Good afternoon, and welcome to Hologic's Second Quarter Fiscal 2020 Earnings Conference Call. My name is Bryce and I'm your operator for today's call. Today's conference is being recorded. [Operator Instructions]. I would now like to introduce Mike Watts, Vice President, Investor Relations and Corporate Communications to begin the call. Please go ahead..

Thank you, Bryce. Good afternoon and thanks for joining us for Hologic's Second Quarter Fiscal 2020 Earnings Call. With me today are Steve MacMillan, the company's Chairman, President and Chief Executive Officer; and Karleen Oberton, our Chief Financial Officer.

Steve and Karleen both have some prepared remarks, then we'll have a question-and-answer session. Our second quarter press release is available now on the Investors section of our website. We also will post our prepared remarks to our website shortly after we deliver them. Finally, a replay of this call will be archived through May 22.

Before we begin, I'd like to inform you that certain statements we make during this call will be forward-looking. These statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied.

Such factors include those referenced in our safe harbor statement that's included in our earnings release and in our filings with the SEC. Also during this call, we will be discussing certain non-GAAP financial measures, a reconciliation to GAAP can be found in our earnings release. One of these non-GAAP measures is organic revenue.

As a reminder, we're defining organic revenue as constant currency revenue less the divested Blood Screening and Cynosure businesses as well as the acquired SuperSonic Imagine business.

Finally, any percentage changes that we discuss will be on a year-over-year basis, and revenue growth rates will be expressed in constant currency unless otherwise noted. Now I'd like to turn the call over to Steve MacMillan, Hologic's CEO..

Thank you, Mike, and good afternoon, everyone. Let me start by stating the obvious. This is an unprecedented time for the company, our shareholders and the entire world. Therefore, we're going to structure our remarks differently today.

First, I'm going to discuss 3 strategic topics related to the COVID-19 pandemic, then hand it over to Karleen, who will cover our results and outlook. Rather than keep you in suspense, here are my key points upfront.

First, Hologic was performing exceptionally well until late March, continuing the strong momentum that has been building over the last few years. Second, as COVID-19 spread and threaten global economies, we moved quickly to mitigate the risk with a focus on cash so that our healthy fundamentals would be intact on the other side of the pandemic.

And third, as one of the world's leading molecular diagnostics firms, this is a unique moment for us to live into our purpose by providing solutions for the most important issue facing the globe today.

So while we are scaling back in some areas in the short term, we are simultaneously boosting investments in our diagnostics business to respond to the world's needs, which will make us a much stronger company on the other side of this. Obviously, it's our employees who are making this possible, and we want to take a moment to thank them.

I am so unbelievably proud of the engagement and commitment we've seen inside Hologic in the face of these challenging times.

Countless employees from all our divisions have volunteered to help with our COVID efforts, offering everything from new business ideas that keep customers safe to their own hands and feet for the packaging line in our San Diego plant. A special thanks goes out to our diagnostics team under the leadership of Kevin Thornal.

In so many ways, the work of countless current and former employees over the years has positioned us to have a massive impact when the world needs us most.

But I'd like to specifically highlight Marcos Borrell's project managers; Maurice Exner's development team; Matt Friedenberg's instrument group; Kathy Chester's regulatory team; Dave Tyler's manufacturing organization; and Keith Gantner's commercial team.

Someday, you'll look back on this as one of the highlights of your professional careers, mainly because the world has never needed you more. We'll catch up on sleep when we reach the other side, which we will. With that introduction, now let me turn to those 3 key points.

First, we were performing exceptionally well until late March, continuing the strong momentum that's been building over the last few years. This is important because women's health needs are not going away due to COVID-19 and we'll still be a market leader on the other side of the pandemic. Our growth strategies will continue to pay off.

We'll keep leveraging our strong U.S. commercial positions in breast health, diagnostics and surgical. We'll keep growing internationally across all our franchises. We'll keep investing in innovative research and development that drives new product growth, and we'll keep boosting our growth rate through tuck-in acquisitions.

As we said in our earnings release, organic revenue growth was 5.2% through the end of February and we were on pace for another beat-and-raise quarter. Three areas drove our growth in the second quarter. First, global molecular revenue increased 14.2%, the highest growth rate since 2012.

This included only about $3.4 million of assay revenue related to our COVID test. Excluding this, the business still grew more than 12% as we continue to layer additional tests including now our COVID assays onto our Panther installed base. Make no mistake about it, our Molecular Diagnostics business is on a roll on a global basis.

Second, sales in our European region grew by a whopping 20.8% for the second quarter, excluding the divested Cynosure business. An outstanding performance by Jan Verstreken's team. Diagnostics led the way in the quarter, driven by cervical cancer co-testing in Germany and viral load testing in Africa.

