix here seems to have dipped sequentially in favor of the States? And what that means for margins?

[Karleen Oberton, CFO]

Yes. So certainly, from Q3 to Q4 with the Delta variant, we saw an uptick in U.S. testing. About 2/3 were from the U.S. versus last quarter, it was 2/3 OUS. So obviously, that's a little bit more favorable on pricing, so a little more benefit on the margin profile. And then what was the other part of the question?

[Tejas Savant, Morgan Stanley]

It was on the combo test and - yes.

[Karleen Oberton, CFO]

So certainly, that pricing would be favorable from the single test. But we've, to Steve's comments, really haven't assumed much related to that at this point given it seems like customers still just want COVID only.

[Tejas Savant, Morgan Stanley]

And then just a couple of quick ones on the recent deals. On Mobidiag, I mean, given the broader launch in Europe for Novodiag, Steve, how are you thinking about that installed base of 200 units expanding over the next 12 months or so? And then on Boulder, I think you called out sort of 5x higher LAP procedures versus the pediatric setting. So over what time frame do you think you can capture that opportunity?

[Stephen MacMillan, Chairman, President and CEO]

Sure. I think we're probably not ready to give exact numbers on Novo, but the initial sale is off to a good start. And we're just loving that acquisition so far. As it relates to Boulder, I think that will be a - clearly a multiyear journey to build up the market of that size.

But I think the magic for us with both Acessa and Boulder is, as you know, we've long targeted surgical as an opportunity to put more into those sales force's bags. And I'm really proud of the team, Sean Doherty and Dan Essex more recently running that division and finally starting to make some good deals happen for that business. And the sales forces are excited. And I think it will create a great runway for years to come here in the surgical business.

[Operator]

And our next question will come from Patrick Donnelly with Citi.

[Patrick Donnelly, Citi]

Thanks for taking the question guys. Steve, maybe just on kind of some of the macro uncertainty you talked about. Can you just talk about the different businesses? I know you guys have kind of that internal red light, green light for each segment, each region. Any segments that are maybe coming back a little slower than you expected? It certainly sounds like you're pretty confident on breast. But I just wanted to talk through the different segment recovery time lines and how you thought about those going into '22?

[Stephen MacMillan, Chairman, President and CEO]

Yes. I think the magic, Patrick, for the first time that I've been with the company, as we look at all 3 franchises and we look both domestically and international. So, if you just play that out in 6 buckets or 9 if you count U.S., international and then worldwide, they're all looking good in that 5% to 7% range, and there's not any major hiccups that are out there. So, I think we feel really, really as good across the board. There will always be a country here or there or a little business and those kinds of things.

But overall, it's probably been as solid across the board as we've seen. I think that's part of what really gave us the confidence, frankly, on the last call, we put out the 5% to 7% guidance because there's always been – there was a little more red lurking in the – on the horizon there than – it wasn't as green across the board as it looks now.

[Patrick Donnelly, Citi]

That's encouraging to hear. And then maybe just on the cash flow. You talked about over $2 billion in the year, another nice quarter here - exactly. And obviously, nice to see you guys buy back 1 million shares already this quarter. How should we think about your M&A appetite? Obviously, you've done a bunch of smaller deals, relatively small. But how should we think about your appetite there, continue with these bolt-ons? Any appetite for anything larger? Just wanted to talk through that.

[Stephen MacMillan, Chairman, President and CEO]

Yes. The appetite and the ability are certainly there financially as we look to continue doing tuck-ins. Just because we're generating a bunch of cash, doesn't mean, okay, we're going to start to go bigger, bigger. I can say the bigger things we're also thinking about right now is we're digesting a lot. So, there's also the organizational bandwidth. And right now, our international teams are incredibly busy.

Kevin's Diagnostics team and frankly, the Surgical teams are all very, very deep into a lot of integration activity. So, the other factor that would be in our minds is ease of integration. So, if anything, probably a slower pace this year than last year as we really make sure that we optimize what we did last year.