But Breast Health and Surgical also posted low double-digit growth. Third, U.S. Surgical was incredibly strong for most of the quarter, up 14.7% in the first two months, building on recent acceleration and on pace to be an exceptional quarter. For the full quarter, U.S. Surgical still managed to grow 3.1% despite a significant decline in March.

Now let me turn to our second key point. As COVID-19 spread and threaten global economies in March, we moved quickly to mitigate the risk with a focus on cash. Our primary goal was to ensure that our healthy fundamentals would still be intact on the other side of the pandemic. I'd like to highlight several actions in this regard.

First, our efforts to strengthen our balance sheet over the last several years prepared us well to face the COVID crisis. For example, several years ago, we established a $1.5 billion revolving credit line, with a very attractive interest rate and covenants that are usually seen only with investment-grade companies.

As the pandemic rapidly spread, we moved quickly to borrow $750 million from this line of credit, both to prepare for lower future cash flows and to pay off our $250 million accounts receivable securitization program. We wanted to act early and be at the front of the line with our bank partners. We also suspended our share buyback activities in March.

Before then however, we completed our previously announced ASR and also repurchased 5.9 million shares for $267.6 million, which we believe will be an excellent investment over the long term.

Second, we moved quickly and decisively to reduce operating expenses through a combination of actions, hopefully temporary, that were specific to each division, function and geography across the company.

Based on the needs of each business, we eliminated temporary employees and contractors, furloughed employees and temporarily shut down or shortened work weeks at several of our manufacturing plants. In other areas, we implemented broad pay reductions.

We cut salaries for me and the Board by 50%, for our global leadership team by 25% and for other salaried employees by roughly 10%. At the same time, we made conscious decisions to preserve 401(k) matches and actually supplement the compensation of those salespeople who would normally receive 100% of their pay through commissions.

Our goals were to keep our good people, reduce outright layoffs as much as possible and be in a position to emerge quickly on the other side of the pandemic. In total, these and other actions should help us temporarily reduce operating expenses compared to the second quarter run rate by almost $40 million in the third quarter.

Going forward, we intend to continue managing discretionary spending closely, while still taking care of our employees and funding future growth initiatives, such as boosting capital expenditures to ramp up our COVID manufacturing capacity. Which brings us to our third major topic.

As one of the world's leading molecular diagnostics firms, this is a special moment in time for us to live into our corporate purpose and become a much stronger company in the process. Building on the success we've had over the last several years, in placing Panther instruments around the world.

We are in a unique position to help fight the coronavirus by providing the molecular testing that's needed to preserve human health as well as reopen our economies. And our efforts could provide a significant positive offset to pressures elsewhere in our business.

When the genetic sequence of the SARS-CoV-2 virus was published in January, our scientists immediately jumped on it, just as they did when H1N1 influenza and the Zika virus emerged in the past. Our focus then was on speed. We wanted to get a test to market as soon as possible.

With support from BARDA, we were able to secure emergency use authorization for our assay in about 2 months. We chose to develop a PCR-based test for a few reasons. First, it was faster as we leveraged the Open Access software that was previously written for the Fusion module.

Second, we sell PCR-based test for influenza and other respiratory viruses that run on the Fusion side of our instrument. These viruses can cause symptoms that resemble COVID-19 disease so we wanted to give labs the capability to test a single patient sample for multiple targets.

Third, there was a clear regulatory pathway for assays based on PCR, which is the backbone of most existing respiratory tests and the first couple of COVID assays.

Today, we have all come to understand that a real key to controlling this disease and getting people back to work is delivering fast, highly accurate test results on a truly unprecedented scale. Let me focus on that word results. Many investors have asked us why U.S.

testing volumes are still limited, even as the diagnostics industry is producing more tests. One reason is that many of these tests are run on manual or semi-automated systems, putting a tremendous strain on lab technicians who are in short supply to begin with. Some of these systems require reagents from multiple vendors, which have been limited.

In addition, while point-of-care tests have an important role to play against the pandemic, they can't be done in high volumes. In fact, high-volume testing has been concentrated in a relatively small number of labs, which can lead to longer turnaround times and backlogs.

For all these reasons, we quickly dedicated enormous resources to develop a second COVID test to run on the base Panther system, using our proprietary Aptima technologies, including transcription-mediated amplification, which is an alternative to PCR.

Our lab customers already use these Aptima technologies to perform tens of millions of molecular tests a year for sexually transmitted infections, cervical cancer screening and virology. There are 2 major advantages to this approach, which is again, being supported by BARDA, this time with about $13 million.

First, because our supply chain has been scaled to produce massive numbers of Aptima tests for other infectious diseases, we can now redirect these manufacturing resources to produce large quantities of coronavirus assays.

Specifically, we expect to provide our lab customers about 3 million Aptima tests next week -- yes, 3 million -- and are planning to produce at least 1 million tests a week starting in late May. Customers using our Aptima assays do not need to perform additional sample preparation steps or by other commercial reagents for nucleic acid extraction.

This should help reduce competition for raw materials and further increase global testing capacity.

Finally, to help alleviate shortages of commonly used sample collection swabs and transport media, we have validated our Aptima multitest swab specimen collection kit, which is used today, mainly for STD testing for use with both the Aptima and Panther Fusion SARS-CoV-2 assays.

Second, our Aptima tests run on the world's largest installed base of high throughput systems. More than 1,800 Panthers are in use globally compared to about 200 of the much newer Panther Fusion platform. You can do the simple math.

This is almost a tenfold increase in our ability to leverage our industry-leading installed base of high throughput instruments. This means that more hospital, public health and reference lab customers can apply the power of full automation to coronavirus testing.

This automation reduces hands-on time and the potential for manual error, and helps reduce the labor bottlenecks that have emerged given the unprecedented volume of COVID tests needed. So our lab customers will be able to deliver more results when and where they are needed.

Adding a COVID assay to the Panther menu provides a unique opportunity to turbocharge the strategy we have been pursuing in molecular diagnostics for years.

COVID testing will help us place more Panthers, both in the United States and overseas, and also drive higher assay utilization on the systems that are already in the field, and it will accelerate the positive change in diagnostics that we've previously discussed, as we move from being the leader in STDs to a much stronger position as a broad-based molecular diagnostics leader with strong customer partnerships.

Before I turn it over to Karleen, let me conclude by saying that in these unprecedented times, our purpose, passion and promise remains steadfast. Our purpose is to help enable healthier lives everywhere, every day. Never has that been more relevant than today as we battle a global pandemic. Our passion is to become global champions for women's health.

Obviously, women are affected by COVID-19, but when the pandemic is under control, demand for our market-leading products and services will come back. Early detection of diseases like breast and cervical cancer will always be important.

And our promise is rooted in what we call The Science of Sure, providing highly accurate, differentiated products, which has never been more important than when combating a public health crisis.

As difficult as the current environment is, I have never been more energized about our chance to play a major role in the toughest issue facing the world today while knowing that our efforts today are also strengthening us for the future. Now let me turn the call over to Karleen..

Thank you, Steve, and good afternoon, everyone. In my remarks today, I'm going to provide an overview of our divisional sales results, walk through the rest of our income statement, briefly touch on our overall financial condition and discuss some expectations for the future.

Unless otherwise noted, my remarks will focus on non-GAAP results, and percentage changes will be on a year-over-year basis and constant currency. Let me start by summarizing our second quarter results. Revenue of $756.1 million declined 7.1% due to the divestiture of Cynosure.

Organically, we grew 1.1% despite the impact of COVID-19 pandemic late in the quarter. EPS of $0.57 was below our expectations, commensurate with the decrease in revenue but basically flat compared to a year ago. Now I will provide some more detail on our divisional revenue results.

Diagnostics became our largest division in the second quarter by growing a strong 8.3%, despite a substantial decrease in demand in late March. Cytology had a good quarter internationally, driven by Germany's decision to adopt co-testing for cervical cancer screening. But the primary growth driver was Molecular, as it has been for many quarters.

International sales were exceptionally strong, based in part on the continued uptake of viral load assays in Africa. The U.S. business performed very well, even when you exclude sales of our COVID assay on Panther Fusion, which were only $3.4 million in the quarter.

In Breast Health, underlying trends were solid, and the division performed well through most of the quarter.

However, gantries, accessories and 3D upgrade volumes were substantially impacted as a result of COVID-19 disruptions late in March, as our customers focus on responding to the pandemic and our field service engineers weren't allowed to install new products.

Given these factors, global Breast Health sales of $307.8 million decreased 3.7%, excluding $5.8 million of sales from SuperSonic Imagine, global sales decreased 5.5%. In Surgical, Steve already pointed out that the team was crushing at through most of March, especially in the United States.

However, like most companies, we saw a significant impact to demand in late March as elective procedures were postponed. Despite this, the business still grew 3.6% for the full quarter based on the excellent momentum we had in January and February.

Overall, in terms of geography, domestic sales of $574.9 million were down 1% on an organic basis and down 6.6% on a reported basis due to the Cynosure divestiture. Outside the United States, reported sales of $181.2 million decreased 8.6% but revenue increased 8.4% organically, reflecting the strong foundations we have built for sustainable growth.

As Steve noted, this growth was primarily driven by our European and Canadian franchises. Not surprisingly, sales in Asia Pacific were negatively affected by COVID, especially in China. Moving on to our P&L for the second quarter.