And as Karleen has mentioned, we're comfortable, continue to build a little cash here. We're not just going out and spend it because we have it. Karleen, do you want to build on that?

[Karleen Oberton, CFO]

Yes, certainly. I mean, Patrick, we're going to maintain our discipline as it relates to M&A and make sure that we certainly want to do well on the deals that we've executed so far. So that will be a little bit more of a flux in the focus. But certainly, the division still have their BD teams out there identifying assets and if we find the right opportunity, we'll execute on it.

[Operator]

And our next question will come from Max Masucci with Cowen and Company.

[Max Masucci, Cowen and Company]

Hi thanks for taking the questions. I want to extend congratulations to Mike. So, on Bolder Surgical estimated $10 million in calendar 2021 revenues are around 2% to 3% of the annualized surgical revenues in fiscal Q4. So, I know it's a small product line today, but given the multiple on the deal, I'd imagine that the growth is already solid with the potential to accelerate as it's cross-sold into the OB/GYN channel. So, with that in mind, is there any way to think about how quickly Bolder's products could penetrate the OB/GYN channel? Or what percentage of your existing OB/GYN customers would be adopters?

[Stephen MacMillan, Chairman, President and CEO]

Yes. We'll probably give more of that once we close the deal. We're still obviously in the midst of - we'll probably close at the end of the calendar year and probably be in a better position, Max, honestly, to answer it next quarter. But clearly, it is growing pretty nicely. They've gotten some nice products approved over the course of the last 12 months.

And we'll be very helpful in terms of the uptick. But it is - it's a new sale. It's going to take a couple of oftentimes one or two visits. And still, frankly, in some of these COVID constrained world, we want to manage our expectations upfront. We feel really good about the opportunity.

[Max Masucci, Cowen and Company]

Makes sense. And I appreciate the color on Mobidiag. If we just think about the initial pandemic disruption serving as an accelerant for Panther placements globally, are there any parallels to be drawn between what you could see for Novodiag in the decentralized setting in Europe following the launch in early October? And then just curious, the role of the AmpliDiag instrument in the context of also having Panther?

[Stephen MacMillan, Chairman, President and CEO]

Yes. I think the Novodiag and the launch going on there, I think that's going to be the big opportunity for us as we go into the smaller labs, a broader menu and already feeling really good. Obviously, it's CE marked at this point. It's still a few years away in the United States, but feeling really good to be a nice opportunity to really drive the international business in the nearer term on that and then ultimately a big play in the U.S. over time.

[Michael Watts, VP of IR and Corporate Communications]

Operator, I think we have time for one more question.

[Operator]

Thank you. And that final question will come from Ryan Zimmerman with BTIG.

[Ryan Zimmerman, BTIG]

Thanks for squeezing me in on the end here. I'll just keep it to one. And so, it's for Karleen. Given the COVID assay sales guidance, $200 million in the first quarter, $300 million for the year, let's just assume that, that's kind of how it goes right now. I understand that, that's a very conservative estimate, but it would suggest somewhat of a drop-off in gross margins quite rapidly, Karleen.

And so one - following the first quarter, I mean. And one is that the right way to think about it? But then two, how should we be thinking about the gross margin profile kind of net the assay contribution from COVID when we think about a kind of a post-COVID Hologic? Thanks for taking the questions.

[Karleen Oberton, CFO]

Yes. So certainly, I think we said in our prepared remarks that we would expect margins to come down sequentially throughout the year as the COVID at this point is heavily weighted to the first half of the year. As I look at where we exit the year in 2022, the margins are in the low-60s on the gross margin and low-30s on the operating margin as we had indicated. So - and that assumes a pretty, pretty low COVID contribution as we exit the year as we planned for right now.

[Michael Watts, VP of IR and Corporate Communications]

Thank you, sir. Thanks, everybody.

[Stephen MacMillan, Chairman, President and CEO]

Thank you.

[Operator]

Thank you. This now conclude the Hologic fourth quarter 2021 conference call. Have a good evening.