Gross margin of 61% was actually flat compared to the prior year period, as benefits from the Cynosure divestiture were offset by lower sales due to the COVID-19 pandemic, unfavorable product sales mix, and to a lesser extent, the strong U.S. dollar.

Total operating expenses of $222.5 million decreased 18.4% in the second quarter, which was primarily driven by the divestiture of Cynosure. In addition, the decline in equity markets reduced expenses associated with our deferred compensation plan as the liability is marked to market.

Finally, as Steve said, we did begin to reduce discretionary costs in late March as the negative effects of COVID-19 became more clear. As a result, operating margin of 31.5% increased 380 basis points. Overall, our profitability remains very healthy.

Net margin of 20% increased 100 basis points compared to the prior year period, with the benefits I just discussed, partially offset by a higher effective tax rate. This resulted from an unfavorable divisional and geographic mix of income, primarily as a result of the COVID-19 pandemic.

All this led to non-GAAP net income of $150.9 million and non-GAAP earnings per share of $0.57, commensurate with our lower-than-expected revenue. Finally, ROIC was 12.5% on a trailing 12-month basis, an increase of 20 basis points over the prior year. Adjusted EBITDA was $248.3 million, which decreased 2.3% compared to the prior year.

Moving on, I'd like to briefly discuss our overall financial condition as we navigate through these uncertain times. The COVID-19 pandemic is a vivid reminder of how and how fast unforeseen events can change our economic environment.

But even in this context, Hologic's financial position is strong because we have put a heavy emphasis on debt reduction and cash flow generation over the last several years.

Maintaining a conservative liquidity posture is even more important during these challenging times as we focus on taking care of our employees, ensuring our products remain available to our customers and patients, and investing in critical COVID-19 diagnostics testing.

At the end of the second quarter, our leverage ratio stood at 2.6x and we had approximately $800 million of cash and equivalents. The actions we have taken to reduce expenses, which Steve discussed, have put us in a strong position to weather a wide range of potential outcomes that may emerge over the coming months related to COVID-19.

Before we open the call for questions, I would like to discuss our expectations for the second half of fiscal 2020. As a reminder, we withdrew our formal financial guidance when we preannounced quarterly revenue earlier this month. To state the obvious, the market environment is very fluid and unpredictable today.

Our future results will be highly dependent on what the virus does and how successful global containment efforts are. But I want to clearly emphasize that we believe we are well prepared for either extreme scenario, a strong recovery or a prolonged downturn.

That said, to give you a sense of the magnitude of the effect that COVID-19 has had on our business, we expect organic sales in our fiscal April to be down 45% to 50% from the prior year period, excluding sales of our COVID test on Panther Fusion, which we'll come back to in a second.

We are planning for our base business to be down by a similar percentage for the full quarter. Again, excluding our own COVID assay sales since April sales probably benefited a little from our strength through most of March. By planning for a significant downturn and being ready for it, we believe we prepare appropriately for an uncertain time.

By division, we believe that Surgical will be the hardest hit by COVID in the short term. In April, for example, global Surgical sales are expected to be down about 85% compared to the prior year period.

We believe this business will begin to improve soon based on both the clinical need and the desire of our hospital customers to shore up their finances by addressing pent-up demand. In Breast and Skeletal Health, April sales will be down more than 30% compared to the prior year period.

Recurring revenues such as service should compensate somewhat for a steeper decline in capital sales, reflecting the diversification strategy that we have been pursuing for several years. We have recently seen access restrictions loosening somewhat, so we are optimistic that conditions will improve gradually going forward.

The pace of this recovery, however, is uncertain as it's hard to predict how long a general economic downturn will affect capital investments by customers.

While recovery could take a while, it's worth emphasizing that our Breast business has become far less capital dependent in recent years as we increase service and other recurring revenue across the full continuum of breast health care.

In Diagnostics, sales of our core women's health tests have fallen significantly as routine screening has been put on hold. April sales, as a result, are expected to be down about 45%, excluding sales of our Panther Fusion COVID assay.

It's worth noting that the strength we've seen internationally in the areas like viral load testing should slightly offset the negative impact of COVID on our women's health assays.

Our own COVID test, especially the new TMA assay on Panther, could represent a significant positive offset to the pressures we are experiencing in our other parts of our business. We know that in the near term, demand for our COVID assays is very high as testing is essential to get people back to work and reopen economies.

And as we said in our press release, the combination of our large TMA manufacturing capacity with our Panther installed base can help labs deliver test results when and where they are needed. We could generate $150 million or more of COVID sales in our third fiscal quarter.

In the future, we believe that significant levels of testing will continue to be needed worldwide. But it's impossible to predict the exact quantity and duration at this stage. So from a revenue perspective going forward, we will continue to watch the interplay between recovery in our base businesses in COVID test volumes.

We are hopeful that most of our businesses will get back to normal in the first half of our fiscal 2021. But if not, we believe we have significant offsets in terms of our own testing volumes.

But if our base franchises gradually improve over the next several quarters and COVID revenues remain high, there's at least the potential that our results could be exceptionally strong. We are making plans to significantly increase our manufacturing capacity to prepare for this possibility.

Before we open the call for questions, let me conclude by saying that even in these uncertain times, the fundamentals of our business are strong as is our financial condition.

Although COVID-19 will continue to negatively affect most of our business, our efforts to develop and manufacture molecular diagnostics test to fight the pandemic could represent a significant offset that will help us emerge a stronger company in the long run. With that, I will ask the operator to open the call for questions. [Operator Instructions].

Operator, we are ready for the first question..

[Operator Instructions]. We'll now take our first question from Tycho Peterson at JP Morgan..

Steve, congrats on getting the new COVID test out. You highlighted the large installed base.

I'm just curious about how you think about COVID driving incremental Panther placements, particularly on the hospital side, given the push toward more on-site testing? And then for the follow-up, I assume serology is not a focus given the divestiture of the Blood Screening business, but I'm curious if that's something you would consider?.

Yes. Thanks, Tycho. And by the way, Tony and the rest of the guys at the warehouse are busting their butts right now. So -- and part of it is on Panthers. We have, as you can imagine, getting a significant increase in interest in Panthers around the world. And I think everybody is realizing just what an incredible platform it is.

So as a reminder, folks, we've been placing about 200 to 250 Panthers a year. Generally in that, call it, 20-ish a month.

We are also scaling capacity right now for Panthers, they're much longer lead times but we're having significant additional requests, particularly as well, frankly, from departments of health, some of the additional labs from hospitals, but it's across the board and including even the largest reference labs.

So it's almost across the board, people wanting to get even more access to capacity. On the serology piece, to your second part, yes, don't expect us to really do anything there. We're not sure we bring anything to the party in that game. We're just putting all of our resources in the molecular world that we know so well..

We'll now take our next question from Patrick Donnelly at Citi..

Steve, maybe a follow-up there, talking about the significant increase in interest in Panthers. I guess there's a bit of a debate out there.

Does this pandemic fundamentally change kind of the diagnostics market on the other side of this, you might see a broad increase in testing? I guess what's your guys view on the diagnostics side that you feel like you're getting out in front of customers you didn't have the opportunity to before and you could get integrated with some new systems and all of a sudden, on the other side of this, Hologic was great during COVID.

Now why don't we use them for a bunch of other testing? What's your view for the Diagnostics business as we get to the other side of this one?.

I'll try to answer this real simply because it's an incredibly insightful question, Patrick. We've never had more calls from people wanting our products. And I mean this on a very global basis, right to various regions within European countries, particularly, frankly, all across Europe but also wildly in the U.S.

We've literally been in touch with virtually every governor's office. It seems like half of Congress, obviously, with the White House Task Force on a daily basis, the Department of Defense, it's been mind blowing in terms of the interest, really just since we launched the PCR assay.

And Kevin Thornal, our commercial teams and our European teams, even the Asia Pac teams, right down to the Prime Minister in New Zealand, I mean we've got everybody reaching out to us and it is elevating our profile to a very different level than anything we've ever experienced.

And there is zero doubt in my mind that's absolutely creating a tremendous runway for us coming out of this..

Okay. And then maybe just a quick follow-up on the Breast Health side. I know you talked about, obviously, volumes are very hard to predict there and the recurring revenue is a bigger piece of the business for you guys now.

I guess how quickly do you think this could come back again on the other side of COVID? I mean do you expect women to be a bit reluctant to come back into the doctor's office? Or do you think things could ramp pretty quickly?.

Yes. I think it's still an evolving piece, Patrick. I think -- frankly, our orders were positive in the quarter. We had a tremendous Breast Health orders quarter. I do worry and having lived through the '08-'09 downturn, where I know a lot of the hospitals and the radiology suites, they want new capital.

I'm sure in a month or 2, as things start to settle back down, you know hospital CFOs are going to go back through their CapEx with a fine tooth comb and do some of those get pushed out. I think if we're a betting person, I think Breast Health will probably be a little slower to come back because of that.

Now the positive for us is, remember, we don't really get paid on a -- even as the patients take a little time to get back in, we've got the capital sales and then the recurring revenue in a lot of cases, really from service and those kinds of things. So it probably won't go down quite as deeply but it will probably be a longer road back..

Yes. I would just add to kind of remind folks that the U.S. gantries, the U.S. capital is only about 21% of the total divisional revenue at this point in time..

We'll now take our next question from Brian Weinstein at William Blair..

Congrats on the progress that you guys made with this new assay. Should we be thinking about an ASP similar to what you saw in Fusion on a worldwide basis here? And then I think Karleen was kind of talking about this a little bit, the ability to manufacture.

Should we be thinking about this level of manufacturing even when core Aptima kind of comes back? Or will there need to be some sort of a trade off there?.

Great question, Brian. And I think as we look forward, certainly, some of this will be volume dependent, but we've been building our capacity to be able to serve, even as the core business comes back to also be able to meet these demands. So it's -- we're looking at our total capacity to be able to deliver on this..

Yes. And I would just say, we have, as Steve made meaningful investments in capital to do that, so that we don't have to make those trade offs..

And then on that ASP, around 25%, is that how we should be thinking about it?.

Yes. I'd probably go just a little below that, probably when you think about a global weighted ASP..

Okay. And then a final question here. I know you mentioned not being involved in serology and that makes sense.

But is there an opportunity here for you to participate in viral load? We're seeing much more literature about viral load being used to determine kind of where somebody is in the course of the COVID-19 infection or maybe using viral load to trying to determine how severe that infection might be.

Is the team working on anything there? Is that an opportunity for you guys, given your presence there?.

It's not a focus at this point. We've been so locked and loaded on trying to realize this major testing opportunity, which we think is going to be the single biggest need to really get people back to work and everything else.

But like everything else, as we get this out the door and as the science continues to evolve, our team will be looking at the areas that do make some sense for us. And that one clearly would be closer in, but nothing under progress at this point or nothing under development at this point, to be honest..

We'll now take our next question from Doug Schenkel at Cowen..

Steve, and I'll echo what others have said, thanks to you and the team for moving so quickly with more solutions in the midst of the pandemic.

The first thing I want to touch on is -- and this has kind of been alluded to in some of the other questions, there are clinical labs that we've talked to and we've read about that have talked about molecular systems, being hard to get and oftentimes being on back order.

We know you've been placing around 200 Panthers per year and that's separate from the pandemic. I guess the question is, what is capacity for Panthers? And for that matter, Fusions to add on to existing Panthers? And then I guess that's really the first part.

I guess another question is, is it possible -- I just don't remember, is it possible to run Panther and Fusion assays simultaneously? So why don't I pause there on those questions?.

Sure. On the second part, yes, you can run Panther and Fusion simultaneously. In terms of supply, I think part of the reason, frankly, that Dr. Birx and the government are so excited that we're a little bit of the cavalry coming to the rescue here is we already have the systems everywhere.

We're the only folks that have high throughput systems in all 50 states. So while there were a lot of tests that were approved and suddenly people are scrambling for equipment, I think we feel pretty good that we've already got this massive installed base that's been building over the last 6, 7 years as opposed to this mass scramble now.

Can we supplement it? Are we getting additional requests? Yes. But fundamentally, we can ship 3 million tests next week. And the capacity is already there to be able to produce -- to be able to run those..

Yes. Yes. No, that's a great point. Okay. And then I know there's been some other questions about adjacencies that you might be able to move into to do more than you're already doing, which again, is great. But I guess one thing I'm wondering is as we think about reopening in the U.S.

and broadly, there's a lot of talk about the need to not just run a lot more tests but potentially to move closer to point of care, especially when it comes to things like using molecular test as part of getting folks back to work for some employers.

Is there any opportunity for you guys to do something there? I mean I know it would be herculean to move quickly on like a smaller Aptima-based system for use in smaller labs.

But I'm just wondering, is there anything that was maybe already going there that could be expedited to allow you to play a bigger role in that need?.

Yes, Doug, I think, again, the best thing we have going for us is already the installed base that we have out there. It's hard to underscore the people over 1,000 of these systems in the United States. So let's just take an example, Northwell hospital or the more than 400 of these that are already in the hospitals.

One of the key areas to keeping our health care workers safe is making sure that they're all tested on a regular basis. So picture this. Most of the hospitals that already have these employees at the end of the day could all be tested. The test can be run overnight and in the morning, they know if somebody shouldn't show up for work.

The same can be true in so many decentralized areas, even companies around, not necessarily via us, but there's going to be labs all over the place, very close that we'll be able to run these things.

So it's back to -- it's not point -- let's be very clear, we are not point of care, but we are able to run a whole bunch of tests in a very local geography.

So to a large degree, again, if somebody wants to do a drive-through, pop-up thing, there's generally a Panther not too far away that they should be able to access through either a hospital lab, one of the reference labs or even the departments of health within their states.

So again, we -- do we wish we had even more? Yes, but it's already an incredible installed base that again, nobody else has had.

When you look at the marketplace, you got point-of-care on one end and you've got the massive systems in a centralized reference lab at the other end, which you have not had is the ability to have high throughput testing close to the patient to be able to deliver those results where and when they're needed, not a week later..

We'll now take our next question from Ivy Ma at Bank of America..

Congrats on the new test. So first question is we've seen estimates from anywhere just on the broad testing market, the need for like anywhere 50,000 -- 500,000 molecular test a day and up to 1 million a day just throwing around in the news these days.

So just wanted to get your thoughts on what sort of capacity expectations or need expectations you are eventually planning for since there are plans to get to -- to make investment to increase that by the fall. So first part of this question is just on what you think the ultimate testing need will be and how long the duration of that is.

And this goes into a question about where you think your ultimate market share would be..

Sure, Ivy. I'll start backwards.

In terms of market share, we're not really focused on that the way we typically are because I think we're all rooting -- it's a unique time in the world where I think we're less about competing against each other and more all trying to race to create enough capacity to help not just this country but help the world get back to work, which kind of gets back to the first part of your question.

There are so many unknowns. Come the fall, are we running 500,000 tests a day. Are we running 200,000 tests a day, we're running 3 million tests a day in the U.S. It's just so hard to know at this point in time. We are planning to continue to invest in capacity.

Candidly, one of the biggest rate-limiting steps for us is our very unique cap system, which is what makes our system so highly automated. We're building more cap machines. These things typically take 18 months to build. We've got people working around the clock to try to build them and call it a 6-month time frame.

So we want to be prepared to bring on even more capacity later in the fall, ahead of the next flu season in the Northern Hemisphere because we do believe the way we look at it is, next year, when anybody -- there's any outbreak of flu or anything as soon as somebody coughs we're going to be wanting to be testing them just for regular flu as well as for COVID.

So we want to have even more capacity online by the fall. But I don't really want to get into giving specific numbers..

Great. Appreciate sharing the color. I know there's a lot of unknowns around this. So just a follow-up on serology. There's clearly a lot of serology testing capacity in the U.S., maybe more than that is in molecular.

So I'm just curious how you see the market demand evolving going forward in terms of the split between molecular and serologic testing, especially when we're thinking more about getting people back to work?.

Yes.

At the end of the day, we view there's going to be a massive need for diagnostic testing because at the end of -- even in a serology world, first off, there's so many unknowns with serology, as you well know, just because you may have some antibodies and it may appear -- are you really immune to others? There's just a lot of uncertainties to it and it's still going to be only a percentage of the population.

At the end of the day, what is going to be critically important to getting people confident to go back into the workplace, to get to back to where we can have everybody back in school, have people traveling on airplanes again, has got to be a robust testing real-time capability. And that plays to our strength. That's where our focus is.

And again, how big the serology market becomes on that end, we don't know but we frankly think there's enough for us to play in, in the area that we know a lot about..

We'll now be taking our next question from Raj Denhoy at Jefferies..

This is Anthony for Raj, and I'll second and third the congratulations here. It's unbelievable work you guys have done.

Maybe Scott -- Steve, just a question on something you mentioned in your prepared remarks, just in terms of the availability of viral transport medium swabs as you scale on Panther, the SARS-CoV-2 test on Panther as opposed to Fusion, how much of a limitation is that? Is there an opportunity for Hologic to actually bundle there? And then the second quick follow-up would be just any thoughts on the Boston Scientific announcement today on the sale of their intrauterine portfolio to Minerva? What are the implications for NovaSure?.

Anthony, say hi to Raj for us, too. As it relates to the swab, the magic that we referenced, obviously, is we're -- we've qualified our Aptima swab to be used along with us.

So the great part about it is we basically have some degree, it's a closed system, we can ship the swab and the vials together, boom, they test, use our swab and they're ready to go. So we're providing the customer with effectively a complete package. And I think that's going to dramatically streamline.

I think it's hard for people that aren't close to these to fully understand the incredible workflow efficiencies that come from using the Aptima system all the way through. So that should be a huge advantage for us. On the Boston news with Minerva, I think we continue to feel really good about what our Surgical business is doing.

As we mentioned, it was up 14.7% through the first 2 months of the last quarter. Our Surgical business has just really had an incredible turnaround and strength over the last couple of years.

Clearly, Boston was not -- they're an incredibly successful company and having a challenge in that space with those products, I think our team is quite happy to see whoever is out there and continue to fight. So we think we've got better products and a better sales team..

We'll now take our next question from David Lewis at Morgan Stanley..

Two testing questions for me, one for Karleen and one for Steve. So clearly, I just wanted to net out some math here for the third quarter. So if I just assume capacity for a second here, we have roughly $45 million of Fusion sales, maybe $75 million in that bolus Panther order.

You get to 1 million test per week at the end of May, so it's kind of 1 million tests a week in June, that's another, obviously, kind of $100 million.

And then if I just adjust that ASP below 25% and assume kind of a 20%, 30% cannibalization rate on the core platform, does that kind of get me close to $150 million? Anything materially off in that math?.

Yes. I would say that the 1 million per week is an average. So with lot -- this product is built in lot, so we may not actually ship 1 million each week. But yes, that probably gets you pretty close..

Okay. And then, Steve, I think getting Panther out there can be underestimated from sort of public health perspective. I want you to just sort of share your thoughts.

There's been significant barriers to testing, reagents, nasal swabs and then general protocols and infrastructure, I would sort of call it, and yet 5 days ago, we have 300,000 tests a day and then yesterday, we had 200,000 tests. So reagents are coming on but the test numbers haven't gone in the right direction.

As you think about the infrastructure and these barriers that have been addressed, just wondering if you could share your thoughts with us about do you think all the barriers have been addressed out there? And what are some of the outstanding barriers that are sort of creating this disconnect between capacity and then usable test? And great work on this..

Sure, David. And I think the way to think about the barriers that you're getting to is, I think one of the biggest barriers, let's face it, just in normal day-to-day activities has been people who feel like they should be tested to actually getting tests.

And so I think they've -- all of the states, all the hospitals, all the doctors have been fairly restrictive in allowing people to get tested. You've had to fight through hoops and everything just to get a test because the supply was so constrained.

So I think one of the magical things that may start to happen right now is as people start to get more comfortable that there's -- the supply is really starting to ramp up, I think we will start to see a little bit more of the loosening of the gauntlet that a patient has to run through to get tested.

And I think as we start to open that up, to me, the magic of that will be, we'll start to get truly more tests out there. The ability of the people on the front line just to administer the swabs, so I think, again, in our case, we're going to have the swabs.

You don't need separate transport media when it gets to the lab, you don't need somebody to extract it from the transport media, put it into another vial. So there's an incredible -- and I think you understand as well, there's an incredible efficiency on that side. So I think it's like everything, even in another week, things will start to go out.

You know what we know that Dr. Birx and her team are in touch with all the public health labs, letting people know where we're coming. There's incredible excitement there. I think those things will, I think, help to finally unlock. It's not going to be the unlock, but I think the progress there will really start to see coming in a big way..

Operator, I think we have time for maybe two more questions, if we can be quick..

Yes. And we'll now be taking our next question from Dan Leonard at Wells Fargo..

So I'll just ask one. Steve, you've talked a lot about the Aptima test for COVID. As we think about 12 months down the road, your Fusion is about 10% of your Panther total installed base.

Does that ratio meaningfully change, post this pandemic? Do you see yourself having a much higher proportion of Fusions? Or is all the excitement around just the traditional Panther, not to minimize it, but just I'm curious your thoughts on that equation..

Sure, Dan. I think it will ramp up over time. If anything, it will probably take a short-term pause because we're going to be running the machines probably at a fairly hefty pace. Nobody's going to even want to shut one down to accommodate adding a Fusion onto the side.

And now with the TMA assay out there, they frankly can manage without it for a while. So I think we'll continue to build it over time.

Mike, did you want to add something?.

Yes. Dan, the only thing I would say is once we get into the fall and the winter with the flu season and you get kind of intermingled virus in order to be able to test for both, you do need a Fusion. So we think that will be helpful in the medium term as well..

Yes..

We have time for one more question, operator..

All right. We'll now be taking our last question from Dan Brennan at UBS..

I guess I'll ask a question on Breast Health then. So the numbers that you gave for April and for the quarter, maybe could you parse out a little bit between, Steve, in terms of the U.S.

gantry being 20%, but how do we think about the math on that in terms of what gantries are doing, kind of service and then interventional? And then as we look out, is there any predicate for '08 and '09 that you suggested about how we might look further out beyond the next quarter or 2 and how hospital CFOs might react?.

Sure. We're kind of describing this internally as everybody talks about Vs, Ws, Ls, use whatever in terms of recovery. We're describing it as kind of a checkmark, a sharp down and then certainly coming back, I think nicely, it will be probably a little jagged there on the way back up.

But I think what we see and we feel really good about the Breast Health business overall that it has become so much more diversified. But the capital will probably be lagging a little bit as it comes back. And then the flip side is, in the grand scheme, our capital purchases are also not a huge amount for any given hospital system.

So we're not totally sure, but we feel really good that we're going to be able to work with our customers to have it coming back online. But I would -- I think we'll be back by a year from now but I wouldn't expect to be back in the next couple of quarters.

Karleen?.

Yes. And I would just add, the biggest component of revenue for that business is the service business. So this stability within foundationally for that division was that recurring revenue..

Great. Thank you, everybody..

Thank you. And that is all the time we have for questions today. This now concludes Hologic's Second Quarter Fiscal 2020 Earnings Conference Call. Have a good evening..